SMSF investment strategy: what the law requires and what a good one covers

The investment strategy is the document most trustees sign once and forget. It's also one of the documents auditors raise most often, because it's easy to check: does it exist, does it cover what the law says, has it been reviewed, and does it match what the fund holds?

This guide explains the legal requirement, what a strategy needs to cover, how to deal with insurance and concentrated holdings, when to review it, and the mistakes we see. It doesn't tell you how to invest. That's financial product advice, and it comes from a licensed financial adviser. What we do is make sure the document does its legal job and lines up with the fund's accounts.

Is an SMSF investment strategy a legal requirement?

Yes. Two parts of super law work together:

• The trustee covenants in section 52B of the Superannuation Industry (Supervision) Act 1993 require the trustees to formulate, regularly review and give effect to an investment strategy.
• Regulation 4.09 of the SIS Regulations is an operating standard that sets out what the strategy must consider and requires it to be reviewed regularly.

Breaching an operating standard can attract an administrative penalty of 20 penalty units for each individual trustee (or once, shared by the directors of a corporate trustee). At $364 a unit from 1 July 2026, that's $7,280 per trustee, paid personally, not from the fund. The auditor checks the strategy every year and can report failures to the ATO.

What must an SMSF investment strategy include?

The strategy has to show the trustees considered the whole circumstances of the fund, including:

It should be in writing, specific to the fund, and signed or minuted by every trustee.

Ranges need reasons

Many strategies list asset classes with a 0–100% range for each. The ATO has said that's not valid on its own. Broad ranges are allowed, but the strategy has to explain how the fund will invest within them and why the ranges suit the fund. If you don't set allocation ranges, list the material assets the fund holds or plans to hold and explain why they support the members' retirement goals.

Illustrative only: what "specific" looks like. These aren't recommendations; they show the difference in detail.

The figures in a real strategy come from your adviser and your fund's numbers.

How should an investment strategy document be set out?

There's no prescribed form. A layout that works well for most funds, and that auditors find easy to follow, has eight short parts:

1. Fund and members. The fund's name, the trustees, and each member's age, work status, phase (accumulation or pension) and expected retirement timing.
2. Objectives. What the fund is trying to achieve: for example, growth for a member a decade from retirement, or reliable income for a member drawing a pension. Put a return target in plain terms if you have one, and say how it relates to inflation.
3. Risk. How much short-term volatility the trustees will accept, and why that suits the members.
4. Asset allocation. The asset classes the fund may hold, the ranges, and the reasons for them. Name material assets such as a property or unit trust.
5. Diversification. Whether the fund is diversified and, if not, why the trustees accept that and how they manage the risk.
6. Liquidity and cash flow. Expected outgoings for the next 12 months (pensions, loan repayments, tax, fees) and where the cash will come from.
7. Insurance. For each member, whether the fund holds cover, and the reasons either way.
8. Review. When the strategy will next be reviewed, the events that trigger an earlier review, and the trustees' signatures and date.

Keep it short enough that the trustees actually read it. Three or four pages written for your fund beat twenty pages of boilerplate.

Strategies for funds in pension phase

When members are drawing pensions, cash flow becomes the strategy's main job. The fund must pay at least the minimum each year, in cash, by 30 June, and the minimum rises with age. A strategy for a pension-phase fund should show how much cash or readily saleable assets the fund will keep to cover at least the next year's payments, and what the trustees will sell, and when, if markets fall. Our guide to SMSF pensions sets out the minimum payment rules.

What if most of the fund is in one asset?

It's common for an SMSF to hold one large asset, usually property. The law doesn't prohibit it, but the strategy must show the trustees thought about the risk. The ATO expects to see:

• that the trustees considered the risks of not diversifying
• how the fund will still meet its return objectives
• how the fund will meet its cash flow needs: expenses, loan repayments, pension payments and lump sums
• what happens if the asset loses value or income stops, for example if a tenant leaves or interest rates rise

Borrowing makes concentration riskier. With a limited recourse borrowing arrangement, a fall in value or a missed repayment can force a sale. Since 10 August 2026, a new LRBA over real property must be for business real property, so this mostly affects commercial property now. Our guides to SMSF property and SMSF borrowing cover the rules around those assets.

Watch out: A fund with one property and members in, or close to, pension phase needs to show where the cash for minimum pension payments will come from each year. Rent alone may not be enough, and pensions can't be paid by transferring part of a property.

Does the investment strategy have to deal with insurance?

Yes, but the requirement is to consider insurance, not to hold it. The trustees must consider whether the fund should hold insurance cover for each member and record the decision and the reasons. Examples:

• the member already has adequate cover elsewhere, through their old fund or personally
• the member is retired, with no dependants who rely on their income
• cover was considered too expensive, or wasn't available because of health

If the fund does hold cover, it's limited to what fits super: death, terminal medical condition, and permanent or temporary incapacity. Trauma cover generally isn't allowed. The policy must pay benefits to the fund, the proceeds become fund assets until a member meets a condition of release, and the policy can't be bought to benefit someone else.

Whether any member should have cover, and how much, is a question for a licensed financial adviser. Our job is to make sure the decision is recorded and the premiums and proceeds are accounted for properly.

How often must the investment strategy be reviewed?

The ATO expects a review at least once a year, and the review needs to be documented, usually in the annual trustee minutes. Also review it when something significant happens, such as:

If the review finds the strategy is still right, minute that. If the fund has drifted outside it, either rebalance or update the strategy with reasons, then follow the updated version.

What do auditors look for in an investment strategy?

The auditor isn't judging whether your investments were good. They check that:

1. a written strategy exists and was in place during the year
2. it covers the matters the law requires, including insurance
3. it's specific to the fund, not a copy of the legislation
4. it was reviewed during the year, with evidence
5. the fund's actual investments fall within it

If the strategy falls short, the ATO's guidance is that trustees can attach a signed and dated addendum or a trustee minute to fix the content, and show it to the auditor before the audit is finished. If the fund didn't follow its strategy, revise the strategy and follow the new one. Our SMSF audit guide explains what happens when issues are reported.

What investment strategy mistakes do we see most?

• The setup-day template, never touched again. Often still describing a fund that no longer exists.
• 0–100% for everything with no explanation.
• Assets the strategy doesn't mention, such as cryptocurrency, collectables or a unit trust bought later.
• No insurance consideration, or a line saying "insurance not required" with no reason.
• No liquidity plan for pensions, loan repayments or a member who's likely to take a lump sum.
• Reviews that aren't minuted. If it isn't written down, the auditor can't see it happened.
• One strategy for several funds, or a strategy copied from a family member's fund.

Does the strategy have to be separate for each member?

Not necessarily. Most funds have one strategy for the whole fund that takes each member's circumstances into account. Some trustees also run separate strategies for different members' interests, for example when one member is in pension phase and another is still working. That can work, but it needs careful accounting so each member's investments are tracked properly. Talk to your adviser about the approach, and to us about the accounting.

How we help with your investment strategy

We don't recommend investments. We do:

• check your strategy against the legal requirements and the ATO's guidance before the audit
• compare it with the fund's actual holdings at 30 June and flag any gaps
• prepare the annual review minute for the trustees to sign
• point out when an event, such as a new pension, a property purchase or a member's death, means it's time to review
• work with your licensed financial adviser so the strategy and the accounting line up

Our super and SMSF agent compares the strategy's stated ranges with the fund's year-end asset mix and drafts the list of gaps, and a qualified accountant reviews it before it reaches you. If you don't have an adviser, ASIC's Moneysmart website has a register of licensed financial advisers. Our SMSF accountant service covers this review as part of the annual work, and the self managed super fund guide maps the other rules the strategy has to sit within, including the related-party and in-house asset rules.

General information only, current as at 18 October 2026. It is not personal tax, legal or financial product advice and doesn't take your circumstances into account. Talk to us before you act. Where a recommendation needs a licensed financial adviser or a solicitor, we work alongside them.