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Having full control over where your super is invested and creating an investment strategy that aligns with your personal values, interests and investment objectives is exciting, and one of the biggest appeals of starting an SMSF. Not only will a well-documented investment strategy benefit members of the SMSF, but it is a legal requirement.
Let's take a look at why it's so important to have a clear investment strategy for your SMSF, the different types of assets you can invest in and what to consider when putting your strategy together.
How you invest your super through your SMSF will determine how much money you can retire with, and ultimately the type of lifestyle you can live throughout your retirement years. A bit of planning now could mean you retire with thousands (or hundreds of thousands!) more later.
But as well as benefiting you and the other members of your SMSF, it's also a legal obligation. Under the current super laws set by the ATO your SMSF must have an investment strategy in writing that outlines your fund's objectives and strategies for achieving those objectives. This isn't something you can do just once, you're also required to regularly review and adjust the strategy to ensure it's always meeting the needs of members and the fund's overall goals.
The objective of your SMSF is the overall goal you're trying to achieve. The ultimate purpose of any SMSF is to fund a comfortable retirement for its members. Try to be as specific as you can with your investment objective by working out how much money your SMSF will need to generate in order to fund the retirement of its members.
For example, some people might be aiming for a simple, but comfortable, retirement that won't require as much money as someone planning a retirement full of overseas travel. You can take a look at our guide on how much money you'll need in retirement to help with this.
Now it's time to put your investment strategy together. Your investment strategy should outline what your SMSF will invest in to achieve its objectives.
You have much more freedom and flexibility with your SMSF investments than you would with a standard retail or industry super fund. The range of assets your SMSF can invest in are almost unlimited. Among the most popular assets for SMSFs to invest in are Australian shares, cash and direct property (residential housing and commercial property).
Some other assets you can invest in include, but are not limited to:
Important: Share trading can be financially risky and the value of your investment can go down as well as up. “Standard brokerage” fee is the cost to trade $1,000 or less of ASX-listed shares and ETFs without any qualifications or special eligibility. If ASX shares aren’t available, the fee shown is for US shares. Where both CHESS sponsored and custodian shares are offered, we display the cheapest option.
There are some limitations around how you can invest via an SMSF. Here's some things to be aware of when developing your investment strategy:
You can invest in residential property as part of your SMSF investment strategy, but there's a few limitations to be aware of first.
The property must be bought in the name of your SMSF and kept separate to any personal assets. Investing in property has many advantages including providing rental income as well as capital gain (which means the property itself should grow in value). But there are also lots of costs involved with owning a property, including legal fees, stamp duty, maintenance fees and property management fees.
Because residential property is such a large purchase, especially in major cities like Sydney or Melbourne, you'll need to make sure a property fits within your wider investment strategy. It's a good idea to make sure you have enough funds to invest in a range of other assets too, to ensure your SMSF investments are well diversified.
Please note that very few lenders still offer SMSF home loans. A mortgage broker could help you find suitable products from specialist lenders.
Now that you know what you can and can't invest in, it's time to put your strategy into place. Here's some important things to consider when you're deciding which assets to invest in:
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