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Four steps to review your investment strategy

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Important information: Any advice and information in this publication is of a general nature only. Any general tax information provided in this publication is intended as a guide only and is based on our general understanding of taxation laws. It is not intended to be a substitute for specialised taxation advice or an assessment of an individual’s liabilities, obligations or claim entitlements that arises, or could arise, under taxation law, and we recommend that you consult a registered tax agent. WealthHub Securities Ltd.  is not a registered tax agent.
 

By Gemma Dale
 

A documented investment strategy is both a compliance requirement and a critical roadmap for determining the success of your SMSF (so long as you follow it, of course).

The temptation is to leave it in the bottom drawer after an initial flurry of enthusiasm, however any number of factors or changes to your personal circumstances may mean that it’s time to revisit this important document.
Here are four important considerations when you do undertake a review or update.


1.    Confirm your goals

Your superannuation must be invested for the sole purpose of providing for your retirement, however clearly this can mean different things to different people. Each member of the fund may have different goals; your own goals may have changed. The goals you set when you first prepared your investment strategy may no longer be relevant, or need updating.

For those in accumulation phase, ideally you will be able to specify an income target you wish to achieve in retirement (say $50,000 after tax per annum), which can assist in determining a lump sum target to invest towards.

This can be challenging, particularly if you are many years or even decades from retirement, however an online calculator can help to provide some clarity, and you can use your existing expenses to give a guide as to how much you’re likely to spend.

You can update your strategy over time as goals can and do change. Many people find their expenses reduce dramatically in their fifties if they’ve paid off a mortgage and their children leave home, which can indicate that earlier income goals were too high.

Alternatively your expenses may have increased along with your salary, and you’d like to enjoy a more comfortable retirement as a result. Review your goals accordingly, and update them if you feel it would be helpful.

For those who are in pension phase, an income target is most common, however you may also wish to consider a target return; that your portfolio will achieve a specific return over a rolling time period (e.g. three to five years). Recent market movements can lead people to over- or underestimate future returns, so it is wise to look at long term performance data to get an idea of what is realistic for the amount of risk you’re willing to take.

Finally, consider whether any members of the fund need different objectives. A fund with accumulation and pension members may require more than one investment strategy.
 

2.    Update your asset allocation

Goals are great but the strategy part is essential if you actually want to achieve them. Your asset allocation should be determined by your objectives, your timeframe, and how much risk you’re willing to take.

Firstly consider the range of assets in which you’re willing to invest. Are you only comfortable with cash, fixed income and listed assets? Do you have a preference for real estate? Are there alternative assets that you’d like to consider such as private equity? Understanding the risks of each of the asset classes should help determine whether they’re appropriate for you, and how much each should comprise of your total portfolio. When reviewing your existing asset allocation, consider whether your timeframe has changed, or if there are any reasons why your existing strategy is no longer appropriate (eg having a residential property as the sole asset of a fund in pension phase). Do your research on any investments that you do not feel confident with, and seek professional advice if you feel this aspect of managing your fund is becoming uncomfortable.

When updating your asset allocation, it is generally preferable to express a range for each asset class. The ATO will frown upon any 0-100% ranges (except, perhaps, for cash if you run a particularly active asset allocation strategy), so try to be specific.

 

3.    Select specific assets

You don’t need to document every asset you own in your investment strategy – this document is really designed to provide direction for your investing decisions. At a practical level, it is prudent to assess your current portfolio against your newly refreshed strategy though, to ensure you own those assets that are likely to generate the outcome you’re looking for, and not holding those that won’t.

You have some time to ensure your portfolio aligns with your strategy so long as it is clear you are taking steps to update your positions; your auditor will let you know if there’s a problem.

You may like to be specific about asset types – if you are happy investing in international equities, specify which regions and markets; in Australian equities, which sectors. This helps refine your strategy and can prompt you to take action.

The start of a new year is a great time to look at your total portfolio, consider the returns and prospects of each asset, and the costs and opportunity cost of holding it. The range of investing insights and tools available to investors is extensive, so take the time to ensure you are confident in the future of your portfolio, or are taking steps to enhance it if not.
 

4.    Consider insurance and estate planning

SMSF trustees are now legally obliged to consider insurance for their members in the fund’s investment strategy. This doesn’t mean you’re required to hold it – members may be too old to benefit from insurance, hold it in their own names, or have some other reason for not requiring it. Those with debt or dependents, however, should consider life and income protection insurance in their financial plans.

Estate planning is often overlooked in superannuation, so for bonus points, review your death benefit nominations and consider how effectively your wishes will be enacted in the event of your death. This can be quite complex so consider seeking professional advice.

Gemma Dale is Director of SMSF and Investor Behaviour at nabtrade. This information has been provided by WealthHub Securities Ltd ABN 83 089 718 249 AFSL No. 230704 (WealthHub Securities), a Market Participant under the ASIC Market Integrity Rules and a wholly owned subsidiary of National Australia Bank Limited ABN 12 004 044 937 AFSL 230686 (NAB). Any statements as to past performance do not represent future performance. Any advice contained in the Information has been prepared by WealthHub Securities without taking into account your objectives, financial situation or needs. Before acting on any such advice, we recommend that you consider whether it is appropriate for your circumstances. Any general tax information provided in this publication is intended as a guide only and is based on our general understanding of taxation laws. It is not intended to be a substitute for specialised taxation advice or an assessment of an individual’s liabilities, obligations or claim entitlements that arises, or could arise, under taxation law, and we recommend that you consult a registered tax agent. WealthHub Securities Ltd. is not a registered tax agent.is Director of SMSF and Investor Behaviour at nabtrade. This information has been provided by WealthHub Securities Ltd ABN 83 089 718 249 AFSL No. 230704 (WealthHub Securities), a Market Participant under the ASIC Market Integrity Rules and a wholly owned subsidiary of National Australia Bank Limited ABN 12 004 044 937 AFSL 230686 (NAB). Any statements as to past performance do not represent future performance. Any advice contained in the Information has been prepared by WealthHub Securities without taking into account your objectives, financial situation or needs. Before acting on any such advice, we recommend that you consider whether it is appropriate for your circumstances. Any general tax information provided in this publication is intended as a guide only and is based on our general understanding of taxation laws. It is not intended to be a substitute for specialised taxation advice or an assessment of an individual’s liabilities, obligations or claim entitlements that arises, or could arise, under taxation law, and we recommend that you consult a registered tax agent. WealthHub Securities Ltd. is not a registered tax agent.