Designing your investment strategy

A self-managed super fund in Australia is supposed to have an investment strategy as per the SIS act. The SIS act however, does not outline what the investment strategy should look like. Quite often these investment strategies are designed according to the investment preferences of the members in the fund. Having a personalized investment strategy, can therefore be your first step towards taking control of your super.
What is an investment strategy?
An Investment strategy can ideally be described as the ‘guidelines’ to keep in mind while making investments using your super fund. A successful strategy reflects the preferences of all the members in a fund. Your investment strategy helps you choose the mix of assets to invest the money into.
Designing an investment strategy can be a hideous task, considering the multiple number of members in a fund. However, choosing the ideal strategy generally boils down to some basic pointers to be considered.
1. Portfolio Diversity

Trustees of a fund should look at developing a strategy where there is enough diversity in the investment portfolio i.e. the money in a fund, invested into different kind of assets. Diversifying your portfolio across assets considerably reduces your exposure to risk. It is recommended to think of the SMSF investments as a part of your overall portfolio. For instance, if you have a heavy portfolio of property outside your SMSF then concentrating on other assets- Australian shares and CFDs, Term deposits etc. -within the SMSF investment would be a desirable action to take to reap benefits of diversification.

2. Liquidity

Liquidity of the investments is another important factor to be kept in mind while making investments. Your super fund should have its part of money invested into assets that can make it liquid enough to face situations like death of a member that requires immediate payments.

3. Risk

Every investment comes with a level of return in relation to the level of risk it exposes you to. Generally high-risk investments generate a high level of return. This might not be suitable for you if you are looking to invest short term. Deciding the extend of risk you can expose yourself to, depending on ‘when you expect the income to be generated (short term or long term)’ should play an important factor in setting your investment strategy.

4. Risk tolerance of members

Risk tolerance of members should be one of the factors that plays an important role while designing your strategy. Members with high risk tolerance should ideally look at investing long term, e.g.-investments in emerging markets. This may differ for members who wants to reap the benefits in short term. They should look at investments with less risk, e.g.- Australian treasury bonds, CFDs.

5. Age profile / Life cycle

Age profile of the members play an important role in the designing phase of your strategy. Members who are in the later stages of their lives approaching retirement, might want to invest in less aggressive assets like bonds. On the other hand, young members might prefer aggressive investments with high risk to reap the benefits.

Your investment strategy is a mix of many factors. Designing an ideal investment strategy can sometimes be a hectic task considering the many factors to be kept in mind. OneStopSMSF provides you access to premium financial planner who can help you design the strategy just right for you tailored to your needs.