An SMSF specialist has recommended the fund investment strategy be reviewed on a yearly basis as a general rule and any changes should only be of a macro nature.
“I feel like best practice would be for the trustees to meet to perform their end-of-financial-year review and examine what investment they made, if they invested in line with the fund’s strategy, whether the goals and objectives were achieved and also look at the risk taken, the liquidity requirements and the level of diversification of the portfolio,” SMSF Association head of membership and corporate development Neil Sparks told smstrusteenews.
Sparks pointed out no changes have to be made if it is found all elements of the investment strategy are fine, but a notation of this conclusion does need to be made.
“To confirm this assessment, all you need is a trustee minute saying the trustees reviewed the fund’s investment strategy and it was found their actions were in line with it and we were satisfied with the result,” he said.
He also clarified the type of changes to the circumstances of an SMSF that should trigger an amendment to its investment strategy.
“If the fund holds BHP shares and sells them to buy Wesfarmers stocks, a minute to record this move in the investment strategy is not needed because it’s not so much about tactical shifts being made, but rather about the overarching objectives, that is, what are the trustees trying to achieve with the SMSF to meet the retirement goals of its members,” he noted.
“However, if a leveraged property was held in a fund, but the borrowing has been paid off and the asset sold and the SMSF is now invested in blue-chip shares instead, then the investment strategy would have to be amended.”
Neil Sparks will be discussing the operation of the investment strategy at the upcoming SMSF Trustee Empowerment Day 2024, co-hosted by smstrusteenews and the SMSF Association. Please visit here to register for the event.
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