Every SMSF trustee has one. Most haven’t read it in years.
Your fund is legally required to hold a written investment strategy - not a mental plan, not a verbal agreement between members, but a signed document that describes how the fund is invested and why. The ATO’s concern is not simply whether it exists. It is whether the one you have still reflects your fund today. For most trustees, it doesn’t.
Key Takeaways
- Every SMSF must hold a written investment strategy covering 5 specific areas under superannuation law.
- A strategy that no longer reflects your actual portfolio is a compliance breach - even if a document exists.
- Your auditor must review the strategy and report contraventions to the ATO if they meet the ATO reporting criteria.
- Market movements in 2025-26 have shifted actual asset weightings in many funds, often without any deliberate trustee decision.
- Reviewing your strategy takes less than an hour. Ignoring it can trigger audit issues, ATO attention and, in serious cases, penalties.
Contents
- What the Law Requires
- Where Trustees Go Wrong
- What Your SMSF Auditor Checks
- SMSF Investment Strategy Checklist: 5 Questions to Ask Now
- How to Update Your SMSF Investment Strategy
- Frequently Asked Questions
What the Law Requires
Under section 52B of the Superannuation Industry (Supervision) Act 1993 and Regulation 4.09 of the SIS Regulations, every SMSF must have a written investment strategy that addresses five specific areas. The strategy must also be consistent with the fund’s trust deed and must support the fund’s sole purpose: providing retirement benefits to members, or death benefits to their dependants.
There is no prescribed format under the law. What is required is a genuine, written document that reflects the fund’s actual circumstances. A generic template ticked off at establishment and never touched again does not meet the standard.
| Area | What It Must Cover | Common Pitfall |
|---|---|---|
| Return objectives | Expected returns vs retirement goals for each member | Vague “growth” or “long-term capital appreciation” statements with no specifics |
| Risk management | Investment risks and how trustees intend to manage them | Generic statements that don’t address the fund’s actual asset mix |
| Diversification | Asset spread across classes and rationale for any concentration | No explanation when the fund is heavily weighted to one asset |
| Liquidity | Ability to meet cash flow needs and discharge liabilities | Accumulation-phase only strategy; no update when members enter pension phase |
| Insurance | Documented consideration for each member | No mention at all; most common omission in older strategies |
1. Return objectives
The strategy must describe the expected return from the fund’s investments and whether that return is likely to meet the fund’s retirement objectives. A vague reference to “growth” is not sufficient. The document should articulate what the fund is trying to achieve and why the investment approach is consistent with that goal.
2. Risk management
The strategy must address the risks involved in the investment approach and how the trustees intend to manage them. This includes market risk, concentration risk, and the risk of not meeting the fund’s objectives. A fund holding a single commercial property has a very different risk profile from a diversified share portfolio. Both are permissible. But the strategy must address that risk specifically, not generically.
3. Diversification
The strategy must address how the fund’s assets are spread across different asset classes. This does not require equal weighting. It requires that trustees have turned their mind to diversification and documented their approach - including a genuine explanation if the fund is deliberately concentrated in one asset class.
4. Liquidity
The fund must be able to meet its financial obligations as they fall due, and the strategy must address this explicitly. This covers both existing liabilities (pension payments, tax bills, audit fees, expenses) and prospective liabilities the fund may anticipate. This becomes especially important in pension phase and with more frequent employer contribution inflows under Payday Super from 1 July 2026.
5. Insurance
The strategy must document whether the fund should hold life insurance, total and permanent disability (TPD) cover, or income protection insurance for each member. The fund does not need to hold insurance. What it must do is show that trustees considered it for each member and made a deliberate, documented decision.
Where Trustees Go Wrong
The most common failure is not the absence of a strategy. It is a strategy that no longer reflects reality.
Most trustees write the document when the fund is first established. At that stage, it matches the portfolio, the member ages, and the accumulation phase. Then life moves on.
Members approach retirement. The portfolio shifts toward income-producing assets. A property is acquired. A member starts drawing a pension. Market movements throughout 2025 and into 2026 have materially changed the actual weightings of many SMSF portfolios - often without any deliberate trustee decision. When share prices move significantly, the proportion of the portfolio held across different asset classes moves with them.
The written document does not move with any of it.
The result is a fund whose strategy says one thing and whose actual investments say another. That is a compliance breach under the Superannuation Industry Act - regardless of whether the trustees were aware of it.
The ATO has repeatedly flagged investment strategy compliance as an audit focus area. A significant proportion of funds have not updated their strategy despite material changes to their portfolio and member circumstances. Some have strategies that bear no resemblance to the assets the fund actually holds.
For more on what the ATO is currently examining in SMSF compliance, see our 2026 ATO compliance update for SMSF trustees.
What Your SMSF Auditor Checks
Your SMSF auditor is required by law to check your investment strategy as part of the annual audit. They must verify that the strategy exists, that it is in writing, and that the fund’s actual investments are consistent with what the document says.
If they find a breach - a strategy that does not reflect the fund, or a fund investing outside the parameters the strategy sets - they must consider whether it is reportable under the ATO Auditor Contravention Report (ACR) criteria. Reportable contraventions must be lodged with the ATO; other matters may still be raised in the audit report or with trustees.
An ACR triggers ATO attention. Serious, repeated, or unresolved compliance issues can result in penalties or, in the most serious cases, the fund being made non-compliant. A non-compliant fund loses its concessional tax treatment. Income is taxed at 45% rather than 15%.
That is the consequence of an administrative failure that could have been avoided with a document review. For more on what auditors look for across the full range of SMSF compliance obligations, see our SMSF Audit Guide.
SMSF Investment Strategy Checklist: 5 Questions to Ask Now
Pull out your fund’s investment strategy and work through these before your next audit.
1. Does the asset allocation still match what the fund actually holds?
If your strategy says the fund will hold 40-60% in Australian shares but the portfolio is currently sitting at 75%, that is a discrepancy an auditor is required to flag. Market movements in late 2025 and early 2026 have shifted actual allocations in many funds without trustees making any deliberate decision. Check the numbers.
Also check that the ranges in the document are genuine. A strategy that says the fund will hold “0-100% in any asset class” does not demonstrate that trustees have genuinely turned their mind to asset allocation. Auditors and the ATO treat overly broad ranges as evidence that the document is a formality rather than a real governance tool. Use realistic, fund-specific ranges.
2. Does it address liquidity for members in pension phase?
A fund paying regular pension drawdowns needs liquid assets to meet those payments. A strategy written during the accumulation phase may not address this at all. If any member is now drawing an account-based pension, the liquidity section needs to reflect it - including the specific cash flow requirements of the pension payments.
3. Has the insurance section been reviewed for each member?
The requirement to consider insurance is frequently overlooked. The strategy does not need to provide insurance - it needs to show that trustees considered it for each member and documented their reasoning. A strategy that says nothing about insurance is incomplete.
4. Does it reflect the current risk profile of each member?
A member in their early 60s approaching retirement has different risk considerations from those they had at 50. The document should reflect where members actually are today, not where they were when the fund was established.
5. When was it last reviewed and signed?
A strategy with a 2020 signature date and no subsequent updates is exactly what auditors are trained to look for. Annual review is best practice. If the document does not show a recent review date, it may be treated as out of date regardless of its content.
2026 Focus Areas: Act Before 30 June
Division 296 and cost base elections: Trustees with members approaching the $3M threshold have a once-off, irrevocable option to reset the cost base of fund assets to market value as at 30 June 2026, for Division 296 purposes only. The election is made with the 2026-27 annual return, but the valuations that support it must reflect 30 June 2026 market values - so asset valuations need to be in place by that date. For more, see our Division 296 CGT cost base reset guide.
Payday Super liquidity review: From 1 July 2026, employer SG contributions will arrive with each pay cycle rather than quarterly. If any member is still receiving employer contributions, the liquidity section of your investment strategy should reflect the changed timing and frequency of inflows. For more, see our Payday Super guide for SMSF trustees.
Want SMSF updates from Super Informed? Subscribe to Super Informed
How to Update Your SMSF Investment Strategy
Reviewing your investment strategy does not necessarily require engaging a specialist, though updating it properly is worth doing alongside your SMSF accountant or administrator.
Step 1: Locate the current document
If you cannot find your strategy, your SMSF administrator or accountant will have a copy on file. A quick email asking them to send it through is the starting point. Also confirm they are working from the current version of the fund’s trust deed, as the strategy must be consistent with it.
Step 2: Read it against the current portfolio
Compare the asset allocation ranges in the document against what the fund actually holds today. If the gap is significant, note the specific discrepancies before you do anything else. Check that the ranges you set are realistic and fund-specific - not placeholders.
Step 3: Update each of the five required areas
Work through return objectives, risk, diversification, liquidity, and insurance. Update any section that no longer reflects the fund’s current situation. If a member has moved into pension phase since the strategy was last reviewed, the liquidity and risk sections will almost certainly need updating.
Step 4: Have all trustees sign and date the updated document
The review is not complete without signatures from all trustees. For a fund with a corporate trustee, the directors of the company sign on behalf of the company as trustee. A one-page update, signed and dated, is usually sufficient. What matters is that the document genuinely reflects the fund’s current position on that date.
Consider also recording the review as a formal resolution in trustee meeting minutes. This provides clear, additional audit evidence that the review genuinely occurred and that trustees turned their minds to each required area - not just signed a document.
Step 5: File it and set a calendar reminder
Annual review is best practice. Set a reminder for the same time next year, or tie it to your fund’s financial year-end process with your accountant.
If your fund holds complex assets such as direct property, a limited recourse borrowing arrangement (LRBA), or cryptocurrency, it is worth having your SMSF specialist review the updated strategy before it is finalised.
For a broader look at SMSF compliance documents that trustees often overlook, see our guide to binding death benefit nominations - another document that commonly falls out of date.
For the ATO’s guidance on creating your SMSF investment strategy, see the ATO’s SMSF investment strategy page. For the underlying legal requirements, see the ATO’s SMSF investment requirements page.
Frequently Asked Questions
How often should an SMSF investment strategy be reviewed?
Annual review is widely accepted as best practice and aligns with ATO expectations. The law requires regular review and update when circumstances change, but does not specify a fixed timeframe. A strategy that has not been reviewed for several years is likely to be out of date. If there has been a significant market movement, a change in member circumstances, or a new asset class added to the portfolio, the strategy should be reviewed immediately rather than waiting for the annual cycle.
Does an SMSF investment strategy need to be signed?
Yes. The strategy must be in writing and signed by the trustees. It should also be dated so that auditors can confirm when it was last reviewed. For a corporate trustee, the directors sign on behalf of the company. An unsigned or undated strategy is incomplete and may be treated as non-compliant. Recording the review in trustee meeting minutes alongside the signed document provides additional audit evidence.
Can I write my own SMSF investment strategy?
Yes. There is no prescribed format under the law. A document drafted by the trustees is compliant provided it genuinely addresses the five required areas. Many SMSF administrators provide template documents that trustees can adapt. The critical test is not the format - it is whether the document reflects the fund’s actual situation today.
What should the strategy say about a concentrated portfolio - for example, one property making up over 60% of the fund?
The strategy should explicitly explain why the concentration is appropriate given the members’ circumstances, risk tolerance, and retirement objectives. A strategy that simply acknowledges the concentration without explaining the reasoning does not demonstrate that trustees have genuinely turned their mind to the risk. The explanation might address factors like the property’s income yield, the members’ other assets outside super, the planned timeline for the asset, or the members’ risk capacity at their stage of life. The ATO expects that trustees have genuinely considered concentration risk - not just noted it.
What happens if my SMSF doesn’t have an investment strategy?
The absence of a written investment strategy is a breach of superannuation law. Your auditor must consider whether it is reportable to the ATO under the Auditor Contravention Report criteria. Serious or unresolved issues can lead to ATO attention, penalties, or in the most serious cases the fund being treated as non-compliant.
Does the investment strategy need to specify exact percentages?
No. The strategy can specify ranges rather than fixed percentages - for example, “20% to 50% in Australian shares.” Ranges give trustees flexibility to manage the portfolio without breaching the documented parameters. However, the ranges must be realistic and fund-specific. A strategy that gives a range of 0-100% for every asset class does not demonstrate genuine consideration of asset allocation. The ATO and auditors treat implausibly broad ranges as evidence that the document is a formality rather than a working governance document. Set ranges that genuinely reflect how the fund is likely to be invested.
Can my financial adviser prepare the strategy on my behalf?
Yes. A financial adviser or SMSF specialist can draft or assist with the investment strategy. However, the responsibility for holding a current, compliant strategy rests with the trustees - not the adviser. Trustees must understand what the document says, be satisfied it reflects the fund’s actual circumstances, and sign it. Delegating the drafting does not delegate the obligation.
Does having a financial adviser change my obligations?
No. Even if your fund uses a financial adviser or SMSF specialist, the investment strategy obligation rests with the trustees. Advisers can assist with drafting and reviewing the document, but the responsibility to hold a current, compliant strategy belongs to the trustees.
Disclaimer: This article is for educational purposes only and does not constitute financial advice. Always consult a licensed financial adviser or SMSF specialist before making decisions about your fund.