During the past year, some $400 billion has been wiped off the value of Australian shares. Along with decreasing value of other investments, superannuation savings have been hard hit by the global financial crisis.
With this crisis now bearing down on Australia, the Tax Office has issued a reminder to SMSF trustees that their fund’s investment strategy should be regularly reviewed in order to make the best possible investment choices in the current financial climate. An investment strategy is a compulsory requirement for an SMSF, and must be adhered to by trustees of a fund when they are making investment decisions.
The superannuation legislation does not set out the details of what an investment strategy should contain or how it should be documented, but it does list issues which trustees should take into account when developing their strategy. The strategy should reflect the purpose and circumstances of the fund and take account of:
• Investing in such a way as to maximise member returns, having regard to the risks involved in making and holding the investments and the likely returns from the investments;
• Appropriate diversification and the benefits of investing across a number of asset classes (e.g. shares, property, fixed deposits) and the risk of not diversifying the fund’s investments;
• The liquidity of the investment; and
• The ability of the fund to both pay benefits as members reach their retirement and also meet other costs incurred by the fund.
Depending on the member profile of your fund, a reconsideration of your strategy may involve switching to a more conservative approach as markets and asset values continue to fall. Note that there are inherent dangers in switching to a more conservative investment strategy. For example, members that switch to cash may realise losses (i.e. by selling assets when the value is down) and unless the funds are moved back into the market at the right time, the same returns may not be enjoyed compared to those who retained those assets. Selling assets when values are low and trying to buy back in at a later time can have a significant impact on a final superannuation balance.
Due to the different member profiles and the risk that each member is willing to take, there is no ‘one size fits all’ approach to investment strategies. If you are a trustee of an SMSF and are unsure of which investment strategy to adopt in these hard times, then call Paul Baggetta your Financial Advisor on 9317 7300.
November 15, 2017
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The information provided on this website, including the material and contents provided in the website publications, are informative in nature only and you should not act specifically on the basis of this information alone. It should not be used as a substitute for legal, business, accounting, tax, financial planning or other professional advice. If expert assistance is required, professional advice should be obtained.
Paul Baggetta is the Founder & Principal of Baggetta & Co. Paul Baggetta has been a Taxation Accountant since 1981, a Financial Planner since 1998, and in 1993 qualified as a Real Estate Licensee, holding a Triennial Certificate (currently not trading) and operated his own Real Estate business for property investment clients for over 5 years as a second business.
Financial planning services are provided by Paul Baggetta as an Authorised Representative (No. 261469) of Capstone Financial Planning Pty Ltd. ABN 24 093 733 969. Australian Financial Services License No. 223135.
Taxation & Accounting services are provided by Paul Baggetta as a Registered Tax Agent (No.61487008) and is a Member of SMSF Association, FIPA & NTAA.