Market turmoil highlights need for SMSFs to have written investment strategy

The market turmoil of recent days has underpinned the critical importance of SMSF trustees having a written investment strategy, says Graeme Colley, Director, Technical and Professional Standards, of the SMSF Association.

“When markets fluctuate to the degree we have seen in the past week, then having a written, long-term investment strategy not only gives trustees peace of mind when markets are turbulent, but reminds them that superannuation is all about the long term.

“It provides them with an important reference point at the very time when people are liable to panic because the markets, especially the equity markets, are falling sharply.

“When you consider an SMSF fund has, on average, about one-third of its assets in Australian shares, the reassurance the investment strategy provides cannot be under-estimated.”

Colley says that according to the latest Intimate with Self-Managed Superannuation report, just over 50% of trustees claim to have a written investment strategy, and another 30% entrust their specialist advisor with this responsibility.

“Whether trustees take personal responsibility for this document, a legal requirement under the Superannuation Industry (Supervision) Act 1993, or hand the responsibility to their advisor, it’s encouraging that about 80% of SMSFs realise its importance.

“What’s concerning is that there are about one in five trustees who don’t have a written strategy, and it’s likely they will be more prone to making poor decisions, especially when markets are volatile.

“As the report says, ‘these trustees could be exposing themselves to investment and legal risks by not having an investment strategy or by only having it memorised and not written down’,” Colley says.

Source: SMSF Association