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Lessons from super fund investment strategy rules

If you’re looking to grow and protect your retirement wealth, there are some important lessons you can learn from the investment strategy rules of super funds.

Superannuation laws require trustees of every super fund, including Self-Managed Super Funds (SMSFs), to put in place an investment strategy that meets certain guidelines. Interestingly, these guidelines contain valuable messages that every investor can learn from.


Risk and return


SMSF trustees must decide on an acceptable level of risk and expected level of return when investing for their members – taking into account the members’ risk profile, proximity to retirement and other relevant circumstances. This decision is reviewed regularly as the members’ needs change. If the members of an SMSF have different risk profiles, the trustee may hold separate pools of assets to ensure the funds are invested appropriately for all members.


The main thing to remember is that growth assets offer a greater chance of higher returns, but also have a greater risk of experiencing a loss.


When you’re planning for retirement, it's important to consider what return is required to help you achieve your objectives and what level of risk you are comfortable with for your investments. -This applies for your other investments, like direct shares and investment properties, as well. Determining your own risk profile, which may change at different life stages, is a vital step so that you and your financial adviser can make sound investment decisions in line with your financial goals.


Diversification


Super fund trustees must also regularly review whether the fund’s investments are adequately diversified. This is because a lack of diversification can also increase an investor’s risk exposure.


Diversification is a strategy of spreading your money across different asset classes, industries, market sectors or geographic locations. Diversifying across asset classes helps to manage risk if one specific asset class performs poorly – for instance, if the share market drops, your lower returns can be offset by the interest earned on your defensive assets, like term deposits.


A diversified portfolio of industries and market sectors within a specific asset class can also help you manage market risk. For example, when the mining industry suffers from lower overseas demand, the tourism industry may be booming due to increased international tourism.


Liquidity: How easy is it to get to your money?


SMSFs in particular must have appropriate levels of liquidity so they can fund their ongoing operating costs.


Liquidity is just as important if you don’t have an SMSF but are saving for retirement. How much can you afford to keep in super (where it’s generally locked up until you retire) and how much should you invest outside super? You also need to consider how much should you keep in cash, and how much in other, less liquid, asset classes.


Insurance


The final investment strategy requirement is for SMSF trustees to consider whether their members have access to adequate levels of life and disability insurance. Similarly, if you’re the household’s main breadwinner or the primary carer for your dependants, you need to consider how your financial plan could quickly unravel if you were to suffer a serious illness or pass away.


Be sure to check with your financial adviser to make sure your personal insurance cover matches your current lifestyle needs.


What does it all mean to me?


When you’re investing for the future, a carefully considered investment strategy can make all the difference. Remember, your financial adviser should be your first port of call when working out the right strategy for you – and adapting it to meet your changing needs as you move through different life stage.


For a no-obligation chat, make an appointment to talk to one of our financial advisers by calling 02 6041 3900.




Disclaimer


The Next Step Financial Group Pty Ltd, is an Authorised Representative of Count. ‘Count’ and Count Wealth Accountants® are trading names of Count Financial Limited, ABN 19 001 974 625 Australian Financial Services Licence Holder Number 227232 (“Count”). Count is 85% owned by CountPlus Limited ABN 111 26 990 832 (CountPlus) of Level 17, 1 Margaret Street, Sydney 2000 NSW and 15% owned by Count Member Firm Pty Ltd ACN 633 983 490 of Level 17, 1 Margaret Street, Sydney 2000 NSW. CountPlus is listed on the Australian Stock Exchange. Count Member Firm Pty Ltd is owned by Count Member Firm DT Pty Ltd ACN 633 956 073 which holds the assets under a discretionary trust for certain beneficiaries including potentially some corporate authorised representatives of Count Financial Ltd.

General Advice Warning


The advice provided is general advice only as, in preparing it we did not take into account your investment objectives, financial situation or particular needs. Before making an investment decision on the basis of this advice, you should consider how appropriate the advice is to your particular investment needs, and objectives. You should also consider the relevant Product Disclosure Statement before making any decision relating to a financial product.

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