Every SMSF must have an investment strategy, and every year an auditor checks it. Many funds still use a template with 0 to 100% ranges that the ATO has said is not enough.
This guide explains what the strategy must cover under regulation 4.09 of the Superannuation Industry (Supervision) Regulations 1994, how the ATO expects it to be documented and reviewed, and what happens when it falls short. Everything was checked against ATO investment strategy guidance and the ATO’s auditor checklist for the 2025-26 and 2026-27 years. It explains the rules, not which investments to choose.
It is for trustees of an existing or new fund. If you are still setting up, start with our SMSF setup guide, which places the strategy in the setup sequence.
Key takeaways
- Regulation 4.09 requires trustees to formulate, give effect to and regularly review a written investment strategy.
- It must consider risk and return, diversification, liquidity, ability to pay liabilities and members’ insurance.
- Ranges of 0 to 100% for every asset class are not a valid approach on their own.
- Review it at least annually and after big events, and record the review.
- Breaching an operating standard can attract 20 penalty units: $7,280 at $364 per unit from 1 July 2026.
SMSF investment strategy at a glance
| Factor | What the strategy should show |
|---|---|
| Risk and return | Likely returns weighed against the risk of the investments |
| Diversification | How assets are spread, and the risk of not diversifying |
| Liquidity | How easily assets turn into cash for expenses and benefits |
| Liabilities | How the fund will pay what it owes when due |
| Insurance | Whether to hold cover for each member |
| Member circumstances | Age, employment and retirement needs |
| Review | At least annually, documented |
Source: ATO, Create your SMSF investment strategy, ATO, Compliance audit of an SMSF, ATO, Our SMSF non-compliance actions, ATO, Penalty units, checked 9 October 2026.
What does regulation 4.09 actually require?
Regulation 4.09 sits in Part 4 of the SIS Regulations, the operating standards. It requires trustees to formulate, regularly review and give effect to an investment strategy that has regard to the whole of the fund’s circumstances. The ATO’s audit guidance lists what auditors look for: risk and return, diversity, liquidity, the ability to discharge liabilities as they fall due, members’ insurance needs and evidence of regular review.
The strategy sits alongside the other investment rules in the trustee obligations: every investment must pass the sole purpose test, be made at arm’s length and at market value, and be held in the fund’s name. Generally, the fund cannot buy assets from or lend to members and related parties, or borrow, apart from limited exceptions. Our guide to SMSF rules in Australia covers these in more detail.
How specific does the asset allocation need to be?
The ATO does not set percentages. It does say a list of 0 to 100% ranges is not valid on its own. You can use target ranges or dollar amounts, provided you explain how you plan to invest and why broad ranges are needed. If you do not use percentages, list the material assets and explain how they will meet the members’ goals.
What about concentration in one asset?
The ATO warns that holding most of the fund in one asset or asset class creates concentration risk. A single property is the common case. The strategy should record that the trustees considered the risk of inadequate diversification and how the fund will still meet its return and cash flow needs. If property is involved, see our guides on buying property with an SMSF and how a bare trust holds SMSF property under a borrowing arrangement.
How do liquidity and insurance fit in?
Liquidity means how easily the fund’s assets can become cash to pay expenses, tax and member benefits. A fund paying a pension, or with a member close to retirement, needs a clear answer to where the cash will come from.
On insurance, the ATO says the strategy should consider whether to hold cover such as life, permanent incapacity or temporary incapacity insurance for each member. You are not required to buy it, but the decision should be recorded.
When should you review the strategy, and how do you prove it?
Review at least annually and document the review and any decisions. The ATO also points to significant events. Your auditor will ask for evidence, such as an updated strategy, notes on the existing one or trustee minutes.
| Trigger | What to record |
|---|---|
| Annual review | Signed minute confirming the strategy still fits, or changes made |
| Market correction | Whether allocation and liquidity remain appropriate |
| Member joins or leaves | Updated member circumstances and insurance decision |
| Member starts a pension | How the fund will meet regular payments |
| Investments drift from the strategy | Revised strategy reflecting actual investments and objectives |
Worked example: testing liquidity in a property-heavy fund
A two-member fund holds $600,000 in a commercial property, $150,000 in listed shares and $50,000 in cash: $600,000 + $150,000 + $50,000 = $800,000.
Shares of the fund: property $600,000 / $800,000 = 75%; shares $150,000 / $800,000 = 18.75%; cash $50,000 / $800,000 = 6.25%. Check: 75 + 18.75 + 6.25 = 100%.
The trustees estimate $40,000 a year of pension payments, tax and running costs. Cash covers $50,000 / $40,000 = 1.25 years before shares would need to be sold.
Their minute records the concentration risk of 75% in one property, how rent and the share portfolio support cash flow, and the insurance decision for each member. Without that record, the auditor may treat the strategy as inadequate.
Rule of thumb: if your strategy would read the same for any other fund, it is not tailored enough. Name your members’ circumstances, your actual assets and where next year’s cash comes from.
What happens if the strategy does not comply?
The auditor checks the strategy each year. If it falls short, the ATO says you must fix it, for example with a signed and dated addendum or trustee minute before the audit is finalised. If the breach meets the reporting criteria, the auditor lodges a contravention report.
The ATO’s non-compliance actions include rectification and education directions and administrative penalties. Breaching an operating standard under s34(1) of the SIS Act carries 20 penalty units. At $364 per unit from 1 July 2026 that is 20 x $364 = $7,280, or 20 x $330 = $6,600 at the rate before then. Penalties cannot be paid from fund assets, and directors of a corporate trustee share joint and several liability. Our SMSF audit mistakes guide covers the wider list.
Common mistakes with SMSF investment strategies
- Generic templates: 0 to 100% ranges with no reasoning do not meet the ATO standard.
- Ignoring concentration: a single property with no written risk assessment invites auditor questions.
- No insurance decision: the strategy should show cover was considered for each member.
- No review evidence: a review that is not minuted is hard to prove.
- Investing outside the strategy: if actual holdings drift, revise the strategy or the investments.
FAQ about SMSF investment strategies
Does the ATO tell you what percentage to hold in each asset?
No. The ATO does not prescribe an asset mix. It does say that listing ranges of 0 to 100% for each asset class is not a valid approach on its own. You need to explain how you plan to invest and why, or list the material assets and explain how they will meet the members’ retirement goals.
Can an SMSF hold only one property?
The law does not ban it, but the ATO warns that putting most of the fund into one asset creates concentration risk. If you do it, the strategy should show you considered the risk of not diversifying and how the fund will still meet its return and cash flow needs, including paying expenses and benefits.
Do SMSF trustees have to buy insurance for members?
No. The strategy must show the trustees considered whether to hold insurance, such as life or incapacity cover, for each member. Holding no cover can be a valid decision, but the consideration and the outcome should be recorded, usually in a signed trustee minute that the auditor can see.
How often must the investment strategy be reviewed?
At least once a year, with the review and any decisions documented. The ATO also expects a review after significant events, such as a market correction, a member joining or leaving the fund, or a member starting a pension. Minutes of the annual trustee meeting are a common way to record it.
What happens if the auditor finds a strategy breach?
You must fix it. If the strategy did not cover the required factors, the ATO says you can attach a signed and dated addendum or trustee minute before the audit is finalised. If the breach meets the reporting criteria, the auditor must report it to the ATO, which may apply penalties or, in serious cases, disqualify trustees.
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Nanak Accountants can review your strategy against the ATO requirements, prepare trustee minutes and get the fund ready for audit. We do not give personal investment advice, so talk to a licensed financial adviser about what to invest in. Call 1300 626 258, book a free 15-minute consultation or visit nanakaccountants.com.au. See also the ATO SMSF hub and its SMSF investing pages.
This article is general information only and is not personal tax or legal advice. Figures and rules were checked against the ATO SMSF investment strategy, auditor and non-compliance pages, the ATO penalty units page and the SIS Regulations on legislation.gov.au on 9 October 2026. Rates and thresholds change, so confirm the current position before acting.
