An investment strategy is simply a plan of how SMSF trustees will invest the fund's assets to achieve the fund objectives. This strategy can be simple or as complex, as long as the trustee can justify how it will meet the fund's objectives.
The question is - how long has it been since you looked at this document?
At its best an investment strategy can help you stay on track and achieve your long-term financial goals, at its worst it is merely an unspecific document used to keep the auditor at bay each year.
A Good Investment Strategy
A good investment strategy starts with your goals in mind and from there develops the underlying investments used to achieve those goals. These may need to be different for each member and may also be different depending on whether the member is in the accumulation phase or in the pension phase. A person in the accumulation phase might be more interested in capital growth where as a person in the pension phase might be more interested in income to fund pension payments.
A good investment strategy also needs to be reviewed and adapt to changes in the environment, personal circumstances and goals over time. Most people go through major life events, and experience ups and downs that should cause them to re-evaluate from time to time – regardless of the market environment.
Furthermore, investment markets are not static. They adapt to changes in tax, legislation, politics and myriad of other factors. Even if an investor’s goals stay the same, there may be times when it is necessary to adjust the strategy in order to stay on track.
Tailoring your Strategy
The three main determinants of strategy are risk appetite, timeframe for investment and sufficiency of the current portfolio.
The best strategies take account of the market conditions; investors can’t expect to be in front every day. The secret to success is consistency – limiting losses on the bad days and taking advantage of all the opportunities available on the good days.
A good long-term strategy includes investments that can kick into a higher gear when conditions are right, and deliver short-term outperformance. But at the same time, the strategy also needs to have exposure to solid, stable investments that will keep delivering even in the most difficult and adverse of conditions.
The danger for investors is when they see other investments overtaking theirs, or one of their investments is struggling because the market environment isn’t in their favour, it is tempting to make changes to the strategy or to the team. While this may seem like a rational reaction, it usually comes far too late.
The result is a pattern of buying on market highs and selling on market lows. This is not a plan that will help you achieve wealth in the long run.
Often it can take time and patience for a strategy to deliver results, and it takes courage and resolve to stick with a strategy in the face of setbacks.
Here at Cotter Financial Services we can assist with developing a robust Investment Strategy which is tailored to your needs and will assist you with future investment decisions. Why not book for a review of your super fund’s investment strategy today with one of our financial advisers? Just call on (07) 3333 2610.