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How to Maximise Your SMSF Returns: Investment Strategies to Consider

Self Managed Superannuation Funds have emerged as a powerful tool that provides individuals with greater control over their superannuation investments. These funds are designed to empower you in shaping your financial future, allowing you to make strategic decisions that align with your retirement goals.

At the heart of every self-managed superannuation fund lies the pursuit of maximising returns – a crucial endeavour to ensure a comfortable and secure retirement.

Retirement planning is a journey that requires careful consideration and a well-defined financial roadmap. As we delve into the intricacies of SMSFs, we recognise the significance of optimising returns on your investments. After all, the returns generated during your working years can significantly impact your post-retirement lifestyle.

This article is dedicated to exploring effective investment strategies tailored specifically for SMSFs. By understanding these strategies, you can make informed decisions that aim to enhance your financial prospects and provide you with the peace of mind you deserve during your golden years.

Risk Tolerance and Investment Goals

A Self-Managed Super Fund (SMSF) is a private fund that you run on your own. It is different from a retail super fund and an industry super fund. Putting your retirement savings into the SMSF lets you choose your investments (and insurance cover). With a limit of six member trustees, you’re in charge of the fund (which can also have a corporate trustee). Even though having power is appealing, managing an SMSF takes a lot of work and comes with risks.

Understanding Your Risk Tolerance

As an SMSF trustee, you must make investment decisions that are consistent with your risk tolerance, or your ability to absorb variations in investment value. Risk tolerance is the foundation of sound investment management and demonstrates your willingness to weather fluctuations in the market and probable losses.

Assessing your risk tolerance requires honest reflection while taking into account your age, financial situation, and retirement plans. Different investment strategies have various degrees of risk, ranging from conservative to high-growth options. Understanding your risk tolerance allows you to customise the investing strategy of your SMSF to your psychological comfort zone.

A person with a lower risk tolerance would seek stability and capital preservation, whilst one with a higher risk tolerance is able to ignore short-term volatility in exchange for larger long-term gains.

What is your risk tolerance?

A lower risk tolerance may be required for those who are close to retiring because they will soon need to take withdrawals from their SMSF to support themselves and would prefer the balance to remain stable. Younger people with a longer time horizon, however, could be able to tolerate more risk in the hopes of generating greater returns over time.

Short-term and Long-term Investment Goals

Understanding your risk tolerance is essential, but defining your investment objectives holds equal importance. These goals will shape the asset allocation strategy for your SMSF.

Your investment objectives might involve securing retirement funds, leaving an inheritance, saving for education, or property acquisition. Investment objectives act as guiding principles, steering your SMSFs direction. To determine the right asset allocation, consider both short-term and long-term objectives.

Short-term goals might include generating regular income or preserving capital, while long-term objectives may involve building wealth for a comfortable retirement.

It is critical to precisely define and quantify your goals.

  • What annual return do you need to meet your short-term goals?
  • How much capital should your SMSF have by retirement to achieve your long-term goals?

Concrete goals provide clarity to your investment decisions, allowing you to assess if your strategies are on track.

Aligning Investment Strategies

Once you have understood your risk tolerance and defined your investment goals, you can start aligning your SMSF investment strategy accordingly. Tailor your investment strategy to your personal circumstances and align it with your risk profile and goals.

A risk-averse individual seeking income might favour bond investments, while a risk-tolerant trustee with a long-term horizon could opt for a diversified portfolio of growth assets. Creating a diversified portfolio with a mix of investment options that respond differently to market conditions can mitigate risks while positioning your SMSF for growth. Real estate, equities, bonds, and even alternative investments can all have roles to play.

Here are some of the different investment strategies that you can consider and how they might align with risk tolerances and goals:

  • Growth: This strategy aims to achieve high returns over the long term but also carries a higher risk of loss. This strategy might be a good fit for a risk-tolerant trustee with a long-term horizon looking to grow their SMSF’s balance over time.
  • Income: This strategy aims to generate regular income from your investments but isn’t as focused on capital growth. This strategy might be a good fit for a risk-averse trustee who needs to generate income from their SMSF to live on.
  • Balanced: This strategy is a mix of growth and income and is a good option for investors who want to balance risk and return. This strategy might be a good fit for a trustee with a moderate risk tolerance looking to grow their SMSF’s balance over time while also generating some income.

It is important to note that there is no one-size-fits-all investment strategy. The best strategy for you will depend on your personal circumstances and goals.

Diversification – The Key to Mitigating Risk 

We’ve mentioned that one key principle that SMSF trustees must master is diversification – an investment strategy that involves spreading investments across a range of investment options across different industries and geographic locations. Let’s dive deeper into the concept of diversification.

What is Diversification

The saying “Don’t put all your eggs in one basket” rings true in the world of investment.

The main objective of diversity is to build a well-balanced portfolio that can withstand periods of volatility and uncertainty. It strikes a balance between risk and reward, providing investors with the opportunity for more consistent and long-term growth.

The foundation of a diversified portfolio is the idea that gains in one area can offset losses in another, protecting against sharp declines in any one asset class.

Asset Classes for Diversification

Various Asset Classes to Consider

When you diversify your SMSF investments, you have access to a wide range of asset classes. Among the most common asset classes are:

Cash: Cash is the least risky asset class, but it also offers the lowest returns. It is a good idea to keep some of your SMSF investments in cash investments, such as term deposits or high-yield savings accounts to provide stability and liquidity to your portfolio in case of market volatility.

Equities: Equities are shares in publicly traded companies. They are considered to be a growth asset class, which means that they have the potential to generate high returns over the long term. However, equities can also be volatile, highlighting the importance of diversification.

Fixed Interest: Fixed interest investments, such as government bonds or corporate bonds, offer regular income and can provide stability to your portfolio. Bonds are loans that you make to companies or governments. They are considered to be a defensive asset class, which means that they tend to perform well in times of economic uncertainty. Bonds often serve as a counterbalance to more volatile assets like equities.

Direct Property: Property is a tangible asset. Investing in residential or commercial properties can provide potential rental income and long-term capital appreciation. However, it is considered to be a relatively illiquid asset class, which means that it can be difficult to sell quickly.

Alternatives: Commodities, hedge funds, and private equity are examples of alternative investments that can help diversify a portfolio further and expose investors to other risk-return scenarios.

Benefits of Diversifying SMSF Investments

SMSFs are not regulated in the same manner as other types of super funds, so you have full control over your investments. But this also means that you have to make all the investment decisions on your own. If you don’t diversify your investments, you might be taking on too much risk.

Here are some of the key benefits of diversifying your SMSF investments across different asset classes:

Risk Mitigation: Diversification is fundamentally a proactive method of risk control. It acknowledges that there are inherent risks associated with each investment and that by holding a variety of assets, the effects of a subpar investment can be reduced.

Consider a person who invests all their money in Australian shares. If the Australian Securities Exchange Ltd (ASX) or the stock market crashes, the consequences could be financially devastating. However, if that same person diversifies among shares, bonds, property, and cash, a downturn in one area has a far smaller impact.

Enhanced Returns: Diversification across asset classes helps trustees capture gains during market upswings, resulting in better overall returns. While a few asset classes may experience underperformance, others may perform well, offsetting losses and contributing to overall portfolio growth.

Opportunity for Income Generation: SMSF trustees can access funds by holding a mix of assets with varying liquidity levels. Diversifying across asset classes offers income generation opportunities, such as bond and real estate investments providing interest payments or rental income, and equities providing dividend payments.

Improved Portfolio Stability: A diversified portfolio provides stable performance, reducing trustee stress and improving predictability in retirement planning. Diversification is beneficial because different asset classes react to markets differently, protecting your SMSF from extreme volatility and maintaining a steady investment position.

Investing in Equities 

One of the most popular investment avenues within SMSFs is the stock market, allowing individuals to invest in equities and potentially reap substantial rewards.

An SMSF is permitted to invest in Australian and global shares in emerging markets, as well as other listed securities, such as Exchange Traded Funds (ETFs), Exchange Traded Commodities (ETCs), Listed Investment Companies (LICs), Listed Trusts, Listed Bonds, Listed Options, Listed Warrants, and other Securities Listed on the ASX.

By allocating a portion of your SMSF to investment markets, you are effectively participating in the ownership of Australian and international companies. This participation can yield dividends, capital gains, and the potential for portfolio diversification.

Differentiating individual stocks from ETFs

Individual Stocks vs. Exchange-Traded Funds (ETFs)

Super laws allow all super funds (self-managed, industry and retail super funds) to invest in equities. The two common share investments are individual stocks and ETFs. When considering equities within your SMSF, a critical decision is whether to invest in individual stocks or opt for exchange-traded funds (ETFs), as both investment options have advantages and disadvantages.

Individual Stocks: Investing in individual stocks has the potential for big profits, but it also entails a higher level of risk. Choosing stocks necessitates thorough study, an awareness of market trends, and staying current on particular companies. SMSF investors who select individual equities typically have a greater level of involvement in their investment decisions.

ETFs: Exchange-traded funds (ETFs) offer market diversity by monitoring an index or a specific market sector. This investment strategy reduces the risk associated with investing in individual companies. In addition, ETFs have lower management fees than actively managed funds. They are a fantastic choice for SMSF trustees seeking broad market exposure without having to deal with the complexities of stock selection.

How to Identify Promising Stocks and Manage Risks

Identifying promising stocks and managing risks is paramount to the success of your SMSF equity investments. Here are some strategies to consider:

Thorough Research: Whether investing in individual stocks or ETFs, it is important to do your research and understand the individual companies you are investing in or your preferred ETF investment company. This includes fundamental analysis and technical analysis.

  • Fundamental analysis: This involves analysing a company’s financial statements, management team, industry trends, and other factors to determine its intrinsic value and growth potential.
  • Technical analysis: This involves analysing a company’s stock price and trading volume to identify trends and patterns that can help predict future price movements.

Risk management: Managing investment risk involves determining the maximum allocation to equities within your SMSF and diversifying investment options, which we’ve discussed earlier.

It also involves setting stop-loss orders to limit losses, taking a long-term perspective, monitoring the portfolio regularly, and being prepared to sell stocks if they no longer meet your investment criteria.

  • Stop-loss orders: A stop-loss order is an instruction to your broker to sell a stock if it falls below a certain price. This can help you to limit your losses if the stock price falls sharply.
  • Long-Term Perspective: Investing in equities through an SMSF should be approached with a long-term perspective. The stock market experiences fluctuations, but historically, it has delivered strong returns over extended periods.
  • Regular Monitoring and Review: Continuously monitor your equity investments and stay updated on market trends. Reassess your portfolio periodically to ensure it aligns with your retirement goals and risk tolerance.

Fixed Income Investments

Fixed-income investments are a crucial component of a well-structured SMSF portfolio. They offer stability, generate consistent income, and act as a hedge against the volatility of equities.

Unlike stocks, which represent ownership in a company, fixed-income securities represent debt. Investors lend money to governments or corporations in exchange for regular interest payments and the return of principal at maturity. This characteristic makes fixed-income assets relatively less risky compared to stocks.

 Types of Fixed Income Investments

Types of Fixed Income Investments

There are several types of fixed-income investments that an SMSF can invest in, including:

Government Bonds: Government bonds are issued by governments and are considered one of the safest types of fixed-income investments. They typically offer lower yields than corporate bonds but carry less risk.

Corporate Bonds: Corporate bonds are issued by companies and are considered riskier than government bonds. They typically offer higher yields than government bonds.

Treasury Notes: Treasury notes are short-term government debt securities issued at a discount to their face value. They mature in a short period (typically 3 months to 1 year) and offer a fixed yield to maturity.

Term Deposits: Term deposits are savings accounts that offer a fixed interest rate for a specified period. They are considered a very safe investment, although they typically offer lower yields than other fixed-income investments.

Balancing Risk and Return

When investing in fixed-income securities, it’s important to balance risk and return. Government bonds offer the lowest risk but also the lowest return, while corporate bonds offer a higher return but also a higher risk of default. Self-managed superannuation fund trustees should consider their risk tolerance and investment objectives when selecting fixed-income investments for their portfolios.

Allocating funds across different types of fixed-income securities, as well as other asset classes like equities and real estate, can help create a well-rounded investment strategy that reduces the impact of market fluctuations.

Here are ways to incorporate fixed-income investments in an SMSF investment strategy:

Laddering: Laddering involves investing in bonds with staggered maturities. This strategy ensures that a portion of the portfolio matures periodically, providing liquidity and the opportunity to reinvest at potentially higher interest rates.

Yield Curve Positioning: Depending on market conditions, investors can adjust their allocation along the yield curve. For instance, when short-term rates are expected to rise, focusing on longer-term bonds can lock in higher yields.

Credit Quality Assessment: In the case of corporate bonds, conducting a thorough credit analysis is essential. Investors should evaluate the financial health of the issuing company and consider investing in investment-grade bonds to minimise default risk.

Real Estate Investments in SMSFs

One of the most attractive investment avenues within SMSFs is real estate. Let’s delve into the realm of real estate investments in SMSFs, shedding light on the benefits, considerations, types of assets, and key factors to bear in mind when venturing into this realm.

Benefits of Investing in Real Estate through an SMSF

Investing in real estate through an SMSF provides several advantages.

Diversification and control: Real estate investments diversify an SMSF portfolio, lowering overall risk by adding a physical asset class that performs independently of traditional financial markets. SMSF trustees also have complete authority over the selection and administration of their real estate holdings.

Tax Benefits: SMSFs benefit from favourable tax treatment, such as lower tax rates on rental income and capital gains, especially if the property is owned for a long time. This can result in tax savings and higher returns over time.

Potential for Rental Income: Owning property within an SMSF can provide a consistent stream of rental income, which can supplement other income sources and contribute to overall retirement savings.

Asset Growth and Wealth Accumulation: Real estate has traditionally exhibited capital appreciation potential, which might lead to significant growth in the value of the SMSF’s assets over time.

What Properties Can SMSFs Invest in?

Real Estate Assets for SMSF Investment

Various types of properties can be eligible for SMSF investments in real estate.

Residential Property: SMSF investors frequently choose residential properties such as houses, apartments, and townhouses because of their familiarity and potential for rental income. However, SMSFs are restricted from investing in certain types of residential property. SMSFs, for example, cannot invest in properties that are the primary residence of a fund member or a related party.

Commercial Real Estate: Investing in commercial real estate, such as office spaces, retail centres, and industrial properties, can generate better rental returns and longer leases, resulting in consistent income streams. Commercial property, on the other hand, is more difficult to manage than residential property, and SMSF members should have a thorough understanding of the commercial property market before investing.

Industrial Property: Industrial assets, such as warehouses and distribution centres, provide a mix of dependable rental income and possible capital appreciation, making them an attractive alternative for SMSF portfolios.

Vacant Land: SMSFs may invest in vacant land to develop it later. However, it is critical to guarantee that the land is purchased for investment, not for personal use.

Factors to Consider for SMSF Property Investment

There are many factors to consider when acquiring and managing property in an SMSF.

Compliance and Regulation: SMSFs are subject to severe restrictions and compliance requirements imposed by the Australian Taxation Office (ATO). To retain the fund’s compliance status, trustees must follow these guidelines.

Limited Liquidity: Real estate assets are illiquid, which means they cannot be easily converted to cash. When integrating real estate into their SMSF portfolio, trustees must carefully assess their investment horizon and liquidity requirements.

Costs and Expenses: Initial and ongoing expenses of acquiring and maintaining real estate include property purchase costs, ongoing upkeep, management fees, and potential vacancies. Trustees should include these costs in their investing strategy.

Borrowing Restrictions: SMSFs can avail of a limited recourse borrowing arrangement (LRBA) to help finance a property purchase with debt. To prevent potential penalties, trustees must understand these restrictions and assure compliance.

Exploring Alternative Investments

A critical element within SMSF investment strategies is the integration of alternative investments, which offer unique opportunities to diversify portfolios beyond traditional asset classes. Let’s look into the role of alternative investments within SMSFs.

Alternative Investments in a Diversified SMSF Portfolio

Diversification is an important principle in investment management, and alternative assets can assist an SMSF in achieving this. You can lessen your reliance on traditional investments and potentially increase returns by including alternative assets in your portfolio.

Alternative investments frequently have a low correlation with traditional sectors, thus their performance may not be directly driven by the same factors that influence property, stocks and bonds. This can provide some protection during market downturns and increase the stability of your SMSF.

Types of Alternative Investments

Examples of Alternative Investments

Many different types of alternative investments can be held in an SMSF. Some of the most common examples include:

Private Equity: Private equity is an investment strategy that focuses on privately held companies (not listed on public stock exchanges) with a long-term investment horizon. These funds aim to generate returns by making changes to the management and operations of the companies they invest in.

SMSFs can access private equity through direct investments or dedicated funds. Private equity offers capital growth and higher returns, but also higher risks, is illiquid and have a longer investment horizon.

Hedge Funds: A hedge fund is a pooled investment vehicle that trades in relatively liquid assets and has access to a variety of more sophisticated trading, portfolio construction, and risk management strategies, including short selling, leverage, and derivatives, to increase performance.

SMSFs can gain exposure to hedge funds’ strategies, such as long-short equity, global macro, or event-driven strategies.

Commodities: Commodities are raw materials such as oil, gas, gold, and silver. Commodity prices can be volatile, but they can also offer the potential for high returns. Investing in commodities can provide a hedge against inflation and diversify your portfolio. However, commodity prices can be volatile, and investing in them requires careful consideration and risk management.

SMSFs can access commodities through commodity-focused ETFs, futures contracts, or physical ownership.

Risks and Rewards

While alternative investments offer diversification benefits, they also come with their own set of risks and rewards.

Rewards: Alternative investments have the potential to generate higher returns compared to traditional assets. They can offer unique opportunities for capital growth and income generation. Additionally, alternative investments can provide diversification benefits and reduce the overall risk of your SMSF portfolio.

Risks: Alternative investments often come with higher risks. They may be less regulated and less liquid compared to traditional assets. Additionally, alternative investments can be complex and require specialised knowledge to evaluate and manage effectively. It is important to thoroughly research and understand the risks associated with each alternative investment before including them in your SMSF.

Reviewing and Rebalancing Your SMSF Portfolio

Reviewing your SMSF investment strategy is essential to ensure that it remains relevant and effective. You should review your SMSF investment strategy at least once a year or whenever there is a significant change in your circumstances or the investment market. Regular reviews can help you to:

  • Identify any underperforming investments and take corrective action
  • Ensure that your SMSF investment strategy remains aligned with your investment objectives
  • Make any necessary adjustments to your asset allocation to maintain diversification
  • Ensure that your SMSF investment strategy complies with the superannuation laws and regulations

Rebalancing Asset Allocations

Rebalancing is the process of adjusting your SMSF portfolio to maintain your desired asset allocation. It involves selling some of the investments that have performed well and buying more of the investments that have underperformed to bring your portfolio back to its original asset allocation. Some techniques for rebalancing your SMSF portfolio include:

Calendar rebalancing: This involves reviewing and rebalancing your portfolio at set intervals, such as every six months or annually. This method ensures consistency and prevents neglect of your portfolio.

Threshold rebalancing: This involves rebalancing your portfolio when the asset allocation deviates from your desired allocation by a predefined percentage (e.g., ±5%). This method accounts for market volatility and adjusts more frequently.

Cash flow rebalancing: This involves rebalancing your portfolio by directing new contributions or distributions to the underperforming asset classes.

Considerations For Major Events

Marriage, divorce, the birth of a child, or changing employment conditions can all have an impact on your financial goals and risk tolerance. As a result, your SMSF investing plan may need to be adjusted to reflect these developments.

Furthermore, large market movements, economic downturns, or technology upheavals can have long-term consequences on asset performance and the risk-return profile of your portfolio. During such times, an in-depth review and, if necessary, shrewd rebalancing decisions might assist in protecting your retirement assets.

Seeking Professional Advice

Self-managed super funds (SMSFs) give you a lot of freedom and control over how you invest your retirement funds. They can, however, be difficult and time-consuming to handle. For this reason, it’s crucial to get expert guidance from a financial advisor who focuses on SMSFs.

Your financial advisor can help you:

  • Recognise the various investment options offered to SMSFs.
  • Select the investments that are most suited to your unique needs and objectives.
  • Keep an eye on your investments and make any necessary adjustments.
  • Adhere to the challenging regulatory standards for SMSFs

Cost and Benefits of Professional Advice

Depending on the adviser and the complexity of your situation, the cost of professional advice may vary. However, the advantages of working with a knowledgeable advisor can often outweigh the costs involved.

Here are some advantages of consulting a professional for your SMSF:

Peace of Mind: You may feel more at ease if you know that a qualified professional is managing your retirement resources.

Enhanced Returns: You can choose investments with higher returns by working with a financial counsellor.

Reduced Risk: You may reduce risk and safeguard your retirement funds with the assistance of a financial counsellor.

Compliance: You can make sure that your SMSF conforms with all applicable laws by consulting a financial advisor.

How to find a Qualified SMSF Financial Advisor

Finding a qualified financial advisor specialising in SMSFs is essential for receiving reliable and accurate advice.

Remember to conduct thorough research, check qualifications, and interview potential advisors to ensure they have the necessary expertise and experience in managing SMSFs. It’s important to find an advisor who understands your financial goals and can provide tailored advice to meet your specific needs.


A successful SMSF investment journey hinges on a solid grasp of key strategies that optimize returns. From assessing risk tolerance and aligning with investment goals to the art of diversification across asset classes, each step contributes to a resilient and thriving portfolio. However, it’s crucial to recognize that there’s no one-size-fits-all approach in this intricate landscape. Tailoring your strategy to your unique circumstances, aspirations, and risk tolerance is paramount.

Equally vital is the commitment to continuous learning and staying well-informed. The financial landscape evolves rapidly, and being equipped with up-to-date knowledge empowers you to make informed decisions amidst changing market dynamics. By coupling your insights with ongoing education, you’re poised to navigate complexities and seize opportunities that align with your SMSF’s growth objectives.

Need Guidance to Maximise Your SMSF Returns – Speak to the Team at Coastal Advice Group 

Superannuation is vital to your financial future in retirement as an Australian. Whatever stage you are right now in your career, learning about how you can make the most out of your long-term retirement savings plan is always a good practice.

At Coastal Advice Group, we can provide the specialist financial planning, expert knowledge and guidance you need to help you make the right financial decisions for your superannuation strategy so you can look forward to your future with confidence.

Call us or book online to secure your first appointment with us today and get started!