SMSF Investment Strategy Requirements: What the ATO Expects in 2026

Every SMSF trustee has one. Most haven't read it in years.

Your fund is legally required to hold a written investment strategy - not a mental plan, not a verbal agreement between members, but a signed document that describes how the fund is invested and why.

The ATO's concern is not simply whether it exists. It is whether the one you have still reflects your fund today. For most trustees, it doesn't.

Under the Superannuation Industry (Supervision) Act 1993 and its regulations, every SMSF must have a written investment strategy that addresses five specific areas.

The strategy must describe the expected return from the fund's investments and whether that return is likely to meet the fund's retirement objectives. A vague reference to "growth" is not sufficient. The document should articulate what the fund is trying to achieve and why the investment approach is consistent with that goal.

The strategy must address the risks involved in the investment approach and how the trustees intend to manage them. This includes market risk, concentration risk, and the risk of not meeting the fund's objectives. A fund holding a single commercial property has a very different risk profile from a diversified share portfolio. Both are permissible. But the strategy must address that risk specifically, not generically.

The strategy must address how the fund's assets are spread across different asset classes. This does not require equal weighting. It requires that trustees have turned their mind to diversification and documented their approach - including an explanation if the fund is deliberately concentrated in one asset class.

The fund must be able to meet its financial obligations as they fall due: pension payments, tax bills, audit fees, and other expenses. The strategy must address how the fund will maintain sufficient liquid assets to meet these commitments. This becomes especially important once members move into pension phase and are drawing regular income from the fund. From 1 July 2025, Payday Super also changes the timing of employer contribution flows for members still receiving SG contributions - worth noting in the strategy if relevant.

The strategy must document whether the fund should hold life insurance, total and permanent disability (TPD) cover, or income protection insurance for each member. The fund does not need to hold insurance. What it must do is show that trustees considered it for each member and made a deliberate, documented decision.

One thing that surprises many trustees: there is no prescribed format under the law. A clear, signed document that genuinely addresses these five areas is compliant. It does not need to be lengthy. What matters is that it reflects the fund's actual situation today.

The most common failure is not the absence of a strategy. It is a strategy that no longer reflects reality.

Most trustees write the document when the fund is first established. At that stage, it matches the portfolio, the member ages, and the accumulation phase. Then life moves on.

Members approach retirement. The portfolio shifts toward income-producing assets. A property is acquired. A member starts drawing a pension. Market movements throughout 2025 and into 2026 have materially changed the actual weightings of many SMSF portfolios - often without any deliberate trustee decision. When share prices move significantly, the proportion of the portfolio held across different asset classes moves with them.

The written document does not move with any of it.

The result is a fund whose strategy says one thing and whose actual investments say another. That is a compliance breach under the Superannuation Industry Act - regardless of whether the trustees were aware of it.

The ATO has repeatedly flagged investment strategy compliance as an audit focus area. In reviews published in recent years, a significant proportion of funds had not updated their strategy despite material changes to their portfolio and member circumstances. Some had strategies that bore no resemblance to the assets the fund actually held.

For more on what the ATO is currently examining in SMSF audits, see our 2026 ATO compliance update for SMSF trustees.

Your SMSF auditor is required by law to check your investment strategy as part of the annual audit. They must verify that the strategy exists, that it is in writing, and that the fund's actual investments are consistent with what the document says.

If they find a breach - a strategy that does not reflect the fund, or a fund investing outside the parameters the strategy sets - they are required to report it to the ATO via an Auditor Contravention Report (ACR). This is not discretionary. If a breach exists, the report is mandatory.

An ACR triggers ATO attention. In serious or repeated cases, it can result in penalties or the fund being made non-compliant. A non-compliant fund loses its concessional tax treatment. Income is taxed at 45% rather than 15%.

That is the consequence of an administrative failure that could have been avoided with a document review.

Pull out your fund's investment strategy and work through these before your next audit.

1. Does the asset allocation still match what the fund actually holds?

If your strategy says the fund will hold 40-60% in Australian shares but the portfolio is currently sitting at 75%, that is a discrepancy an auditor is required to flag. Market movements in late 2025 and early 2026 have shifted actual allocations in many funds without trustees making any deliberate decision. Check the numbers.

2. Does it address liquidity for members in pension phase?

A fund paying regular pension drawdowns needs liquid assets to meet those payments. A strategy written during the accumulation phase may not address this at all. If any member is now drawing an account-based pension, the liquidity section needs to reflect it.

3. Has the insurance section been reviewed for each member?

The requirement to consider insurance is frequently overlooked. The strategy does not need to provide insurance - it needs to show that trustees considered it for each member and documented their reasoning. A strategy that says nothing about insurance is incomplete.

4. Does it reflect the current risk profile of each member?

A member in their early 60s approaching retirement has different risk considerations from those they had at 50. The document should reflect where members actually are today, not where they were when the fund was established.

5. When was it last reviewed and signed?

A strategy with a 2020 signature date and no subsequent updates is exactly what auditors are trained to look for. Annual review is best practice. If the document does not show a recent review date, it may be treated as out of date regardless of its content.

Reviewing your investment strategy does not necessarily require engaging a specialist, though updating it properly is worth doing alongside your SMSF accountant or administrator.

Step 1: Locate the current document.

If you cannot find your strategy, your SMSF administrator or accountant will have a copy on file. A quick email asking them to send it through is the starting point.

Step 2: Read it against the current portfolio.

Compare the asset allocation ranges in the document against what the fund actually holds today. If the gap is significant, note the specific discrepancies before you do anything else.

Step 3: Update each of the five required areas.

Work through return objectives, risk, diversification, liquidity, and insurance. Update any section that no longer reflects the fund's current situation. If a member has moved into pension phase since the strategy was last reviewed, the liquidity and risk sections will almost certainly need updating.

Step 4: Have all trustees sign and date the updated document.

The review is not complete without signatures from all trustees. A one-page update, signed and dated, is usually sufficient. What matters is that the document genuinely reflects the fund's current position on that date.

Step 5: File it and set a calendar reminder.

Annual review is best practice. Set a reminder for the same time next year, or tie it to your fund's financial year-end process with your accountant.

If your fund holds complex assets such as direct property, a limited recourse borrowing arrangement (LRBA), or cryptocurrency, it is worth having your SMSF specialist review the updated strategy before it is finalised.

For a broader look at SMSF compliance obligations that trustees often overlook, see our guide to binding death benefit nominations - another document that commonly falls out of date.

For the full regulatory requirements, refer to the ATO's guidance on creating your SMSF investment strategy.

Annual review is widely accepted as best practice and aligns with ATO expectations. The law requires regular review and update when circumstances change, but does not specify a timeframe. A strategy that has not been reviewed for several years is likely to be out of date. If there has been a significant market movement, a change in member circumstances, or a new asset class added to the portfolio, the strategy should be reviewed immediately rather than waiting for the annual cycle.

Yes. The strategy must be in writing and signed by the trustees. It should also be dated so that auditors can confirm when it was last reviewed. An unsigned or undated strategy is incomplete and may be treated as non-compliant.

Yes. There is no prescribed format under the law. A document drafted by the trustees is compliant provided it genuinely addresses the five required areas: return, risk, diversification, liquidity, and insurance. Many SMSF administrators provide template documents that trustees can adapt. The critical test is not the format - it is whether the document reflects the fund's actual situation today.

The absence of a written investment strategy is a breach of superannuation law. Your auditor is required to report it to the ATO via an Auditor Contravention Report. This triggers ATO attention and can result in penalties, or in serious cases, the fund being treated as non-compliant.

No. The strategy can specify ranges rather than fixed percentages - for example, "20% to 50% in Australian shares." Ranges give trustees flexibility to manage the portfolio without breaching the documented parameters. What the strategy must do is reflect how the fund is actually invested, so if ranges are stated, the current portfolio needs to sit within them.

No. Even if your fund uses a financial adviser or SMSF specialist, the investment strategy obligation rests with the trustees. Advisers can assist with drafting and reviewing the document, but the responsibility to hold a current, compliant strategy belongs to the trustees - not their adviser.

Super Informed is a free weekly newsletter for Australian SMSF trustees, published every Thursday. Each issue covers ATO compliance updates, contribution strategies, and practical actions - in plain English, without jargon.

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Disclaimer: This article is for educational purposes only and does not constitute financial advice. Always consult a licensed financial adviser or SMSF specialist before making decisions about your fund.