The recent sell-off on global share markets due to the economic impact of COVID-19 has highlighted the risks of depending too heavily on a single asset class. Even before the current crisis, the ATO was concerned about a minority of self-managed superannuation funds (SMSFs) with up to 90 per cent of their money in a single asset class.
In many cases, that single asset is an investment property for which the SMSF has borrowed money through a limited recourse borrowing arrangement (LRBA). While property has historically provided good returns over the long run, this is not always a good recipe for providing income in retirement.
The ATO is so concerned it has written to 17,700 SMSFs warning them about the dangers of concentration of risk and suggesting greater diversification. By putting your money in a range of investments and asset classes you effectively spread your risks.
The superannuation laws require that you must prepare and implement an investment strategy for your self-managed super fund (SMSF) which you must then give effect to and review regularly. Your strategy must be in writing.
Click here to find out more about ATO requirements for your SMSF investment strategy.
