Self-Managed Super Funds (SMSFs) have become an increasingly popular choice for Australians seeking greater control over their retirement planning. With over 1.15 million SMSF members collectively managing nearly $1 trillion in assets as of 2023, these self-directed retirement vehicles offer unprecedented investment flexibility and potential tax advantages. However, many trustees stick to conventional investment approaches, potentially missing out on strategies that could significantly enhance their retirement outcomes.
An SMSF empowers you to make your own investment decisions, tailoring your portfolio to align with your specific retirement goals and risk tolerance. Unlike traditional superannuation funds, SMSFs provide trustees with direct control over asset selection, investment timing, and portfolio construction. This control comes with significant responsibility, requiring a well-considered investment strategy that balances growth opportunities with regulatory compliance.
Building a Foundation: The Importance of Strategic SMSF Investment
Before exploring underrated investment strategies, it’s crucial to understand that a comprehensive SMSF investment strategy isn’t just good practice—it’s a legal requirement. Your investment strategy serves as a personalized roadmap guiding your investments toward your retirement goals. It must outline how your fund’s investments will help achieve member retirement objectives while considering risk, return, diversification, liquidity, and member circumstances.
💡 Pro Tip: Your SMSF investment strategy should be reviewed at least annually, or whenever significant market changes or member circumstances evolve.
As one industry expert puts it, “Think of your SMSF investment strategy as a personalised roadmap guiding your investments towards your goals for retirement.” This document shouldn’t be created once and forgotten; it requires regular review and adjustment as markets evolve, regulations change, and your retirement horizon approaches.
The Australian Taxation Office (ATO) has increasingly focused on ensuring SMSF trustees have properly documented investment strategies that demonstrate thoughtful consideration of members’ best interests. Beyond compliance, a well-crafted strategy helps you navigate market volatility with confidence and purpose, keeping emotional reactions in check during market fluctuations.
7 Underrated SMSF Investment Strategies Worth Considering
While traditional assets like Australian shares, cash, and term deposits dominate many SMSF portfolios, several alternative approaches deserve consideration. Here are seven underrated SMSF investment strategies that could potentially transform your retirement outcomes:
Did you know? While most SMSFs focus on traditional asset classes, implementing just one or two of these alternative strategies could potentially enhance your portfolio’s diversification and risk-adjusted returns.
1. Strategic Property Investment Through Limited Recourse Borrowing Arrangements (LRBAs)
While many SMSF trustees are aware that property investment is possible, fewer fully understand how to leverage Limited Recourse Borrowing Arrangements (LRBAs) strategically. An LRBA allows your SMSF to borrow funds to purchase assets—typically property—while limiting the lender’s recourse to just the specific asset purchased.
What makes this approach powerful is the protective structure it provides. Under an LRBA, the property is held in a separate bare trust, and if your SMSF loan defaults, the lender can only claim the property held in that trust, protecting all other SMSF assets. This strategy can be particularly effective for acquiring commercial property that your business might lease from your SMSF, potentially creating multiple tax efficiencies.
However, proper structuring is essential. As an SMSF lending specialist notes, “Properly structuring an LRBA is essential for compliance with Australian Taxation Office regulations and to safeguard the interests of your SMSF.” Working with specialists in SMSF lending, such as Aries Financial, ensures your borrowing arrangement meets all compliance requirements while maximizing potential benefits.
2. International Equities for True Diversification
Recent data shows Australian SMSFs remain heavily concentrated in domestic assets, with international exposure often limited or absent entirely. This home bias creates concentration risk and misses significant global opportunities. The ASX represents less than 2% of global market capitalization according to market analysis, meaning SMSF trustees focusing solely on Australian shares are excluding 98% of potential investment opportunities.
Exchange-Traded Funds (ETFs) have made international diversification increasingly accessible, offering low-cost exposure to global markets, sectors, or themes. Data indicates growing adoption, with “listed trusts, which include exchange traded funds (ETFs)” showing significant percentage growth in SMSF portfolios.
International diversification provides access to industries underrepresented in Australia (like technology and healthcare) while reducing vulnerability to Australia-specific economic challenges. This approach aligns with the investment strategy requirement to consider diversification while potentially enhancing long-term returns.
3. Private Debt and Credit Investments
With traditional fixed-income yields compressed in recent years, private debt investments have emerged as an attractive alternative for income-focused SMSF trustees. These investments involve lending to businesses or real estate projects outside traditional banking channels, typically offering higher yields to compensate for reduced liquidity.
Private debt can include:
- Corporate direct lending
– Real estate debt - Infrastructure financing
- Private credit funds
These investments can generate steady income streams while providing portfolio diversification through lower correlation with public markets. However, due diligence is essential, as these investments typically involve higher complexity and potentially longer commitment periods.
4. Infrastructure and Essential Services
Infrastructure investments—including transportation, utilities, communications, and essential services—offer SMSF trustees several compelling benefits often overlooked in traditional portfolios. These assets typically provide:
– Reliable income streams backed by long-term contracts
– Inflation protection through regulated pricing models
- Lower correlation with equity markets
- Exposure to essential services with defensive characteristics
While direct infrastructure investment is generally beyond individual SMSF reach, infrastructure funds, listed infrastructure companies, and specialized ETFs make this asset class increasingly accessible. The long-term, stable return profile of infrastructure investments makes them particularly well-suited for retirement portfolios seeking reliable income with moderate growth potential.
5. Strategic Use of Collectibles and Personal Assets
While collectibles and personal assets (like artwork, rare coins, or vintage automobiles) require careful compliance management within an SMSF, they represent a genuinely alternative investment opportunity that can both diversify your portfolio and potentially deliver strong returns uncorrelated with financial markets.
The key to successful collectible investment within an SMSF lies in strict adherence to specific storage, insurance, valuation, and usage requirements. These assets must:
- Be purchased for genuine investment purposes
- Not provide current-day benefit to members or related parties
– Be properly insured within 7 days of acquisition - Be stored away from private residences
- Be formally valued by qualified professionals
When managed properly, collectibles can provide both portfolio diversification and potential tax advantages compared to holding such assets personally. This strategy works particularly well for trustees with specialized knowledge in specific collectible categories.
6. Targeted Exchange-Traded Funds (ETFs) for Thematic Exposure
While broad-market ETFs have gained popularity among SMSF investors seeking diversification, thematic ETFs targeting specific sectors, trends, or investment themes represent an underutilized opportunity. These specialized ETFs allow trustees to gain exposure to promising growth areas like renewable energy, artificial intelligence, cybersecurity, or healthcare innovation without requiring extensive research into individual companies.
Industry data confirms this trend, noting that “listed trusts, which include exchange traded funds (ETFs)” have shown significant percentage growth in SMSF portfolios. This approach combines the diversification benefits of fund-based investing with the ability to express specific views on economic or technological developments.
For SMSF trustees concerned about concentration risk in Australian markets, thematic ETFs offer a straightforward path to global exposure in tomorrow’s growth industries while maintaining the liquidity and transparency ETFs provide.
7. Managed Accounts for Professional Oversight
Managed accounts represent a middle ground between complete self-direction and traditional managed funds, offering SMSF trustees professional investment management while retaining beneficial ownership of the underlying assets. Unlike managed funds, managed accounts provide transparency on specific holdings, greater tax efficiency through direct ownership, and potential for customization to align with your SMSF’s specific requirements.
This approach can be particularly valuable for trustees who value professional oversight but wish to maintain greater control than traditional superannuation offers. It combines the compliance simplicity of direct ownership with the expertise of professional management, allowing trustees to focus on strategic decisions while delegating day-to-day investment selection.
Navigating Compliance and Regulatory Challenges
Implementing these underrated strategies requires careful attention to regulatory compliance. The ATO continues to scrutinize SMSF investment activities, with particular focus on areas like related-party transactions, sole purpose test compliance, and proper documentation of investment decisions.
Regular review of your investment strategy is not just best practice—it’s a legal requirement. As market conditions, regulations, and your personal circumstances change, your SMSF investment strategy should evolve accordingly. This ongoing process ensures your fund remains compliant while maximizing potential for meeting your retirement objectives.
Working with SMSF specialists like Aries Financial can provide valuable guidance through these complexities. With their core philosophy centered on integrity, expertise, and empowerment, such specialists help ensure your investment strategy not only meets regulatory requirements but is optimized for your specific retirement goals. Their deep understanding of SMSF regulations and property investment strategies ensures you receive the best financial solutions while avoiding potential compliance pitfalls.
Conclusion: Empowering Your SMSF Investment Journey
While SMSFs offer unprecedented control over your retirement investments, maximizing their potential requires looking beyond conventional strategies. The seven approaches outlined here represent opportunities to enhance diversification, potentially improve returns, and better align your portfolio with your specific retirement objectives.
However, successful implementation requires both knowledge and discipline. As Australia’s SMSF sector continues to grow—now managing nearly $1 trillion in assets according to recent figures—the importance of informed, strategic decision-making becomes increasingly apparent. The most successful SMSF trustees recognize that control brings responsibility, requiring ongoing education and occasionally seeking specialized expertise.
⚠️ Important: Always consult with qualified SMSF professionals before implementing new investment strategies to ensure they align with current regulations and your fund’s investment strategy document.
Aries Financial, as Australia’s Trusted SMSF Lending Specialist, exemplifies the partner many trustees seek when navigating complex strategies like LRBAs. Their commitment to integrity ensures ethical lending practices focused on long-term financial security. Their expertise in SMSF regulations and property investment strategies helps trustees make informed decisions. Most importantly, their philosophy of empowerment aligns perfectly with the SMSF sector’s foundational principle: enabling Australians to take control of their retirement destiny.
Whether you’re considering establishing an SMSF or looking to enhance your existing fund’s performance, these underrated strategies deserve consideration as part of a comprehensive approach to retirement planning. By combining innovative investment approaches with prudent risk management and proper compliance, your SMSF can truly become a transformative vehicle for achieving your retirement dreams.
Remember that successful SMSF investment isn’t about chasing the highest possible returns—it’s about creating a sustainable strategy aligned with your personal retirement goals, risk tolerance, and time horizon. With the right approach and appropriate guidance, your SMSF can provide both the control and potential outcomes that inspired you to establish it in the first place.
