The SMSF investment strategy obligation is one of those compliance items that funds tick off annually without much thought. The ATO’s compliance approach through 2024 and 2025, and the trustee penalties imposed in some specific cases, suggest that approach is risky in 2026.

What the regulation actually requires

SIS Regulation 4.09 requires SMSF trustees to formulate, regularly review, and give effect to an investment strategy. The strategy must consider the fund’s circumstances, including risk and return, diversification, liquidity, the ability to discharge liabilities, and insurance for members.

The “regularly review” requirement has been interpreted by the ATO to mean at least annually, and more frequently when significant events occur — a member joining or leaving, a major investment being made or disposed of, a change in member circumstances.

What the ATO is finding

The ATO’s compliance reviews of SMSF investment strategies through 2024 and 2025 have surfaced a consistent set of issues. Strategies that simply restate the SIS regulation without engaging with the fund’s actual circumstances. Single-asset concentration (typically a single residential property) without explicit consideration of the diversification risk. Insurance considerations omitted entirely or covered by a single sentence. Strategies that have not been reviewed for several years despite material changes in the fund.

Several penalties have been imposed under the trustee penalty regime for trustees of funds where the investment strategy was clearly inadequate. The penalty unit values have increased in 2026.

The practical bar in 2026

A defensible SMSF investment strategy in 2026 needs to do several things. Identify the fund’s specific circumstances — member ages, retirement timeframes, contribution patterns, expected pension drawdowns. Address risk and return explicitly, with reference to the fund’s actual asset allocation. Engage seriously with diversification — particularly for funds with significant concentration in property or in a single asset class. Cover liquidity, with reference to expected outgoings (pensions, expenses, planned property maintenance). Cover insurance, with a documented decision on whether the fund holds insurance for each member.

The strategy should also include an explicit review cadence and evidence that the cadence has been followed.

The single-property SMSF

Single-property SMSFs remain the structure where investment strategy reviews most often fall short. The concentration in a single asset class — and typically a single asset — is the issue, and the standard approach of explicitly noting the concentration, identifying the trustees’ awareness of the risk, and documenting the rationale for retaining the strategy is acceptable to the ATO when done properly. A boilerplate strategy that ignores the concentration risk entirely is not.

The review cadence

Annual minimum, with additional reviews triggered by member age milestones, large investments or divestments, and changes to fund membership. The review should be documented — minutes of trustee meetings or trustee resolutions — and the documentation kept with the fund records.

A practical note

This is general information. SMSF trustees making investment strategy decisions should obtain advice from their accountant or financial adviser on their specific circumstances. The 2026 compliance environment rewards trustees who take the obligation seriously and penalises those who treat it as a formality.