Your SMSF investment strategy has five matters to cover and a yearly review: what regulation 4.09 asks

Regulation 4.09 of the SIS Regulations names five matters your SMSF's investment strategy has to address, and it uses the words "review regularly". A strategy a trustee signs once at fund setup and never opens again fails the second of those, and it is something the fund's auditor is asked to look for every year. It is also one of the easier breaches to put right, because the fix is a page of writing rather than a change to what the fund holds.

The five matters regulation 4.09 asks you to address

The regulation says the trustee must formulate, review regularly and give effect to an investment strategy that has regard to the whole of the circumstances of the fund, "including, but not limited to" five named matters:

• the risk involved in making, holding and realising the fund's investments, and the likely return from them, having regard to the fund's objectives and its expected cash flow requirements
• the composition of the fund's investments as a whole, including the extent to which they are diverse or expose the fund to risks from inadequate diversification
• the liquidity of the fund's investments, having regard to its expected cash flow requirements
• the ability of the fund to discharge its existing and prospective liabilities
• whether the trustees should hold a contract of insurance that provides cover for one or more members

That last matter is the one a template most often leaves out. It does not oblige a fund to hold life or incapacity cover. It obliges the trustees to turn their mind to whether the fund holds any, and to record the outcome either way. A strategy silent on insurance has skipped a limb of the regulation, even if the answer the trustees would give is "none".

The ATO adds that the strategy should be in writing, tailored to the fund's own circumstances, and not a repeat of the legislation. Stating ranges of 0 to 100 per cent for each asset class is, in the ATO's words, not a valid approach on its own: the strategy also has to say how the trustees plan to invest and why they need broad ranges. A fund that does not use percentages has to list its material assets and why they were chosen.

"Consider diversification" is not the same as "be diversified"

Regulation 4.09 asks the trustees to consider diversification. It does not require the fund to be diversified. The ATO's own page says a fund can choose to hold all of its retirement savings in one asset or asset class. Where it does, the strategy has to document that the trustees considered the risks of a lack of diversification, and how they think the holding will still meet the fund's objectives, including its cash flow needs.

The ATO also notes that concentration risk is higher where the fund has borrowed under a limited recourse borrowing arrangement to buy the asset, because a fall in value can cut into the members' savings and a breach of the loan terms can force a sale. When the auditor reads a strategy that describes a broad spread while the balance sheet holds one direct property, the mismatch is the finding, not the property itself.

If your fund runs concentrated by design, the strategy is where you say so in the fund's own words: what the asset is, why the trustees accept the concentration, how the fund would meet expenses and benefit payments if that asset stopped producing income, and what would prompt a change. Whether a concentrated holding is right for your fund is a question for you and, if you want one, a licensed adviser. This article is only about what the document has to contain.

The review is the part that gets skipped

"Regularly" is not defined with a number in the regulation. The ATO's guidance is to review the strategy at least annually, and to review it again when a significant event happens. The events the ATO names are a market correction, a member joining or leaving the fund, and a member starting a pension, because the fund then has to be able to meet minimum pension payments.

The market trigger does quiet damage. Asset values move on their own, so a fund that set a range at the last review can drift outside it without the trustees buying or selling anything. The 30 June valuation that every fund already has to prepare is a natural moment to check the strategy against reality, because both jobs use the same numbers. We set out the valuation obligation separately at smsfcore.com/blog/smsf-asset-market-value-30-june.

A review does not have to change the strategy. It has to be done, documented and kept. The ATO says to record that the review was undertaken and any decisions made, and that this can be done in the annual trustee meeting minutes. The auditor's checklist lists the same evidence: an updated strategy, notations on the current one, or minutes of a trustee meeting.

Liquidity, and the cash the fund has to find

The liquidity limb is where pension-phase funds get tested. A fund paying a minimum pension has to find that cash every year, and a fund whose assets are hard to sell in a hurry can be put in an awkward position when the annual payment falls due. The strategy is meant to show the trustees thought about where the money comes from before the year they need it, not after.

The same applies to the fund's running costs: the audit fee, accounting and lodgment costs, insurance premiums where held. All of it comes out of fund assets, and all of it assumes something liquid enough to pay from.

What the auditor does with the document

Every SMSF has to be audited each year by an approved SMSF auditor, and the ATO's compliance audit checklist has a section for regulation 4.09. The auditor looks for evidence that the strategy considers the whole of the fund's circumstances, covers risk and return, diversity, liquidity and the ability to meet liabilities, considers the members' insurance needs, and is reviewed regularly. The auditor then checks the fund's actual investments to confirm the strategy was implemented.

If the auditor finds a gap, the ATO's stated fix is a signed and dated addendum to the strategy, or a trustee minute that covers the missing matter, shown to the auditor before the audit is finalised. If the fund did not invest in line with the strategy, the strategy has to be revised to reflect what the fund holds and then reviewed and followed from there. Where the breach meets the reporting criteria in the auditor/actuary contravention report instructions, the auditor has to lodge a contravention report with the ATO.

Regulation 4.09 is an operating standard, and a breach of subsection 34(1) of the SIS Act, which requires trustees to comply with the operating standards, carries an administrative penalty of 20 penalty units. At $364 a unit for conduct on or after 1 July 2026, that is $7,280. The ATO imposes it on each individual trustee, or on the directors of a corporate trustee jointly and severally, and it cannot be paid or reimbursed from the fund's assets.

The strategy is a fund record, and it is kept and produced like any other. We cover how trustees hold the fund's paperwork, and how long each piece has to survive, at smsfcore.com/blog/smsf-record-keeping-options-2026.

SMSF Core keeps the fund's current asset positions in one place against the strategy's stated ranges, so a holding that has drifted outside its band is visible during the year rather than at audit. The review prompt is dated and logged with the fund's other year-end records, and there is a sample fund at app.smsfcore.com/demo if you want to see how the position view reads with data already in it.

Nothing here says what a fund should hold or how it should be spread. SMSF Core is an information tool, not a licensed financial service. Talk to a licensed adviser or your accountant about your own fund.