One of the most powerful things about running your own Self-Managed Super Fund is the control it gives you over how your retirement savings are invested. Unlike a retail or industry fund — where you typically pick from a handful of preset options — an SMSF lets you invest across a broad range of asset types, in the way that makes sense for your circumstances.
But with that control comes responsibility. Every investment decision your SMSF makes must comply with superannuation law, be consistent with your fund's documented investment strategy, and be made with a single purpose in mind: providing retirement benefits for the fund's members.
This post is a plain-English guide to how SMSF investing works — what's available, how returns vary, and what the rules require of you as a trustee.
The Asset Classes Available to Your SMSF
SMSFs can invest across a wide range of asset classes. Each sits at a different point on the risk-return spectrum — and understanding that spectrum is fundamental to building a strategy that suits your fund and its members.
Return ranges above are historical illustrations based on long-run asset class averages for Australian investors. Past performance is not an indicator of future performance. Returns vary significantly year to year. This diagram is for educational purposes only and is not financial advice.
Cash & Term Deposits
Cash — including bank accounts and term deposits — is the most straightforward SMSF asset. It's highly liquid, capital-stable, and generally the lowest-risk option. Deposits with Australian ADIs (authorised deposit-taking institutions like banks) are covered by the government's Financial Claims Scheme up to $250,000 per institution.
The trade-off is return: cash rates are closely tied to the RBA cash rate and tend to sit below inflation over long periods. Many SMSFs hold cash as a liquidity buffer to meet expenses and pension payments, rather than as a primary growth asset.
Bonds & Fixed Interest
Bonds are essentially loans made by your SMSF to a government or corporation in exchange for regular interest payments and return of the principal at maturity. Australian government bonds carry very low credit risk, while corporate bonds offer higher yields in exchange for higher risk.
Fixed interest investments provide more predictable income than shares, but prices can move when interest rates change — rising rates push bond prices down, and vice versa. They're often used as a stabilising component in a diversified portfolio.
Property
Property is one of the most popular asset classes for Australian SMSFs. Your fund can hold direct residential or commercial property, or invest indirectly through Listed Real Estate Investment Trusts (REITs) on the ASX.
There are important rules around property in an SMSF. Residential property cannot be purchased from, or occupied by, a member or their related parties. Commercial property can be leased to a related business — but only at genuine commercial (arm's-length) terms.
Property can provide rental income and capital growth, but it's illiquid. Selling a property takes time, which is worth factoring in when thinking about your fund's ability to meet expenses or pension payments at short notice.
Australian & International Shares
Listed shares — both on the ASX and international exchanges — are the most commonly held asset class across the SMSF sector, representing around 27% of all SMSF assets nationally (ATO data, 2022–23).
Australian shares are popular in part because of franking credits — dividend imputation credits that can significantly improve after-tax returns within a superannuation fund's low-tax environment. ETFs (Exchange Traded Funds) and LICs (Listed Investment Companies) are widely used as diversified, low-cost ways to access both Australian and international markets.
Shares offer high liquidity and strong long-run growth potential, but come with meaningful short-term volatility. The ASX has returned approximately 10% per annum since 1994 on average — but that average masks years of significant gains and losses along the way.
Managed Funds & Unlisted Trusts
SMSFs can invest in professionally managed investment funds — including unlisted trusts, diversified managed funds, and sector-specific funds. These allow exposure to a wide range of markets and strategies without the fund needing to directly own the underlying assets. Unlisted trusts are the third-largest asset class in the SMSF sector by value.
Alternatives
Alternative assets — including hedge funds, private equity, infrastructure, commodities, and digital assets (cryptocurrency) — sit at the higher-risk end of the spectrum. They can offer diversification benefits and potentially high returns, but typically come with greater complexity, less liquidity, and higher volatility.
Cryptocurrency is permitted in SMSFs but requires robust processes for ownership verification, secure storage (hardware wallets must be in the fund's name), and valuation at 30 June each year for the annual return. The ATO has flagged digital assets as an area of ongoing compliance scrutiny.
Collectables — including artwork, wine, coins, and jewellery — are also permissible but come with very strict rules: the item cannot be used or displayed by a member or related party, must be insured in the fund's name, stored at arm's length, and valued at market value each year.
Why Returns Vary So Much — and Why Strategy Matters
Here's a reality of investing that's easy to forget: asset class performance is not consistent from year to year. The best-performing asset class one year can easily be the worst the next.
To illustrate the point: in 2022–23, Australian SMSFs as a sector delivered an estimated average return on assets of 10.1% (ATO statistical overview). In 2021–22, the same figure was 0.6%. The year before that, it was 7.3%.
| Financial Year | Estimated SMSF Sector Return (ROA) | Context |
|---|---|---|
| 2018–19 | 7.3% | Steady growth year |
| 2020–21 | ~14% | Post-COVID rebound in markets |
| 2021–22 | 0.6% | Rising interest rates, share market falls |
| 2022–23 | 10.1% | Market recovery, strong equity gains |
SMSF return on assets figures sourced from the ATO's Self-Managed Superannuation Funds: A Statistical Overview 2022–23 and reflect the sector average. Individual SMSF returns will differ substantially depending on asset allocation, timing, and fund-specific factors. Past performance is not an indicator of future performance.
This variability is exactly why having a documented, well-considered investment strategy isn't just a compliance box to tick — it's the thing that keeps your fund anchored to a long-term plan when markets are moving in unexpected directions.
A fund that's 100% in cash will feel very safe in a falling market — but over a 20-year period, it will almost certainly underperform a diversified fund and may fail to keep pace with inflation. A fund that's 100% in speculative assets might generate spectacular returns in good years — but one bad year could cause serious damage. Getting the mix right — and documenting it clearly — is one of the most important things a trustee can do.
The Investment Strategy: What the Law Requires
Every SMSF in Australia must have a written investment strategy. This is not optional — it is a legal requirement under Regulation 4.09 of the Superannuation Industry (Supervision) Regulations 1994.
The investment strategy must be:
- In writing — a verbal understanding or mental note does not satisfy the legal requirement
- Formulated before investments are made — you cannot invest first and document later
- Given effect to — your actual investments must align with what the strategy says
- Reviewed regularly — at least annually, and any time the fund's circumstances change
What the Strategy Must Cover
Under Section 52B(2)(f) of the SIS Act, a compliant investment strategy must address the following:
| Required Element | What It Means in Practice |
|---|---|
| Risk & Return | Document your approach to balancing risk against expected return across the asset classes you hold or plan to hold. |
| Diversification | Address how risk is spread across different investments. If your fund is concentrated in a single asset, document why that is appropriate. |
| Liquidity | Ensure the fund can meet expenses, tax obligations, and pension payments as they fall due — especially important for funds in pension phase. |
| Member Circumstances | The strategy must be tailored to the members' ages, risk tolerance, and retirement objectives. |
| Insurance | Trustees must consider whether members have adequate life, TPD, or income protection insurance — either inside or outside the fund. |
The ATO does not prescribe specific asset allocation percentages. However, your SMSF auditor will review the strategy for completeness and consistency with your actual investments each year.
Compliance Rules Every SMSF Investor Must Know
Beyond the investment strategy requirement, there are a set of rules that govern every investment your SMSF makes. Getting these wrong — even accidentally — can result in ATO penalties, loss of the fund's complying status, and the loss of concessional tax treatment.
The Sole Purpose Test
The most fundamental rule in SMSF investing. Every investment made by your SMSF must be made solely for the purpose of providing retirement benefits to members (or death benefits to their dependants). No member, trustee, or related party should derive a present-day personal benefit from any fund asset.
This means: you can't use your SMSF's investment property for personal holidays. You can't buy art and display it at home. You can't invest in your friend's business as a favour. Any current benefit to you or someone connected to you is a red flag.
Arm's Length Transactions
All SMSF investments must be made and maintained at arm's length — meaning on commercial terms that you'd expect from an unrelated third party. This applies to property purchases, leases, loans, and any transaction involving a related party.
Buying an asset from a related party at a discounted price, or leasing property to a family business below market rent, are both non-arm's length transactions that the ATO actively scrutinises.
In-House Asset Rules
Your SMSF is generally prohibited from having more than 5% of the fund's total assets in "in-house assets" — investments in, or loans to, a related party of the fund. There are some exceptions (such as business real property leased to a related party at commercial terms), but this rule catches many well-intentioned arrangements that trustees may not realise are restricted.
Prohibited Investments
Some investments are outright prohibited for SMSFs, regardless of the investment strategy. These include:
- Acquiring residential property from a related party
- Lending money to a member or their relatives
- Using fund assets as security for a personal loan
- Acquiring an asset if it will provide a present-day benefit to a member
Investing in collectables and personal-use assets (art, wine, jewellery, etc.) is permitted — but subject to strict rules around storage, usage, insurance, and documentation. These assets cannot be used or displayed by a member or related party under any circumstances.
All Assets Must Be Held in the Fund's Name
Every asset your SMSF owns must be legally held in the name of the fund — either the corporate trustee's name, or all individual trustees' names as trustees for the fund. Holding an investment in your personal name is a serious breach. This catches many new SMSF trustees off guard.
How SMSFs Typically Invest: Common Approaches
While every SMSF is different, certain investment approaches are common across the sector. The ATO's most recent statistical data (2022–23) shows how SMSF assets are distributed nationally:
| Asset Class | % of Total SMSF Assets (2022–23) |
|---|---|
| Australian Listed Shares | ~27.5% |
| Cash & Term Deposits | ~17.5% |
| Unlisted Trusts | ~12.4% |
| Non-Residential Real Property | ~10.0% |
| LRBA Assets (limited recourse borrowings) | ~6.5% |
| Other (residential property, fixed interest, etc.) | ~26.1% |
Asset allocation data sourced from the ATO's Self-Managed Superannuation Funds: A Statistical Overview 2022–23, the most recent year for which full data is publicly available. This data represents sector-wide averages and is not a recommendation of any particular asset allocation.
What this tells us is that the typical SMSF is reasonably diversified — with meaningful exposure to both growth assets (shares, property) and defensive assets (cash, fixed interest). However, the right mix for any given fund depends entirely on its members' ages, risk profiles, retirement timelines, and financial circumstances.
Funds in accumulation phase (still building their balance) often hold more growth assets. Funds where members are drawing a pension typically shift toward more defensive, income-producing assets to ensure liquidity and capital preservation.
Your Ongoing Obligations as a Trustee-Investor
Being an SMSF trustee isn't a set-and-forget role. Once your fund has an investment strategy and portfolio, there are ongoing obligations to stay on top of:
- Review your investment strategy at least annually — or any time a member's circumstances change (retirement, new member joining, health events)
- Value all assets at market value as at 30 June each year — this includes property, unlisted investments, and any collectables
- Document all investment decisions — keep records of why decisions were made, particularly for concentrated positions or related-party transactions
- Keep fund assets completely separate from personal assets — separate bank accounts, separate investment accounts, everything in the fund's legal name
- Ensure insurance is considered for all members and the outcome is documented in your investment strategy
- Lodge your annual SMSF Return on time — an overdue return can result in your fund's complying status being suspended, which affects your ability to receive contributions
The Bottom Line
Investing through an SMSF gives you genuine control over your retirement savings — the ability to choose your assets, tailor your strategy to your circumstances, and potentially access investments not available through standard super funds.
But that control only works well when it's backed by a sound, documented investment strategy that reflects your goals and risk tolerance, and when all investments are made in compliance with the rules that govern SMSFs.
Returns across asset classes vary enormously from year to year — and the difference between a well-considered strategy and an ad hoc one can be significant over a 20 or 30-year investment horizon.
Unsure whether your SMSF's investment strategy is up to date, well-documented, and compliant with current ATO requirements? That's exactly what we're here to help with.
Talk to JoyThis post contains general information about SMSF investing only. It is not financial product advice, tax advice, or legal advice, and does not take into account your personal objectives, financial situation, or needs. Investment decisions made within your SMSF are the responsibility of the fund's trustees. Before making any investment decision, superco recommends you speak with a qualified SMSF accountant and, where appropriate, a licensed financial adviser. superco is an accounting firm and SMSF specialist — we are not a licensed financial services provider and do not provide financial product advice.
