Speaking at a recent SMSF Association event, ASF Audits head of education Shelley Banton explained that the days of having a ‘set and forget’ investment strategy are long gone.
SMSFs that are heavily invested in highly volatile assets such as cryptocurrency may need to review their investment strategy more regularly than just once a year where there are significant market events, she cautioned.
“We all think [that the regulations] say to review the investment strategy annually, but it actually says that it should be reviewed regularly,” said Ms Banton speaking at the SMSF Association Technical Summit last week.
“So, if you’ve had a 60 to 70 per cent dip in the market and you’re at 30 June, then that may be relevant enough to [require] you to put together a different investment strategy potentially or at least address the risks”
Ms Banton reminded SMSF professionals that there is a lot that needs to be considered and encapsulated in the investment strategy.
Where cryptocurrency is a material asset of the fund, it is important the SMSF client has addressed considerations such as risk, return, liquidity, cash flow, and the ability to pay their liabilities, she noted.
“If you’ve got a large investment in cryptocurrency and it crashes by around 70 per cent, how is that going to help you get money into the fund and address liquidity issues moving forward?” she stated.
Some of the more astute investors are now creating a separate investment strategy for their cryptocurrency, she said.
It is important that SMSF clients have considered all the issues and understand the types of investments that they’re investing in, she added.
“[Where they have invested in cryptocurrency], I would also want to see a statement from the trustees acknowledging that they could potentially lose their investment overnight,” she stated.
Investment strategies overall are becoming more important for the effective management of a SMSF’s investments. The ATO has made this abundantly clear in recent years.
If written properly, the investment strategy can still be relevant in SMSFs with a large portion of funds in volatile asset classes for a 12 month period. However, I agree that it would be prudent for trustees to review their strategy more frequently as well.
The crypto industry moves fast, so its participants will be forced to move fast with it in order to stay relevant – especially those who invest in assets outside of BTC and ETH.