Every SMSF must have an Investment strategy, but not every strategy does the Job the law expects. In September 2026, the topic is firmly back in focus: the federal government has proposed tightening requirements, the sector is debating the idea, and auditors continue to test strategies each year. For trustees, understanding what regulation 4.09 actually requires, and where the ATO says strategies fall short, may help avoid compliance problems.

Why investment strategies are in the spotlight

In August 2026, the government announced a package of SMSF consumer protections that included requiring SMSFs to have a written investment strategy upfront, and consulting on Options to improve the quality of strategies. That measure is a proposal, not law, and its detail has not been released.

SMS Magazine reported on 21 September that the SMSF Association and ASF Audits had raised concerns about how the proposal would work in practice.

Whatever happens with reform, the existing obligation remains in force today, and it is more detailed than some trustees may realise.

What regulation 4.09 requires

The investment strategy rule sits in regulation 4.09 of the Superannuation Industry (Supervision) Regulations 1994. It requires trustees to formulate, review regularly and give effect to an investment strategy.

That strategy must have regard to the whole of the fund's circumstances, including five listed matters. The first is the risk and likely return of investments, having regard to the fund's objectives and expected Cash Flow requirements. The second is the composition of investments as a whole, including Diversification and the risks of inadequate diversification.

The remaining three are the Liquidity of investments, the fund's ability to discharge its existing and prospective liabilities, and whether the trustees should hold insurance cover for one or more members.

A strategy that is written but never reviewed, or reviewed but not followed, may not meet the requirement.

What the ATO expects to see

The ATO's guidance says an SMSF investment strategy should be in writing and tailored to the fund's circumstances. It should not simply repeat the legislation.

The ATO says a strategy should explain how investments meet each member's retirement objectives, considering factors such as age, employment status and retirement needs. There is no prescribed format.

The ATO also cautions trustees using standard templates. It says templates may not meet super rules, and must be tailored to the fund and reviewed regularly.

One practice the ATO specifically rejects is setting ranges of 0 to 100 per cent for every asset class. The ATO says that is not a valid approach on its own, and trustees should explain how they plan to invest and why broad ranges are needed.

Diversification, liquidity, insurance and review

Trustees are not strictly required by law to diversify. The ATO acknowledges they may choose to invest all their savings in one asset or asset class. However, where a fund is concentrated, the ATO says the strategy should record that the trustees considered the risks of a lack of diversification and how the investment will still meet the fund's objectives, including cash flow requirements.

The ATO notes that concentration risk is higher for leveraged funds, such as those using a limited recourse borrowing arrangement.

Liquidity and the ability to pay benefits are closely linked. For example, a hypothetical fund with one member starting a pension may need enough accessible Assets to pay the minimum pension each year, as well as tax, audit and administration costs.

Regulation 4.09 requires trustees to consider whether to hold insurance for members. The ATO lists cover such as life, and permanent or temporary incapacity insurance, and notes that SMSFs generally cannot provide trauma cover because it does not meet the sole purpose test.

The regulation requires only that insurance be considered, not that it be held. Recording that consideration may help show the requirement has been met.

On review, the ATO says trustees should review their strategy at least annually and document the review and any decisions, for example in annual Trustee meeting minutes. It also suggests significant events should prompt a review, such as a market correction, a member joining or leaving, or a member starting a pension.

Auditors and contravention reporting

Every SMSF must be audited each year by an SMSF auditor, and the investment strategy forms part of that check.

According to the ATO, if an auditor identifies a breach of the investment strategy requirements, the trustees must fix it. Where a strategy failed to adequately address a Factor such as inadequate diversification, the ATO says this can be addressed with a signed and dated addendum or a trustee minute, shown to the auditor before the audit is finalised.

If trustees have not invested in line with their strategy, the ATO says they should revise it to reflect the fund's investments and how those will meet retirement objectives.

The ATO also says auditors must lodge an auditor contravention report if a breach meets the reporting criteria. More broadly, it notes that where investments breach super laws, it may take compliance action, with penalties and possible disqualification depending on severity.

What trustees may want to consider

Some trustees may find it useful to check their document against the ATO's guidance. Questions to consider, depending on individual circumstances, include whether the strategy reflects the fund's actual holdings, explains any concentration, addresses liquidity for upcoming expenses and pensions, records the insurance decision, and shows evidence of a review within the past year.

The bottom line

Regulation 4.09 already requires SMSF trustees to formulate, regularly review and follow an investment strategy covering risk and return, diversification, liquidity, the ability to pay benefits and member insurance. The ATO expects strategies to be written, tailored and reviewed at least annually, and rejects generic 0 to 100 per cent ranges. Auditors test compliance each year and may need to report breaches. Proposed reform remains under debate, but the current rules continue to apply.