Many self-managed super funds (SMSFs) are built around a single dominant asset — often a property, sometimes a large parcel of shares in one company. There is nothing inherently illegal about that. Contrary to a common belief, Superannuation law does not ban a fund from holding one big asset ATO SMSF Investment requirements. What it does require is that trustees genuinely turn their minds to the risks of concentration and document their thinking. Holding one big asset is a decision that demands a closer look, not an automatic breach — and understanding the difference protects both your retirement savings and your compliance.

Diversification is a consideration, not a command

The law requires trustees to formulate, and regularly review, an investment strategy that has regard to the whole circumstances of the fund, including diversification, the risk and likely return of investments, liquidity, and the ability to pay benefits ATO SMSF investment requirements. Note the wording: Diversification must be considered. There is no rule that a fund must spread its money across a set number of assets. A Trustee can decide, after genuine consideration, to hold a concentrated portfolio — provided they have weighed the risks and can explain their reasoning.

The specific risks of concentration

A fund with most of its value in one asset carries risks a diversified fund does not. If that asset falls in value, there is nothing to cushion the blow. If it is a property or other Illiquid holding, the fund can struggle to raise cash for pensions, expenses or a death benefit without selling the very thing the fund is built on. Income can be volatile — a single tenant vacating, or one company cutting its dividend, can sharply reduce the fund's cash flow. And a single sector or geography can turn against you all at once. Concentration amplifies every one of these risks.

What the ATO expects you to do

Where a fund holds a large proportion of its Assets in one investment, the ATO expects the investment strategy to address the risks of inadequate diversification specifically — not with a generic template, but with reasoning that shows the trustees understood and accepted those risks ATO SMSF investment requirements. Auditors are alert to funds that are heavily concentrated with no documented justification, and a lack of any strategy or review is itself a contravention. The obligation is to think and record, not necessarily to sell.

Concentration and Liquidity go hand in hand

A concentrated fund is often an illiquid one, so the strategy should explain how the fund will meet its cash needs. For a fund paying pensions, the minimum drawdown percentages rise with age, so the cash Demand grows over time ATO income stream rules. A single-property fund needs a credible answer to the question “how will we fund the pension and expenses without selling the property?” — whether that is retained rent, a cash buffer, ongoing contributions, or, where appropriate, insurance to cover a death benefit.

A hypothetical example

Hypothetical: The Barton SMSF holds a $1.3 million commercial property and $70,000 in cash — about 95% in one asset. That is not automatically a breach. But the trustees should have an investment strategy that records why they hold a concentrated portfolio, how they have assessed the risks of a downturn in that property market, the impact of a vacancy on the fund's income, and how they will fund pensions and any death benefit. If a member is approaching an age where pension drawdowns will exceed the net rent, the strategy should address the looming liquidity gap. A one-line strategy saying “95% property” with no reasoning would likely draw an auditor's attention.

Valuation feeds the risk picture

There is a practical link between concentration and another trustee duty: valuing the fund's assets at Market Value each year ATO valuation guide. When a single asset makes up most of the fund, the accuracy of its valuation matters far more, because it drives the fund's reported value, members' balances, pension minimums and transfer balance cap positions. An out-of-date or optimistic figure for a dominant property distorts all of them at once. For a concentrated fund, the ATO's expectation that valuations rest on objective, supportable data — and, for significant or complex assets, may Warrant independent input — is especially relevant. Good valuation discipline is part of managing concentration risk honestly.

Diversifying does not have to mean selling

Trustees who conclude their fund is too concentrated sometimes assume the only fix is to sell the asset, which may crystallise tax or come at a poor time. There are gentler options. New contributions and retained income can be directed into different asset classes over time, gradually diluting the concentration without a fire sale. A property fund can build a growing cash and listed-investment sleeve from rent and contributions. The point is that addressing concentration is a process the strategy can map out, not necessarily a single wrenching transaction — and documenting that plan is itself evidence the trustees have taken the risk seriously.

Balancing conviction with prudence

Some trustees have strong conviction in a particular asset — the commercial premises they know intimately, or a company they have followed for decades. That conviction is legitimate, and the rules leave room for it. The discipline the law imposes is simply to test that conviction against the risks: what happens if the asset falls 30%, if it produces no income for a year, or if a member dies and a lump sum is due? If you can answer those questions and are comfortable with the answers, a concentrated fund can be a considered choice.

The practical takeaway is to treat a big single asset as a prompt for rigour, not as a problem to hide. Write an investment strategy that names the concentration, weighs the specific risks, and sets out your liquidity plan; review it whenever circumstances change; and keep the documentation with your fund's records. Holding one big asset is permitted — but only a trustee who has genuinely looked at the risk, and can show it, is doing the Job the law requires.