By Olivia Long

The New Year is synonymous with resolutions – diet, exercise, alcohol (less, not more) and better work-life balance. Many of us make them; the anecdotal evidence suggests few keep them. 

There’s a good reason for that – they’re hard to keep. We love to eat and drink, exercise is boring and the job (to saying nothing of the boss) keeps demanding more, not less.

Well, for SMSF trustees who make New Year resolutions, here’s some good news; a resolution that’s relatively easy to keep and, more importantly, is critical to your financial health; every January, without fail, review your fund with a particular focus on its investment strategy.

January is an excellent time for the task; your adviser/s should have more time on their hands for those necessary discussions, you know how the markets performed in the previous calendar year, and you can factor in any recent changes to your personal circumstances or those of any other members of the fund.

There are many ways of doing this, but what I find handy with my SMSF is having a short checklist of critical questions based around my desired rate of return, acceptable risk, asset allocation, any changed personal circumstances, and administrative issues.

For many trustees, especially in the accumulation phase, it’s largely about the fund’s rate of return. You should set a target each year and then review it at the end of the year to see if you meet it. If not, why not? Was it realistic by being within the broad band of how the markets performed?

Fund performance, of course, reflects asset allocation. The beginning of the year is the right time to assess whether your asset allocation is correct for achieving those twin goals – a set rate of return within risk parameters that reflect your personal circumstances. It’s not always easy to do.

For example, you are nearing retirement and believe a more conservative asset allocation is the way to go. After speaking to your adviser, the decision is made to trim your equity investments and add some cash and fixed interest. But the shares have been performing well. In effect, you will have to sell some “winners” – and perhaps incur capital gains tax for doing so. The rational decision is to sell the shares; behavioural analysis about how people invest suggests they struggle to sell “winners”. In a very real sense, they develop an emotional attachment to them.

For this reason alone this is why I suggest most trustees get professional advice; these decisions are made that much easier when you get independent analysis that’s emotionally detached. Even if you are comfortable making your own decisions around asset allocation and investments, getting professional input just once a year can provide an excellent safety net.  

Aside from the investment strategy, give some time to consider all other aspects of the fund. Are you happy with your advisers? The SMSF sector is becoming highly competitive, giving you more choice. Again, the evidence suggests people often stay with an adviser even when dissatisfied – the “devil-you-know” attitude. 

On the personal front, has anything happened that could materially change the fund? Has somebody retired recently? Transitioning to retirement? Changed financial circumstances? Do you need to update your nomination of beneficiary documents? Is the nomination binding? If so, review the date of signing as they need to be reviewed every three years if they are not a perpetual binding nomination. 

To slightly misquote Sir Winston Churchill, “the price of running an SMSF effectively is eternal vigilance”. Using January to conduct a thorough review is an important step down this path.