Here’s how to choose shares for your superannuation fund, and whether or not an SMSF make sense

This article outlines how to choose shares for your superannuation fund. We will fall short of outlining which specific shares investors should buy, but we will outline how investors can select particular stocks for their fund or perhaps to choose the investment horizn of their fund

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Here’s how to choose shares for your superannuation fund

In superannuation, the way you choose shares depends entirely on the type of fund you are in, and the difference is far more significant than most people realise. There are two fundamentally different models. In a self-managed super fund (SMSF), you directly choose individual shares and all other investments.

In industry, retail, corporate and public-sector funds (basically anything else), you generally cannot choose individual shares at all; instead, you select from a menu of pre-built investment options, and the fund decides what assets sit underneath those options.

If you have an SMSF

With an SMSF, you and any co-trustees are legally responsible for every investment decision. You open brokerage accounts in the name of the SMSF and can buy and sell ASX-listed shares, ETFs, managed funds, cash, term deposits, some international equities and, subject to strict rules, property. The experience looks similar to personal investing, but the obligations are very different.

Before any shares are bought, the SMSF must have a documented investment strategy that addresses risk tolerance, diversification, liquidity, time horizon and insurance considerations.

Every share purchase must be defensible within that strategy. This means SMSF investing is less about chasing ideas or themes and more about constructing a diversified, long-term portfolio that aligns with retirement objectives.

In practice, SMSFs work best when investment decisions emphasise quality, diversification and discipline. Concentrated bets, frequent trading or speculative positions are common sources of trouble, not just financially but from a compliance perspective.

Such funds must comply with the sole-purpose test, arm’s-length rules and strict record-keeping requirements. Even a profitable investment can be a bad decision if it breaches superannuation law. There is also no institutional safety net: if a fund makes poor decisions or is exposed to misconduct, the trustees bear the consequences.

But what if you don’t have an SMSF

By contrast, in industry and retail super funds, members do not choose shares. Instead, they choose between investment options such as growth, balanced, conservative, Australian shares, international shares, property or ethical options. Each option is a pooled portfolio that can contain hundreds or thousands of assets.

The fund’s investment team and external managers decide which shares are held, how they are weighted and when changes are made. The member’s role is to select the level of risk and broad asset exposure that suits their time horizon and comfort with volatility, not to assess individual companies.

Choosing well in these funds is therefore about understanding structure rather than stock picking. Labels like “balanced” or “growth” can vary significantly between funds, so it matters how much of the portfolio is allocated to growth assets versus defensive assets, how much exposure is offshore, and how much is invested in unlisted property or infrastructure. Fees also matter greatly, because even small differences compound over decades. Switching options based on short-term performance is one of the most common mistakes and often leads to worse outcomes over time.

Some large super funds offer member-direct or self-select options, which sit between these two models. These allow members to invest directly in a limited list of ASX shares, ETFs or term deposits, but within constraints set by the fund. The fund still handles compliance and administration, and not all shares are available. This can suit confident investors who want some control without taking on the full responsibilities of an SMSF.

Does an SMSF make sense?

While we cannot give specific advice to individual situations, we will say that whether an SMSF makes sense depends far more on governance capability than on investment skill. Self-managed solutions are generally appropriate where balances are large enough to justify the fixed costs, trustees are genuinely engaged and financially literate, and there is a clear reason for wanting control.

Common valid reasons include the desire to manage tax outcomes actively, hold specific assets such as direct property, run a tailored retirement income strategy, or invest in a small number of well-understood long-term holdings with low turnover. In these cases, the value comes from control and flexibility, not from trying to outperform markets.

An SMSF usually does not make sense when balances are modest, when trustees are seeking excitement or higher returns rather than control, or when investment decisions are likely to be driven by tips, themes or external promoters. It also does not suit people who are unwilling to maintain documentation, engage with auditors or accept that there is no compensation scheme if something goes wrong.

Many of the losses seen in cases like First Guardian occurred because people believed they were gaining sophistication or control, when in reality they were giving up institutional protections without fully understanding the consequences.

For many Australians, a well-chosen industry or retail fund with an appropriate investment option will deliver strong outcomes with far less risk of catastrophic error. SMSFs are powerful tools, but only when used with discipline, scale and a clear understanding that control and responsibility always come together.

Conclusion

If you own an SMSF, buying and selling shares is virtually the same as if you were doing it in your own name. If you have anything else, there is less discretion. You can choose between options but there is less freedom than with SMSFs.