Is it better to add to your super, or start up your own share market portfolio? This is a question recently asked as part of my MoneysaverHQ Gen Y column. And this was my answer, in relation to Gen Y readers:
There is nothing to prevent you from starting a share portfolio within your superannuation fund and that way reaping the tax benefits of both!
A quick word about superannuation because this is one of my hobby horses.
Superannuation is not an investment, it’s just a tax structure. Yes it’s compulsory and yes, 9.5 per cent of your salary probably goes into it, but it is not of itself an investment. Within your superannuation fund you can hold pretty much any sort of asset – cash, shares, property, infrastructure, bonds, managed funds, a mixture of all of those – your choice. Those assets that you choose to put your money into are the actual investment, so whether you add more to it or not, take an active interest. Read more about my opinions on this issue here.
So putting more money into super? Of all the generations, Gen Y is the one most likely to need access to their spare cash before they hit retirement. Chances are you still have a big mortgage (if you’re in the property market yet) and many Gen Ys have yet to manage the financial juggle of kids and childcare. Locking your money away until retirement age, despite the tax benefits, may not be a practical option.
An Australian sharemarket portfolio has tax benefits via franking credits (Google it).
Remember though that, while it’s not locked away until retirement, a share market portfolio has to ride the volatility of the market and thus is also a long-term investment. Whichever option you choose, invest wisely.
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