Salary Sacrifice Super Contribution VS Other Investments

backno67 on 10/04/2016 - 16:56

I just wanted to hear your view on what you believe makes the most sense.
Would it be best to put more into super to get the tax discount, or is it better to have it in order to invest in sharemarket. The way I see it, both will be put into the sharemarket but one has 0 liquidity while the other one has liquidity at the price of your marginal tax rate -15%.

Of course, I can imagine it would depend in personal circumstances, etc. etc. For example, if one was 45 or over I would think putting extra in super has very high reward.

I am in my late 20's thinking I would want to retire early 50's. I like investing in random stuff that has worked out well so far (coins, betting promotions/arbitrage, loans, ratesetter, etc.) but I think its time to start with the sharemarket for the long term . That's when I thought, wouldn't adding to super be a better way to do it?

Poll Options

  • 2
    Contribute to Super
  • 6
    Invest in Share market
Financial

Comments

  • Bmann999 on 10/04/2016 - 17:31
    +5

    The benefit of putting extra money into Super is that you only pay 15% income tax on the money you put in and you also only pay 15% on any profits you make.

    One of the big downsides to putting extra money into super, is that if you have (or will have a mortgage) for a principle place of residence, your interest is not deductible. Therefore, any money you put into super could be used to pay down your mortgage debt.

    I know it's boring, but if you are in the $80-$180K income range, your marginal tax rate is 39%. That means the return on paying off a 4% mortgage early is the same as a 6.55% pre-tax return risk free. You can also usually redraw extra mortgage repayments whenever you like in case the need comes up.

  • [Deactivated] on 10/04/2016 - 21:13
    +1

    Financial advisors always say diversify. So by all means put some of your pre-tax earnings into super (you can always change) but obviously keep aside enough of your discretionary $$$ for other things - including travel, entertainment etc! Get financial advice if you want to fiddle with the sharemarket. They might for example suggest you borrow to invest. Depends entirely on your circumstances

  • Aniseed Steed on 10/04/2016 - 21:26
    +4

    Keep in mind that the government can and will change superannuation rules in future and it might be harder to access all of the money you've put into your super. If you live long enough to withdraw it, that is.

  • Donaldhump on 11/04/2016 - 00:33

    Anything over 80k earned is good to put in I think.

    One thing to think of is instead of putting X dollars in per month, just do this in apr, may, June etc…..like myself you may get made redundant mid tax year…

  • bengal tiger on 11/04/2016 - 02:09
    +1

    The OP description wasn't clear on how you'd invest in the share market if you decide not to contribute to super. You seem to have two investment objectives but you need to decide which one is more important to you - wealth maximisation (best return for your $) or liquidity (future access to your monies).

    Wealth maximisation

    If you invest in shares outside of super with a managed share fund then you can make a fair comparison to contributing to super. In both cases your monies are invested by a fund manager who are making the investment decisions on your behalf. Main differences are:
    - Fees: super fund managers generally charge 1-2% pa however retail managers outside of super generally charge more (potentially 2-4% pa). Usually has to do with the amount of funds under management they have to play with and how complicated the investment is.
    - Tax: Assuming you contribute to super via pre-tax salary you'll get taxed at 15% and any investment returns/capital gains also get taxed at 15%. Outside of super you'll get taxed at your marginal tax rate with potential capital gain/loss effects.

    If you're thinking about directly investing in the share market yourself then we're comparing apples and oranges here. It's less about fees and taxes and more about your skill and ability as a share purchaser/seller to outperform a super fund investment manager and get better returns by DIY share trading. Keep in mind you'll need to regularly monitor your share portfolio and re-balance it accordingly when markets move in order to compete against the returns an investment manager generates.

    Liquidity
    If your main concern is future access to your monies then you'll want to keep it out of super. Share investments outside of super can be cashed out within a business week (T+3 days). For monies that go into super, you'll gain access to it from preservation age 55 onwards which is why it's popular to ramp up contributions much closer to age 55.

    TL;DR
    In general, I would've though most people below age 40 would priortise liquidity as they'd be looking to eventually invest in residential property where mortgage rates are around 4-8% pa. If you think your super fund investments can consistently generate year-on-year returns greater than mortgage rates then go ahead with contributing to super and you'll be better off when you reach retirement. If not, then the main concern is paying off the mortgage ASAP with monies saved up (ie not contributing extra to super), but still taking advantage of investment opportunities that arise where the returns are greater than mortgage rates (eg betting odds).

  • backno67 on 11/04/2016 - 04:59

    Thanks for the replies, I think that putting a mortgage into the equation makes it clear that putting extra in super would be stopping that goal.

  • chumlee on 11/04/2016 - 06:56

    Why not set up a SMSF then you can invest your superannuation in shares yourself or invest in other things?

  • Peck on 11/04/2016 - 19:10

    Short answer………..Salary sacrifice for super if you can afford to. Governments chasing money will close it off sooner or later!!

  • MustacheFire on 14/04/2016 - 22:09

    I would maximise your salary sacrifice into super. If you intend to build significant assets outside of super anyway then the lack of liquidity is a non issue (I.e. would you spend down all investments / redraw all mortagage that the sacrificed amount actually matters?).

    The case against salary sacrifice is more that people don't save and want to spend the cash. If you are saving/investing then super is sensible.

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