Should you invest in shares or super?

When you buy a company’s shares, you are essentially speculating that their value will increase as business performance improves.. By selling shares you have purchased at the right moment, you may be able to make a profit on your investment. Further, some companies may also pay shareholders dividends on their profits, giving you a reason to hold on to your shares for a longer period. You should remember that both the profit earned from selling shares and the dividend paid by the company are taxable at your marginal tax rate. 

Additionally, share prices tend to fluctuate, especially if the company is not doing well or if economic or industrial factors affect its business. For instance, a stock market crash in the USA or Europe could impact share prices in Australia. Therefore, it may be sensible to have a practical understanding of how the market works, or seek advice from a reputable broker. You can opt for several types of share trading options depending on the kind of risk you want to take and the sum you can invest. You may choose to invest in many different companies - operating in various sectors - diversifying your risk and maximising the chances of earning a profit.

Contributing to a super fund is mandatory in Australia, and employers make guaranteed contributions for most salaried staff. You can contribute more to your super, either through a salary sacrificing arrangement – wherein your employer deducts your contribution from your pre-tax salary -- or by making voluntary contributions from your after-tax salary. The contributions made by your employer, or the ones you make through a salary sacrifice arrangement, are called concessional contributions. These contributions come from your pre-tax dollars. Super contributions from your after-tax dollars (such as voluntary contributions) are called non-concessional contributions. The tax rate on super varies between concessional and non-concessional super contributions, and there are different caps on how much you can contribute each year. 

If you’ve decided to grow your nest egg by paying more to your super, it’s important to remember that you cannot withdraw from your super fund until you retire, or meet another condition of release after reaching your preservation age. If you are trying to build up savings for an emergency, contributing to super may not be a suitable option. 

The only exception is the First Home Super Saver Scheme (FHSS), which allows you to make super contributions specifically for use when buying a house you plan to live in. You cannot withdraw more than $30,000 in total, and the sum can only be used when first buying a home. If you plan to take advantage of this scheme, consider finding out all of the conditions and checking if the amount available is sufficient when compared to your home buying budget. Your super fund should support the scheme and allow you to withdraw the money, otherwise  you’ll need to apply for a determination from the Australian Taxation Office (ATO).

You should also remember that your super fund contributions are invested in the stock market,  government bonds and property. As a result, the growth in your superannuation can also vary based on market conditions. Considering the duration of the investment and the mostly mandatory contributions, you are likely to get a reasonable income for your retired life. It’s possible to switch your super fund if you believe another fund is delivering better performance and returns. However, you shouldn’t simply select a fund on the basis of past performance, as it is not a guaranteed indicator of future returns. Compare a range of super funds to check fees, investment options, insurance and other features, in addition to past performance, before making a switch to a super fund that meets your fiscal goals.