Property, Shares or Super? What is better?
Property, Shares or Super? What is better?
This is a question I get all the time. People are trying to figure out which type of investment is better? And really what does better even mean? It can be different things to different people.
So, rather than trying to figure out which investment is better, what you should do instead is establish which of those investments fit into your life better.
So now, you are most likely totally confused, thinking what the heck do I mean by that.
I wonder if you have your own answer to this question.
Do you have your favourite?
The thing of the matter is that it is like saying:
- Which car is better: Holden, Commodore or a 4WD?
- or for the ladies: Which perfume is better: Chanel, Giorgio Armani or floral?
Property and Shares are types of investments, Super is a structure within which you can have property and shares, but I will try to answer this question regardless.
As I said at the start – you should not try to decide which investment is better, but rather how this investment you want to make, will fit into your life.
Which investment is better FOR YOU!
So first you need to answer to yourself some questions:
- What is better for me?
- What do I want out of this investment?
- What is the reason to have this investment?
- What outcome do I want from my investment?
- How long do I want to keep it?
You need to analyse your needs, your intention and your desired outcome.
- Are you a young person or an investor closer to retirement or maybe you have already retired? Each age will have different needs and different resources.
- Do you want this investment to grow in value and savings put aside or do you require income from it?
- Do you want to borrow money or you prefer to stay away from borrowing and just have your own money invested.
- What type of risk are you willing to take with this investment?
- Are you hands on investor or you prefer that professional manager looks after your savings.
Answer to each of those questions will indicate what your preferred investment type is, not by what you think you like, but by your life needs and your desires, your life goals.
Each type of investments has benefits as well as negative implications and you need to be aware of the possible impact it might have on your life.
- Long-term capital growth,
- rental income,
- tax benefits.
- It can be hands on or hands off – up to you.
- illiquid (you cannot sell one window to have extra $2,000 for your living expenses),
- extremally expensive purchase in one transaction,
- big financial commitment, especially if comes with borrowing – so you better make sure that your income is high enough to cover any shortfall in mortgage repayments.
- Income is dependent on having a tenant. No tenant – no income. Do you have resources to deal with this situation?
- Big transactional costs and taxes (stamp duties)
- Difficult to diversify – how many houses can you buy?
- Ongoing maintenance costs of the property
- Expensive bills (insurance, council rates,)
- No property value is available daily, only if valuation is done by professionals.
- phenomenal capital growth,
- Income – if investing into Aussie shares, some are paying high level of dividends with franking credits for Australian investors,
- High level of diversification between companies, industries, even countries,
- Tax benefits,
- high liquidity – you can sell part or full investment anytime,
- no maintenance costs,
- price available daily – this is positive and negative at the same time.
- time consuming if hands on – requires lots of ongoing research. If unsure, you better find a good adviser to assist you.
In Australia, this is our way of saving for retirement, so this information applies to super and pension.
- it is a forced long-term saving (especially important for people who are not good savers).
- your employer contributes to super,
- you can add extra up to legislated limits,
- you can decide on investments,
- most people use either industry, retail or corporate super funds, so in most cases you delegate investment decisions to investment managers. If you are unsure of the differences between super funds, this is the article for you.
- It provides a great deal of investment choices,
- It can be as secure or as diversified and growth oriented as you want it to be.
- You can design your own portfolio to your liking and your intended, desired outcome,
- It can provide lots of financial family security with internal insurance, but this topic is very big and complex, and outside of the scope of this article.
- Long-term investment – for some it will be benefit, for others a deal breaker, e.g. if you are a 20 year old saving for a car you want to buy in 5 years – don’t save via super, as you won’t have access to money until you meet certain conditions of release.
- It can be confusing, especially considering big competition and often very misleading marketing I see daily on TV.
- There are many rules, legislative requirements you need to meet to put the money in or take the money out.
As you can see, each investment has benefits and negatives and you have to understand them and work out which benefits are the ones you are looking, create your investment strategy and implement it into your life.
I have done many videos and wrote many articles about super, so feel free to watch or read them all, I am sure you will pick up lots of useful information about super rules, types of contributions, tax benefits of superannuation savings, salary sacrifice and pensions.
If you feel this area is confusing and you have started thinking about the most efficient way to prepare for retirement, or you’ve already retired and wish to improve your income or level of Age Pension you are receiving, contact me for a chat to see how I can help.
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