Investing outside super

The tax benefits associated with superannuation make it a clear winner when it comes to building wealth for retirement. However, it doesn’t meet everyone’s savings needs, especially if you need the money beforehand.

There are many options available when super isn’t the way to go, but several issues should be considered when looking at different investment options.

What is your investment timeframe? For the short term, up to two years or so, higher interest cash accounts and term deposits may be the best option. That’s because investments such as shares and property regularly go up and down in price, and over the short term there is a significant risk you may get back less than what you originally invested.

Over the long term, shares and property are more likely to provide better returns. They may be appropriate if you are prepared to leave your money invested for at least seven years.

How do you feel about risk?

How would you feel if your investment lost 10% or 20% of its value? If that would make you uncomfortable, then capital stable investments may suit you better. Investors who take the long-term view and appreciate that share market downturns and property slumps have always been followed by bigger upswings, are more suited to investing in shares and property.

How much growth do you need? How much investment risk do you need to take?

If a conservative approach will allow you to achieve your goals, then there’s no need to take on the extra risk of investing in growth assets. However, be careful to consider the effect of inflation and tax on your nest egg if you choose this approach.

If you require a higher level of growth from your savings, you might need to accept the ups and downs of the share and property markets if you are to meet your goals.

What about investment structures?

Cash accounts and term deposits are easily accessed directly. For small investors seeking exposure to growth assets, and people who don’t want to make day-to-day investment decisions, indirect investment via managed funds may be a better option. Managed funds provide access to well-diversified portfolios managed by experts and they can significantly reduce the risks associated with investing.

Some investment structures provide tax benefits. People on higher marginal tax rates who wish to invest for at least ten years might consider insurance bonds. These are taxed at 30% within the fund and if withdrawals are made after ten years, no additional tax is payable.

Managed funds come in many varieties. They may be conservative and low risk or aggressive and high risk. They may be well-diversified, investing in cash, fixed interest, shares and property, or they may be specialised – investing only in Japanese shares or Australian commercial property.

The range of investment options can be confusing. Please contact us to help you find the solution that is right for you.

General Advice Disclaimer

This article contains general advice only, which has been prepared without taking into account the objectives, financial situation or needs of any person. You should, therefore, consider the appropriateness of the information in light of your own objectives, financial situation or needs and read all relevant Product Disclosure Statements before acting on the information. Whilst every care has been taken to ensure the accuracy of the material, Paradigm Strategic Planning or Sentry Advice Pty Ltd will not bear responsibility or liability for any action taken by any person, persons or organisation on the purported basis of information contained herein. Without limiting the generality of the foregoing, no person, persons or organisation should invest monies or take action on reliance of the material contained herein but instead should satisfy themselves independently of the appropriateness of such action.

Paradigm Strategic Planning Pty Ltd is an Authorised Representative of Sentry Advice Pty Ltd AFSL 227748

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