ETFs are an easy and cheap way to access shares
First up, Justine, it is really impressive that at 27 you are earning a really good salary and you clearly have a plan to save. This can be seen in your super fund of $64,000 and also your savings of $25,000, including the joint account, outside super.
I am a big fan of super. Compound returns are about the only “money miracle” that I know to be true, and with some 40-plus years to go before you retire your fund will certainly see this over the decades.
But having said this, I am not really convinced the extra 5.5% you are putting into super above your employer contributions is your best strategy. At a salary of $83,000, the tax rate on the top part of your income is 34.5%, including the Medicare levy. Yes, you pay only 15% tax on your salary sacrifice contributions into super, so for every dollar you actually have 19.5¢ more in super than you would have in take-home pay.
At age 27, though, you have a long way to go to retirement. With continued life extension, I would be surprised if you will be able to access your super before 70. In fact, your retirement may be over half a century away. While super is terrific, the money is locked away.
So my advice to you would be to allow your employer’s compulsory contribution to keep on growing your wealth in super, but I would build your savings outside super faster. This gives you a bigger pot of money which you can control or direct. As you get older and your salary grows, I think that is the time to refocus on voluntary super contributions.
With this bigger pot of savings, investment becomes a very important issue. I’d hate you to forgo the benefits of super to leave your money in a low-interest bank account. Shares and property are historically your best options.
Let’s consider shares first, as unlike property they can be accessed with smaller amounts of money. Here I agree with your comment about exchange traded funds (ETFs). These are a reliable and super cheap way to access shares. They come in every flavour – local and international shares, international infrastructure, you name it, there is an ETF to invest in that area.
If you want to know more about ETFs, which I would strongly recommend before you invest, I’d take a look at the ASX investor information, or a company such as InvestSMART, which builds investor portfolios using ETFs. Please note, I am chairman of InvestSMART, which is a company listed on the ASX but, bias aside, I am very proud of the information and services it provides, at very low cost, to online investors. If you decide to invest this way, personally I’d go with one of the ETF portfolios offering broad exposure to local and international shares.
You could sell these in time to come to buy a property, or you could simply save in a high-interest online account and build your deposit. In the long run, I would like you to own a home, which may start out as an investment property. At 27 you are doing really well and under no time pressure.
I’d do a bit of research and create your own plan. But one thing is for sure: saving in super and assets you control is the key to making choices about your future.
ASK YOUR QUESTION
If you have a question, email money@bauer -media.com.au or write to GPO Box 4088, Sydney NSW 2001. Questions need to be 150 words or less and you must be willing to be photographed. Readers who appear on this page will receive a six-month subscription.