Paul’s ver­dict

ETFs are an easy and cheap way to ac­cess shares

Money Magazine Australia - - CONTENTS -

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.

Newspapers in English

Newspapers from Australia

© PressReader. All rights reserved.