Shares versus superannuation: Where should you invest?

Buying shares and adding money to your super are both a form of investing, and each option comes with its own advantages and disadvantages. Let's go into the differences between these investment options in more detail, and weigh up the pros and cons of both.

Investing in shares

When you purchase shares, you get part ownership (or a share) of a particular company. When a company performs strongly, the price of its shares rise. This is good news for investors as the value of their shares has increased. This is referred to as capital growth, and means that you can sell the shares for more than what you initially paid for them. However, if the company performs poorly, the value of the shares decreases.

In addition to the value of the shares increasing, many companies will also pay shareholders a dividend, which is basically a share of the company's profits. The amount you receive as a dividend payment will be directly related to how many shares in the company you hold. If you invest in enough shares, you could create a second income stream out of the dividend payments alone.

Investing in shares over your super: pros and cons

Investing in shares may suit you if...

• You want to have access to the money before you retire
• You want to have complete control over the individual shares you buy and sell, and the timing of your trades
• You want to earn a regular income stream in the form of dividends
• You're comfortable taking on more investment risk and understand how the stock market works

Investing in your superannuation

Superannuation is a way to save for your retirement. Your super fund is basically one big investment portfolio that's managed on your behalf by professionals. Your employer is required by law to pay a portion of your earnings into your designated super fund (this is called the super guarantee). The money in your superannuation is invested into various assets, including shares, with the main aim of growing your balance over time.

As the main purpose of superannuation is to fund your retirement and to be a substitute for the Age Pension, you typically cannot access it until you're retired. There are some rare situations where you're able to access your super early, but generally you can't access it while you're working and under 65.

To help you with your decision making between investing in shares or super, do have a look at our guide on good performing superannuation funds.

Benefits of investing in super

There are tax benefits to investing inside the super environment. You can contribute up to $27,500 a year as a concessional contribution into your super. A concessional contribution means the money will be taxed in your super fund as the lower rate of 15%, instead of your standard income tax rate.

Investing in your super over shares: pros and cons

Investing in your super may suit you if:

• You want to set up a salary sacrifice arrangement and reduce your taxable income
• You want to build long-term capital growth and don't plan on using the money in the short term
• You don't need to have control over the specific investment decisions, and want more of an automatic, set-and-forget strategy for building wealth

Could you be getting better returns from your super?

Name	Last 1 year performance (p.a.)	Last 3 year performance (p.a.)	Last 5 year performance (p.a.)	Last 10 year performance (p.a.)	Fees on $50k balance (p.a.)
AustralianSuper - Balanced Industry fund	Last 1 year performance (p.a.) +7.58%	Last 3 year performance (p.a.) +6.44%	Last 5 year performance (p.a.) +7.76%	Last 10 year performance (p.a.) +8.18%	Fees on $50k balance (p.a.) $382	Go to siteMore Info Compare
Spaceship - GrowthX Higher risk	Last 1 year performance (p.a.) +22.23%	Last 3 year performance (p.a.) +5.25%	Last 5 year performance (p.a.) +10.87%	Last 10 year performance (p.a.) N/A	Fees on $50k balance (p.a.) $503	Go to siteMore Info Compare
Australian Retirement Trust - Lifecycle Balanced Pool Industry fundLifestage	Last 1 year performance (p.a.) +8.55%	Last 3 year performance (p.a.) +8.01%	Last 5 year performance (p.a.) +7.99%	Last 10 year performance (p.a.) +8.08%	Fees on $50k balance (p.a.) $507	Go to siteMore Info Compare
CareSuper Balanced Industry fund	Last 1 year performance (p.a.) +7.29%	Last 3 year performance (p.a.) +6.55%	Last 5 year performance (p.a.) +7.15%	Last 10 year performance (p.a.) +7.61%	Fees on $50k balance (p.a.) $553	Go to siteMore Info Compare
Australian Ethical Super Balanced Green CompanyEthical	Last 1 year performance (p.a.) +7.74%	Last 3 year performance (p.a.) +4.5%	Last 5 year performance (p.a.) +7.03%	Last 10 year performance (p.a.) +6.89%	Fees on $50k balance (p.a.) $603	Go to siteMore Info Compare
Spaceship Global Index Indexed investmentHigher risk	Last 1 year performance (p.a.) +18.66%	Last 3 year performance (p.a.) +10.37%	Last 5 year performance (p.a.) +10.41%	Last 10 year performance (p.a.) N/A		Go to siteMore Info Compare
UniSuper - Balanced Industry fund	Last 1 year performance (p.a.) +7.48%	Last 3 year performance (p.a.) +5.92%	Last 5 year performance (p.a.) +7.59%	Last 10 year performance (p.a.) +7.95%	Fees on $50k balance (p.a.) $351	Go to siteMore Info Compare
Virgin Money Super - LifeStage Tracker LifestageHigher risk	Last 1 year performance (p.a.) +11.38%	Last 3 year performance (p.a.) +7.75%	Last 5 year performance (p.a.) +8.61%	Last 10 year performance (p.a.) N/A	Fees on $50k balance (p.a.) $346	More Info Compare
Spirit Super - Australian Shares Industry fundHigher risk	Last 1 year performance (p.a.) +6.87%	Last 3 year performance (p.a.) +8.92%	Last 5 year performance (p.a.) +9.14%	Last 10 year performance (p.a.) +8.53%	Fees on $50k balance (p.a.) $402	Go to siteMore Info Compare
Spirit Super - Balanced (MySuper) Industry fund	Last 1 year performance (p.a.) +7.68%	Last 3 year performance (p.a.) +6.2%	Last 5 year performance (p.a.) +6.65%	Last 10 year performance (p.a.) +7.54%	Fees on $50k balance (p.a.) $452	Go to siteMore Info Compare
Cbus Growth Industry fund	Last 1 year performance (p.a.) +7.14%	Last 3 year performance (p.a.) +5.82%	Last 5 year performance (p.a.) +7.05%	Last 10 year performance (p.a.) +7.8%	Fees on $50k balance (p.a.) $438	More Info Compare
BUSSQ MySuper Balanced Growth Industry fund	Last 1 year performance (p.a.) +6.5%	Last 3 year performance (p.a.) +4.92%	Last 5 year performance (p.a.) +6.22%	Last 10 year performance (p.a.) +7.02%	Fees on $50k balance (p.a.) $587	More Info Compare
Spirit Super - Conservative Industry fund	Last 1 year performance (p.a.) +5.25%	Last 3 year performance (p.a.) +3.71%	Last 5 year performance (p.a.) +3.83%	Last 10 year performance (p.a.) +4.53%	Fees on $50k balance (p.a.) $377	Go to siteMore Info Compare
Spirit Super - Moderate Industry fund	Last 1 year performance (p.a.) +6.5%	Last 3 year performance (p.a.) +4.59%	Last 5 year performance (p.a.) +5.32%	Last 10 year performance (p.a.) N/A	Fees on $50k balance (p.a.) $402	Go to siteMore Info Compare
Australian Food Super MySuper Industry fund	Last 1 year performance (p.a.) +8.13%	Last 3 year performance (p.a.) +7.95%	Last 5 year performance (p.a.) +7.36%	Last 10 year performance (p.a.) +7.54%	Fees on $50k balance (p.a.) $363	More Info Compare
AMP MySuper Capital Stable	Last 1 year performance (p.a.) +5.46%	Last 3 year performance (p.a.) +2.4%	Last 5 year performance (p.a.) +3.83%	Last 10 year performance (p.a.) +4.28%	Fees on $50k balance (p.a.) $375	More Info Compare
ANZ Smart Choice Conservative	Last 1 year performance (p.a.) +5.88%	Last 3 year performance (p.a.) +2.21%	Last 5 year performance (p.a.) +2.94%	Last 10 year performance (p.a.) +3.42%	Fees on $50k balance (p.a.) $365	More Info Compare
Spirit Super - International Shares Industry fundHigher risk	Last 1 year performance (p.a.) +16.69%	Last 3 year performance (p.a.) +8.93%	Last 5 year performance (p.a.) +9.52%	Last 10 year performance (p.a.) +8.96%	Fees on $50k balance (p.a.) $402	Go to siteMore Info Compare
AvSuper Growth Industry fund	Last 1 year performance (p.a.) N/A	Last 3 year performance (p.a.) N/A	Last 5 year performance (p.a.) N/A	Last 10 year performance (p.a.) N/A	Fees on $50k balance (p.a.) $631	Compare
Bendigo SmartStart Super - Balanced Index Indexed investment	Last 1 year performance (p.a.) +7.61%	Last 3 year performance (p.a.) +4.99%	Last 5 year performance (p.a.) +4.5%	Last 10 year performance (p.a.) +6.14%	Fees on $50k balance (p.a.) $328	More Info Compare

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Unless indicated otherwise, the information in the table is based on data provided by SuperRatings Pty Limited ABN 95 100 192 283, Australian Financial Services Licence 311880.

*Past performance data and fee data is for the period ending Jan 2024

Shares versus super: What to consider when choosing

There are a few factors to consider when deciding to invest in shares or contribute to your super.

Economic conditions and your investment timeframe

Shares and super are both dependent on wider economic conditions. Both are investments so the performance returns can change depending on the economy. That's why when you have shares and/or super, it's best to regularly check the performance of the company and the super fund so you know your money isn't losing value.

Super is a long-term investment that's very diversified, so short-term declines and dips in the economy won't affect it too much unless the economy continues to decline. The long-term nature of super means it is well placed to ride out any waves and dips in the market.

However for some shares, if it's a short to medium-term investment, the direct impact of market conditions can seriously affect the value of your shares. This is especially true in a volatile market or during times of economic or political uncertainty. However, if you plan to hold your shares for the long term (for example 7-10 years or more), your investment will be better placed to overcome small dips in the market.

Diversification

Diversification is an important strategy for an investor to minimise risk. Superannuation is typically more diversified since it invests in a whole range of assets from cash and shares to property and government bonds.

However, you can still achieve a relatively diversified portfolio when investing in shares by making sure your investments are in different industries. For example, having a mix of Australian shares, international shares, shares in technology companies, shares in blue chip companies and even shares in companies that invest in shares (these are called Listed Investment Companies) and so on. That way, if the entire technology industry suffers, you don't have all your shares in that sector alone. However, this is still going to be a very high-risk investment portfolio as it's concentrated on shares.

Your risk tolerance

Typically, the more risk you're willing to take, the greater reward you get if all goes well. If you invest in shares, there is quite a lot of risk involved, especially if you are new to the stock exchange (if you are, you might enjoy our guide on how to buy shares online). Unless you have a financial adviser helping you through the process, you'll have to manage most of your shares yourself, which can be tricky when you're first starting out.

With super, your money is managed by the fund and it decides how to invest your money. There can be less risk involved with super since it's managed by a fund, but you still have the option of choosing a more risky option if you want it. That being said, you do have much less control with your super compared to buying shares directly.

However, while shares may be more risky, there's also the potential to earn more money in the form of dividends or capital growth in the short term, which could be appealing. It depends what your strategy is, and what you want to achieve from your investment.

Your investing expertise

Your level of investment expertise may affect your decision as to where to invest your extra money. Superannuation is managed for you on your behalf, so if you have no investment experience and aren't interested in learning, it could be best to contribute to your super instead of buying shares.

However, if you do have some investment experience or have done some research, shares could be a great option. Just be prepared to stay engaged. This means monitoring the share price, keeping up-to-date with the company and staying on top of broader market and economic conditions.

Your age matters

Age is a big factor when determining if you should go for shares or put your money into your super. Anyone who owns shares will receive their returns without restriction. You may receive dividends or sell your shares for a higher price whenever you choose. Theoretically, shares are a long-term investment if you want to make a decent return, so investing in shares when you're about to retire may not be a good idea.

On the super side of things, you have to wait until you retire before you start accessing your benefits. So if you're young and want to access your returns immediately or sooner rather than later, investing in shares may be a better idea. However, if you prefer to save for a more comfortable retirement, putting your money into super will be a better way to guarantee safer returns.

Why not have both?

If you've made it this far in the guide and still haven't made up your mind, remember, there's nothing stopping you from doing both. You can invest some money in shares and also into your super, and use both these strategies side-by-side to build your wealth.