Shares or superannuation: What’s a better investment?

Harry Page 21 March 2016

Shares or superannuation

Which is a better way to maximise your money: shares or superannuation?

Superannuation and shares both represent a form of investment. The majority of people who want to save for retirement have this question in mind, however it’s important to understand that both shares and superannuation are viable investment vehicles.

There are two categories of investments:

  1. Individual ownership. Investment property, shares, term deposits (fixed interest) and savings account s(cash) are all held in your name.
  2. Superannuation. The superannuation funds are held in a nominated super fund.

When you buy shares in a company, you have individual ownership. They are in an individual asset class.

On the other hand, superannuation is held in a separate fund that is dedicated to super only. Super is not an asset class but it is a structure in which your money is held. An easy way to look at super is to think of it as a method by which the investments are held.

A typical super fund would reveal that money is invested into shares, property, cash and fixed interest. 70% would go into shares and property and the other 30% would be invested into cash and fixed interest.

This is known as a balanced fund or a classic 70/30 fund. Super is a form of investments different from owning shares. However, super does have some restrictions for example you can’t access your super until you retire. Despite this, it's still wise to know how your super is invested.

Is super a good investment?

Your super can be invested in all kinds of ways that can maximise your returns:

1. Invested into cash. The return is low in this scenario (similar to the Reserve Bank’s cash rate), however the risk is also low. It’s highly unlikely that you'll receive a negative return in this asset class.

2. Invested into shares. In this case, the return is usually high so too the risk. The super funds of today typically offer multiple investment options. Here is an example template of those options:

  • A conservative fund (30% shares and property, 70% cash and fixed interest).
  • A balanced fund (50% shares and property and 50% cash and fixed interest).
  • A growth fund (70% shares and property, 30% cash and fixed interest).

Keep in mind that these are only examples. Your portfolio may be different.

It’s important to note that there isn't a unified definition for the above strategies. The percentage of your money that goes into shares, property, cash and fixed interest depends on the fund’s preference.


People continually love to earn more and more money. Investing in shares generates more wealth through growing share prices, via dividends, or as a combination of both.

When you purchase shares, you get part ownership of a company. As with any company, it can perform well or poorly. When a business performs well, the share price will rise and in most cases, you will get a higher dividend income.

On the flip side, if the company performs poorly, your income may decline as the share price falls and you don't get a dividend. Keep in mind that not all companies pay dividends. Some companies automatically reinvest what you would've received in a dividend into more shares of that company.

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So which is better?

To determine whether shares or super is better for you depends on a variety of things. Like anything in finance, it’s never black and white. There are several things to look at which determine if putting your money into shares or super will be more beneficial for you.

Economic conditions

Shares and super are dependant on economic conditions. Both are investments so the performance returns can change depending on the stance of 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 so short-term declines in the economy won’t affect it too much unless the economy continues to decline. However for some shares, if it’s a short to medium-term investment, the direct impact of a decline in growth could seriously affect the value of your shares.

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. 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.

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.

The riskier options will have higher returns, so for shares this is good because you can receive that increase via dividends or share price, but with super you have to wait until your retirement.

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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. 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 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.

Your age also ties into tax offsets which can greatly benefit you if you know what they are and who they apply to. In general, offsets can reduce you tax payable to zero but on their own they can’t get your a refund. Depending on your circumstances, you may be entitled to a tax offset.

You may be qualified for two types of super tax offsets:

  1. The Australian super income stream tax offset.
  2. The tax offset for super contributions on behalf of your spouse.

You can receive the following tax offset if you're receiving income from an Australian super stream equal to:

  • 15% of the taxed element.
  • 10% of the untaxed element.

Information in your payment summary will show you how much tax offset you can apply for. Before you turn 55, you can't get a tax offset for the taxed component of your super unless the super income stream is either a:

  • Disability super benefit.
  • Death benefit income stream.

You could claim a tax offset if you deposit money into a super fund or retirement savings account (RSA) on behalf of your spouse who is a low-income earner. If all the following terms are met, then you could earn a tax offset of $540 each year:

  • The total figure of your spouse’s income is less than $13,800. This includes all extra benefits and employer super contributions.
  • The money you put into super is not deductible to you.
  • In the year of your super contributions, each super fund was a compliant fund.
  • You and your spouse must be Australian residents when you contributed to your super.
  • At the time of the contributions, you and your spouse must be living together.
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If you know how to invest shares, you’re probably going to be able to handle the stock market fairly well. Your level of education and knowledge of shares will help you navigate the waters of the stock exchange so it's important that you spend some time researching the share market and the company performance to ensure that you make an informed decision.

So if you are thinking of investing in shares because you’ve heard that’s the trend and you don’t know much about it, think twice before jumping in.

As for super, it’s important to have some knowledge about your super fund and how super works. While you don’t have to know much about super to have an account, it’s still good to have some knowledge so you know how you money is invested.

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If you want to save for your retirement and are happy to wait to access your wealth, then super may be a good option for you. Making more super contributions will help you build wealth for a sustainable and comfortable retirement.

On the other hand, if you’re quite savvy with your money, and you have a higher risk tolerance, you may want to invest in shares to build your income through dividends and selling your shares for a higher price.

Either way, it's important that you seek financial advice regarding your wealth strategy to ensure that it will suit your lifestyle.

Rates last updated October 21st, 2016
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