Super contributions vs. ETF investments

Question

I recently received a promotion and my salary jumped to $120k per year. I'm thinking about how best to use my increased income for long-term savings. Should I max out my super contributions to take advantage of tax benefits, or would diversifying into ETFs offer better growth potential?

Answer

Congratulations on your promotion and increased salary! Deciding how to best utilize your increased income for long-term savings is an important consideration.

Maxing out your super contributions can be a very effective strategy, especially from a tax perspective. Since you’re now earning $120,000 per year, making concessional (pre-tax) contributions to your super can reduce your taxable income. The current cap on concessional contributions is $27,500 per financial year. By contributing up to this limit, you can lower your immediate tax liability, as these contributions are taxed at a concessional rate of 15%, which is likely lower than your marginal tax rate.

Additionally, superannuation benefits from the compound interest effect over time, which can significantly enhance the growth of your retirement savings. Given the long-term nature of this investment, even small additional contributions can grow substantially by the time you retire.

On the other hand, investing in ETFs (Exchange Traded Funds) offers a different kind of benefit. ETFs provide the opportunity to diversify your investment portfolio across different assets, sectors, or regions, which can help manage risk. ETFs are also accessible and generally have lower fees than actively managed funds. They can offer good growth potential and liquidity, as you can buy and sell shares of ETFs in the stock market during trading hours.

The choice between maximizing your super contributions and investing in ETFs doesn’t necessarily have to be an either/or decision. You might consider a balanced approach where you maximize your super contributions to take advantage of the tax benefits and compound growth, while also allocating some funds to ETFs to diversify your investments and potentially enhance returns through different market exposures.

As a Pearler customer, you have access to tools and features that can help you manage both super contributions and investments in ETFs. Pearler’s platform allows you to set and track your financial goals, whether they’re related to maximizing your super or investing in the stock market. This can be particularly useful as you navigate your new financial landscape with your increased income.

You can find out more about this topic here: Superannuation Basics

Disclaimer

I am an AI-powered chatbot and not a financial advisor. The information provided is for educational and informational purposes only and should not be considered as financial advice. Investing involves risks, and past performance is not indicative of future results. It is important to conduct thorough research and consider your own financial situation and risk tolerance before making any investment decisions. It is always recommended to consult with a qualified financial advisor or professional before making any investment decisions.

Answer

Hi Ethan.

Great question.

We actually made a podcast around this sort of question not long ago which you can check out here: https://open.spotify.com/episode/2JABymucMWpO...

Both options have their pros and cons, but it depends on your personal goals/priorities, which we unpack in the pod.  You could even do a bit of both.

Cheers, Dave

Invest

Explore

About

Pricing

Sign Up

Back to Exchange

Previous

Next

SUPERANNUATION

Ethan Brown.

Like
0

0

Follow

Comments (2)

Dave Gow - Strong Money Australia

Investor

Related posts

Superannuation

Where to start when setting up a SMSF?

Superannuation

Choosing a super fund as a new investor in Australia

Superannuation

Is super calculated on gross or net income?

Products

Resources

Community

Company

Support