Should you invest in super or shares?

Estimated reading time
8 min

Investing in your superannuation and what that means for your future
What to consider before investing in shares
The 'Four C's approach

So, you’ve managed to save up some extra cash and you’re thinking about investing. But which investment option is right for you?

Between super and shares, it can be hard to understand all the investment lingo. That’s why we’re breaking down what each of these investment options will mean for your future.

Brain hack: Before we dive into your investment options, let’s chat about a little way of thinking called loss aversion. This is where we tend to prefer avoiding loss over acquiring gains. In the context of investing, you might feel better about not losing your money than you would about growing it over time, so you might not be as willing to take a risk (however big or small) on an investment. To overcome loss aversion, it’s a good idea to do a risk assessment and see how much investment risk you’re willing to take to help manage loss aversion and make decisions that feel right for you.

Investing your super

Super is a way of saving for retirement. Your employer is required to pay 11% of your salary into your super fund (which will increase to 11.5% as of 1 July 2024)^disclaimerand this money is invested by your super provider into various assets such as property, bonds, cash and shares. The growth from these investments is reinvested into your super account to help your balance grow. Think of it as your own personal investment manager.

The pros and cons of investing in super

Pro: Super is invested in a diversified portfolio – less risk than shares alone
Con: Funds are generally locked in until you retire
Pro: Your super is managed with minimal or no effort from you
Con: Certain types of funds don’t allow you to pick the shares you invest in
Pro: You can reduce your taxable income through salary sacrificing
Con: The amount you can invest each year is limited before higher tax rates kick in
Pro: Benefit from long-term growth
Con: Super is regulated by Government and policies can change over time

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How can you grow your superannuation?

With super you also have the option to make voluntary contributions, and this is a great way to put your savings into an investment. From 1 July 2024, you can put up to $30,000 of your income into super each year, which is an extra $2,500 from the previous cap. This money will be taxed at the 15% concessional tax rate instead of your standard income tax rate (note that high income earners may pay an additional 15% tax). ^disclaimer

Could investing in superannuation be for you?

If you’re looking at a long-term investment and want to build growth over time, as well as reducing your taxable income, then investing in super could be a good option for you. Still unsure? Then seek financial and tax advice and work out if investing in your super is right for you.

Investing in shares

When you buy shares, you’re effectively buying a small stake in a company. Companies sell shares to raise money, which they then use to expand their business. When you invest in shares, you’re free to buy and sell some or all of them at any time. If the company performs well, demand for its shares will generally increase, pushing its share price up.

This is good news for you as it means you can sell your shares for a higher price than you purchased them for. But while the money you invest has the potential to grow, it could also fall in value so you may get back less than you invest.

You could also receive a share in the company’s profits. Called ‘dividends’, these payments are a portion of company profits paid out to shareholders. Companies aren’t required to pay dividends, but many do.

The pros and cons of investing in shares

Pro: You can sell or buy at any time
Con: High risk – you could lose money
Pro: Choice over what you invest in
Con: Requires management and in-depth research
Pro: No limit on the amount you can invest
Con: Less diversified portfolio than super
Pro: You could get dividend payments
Con: More expensive to get started and you have to pay tax on any money gained

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Is it risky to invest in shares?

Like any investment, there are some risks associated with investing in shares - which is why it pays to do your research. Firstly, share prices can go up and down daily. And depending on where and what you invest in, there are a number of outside factors that impact this price. You also need to understand the market and the industries in which you plan to invest to determine if they’re likely to perform well or not. Finally, knowing why you’re investing can help you decide whether your investment is higher risk for you. For example, if you’re investing with the aim of making some quick cash, you might be putting yourself at risk – because shares generally are a longer-term investment. So have a think about your goals and objectives before investing.

Could investing in shares be for you?

If you’re trying to save enough money to cover the cost of perhaps a new car, holiday or wedding in the short term, then investing in shares is probably not the right option. But if you’re putting money away for something at least five years away – such as a having a child, private school fees, or just more flexibility in the medium term – then investing may be right for you.

Do your research. Carefully consider the risks and benefits as well as any fees, charges, terms and conditions.

How can you start investing?

Whether you’re looking to invest in super or shares, there are a few things you can do now to get started:

Have a clear goal in mind to work out which investment options are right for your needs and timeline.
Do a risk assessment to understand what level of risk you’re willing to take.
Chat to a financial advisor on the different types of investment options.

If you’re interested in boosting your super, following the four C’s can help get your started: