If in a good area with good tenants the property may very well outperform the super fund, but you are talking on additional risks by putting a substantial amount of money in just one investment and not diversifying.
Key points. Keeping money in a high-growth super fund would have offered a better return than investing in property over the past 10 years. Property returns were more likely to be competitive with super in expensive neighbourhoods. Choosing property has intangible benefits, too, such as the security of home ownership.
Once you contribute money to your super you generally can't access it again until you retire. So it's important to think about timing. If you'll need the money before you retire, paying off your mortgage is a better option because you may be able to redraw the money or access the equity in your home.
While property investments typically require a larger initial capital outlay compared to shares, they offer investors greater control and leverage over their money. Shares, on the other hand, provide easier access to diversification, liquidity, and potentially higher returns over time.
Important: Superannuation is primarily a long-term investment. Don't be too concerned about a negative month here or there because on average super funds have been providing positive returns for 25 of the last 30 financial years.
Changes in the stock market can affect the performance of investments, which can in turn affect super balances. If the stock market goes through an extended slump, such as it did during the COVID-19 pandemic, this could potentially lead to some super balances decreasing as the value of investments shrink.
If you're close to or already in retirement, you'll have less time for your super to recover after a recession. However, this doesn't necessarily mean you should rush into changing your investments. If you have your super in a balanced fund, a lot of these will automatically be adjusted in line with your age anyway.
It depends on the particular stock and real estate investment (there are numerous ways to invest in real estate and they're not all equally risky), but real estate is typically less volatile than the stock market.
Savings in super can do more
When you save money in a regular bank account, you're earning interest at a fixed rate. In super, you have access to lots of ways to invest your savings, giving you more options that could earn a better return and see your savings grow faster.
If your income is less certain it makes more sense to pay down your mortgage. If your work income is stable, investing is more attractive. There's less risk you'll need to sell down your portfolio early to meet mortgage repayments.
You can buy a house with your superannuation to live in; however, you cannot live in the house while it is owned by your superannuation.
Without super – let's say you're saving money in your own name for the retirement years – you would be paying more tax on those savings with an individual tax rate of anywhere between 19% and 47%. Super enables us to invest those same earnings with a tax rate of only 15%.
Mortgage lenders see houses as slightly less of risk than flats, making financing more available. So, if you're a landlord looking to build a portfolio rather than expand, buying a house over a flat could be a better option for you. 2. Houses are usually more popular for longer let tenancies.
According to the Association of Superannuation Funds of Australia's Retirement Standard, to have a 'comfortable' retirement, a couple who own their own home will need an income of about $67,000. A single person will need an annual income of more than $47,000.
According to the December 2022 ASFA Retirement Standard, a couple can live a 'comfortable lifestyle' with a retirement balance of $690,000 while singles can enjoy the same with $595,000. But these are guidelines only.
This obviously depends on what annual income you want to fund but if you want to be able to afford a comfortable retirement—which is an income of just over $48,000 a year for a single according to the ASFA Retirement Standard—then you need a balance of at least $500,000.
The important thing to take from it is that property investment is generally less volatile, and therefore less risky than investments in shares. However, you should also expect lower returns as a result. Think about the level of returns you expect or need, and how much risk you are prepared to take.
Fixed interest and cash investments will generally be low risk (defensive assets) and assets such as property and shares are generally considered to be high risk (growth assets).
Over many decades, the investment that has provided the highest average rate of return has been stocks. But there are no guarantees of profits when you buy stock, which makes stock one of the most risky investments.
Does a share market fall mean that I have lost my super? If your investment mix includes shares, a fall in share markets will likely reduce the unit price of your super and hence your account value. This is not necessarily cause for panic, as your number of units will not have changed.
The Bankruptcy Act states that, if a person becomes bankrupt, funds held in a person's regulated super fund are protected and unavailable to creditors. In addition, a bankrupt person can withdraw money from their super funds, subject to superannuation regulations, and spend these amounts as they wish.
More than 2.4 million of AustralianSuper's members will face a 2.7 per cent hit to their retirement savings for financial year 2022 as the $3.1 trillion sector falls prey to the turmoil in equity and bond markets.