It's fair to say that Australia has a world-class superannuation system, despite the presence of a few flaws. Forcing most of us to quarantine at least 9.5% of our pre-tax income into a retirement fund is a useful and powerful wealth-building tool.
Unfortunately, many Australians view super with indifference or even apathy. Perhaps it's just some resentment for the government telling us what to do, or even the mere fact that we can't touch this money for most of our lives that fuels this attitude.
Regardless, I think super can be the best investment you ever make – here's why.
Compound interest
Most of our super is invested into income-producing assets like property, infrastructure, ASX shares, international shares, bonds and term deposits. Assets like these enable our money to compound or snowball – especially if left alone. And because we actually can't withdraw our super until retirement, we are forced to leave it alone. Most investors lose money because they panic and sell shares during a market correction – you can't do that in super.
Thus, super allows capital to earn interest, and then the interest earns interest and so on – leaving you with an exponentially growing nest egg.
Tax
Investing in super is the most tax-effective environment you can invest within. Different (and generally more favourable) tax rules apply to money entering your super fund, and on the profits made within it.
Indeed, once your super is switched to pension phase, you can often withdraw the income tax-free (depending on your individual circumstances). Thus, having a large chunk of your net worth in super is usually a good idea from a tax perspective. You can even go down the Self-Managed Super Fund route and pick your own shares, property and other investments to house within super.
Foolish takeaway
There are many reasons why super is a good investment, but here you have 2 of the best. It's worth keeping in mind that everyone's circumstances are different, so please seek individual advice before you make any changes. But in my opinion, it's always worth taking care of your super and ensuring your money is getting the best bang for its buck.
