If there's anyone out there under the age of 65 that doesn't think they have any investments outside maybe the family home – think again.
It's highly likely that the 9.5% of your salary that is compulsorily placed in a super fund every pay cheque is invested in the sharemarket as we speak. Unless you've picked an 'all-cash' investment choice (which is probably not a wise move for most people), at least a decent chunk of your money would be invested in 'growth assets' – which basically means Australian and international shares, amongst other things.
Many super funds these days even give you the option of investing in your own choice of ASX shares and/or ETFs within the super fund, which in many cases will cost you less in fees to boot.
So, if you wanted to expand your investing portfolio, why not just do it inside your super fund?
The benefits of investing in your superannuation
This arrangement can have a lot of benefits. Super contributions are 'pre-tax money' and both contributions and earnings from your super account are usually taxed at far lower rates than other non-super investments.
Thus, you will likely pay less overall tax and end up with more money invested at the end of the day if you do it inside your super fund. Once you reach retirement age, you can 'flick the switch' to pension phase and draw a tax-free stream of income as well (under most circumstances).
Those are some pretty compelling 'pros' in my book.
What are the drawbacks of investing in super?
The main downside is of course that you can't withdraw the capital or earnings from these investments until retirement. So if you're someone who's aiming to 'FIRE' (financially independent, retire early) at 35, investing inside super is probably not for you.
Unless you have a self-managed super fund (SMSF), there are also restrictions on the types of assets you can invest in inside your super fund. So if you see physical real estate, gold, fine art or other more exotic types of investments as part of your retirement plan, it might make executing this strategy difficult.
There are also restrictions on how much you can contribute to your super fund – both in a 'pre-tax' and 'post-tax' manner. These rules have been tightened up in the last few years, so I would definitely recommend researching how these would affect your own individual circumstances if you're thinking about this path.
Foolish takeaway
When push comes to shove, there are many advantages to investing inside your super fund, but also a few disadvantages. You can always employ a mixture of both strategies – i.e. investing both within and outside super – which could get you the best of both worlds. Say what you will about our super system, but I don't think anyone could argue it doesn't give us choices.
