Should you keep your money in super or buy property through an SMSF?

Apr 16, 2024

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Should you keep your money in super or buy property through an SMSF?

Building up a nest egg to live off in retirement or to grow generational wealth is important to investors. No matter how much money it would take for you to live comfortably and have financial independence, the road to get there requires careful consideration. For many people in Australia, this road is typically split into two paths: investing in property or keeping money in super. With self-managed super funds (SMSF), investors can enjoy the best of both worlds by buying an investment property while also holding other investments in their SMSF portfolio. Below, we explore key things to consider when assessing whether to keep your money in super or buy property through an SMSF.

Annual returns have to be considered

The rule of thumb with investing is that holding equities in major markets such as the ASX200 or SP500 will return an average of 8 per cent per annum over ten years. This takes into account the years where a recession may lead to negative returns and the years following where returns can be much higher than 8 per cent.

In comparison, property prices generally double every ten years. Like equities markets, though, there are caveats to this statistic. These returns assume that the property is in a growing area with strong rental demand. Buying a more affordable investment property in an area further from transport, education and employment hubs may be tempting, but this may attract lower rental yields and capital growth.

Time horizons matter

If you’re young and have decades to withstand the fluctuations in the property and equities markets, it may pay off to take the risk in committing a majority of your capital to investment properties. However, if you’re nearing your later working years, buying assets that need to be held over a long period to realise returns may not be suitable. It’s all about understanding your specific time horizon and long-term wealth-building goals. A financial adviser will be best placed to advise you on these things, so it’s important to find someone reputable to speak with about your unique needs. Further, a fee-for-service financial adviser can provide independent advice that isn’t tied to selling you particular financial products.

An SMSF can be a good fit for women and primary carers

People who need to take time out of work for caregiving responsibilities often end up with a smaller super balance. Setting up an SMSF can give these people more autonomy over where and how their funds are invested. Buying a property through an SMSF can be a tax-effective way to get exposure to property while building up a retirement nest egg. It’s important to note that there is a minimum balance that makes the extra administrative and compliance burdens associated with an SMSF worth it. This is typically around $200,000 at the time of writing.

There are many ways to grow wealth to live comfortably in your later years. Speaking with an expert who can help you determine the best strategy for your unique needs is critical. Start doing your research today and get advice on what the best options are for you.

Remember, this article is general in nature and is not financial or legal advice. Please consult your professional financial and legal advisors before making any decisions for yourself.