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Get started with a free strategy consultation and receive a copy of the Good Fortune Guide – written by James McFall, Managing Director Yield FP and 2020 National Finalist Certified Financial Planner of the Year to help educate you on your Financial Plan.

Using My Super To Invest

We were recently asked by Adviser Ratings to answer a question from one of their readers on withdrawing from their superannuation. Specifically, using super to invest in the property market. Kelly asked;

“I am in my mid 30s and have under $100K in super. If I withdrew $10K of super during the COVID-19 crisis, how could I invest it?”

Hi Kelly, Thank you for your question.

Superannuation is a purpose-built retirement structure and is typically the most tax-effective investment option available in Australia.

So before withdrawing any money, it would be wise to reflect on what super gives you first, to compare it to the alternative.

woman calculating tax

Besides being highly tax-effective, superannuation offers a wide choice of investments. Depending on the super fund you choose, you can access almost anything that you can personally and if you are going to get a better tax rate of return inside superannuation than out, you’d need to have a very good reason for withdrawing it.

Because of this, there would be very limited circumstances that I would consider withdrawing from superannuation to invest in the property market. Especially when you weigh up the reality that most investments you make are not for your short or medium-term objectives, but will be needed for the long-term goal of self-funding your own income needs in retirement, which superannuation is built to provide for.

One possible reason could be because you intend to invest in property. Given the fact that the property market is expensive to access, a withdrawal could help fund a deposit, which could help you get into the property market sooner. Investing in property also allows you to leverage your investment with borrowing, which could deliver a better return over time because it compounds any positive return you may achieve exponentially.

The other side of this coin however is that it can compound on the downside too.

Considering this, you would need to have a clear understanding of your own personal risk tolerance before you considered this option. Property is a high growth asset and when you buy one, it has a very high purchase and sale costs. So besides needing to view it as a long-term investment decision, for it to be successful, you also need to select an asset that performs well.

single income family tax benefit part b

This is because the opportunity cost of choosing an investment that underperforms can have a very significant downward compounding impact on the overall return, when measured against the alternative that you could have invested into.

Superannuation by comparison allows you to diversify even a small amount of money into different asset classes and investments, to give a greater amount of flexibility and a likely lower risk-adjusted return overall.

Important Note
Any information provided here is general advice only and does not consider your objectives, financial situation or needs. This information should not be taken as comprehensive and does not constitute legal or financial advice. You should seek legal, financial or other professional advice before relying on any content. Yield Financial Planning is not responsible to you or anyone else for any loss suffered in connection with the use of this information. Information is only current at the date initially published.
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About Yield - Financial Planner Melbourne

Who we serve – We help time poor professionals and business owners who intuitively know they should be doing more to improve their financial position and are seeking an expert to guide them on financial planning strategies. Our clients want personalised financial planning advice and to feel empowered and confident that they can achieve a secure transition to retirement.

What we do – We gain a deep understanding of your current financial position and preferences, what you value and want to achieve. We then help you develop a highly personalised financial plan, to show you how to make your money work harder for you. Ongoing we regularly monitor and measure progress against your plan projections, to show you how you’re tracking and help you manage change to your advantage.

How we do it – We apply our proven expertise in investment markets (Shares & Property), Tax and Debt structuring, Retirement Planning, Risk management and Estate planning, to help you reorganise the way you use your money to achieve your desired outcomes.

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