Should I buy ASX shares or top up my superannuation?

It’s a choice facing so many Australians: should I buy ASX shares, or top up my superannuation account? Investing is always about choices and opportunity costs. As it is with this particular question.

There is no right or wrong answer here, but both options have both upsides and downsides.

So let’s talk about whether you should invest in ASX shares, or your super fund in 2024.

Super vs shares

To be clear, investing in shares and your super is really two sides of the same coin. Most super funds allocate most of their members’ cash to shares anyway. And even if you have a self-managed super fund, chances are you’ll have at least some of the fund invested in the share market.

But that doesn’t mean we don’t have a real contest here.

Let’s start with superannuation.

As most of us would be aware, superannuation exists in order to provide an avenue for a comfortable, self-funded retirement for Australians. It involves locking up our money in a tax-sheltered account until we reach retirement age. Whilst we wait, that capital sits invested in assets like ASX shares.

And that gives us both the main advantage and the main disadvantage of choosing the super route.

Is topping up your superannuation your best bet?

The main advantage of super is that you will never find a better (legal) tax dodge for your investing. Funds going into superannuation accounts are usually taxed at just 15%. And once you’re in pension mode, any earnings are normally tax-free. Of course, this depends on individual circumstances, but that’s the general rule (make sure you check with a tax adviser though).

However, the main disadvantage is that you can’t actually enjoy the benefits of this tax shelter until you reach your preservation age. This will range from 55 to 60, depending on your year of birth. Until then, your investments will be held under lock and key. Bad news if you are trying to FIRE your way to an early retirement.

If you are planning to retire early, using the passive income from your ASX shares to do so, you might want to think about investing in ASX shares outside your superannuation instead.

Of course, you won’t get those lucrative super tax perks. However, you can still take advantage of some of the other significant tax advantages that investing in ASX shares still offers.

So when it comes to choosing to invest in ASX shares or topping up your super, it really depends on your work and life goals.

If early retirement is something you want to pursue, you might want to maximise your non-super assets. But if you just wish to build wealth as effectively as possible, a super top-up might be your best bet.

The post Should I buy ASX shares or top up my superannuation? appeared first on The Motley Fool Australia.

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Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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