Investing some extra money in super can have real advantages if you’re looking to build long-term wealth.

Superannuation could mean being a member of an industry fund, a for-profit fund or even running a self-managed super fund (SMSF).

But the basics of super remain the same across all vehicles. Investing in super over and above the 9.5% Superannuation Guarantee from your employer may not be the right decision for everyone. It’s a big decision which will ultimately depend on investment goals, age and income level.

So, how do you know what’s the best way to invest for you?

The benefits of investing in ASX shares

Many pre-set options in super funds won’t allow you to choose your investments as you could outside of super.

For instance, unless you’ve got an SMSF, you probably can’t buy individual ASX shares. That means you may have to leave buying growth shares like Xero Limited (ASX: XRO) for your investment accounts outside of your super fund.

The flexibility that can provide could be a real benefit for an active investor. While investing in super can provide some powerful long-term benefits, many Aussies may not want to lock-up that money until retirement.

For instance, a lot of younger investors may have one eye on buying property. The First Home Super Saver (FHSS) allows you to access up to $30,000 from your super for a deposit. But then many investors may prefer to just avoid the hassle in the first place.

So while it’s true that compounding returns are boosted inside your super fund, investing more than just the 9.5% from your employer won’t suit everyone’s goals and needs.

Why should you be investing in super?

The big factor here is tax. It’s a good time to look at investing in super considering we’re fast headed towards 30 June and the end of the financial year.

Provided the eligibility criteria is met, concessional superannuation contributions are taxed at just 15% inside of super.

For most Australians, that means you can use super to reduce your tax bill at the end of the year, while still boosting your retirement income. Every dollar earned above $18,200 per year is subject to at least 19 cents of tax.

That means that even in the lowest tax bracket there are potential tax savings. However, if your income is above the $180,000 mark, the tax-advantaged status of super really starts to add up. 

Other than just investing for tax reasons, superannuation investments can offer a liquidity premium. Given the long-term horizon of super funds, they can invest in long-term investments like infrastructure and private equity.

These investments aren’t easy to access for the average Aussie investor. That means that you could invest in more than just ASX shares if you’re investing in super. 

This could mean higher returns (due to the liquidity premium on investments) as well as strong diversification options for your portfolio.

Foolish takeaway

Super is a complicated but powerful tool for retirement. As always, it’s best to talk to a financial advisor to determine what’s best for your individual circumstances.

While the potential tax benefits are clear, investing extra money in super can tie your cash up for a long time which won’t suit everyone’s needs.

More reading

• Will Xero shares and these 2 other ASX companies be portfolio staples by 2030?
• 3 ASX growth shares to buy with $3,000
• 5 ASX shares that would’ve made you a fortune in 5 years
• Why I think Xero shares are a great long-term buy
• 3 ASX shares to buy and hold for the next decade

Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Xero. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post Is investing in super a smart move right now? appeared first on Motley Fool Australia.

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It’s a tale as old as time. Good times breed great times that bring exuberance, followed by pain. It’s your classic asset bubble that we’ve witnessed through the centuries. No asset, be it shares in 1999, bitcoin in 2017, or tulips in 1636, are exempt.

Now, just to be clear, I don’t think the S&P/ASX 200 Index (ASX: XJO) or, indeed, the US markets like the Dow Jones are anything close to true ‘bubble’ territory.

But I do think we are starting to see signs of what former Federal Reserve chair, Alan Greenspan would call “irrational exuberance”.

According to reporting in the Australian Financial Review (AFR), ASX share trading surged on investment platforms like Commonwealth Bank of Australia (ASX: CBA)’s CommSec over the past few months. Millennials also displayed the highest activity on the platform. And it’s not just Aussies getting amongst it. The AFR reports that American users of the popular-with-millennials US brokerage company, Robinhood surged by 70% in March.

It’s an interesting phenomenon to see. Conventional wisdom dictates that market crashes translate into a rise in despondency towards stocks as an asset class – with investors burnt by falling prices reluctant to jump back in.

ASX shares in a bubble

Why is this? Well, in my opinion, it’s the nature of the market swings we have seen this year. The bear market we saw between 20 February and 23 March was almost perfect in the way it was consistent and steep. The bull market that has been in play ever since 23 March has been equally perfect in that share prices have gone up in almost a straight line.

This, in turn, has made it relatively easy to jump back into shares at any time over the past 2 months and make money.

The AFR reports that the top shares traded on CommSec over 9-10 June were Flight Centre Travel Group Ltd (ASX: FLT) and Zip Co Ltd (ASX: Z1P). Forget about the ASX blue chips. Apparently these businesses are the companies investors want in their long-term portfolios. Any coincidence that Flight Centre shares were up more than 100% between April and 10 June? Or that Zip Co shares were up more than 470% between March and 10 June? Probably not.

In the US we have seen far worse signs of exuberant, ‘bubbly’ behaviour. For example, shares of US car rental company, Hertz Global Holdings Inc (NYSE: HTZ) have ballooned more than 800% between 26 May and 8 June – despite Hertz filing for bankruptcy in between. There’s a similar story going on with Nikola Corporation (NASDAQ: NKLA), a potential rival to the electric car maker, Tesla Inc (NASDAQ: TSLA). Nikola shares shot up more than 400% between 1 May and 10 June for no solid reason.

This data tells us that these ‘new traders’ entering the market are looking for easy money, which has been delivered to them in spades so far. Making 470% in 2 months is enough to give anyone a healthy dose of irrational exuberance, in my view. 

Foolish takeaway

Yes, market crashes do give investors a phenomenal opportunity to pick up shares at great prices. But the wise words of Warren Buffett come to mind in this situation: “don’t even think about owning a stock for 10 minutes if you don’t plan on holding it for 10 years”.

So, I would caution any investor out there to avoid these ‘hype-train’ stocks and keep a long-term investing mindset present at all times.

History shows us that bubbles and irrational exuberance always ends in tears – and I’m seeing signs of some very irrational behaviour right now. 

More reading

• Are Zip Co shares too expensive?
• Top brokers name 3 ASX 200 shares to sell today
• Australian unemployment jumps to 7.1%
• ASX 200 down 1.3%: Big four banks tumble, Afterpay tipped to go higher
• Has the Afterpay share price become too expensive to buy?

Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of ZIPCOLTD FPO. The Motley Fool Australia has recommended Flight Centre Travel Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post Millennials be warned! Signs of dangerous ASX share trading grow appeared first on Motley Fool Australia.

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The Zip Co Ltd (ASX: Z1P) share price has soared 64.5% in June. The company is undergoing a $200 million capital raising to acquire United States-based buy now, pay later (BNPL) provider, QuadPay. But is the Zip Co share price getting too expensive? 

Q3 highlights 

Zip Co provided the market with an update for the month ending 31 May 2020. The company highlighted a 78% year on year increase in monthly revenue and a 63% increase in active customers to 2.1 million. Furthermore Zip Co reported a 46% increase in active merchants to 23,600. I think these numbers are pretty impressive. I also think the company’s strong performance should continue due to the change in consumer behaviour resulting from COVID-19. 

Zip Co’s business update commented on the shift away from cash to digital payments that has occurred throughout the pandemic. The company also anticipates eCommerce penetration to remain at elevated levels post COVID-19 as more consumers gain familiarity with shopping online and retailers invest significantly in this space. These trends represent considerable tailwinds for BNPL and digital payment operators like Zip Co.

QuadPay highlights 

I believe the QuadPay acquisition is a game changer for the Zip Co share price. This is a compelling investment proposition that transforms Zip Co from a domestic BNPL player to a global BNPL leader. Post completion, the combined group will have operations across Australia, New Zealand, the US, the United Kingdom and South Africa. Zip Co will have a combined annualised total transaction value of $3.0 billion and annualised revenue of $250 million. It will also boast 3.5 million customers and 26,200 merchants. 

The QuadPay acquisition will immediately elevate all of Zip Co’s key reporting metrics and its existing scale. It will also ramp up the company’s growth potential in the world’s largest retail market. QuadPay currently has an existing customer base of 1.5 million, over 3,500 merchants and annualised revenue of $70 million for the quarter ending March 2020. QuadPay allows customers to split their purchase into 4 instalments spread over 6 weeks, interest free. The merchant gets paid upfront with risk and fraud liability absorbed. What makes QuadPay unique is its ‘Anywhere App’ that enables customers to pay in instalments in store or online at any merchant.

Zip Co’s acquisition will be funded with $100 million in convertible notes and up to $100 million in warrants. This will mean Zip Co shares will be progressively diluted by $10 million every six months as the notes convert into shares. The capital will be provided by an affiliate of Susquehanna International Group, one of the largest privately-held financial services firms in the world. The company has an established track record of investing in high-growth companies including the parent company of Tik Tok, Bytedance. 

Foolish takeaway 

I believe QuadPay is a transformational acquisition that takes the growth potential of the Zip Co share price to the next level. Zip Co has entered the largest retail market in the world with a genuinely innovative product. While investors could wait for its share to possibly become cheaper, I would certainly be watching it closely. 

More reading

• Millennials be warned! Signs of dangerous ASX share trading grow
• Has the Afterpay share price become too expensive to buy?
• Why Zip Co and these All Ords shares have doubled in 12 months
• ASX 200 jumps almost 4%, Webjet share price soars
• The Zip Co share price is up 500%. Too late to invest?

Lina Lim has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of ZIPCOLTD FPO. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post Are Zip Co shares too expensive? appeared first on Motley Fool Australia.

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