Best GARUNTEED investment strategy ever..?

Asx broker.. does a super fund pay tax on capital gains and distributions? I thought you only pay tax when you put the money in? Can someone confirm this?

Then gearing in super is even better as borrowings interest offsets dividends and capital gains! leaving capital growth untaxed!

 

I think we also need to point out here that the co-contribution cuts out completely at $58,980 (thresholds can be viewed here: )

So if we take Sketchy Skywalker's example of being on an income of $55,000 then if he was to contribute $1,000 to his super fund, he would get a co-contribution amount of $199.

Mark

 

Super and tax: it's a maze, but a winner or
The Australian, News from Australia's National Newspaper or
Tax and super have their personal sides - Business - Business - theage.com.au

Super get taxed 3 times.
Money in (same as wages), Money making more money (income/growth) and Money Out (B**tards). If you are over 60 you can forget about the last one.

Cheers,

Dan

 

and if he made a tax-deductible contribution, he would get back $300 from the tax man, so up at that level, he could make a $1300 before-tax contribution and he would be better off.

Or he could make a $132 non-deductible contribution to get the $199 from the government, and make the rest tax-deductible.

 

I would just like to also point out here a couple of things:

1. it is not possible for your super fund to gear directly. Superannuation funds cannot have borrowings.

2. if you borrow in your own name in order to put those funds into superannuation, you cannot claim a tax deduction on those borrowed funds and you cannot use the super fund as security. It is for this reason that I have not met one single person who is well versed in superannuation strategies (and I've spoken to and been to presentations on the subject put on by one of the most clued in people in Australia) who think borrowing to invest in super is a good idea (of course there is a very narrow field of exception to this).

I think it prudent to state here to everyone that it is vital to seek advice from professionals when looking at above basic strategies.

Mark

 

Agree. I did say gearing, not borrowing. You can gear via internally geared managed funds, or warrents. all legal within a super fund.

 

Hi CRC,

I think what Mark is saying is that gearing amplifies your risk as well. Not many clients feel comfortable with 100% shares so near on none would feel comfortable with 100% geared equity funds.

I only know of one client who has any geared funds and it is 40% of his super portfolio, which is higher than anyone else I know. I've only got 10% in my own!

The internally geared managed funds are easier than warrants, ie, managed funds don't suffer from time decay.

Cheers,

Dan

 

I know the ATO has now allowed CFD's I wonder what the position is with Forex trades them being leveraged up to 200 times in some accounts?

 

Absolutely, gearing magnifies returns (negative or positive) volatility, risk, and carries the burden of interest payment. (or Theta - Time Decay)

Personally I have 100% of my super in the CFS Australian Geared Share fund. Over the last 7 years, I have done very well out of it. My personal view, and this isn't a recommendation for anyone else, is that if you have a long time frame in your super fund, I have 30 years to the age of 60, gearing at my level is something I'm comfortable with. If the share market isn't higher in 30 years time, then I guess I will be very surprised! If you invested $100,000 into CFS geared share fund 10 years ago, today it would be worth $1.1 million without contributions. I think the first 4 years were sideways, the last 7 years were boom! Colonial First State: Historical performance chart

I will consider reducing my risk as my super grows to larger sums of money, and i draw closer to retirement, but been conservative, you will not become wealthy.

You need to understand the risks associated, and if that makes you unable to sleep at night, then don't do it!

People are comfortable with a investment property with 90% LVR, so why shouldn't they be comfortable with 50% LVR in shares? In the BRW top 100 rich list, I believe 60% of self made millionaires made their wealth through property.. and that was using other peoples money - gearing! Leverage is the key to wealth. The more you can leverage your time, and your wealth, the better you will do.

Problem with financial planners is they are bound by ASIC regulations. A planner would be in allot of trouble if they recommended allocation of 100% into geared share funds! (or geared colliers international property!) But financial planners aren't there to make you rich, they are there to meet the government conservative 'what you need to retire'.

As far as Theta, Theta essentially is just interest payments. A managed fund pays interest as does a warrant, with a warrant its called Theta, with a managed fund, its called interest on borrowings! Any geared investment pays interest/theta.

Cheers,

Tom

 

strange isn't it! They allow other geared vehicles into super, but not margin loans! what a load of crock!

 

Any money we invest gets taxed 3 times.
Wages.
Income
Capital Gains

If you are under 60, super is still taxed at 15% for earnings, 15% tax on your pension, and 10% tax on capital gain.

If you are over 60, there is 0 tax on a pension, 0 tax on any assets used to fund that pension (either if assets are sold = 0 CGT) or income earnt, and there is 0 tax on any lump sums.

You can also keep 'two' accounts in a super fund (assuming now it's an SMSF). One is your pension account with 0 tax. The other - where you can still actually contribute provided you meet the rules - can be an accumulation where the 15/15/10 tax rates still apply.

At 32 and planning not to be working past 35 unless I want to, I won't be throwing a heap of money into super unless it's excess to my current requirements for living and investing. I can't get it until 60 anyway, so I'm not planning on locking it up for that long for no benefit for me now.

Under 50, your tax deductible limit is $50,000. However if you are an employee the only way that you can achieve the tax deductibility is by salary sacrificing. (Unless you earn less than 10% of your income from an employer).

If you claim a tax deduction on the way in, and want to take the money out before 60 (if your DOB allows you to), then it is taxed on the way out. After 60 it isn't. If you don't claim a deduction on the way in, then that money can be withdrawn without any tax penalties.

 

Sk3tChY

Like most people here, I only wish I started at your age with a clue what I was doing. You are way ahead of the game, even posting on a forum like this (they didn't exist when I was 20 )

I'm 40 and still have limited interest in super because I reckon waiting 15-20 years to access the results of my investment sounds like a crappy idea.

In the last decade I have gone from zero equity to 7 figures. Nothing like some of the stories I've read, and to be honest money per se doesn't excite me much, but these days the security and what I can leave behind for my wife and child really means something to me. My point is, though, I wasted a decade from 20-30, something it appears you won't do.

I wouldn't get too fussed by the super tax breaks. better to spend the energy actively investing as Mark said. Anything you can put into investments, do .. and let it stay there for at least 10 years, adding to it every chance you can and enjoying compound growth.

If you're in managed funds or property, in a cycle of 10 years there will likely be some tears and times you feel like pulling the whole lot out and doing something 'creative'. Resist the urge, appreciate the slow and steady but massive overall growth of blue chips and property following strategies that are proven, keep working for this next decade to fund your investment 'habit' and then start having some fun.

You'll be in your 30's, likely have decided that one particular partner is a good idea, maybe even kids, but unlike most you'll be set so you can spend some quality time doing what you like doing.

I'd follow the "Navra way" of withdrawing some spoils along the way (when the profits dictate its feasible) and blow it on largesse

Have fun, and good on ya
Carl

 

Heh, thanks carl.

Yeah, I wasn't ever planning on putting 100% of my wages into super at all, but just wanted to see what peoples opinions were on the whole thing, its pros and cons etc.

And as usual on this forum, i've gathered some very useful information from my questions, because now I'm thinking of contrbuting some extra money into my super to get the extra money from the government.

 

This is a good idea, invest enough to benefit from the government co-con, and then invest the rest outside super.. Also invest money which you really wont miss.. like $500 per year.. $500 wont really achieve anything outside super over 5-10 years.. but with the time frame available to you in-side super along with the co con will make that money work really hard for you!

Its great to see you thinking like this! Use these 10 years to your advantage!

 

Do you really honestly believe that? What's so special about super that it's going to magically achieve returns that can't be gotten outside super?

Mark

Edit: Here's something to think about. Let's take that $500 and put it into two different investments: property and super. Let's do super (the poorer option) first. Note that tax and fees, etc aren't counted for ease of example.

Add $500 to super and (for the sake of the example) get max super co-contribution of $1,500. The average super fund returns about 8% p.a. After 10 years, you have about $4,000. So you've made about $3,500 in that ten years from that super investment (I count the $1,500 as part of the return because it was not your money in the first instance). If you don't count the $1,500, you've made a whopping $2,000 in ten years.

Take that $500 and put it towards a deposit on an I.P. at 95% lend you get an extra $9,500. The actual price of the property is not important, just that you've lent at 95%. Property goes up on average 7% a year. In ten years time, you have equity of about $8,400 (assuming you haven't drawn down these funds for extra investment). That's another $4,900 (or $6,400, depending on how you look at it) - tax free - that you're missing out on putting the money in super.

Some food for thought: you could take that $4,900 or $6,400, put it into Navra, margin at 50% so you have total $9,800 or $12,800 which may give you an income on average of 10% a year ($980 or $1,280), which will help you hold that property. Multiply that with every I.P. you purchase..... Remember, that's only a percentage of the actual equity.

Imagine how much you're missing out on if you choose to put the money in super rather than I.P.'s/shares and draw down that equity every year to invest in more property or shares or whatever. Remember - that money goes into super, it's gone until you turn 60. You cannot, unless under the most extreme circumstances touch that money. You put that money into property or shares, it is available to you at any time (granted, it may take some time to access if you have to sell a property, but you won't be waiting decades).

Sure, you can 'borrow' in a super fund by investing in geared funds but you have no control whatsover - the best you can do is put your money in there and pray they do the right thing. The point is that superannuation gives you NO FLEXIBILITY. In my opinion, investing extra money in super just to get the co-contribution (especially at such an early age) is like investing in property for the tax benefits. It's a bonus, not the reason for investing.

Also, just one more thing as I was reading through this - what about using the money to pay off your home then drawing out the funds to invest ala debt recycling?

Mark

 

$500 per year contribution over 10 years will be worth $13500 in 10 years outside super. @ 15% PA return.

It will be worth $30700 in 10 years inside super matched with government co-con

It will be worth a massive $773,000 in 30 years time if you keep putting in $500 per year over 30 years @ 15% PA.

Do you think its worth sacrificing $500 a year into super to be rewarded with a extra 3/4 million at retirement?

 

crc_error,

I used the averages for a reason. If you want to use 15% p.a. for super, I can quite easily use 14% for property at 95% lend as per my example and it will blow your figures out the ballpark.

We can use bigger numbers if you want - I don't mind. The bigger the numbers and the longer the time frame the wider the gap gets.

Mark

 

MArk,

australian LPT and share market 20 year average is about 13.5% PA BT Financial Group - Ten investing truths

With gearing, I'm sure we can say 15% PA return is a conservative return.

But yes, you have raised some good points. But you need to remember, you can't buy a IP for $500 per year.. so unless your willing to commit a large sum of money into your investment each year ie $10,000 PA, $500 per year for someone who only wants to a quick easy investment, super could be the way to go.. obviously its not for everyone, but worth considering.. Not everyone wants the commitment of a IP...

With the government co-con, its not a 'bonus' its automatically doubling or more your investment straight away..

 

No, you can't buy an I.P. for $500 every year. But that $500 saved, along with the rest of your deposit money will yield better results than putting money into super every year.

crc_error, the average return for super funds is about 8%. That's why I used a figure of 8%. In my experience it's best to use the averages when doing examples, cause otherwise you might as well just pluck numbers from the air.

I agree that the strategy has it's place in specific situations, but I stand by my assertion that there are better options for an active investor in their early 20's.

Mark

 

So mark, if your in your 20's, and you do decide to buy a IP, we will assume it will cost you $10,000 PA in 'losses' to keep. Why can't you put in another $500 on top of that into super?

If your going to compare 'average super fund' of 8%, then compare it to a 'average ungeared IP'. You need to compare apples with apples. Either employ gearing in both examples, ie a geared share fund within super, or don't use gearing at all in both examples.

A super fund returning 8% PA is probably a balanced conservative fund.. with a large portion of fixed interest and a investor with such a risk profile wouldn't be investing 95% LVR into a IP.

You look at the CFS australian geared share fund average return over the last 10 years, it shows a healthy 20%PA return...