Understanding Superannuation and Investment Strategies

Superannuation

A compulsory long-term savings system designed to provide financial support for Australians in retirement.

Employer Contributions

Employers must pay the Superannuation Guarantee (SG), currently 11.5% of an employee's earnings.

Personal Contributions

Individuals can add extra money to their super voluntarily.

Investment Growth

Super funds invest money in assets like shares and property to grow over time.

Accessing Super

Superannuation can generally only be accessed after reaching the 'preservation age' (between 55 and 60, depending on birth year).

Superannuation Guarantee (SG)

Employers must contribute a percentage (11.5%) of an employee's earnings into a super fund.

Eligibility for Superannuation Contributions

Employers must pay superannuation when an employee is 18 years old or over and is being paid $450 or more (before tax) in a calendar month.

Eligibility for Superannuation Contributions (Under 18)

An employee under 18 years old must be paid $450 or more (before tax) in a calendar month and work more than 30 hours in a week.

Importance of Superannuation

Ensures people have money for retirement, reduces reliance on government pensions, and benefits from compound interest and long-term investments.

Industry Funds

Run for the benefit of members, not-for-profit.

Retail Funds

Managed by banks and financial institutions, aiming for profit.

Self-Managed Super Funds (SMSFs)

Controlled by individuals, offering more flexibility but requiring responsibility.

Preservation Age

The age at which superannuation can generally be accessed, between 55 and 60, depending on birth year.

Compound Interest

Interest calculated on the initial principal and also on the accumulated interest of previous periods.

Long-term Investments

Investments held for an extended period to maximize growth.

Financial Support in Retirement

The primary purpose of superannuation is to provide financial support for individuals during retirement.

Asset

Something you own. It may be a financial item like money, bonds, shares or a bank account or physical item like a house, land or a car.

Capital gain

The difference between what you paid for an asset (including buying costs) and what you got when you sold it (less selling costs).

Diversification

Spreading investments across a variety of different asset classes or within an asset class to reduce risk.

Dividend

A payment made by a company to its shareholders. The payment is a share of the profits of the company and is based on the number of shares a person holds. A franked dividend consists of profits the company has already paid tax on.

Investment

An asset bought with the aim of producing an income and/or an increase in value over time.

Share

A share is part ownership of a company. Shares are also known as equities or stocks. Shareholders are entitled to dividends which represent their portion of the company's profits.

Investing in shares

A common type of investment where individuals purchase ownership in companies.

Investing in property

A common type of investment involving purchasing real estate for income or appreciation.

Investing in cash

A common type of investment where individuals hold liquid assets, typically in bank accounts.

Investing in cryptocurrency

A common type of investment involving digital currencies that use cryptography for security.

Investing in collectibles

A common type of investment involving items that are valued for their rarity or historical significance.

Reducing reliance on a single investment

Minimizing the level of risk by diversifying investments across different asset types.

More Stability

A mix of investments helps balance gains and losses over time.

Improves Potential Returns

Diversifying allows access to different growth opportunities.

Examples of Diversification

Investing in both Australian and international shares, splitting investments across different industries, holding a mix of high-risk and low-risk investments.

Key Takeaway

"Don't put all your eggs in one basket" - spreading investments protects against major financial losses.

Ethan's Tech Investment

A case study where Ethan has invested all his money into shares of one company and is worried about volatility.

Sarah's Property Focus

A case study where Sarah has invested in a small apartment and is concerned about market drops and interest rates.

Jacob's High-Risk Strategy

A case study where Jacob invests in cryptocurrency and notices drastic price changes.

Olivia's Safe Investments

A case study where Olivia has placed all her savings into a high-interest savings account and wants to increase her returns.