The Motley Fool

3 retirement myths you can’t afford to believe

Reaching a healthy nest egg balance is nearly everyone’s long-term goal. But you can’t afford to believe some myths about retirement like these three:

Superannuation is all you need

Australia has one of the best retirement systems in the world with superannuation. It’s self-funded, it provides lower taxes for money on the way into super and investment income is taxed lower within super.

It’s mandatory for most employees to be paid 9.5% of their wage into their superannuation fund. For most people this will compound into a solid amount if it’s invested in growth assets, or perhaps if people utilise the age-targeted investment option which is mostly invested in growth if you’re younger than 60.

However, if you want to live a comfortable retirement then you’ll need to build up a large portfolio. $1 million in 20 or 30 years will not give you as much purchasing power as $1 million today because of inflation, even if inflation is low at the moment.

Returns will definitely be as high as the past

Investment returns have been very strong since the GFC for most share markets. In 2019 alone the ASX All Ordinaries Accumulation Index delivered a return of 24.1%, not including franking credits. In the 2010s decade the ASX All Ords returned an average of 7.9% per annum, not including franking credits.

Look at the returns generated by US shares which have been powered by the tech giants like Microsoft, Apple and so on. Over the past decade the S&P 500 has returned 16.3% per annum.

Over the past three decades shares have performed very strongly, but this has been boosted by interest rates going from above 10% to today’s very low interest rate. The official interest rate reduction clearly won’t be repeated again, so perhaps overall market returns will be lower – particularly if interest rates rise over the next decade or two.

Domestic businesses will provide the diversification needed

Australia has gone without a recession for a very long time, coming up to three decades. The biggest Australian-focused businesses like Commonwealth Bank of Australia (ASX: CBA), Telstra Corporation Ltd (ASX: TLS) and Scentre Group (ASX: SCG) have made solid returns for investors, but that may not always be the case.

If the last decade has shown us anything, it has been that the ASX shares with good international exposure have generated the strongest returns like CSL Limited (ASX: CSL), Macquarie Group Ltd (ASX: MQG), Aristocrat Leisure Limited (ASX: ALL), Goodman Group (ASX: GMG), Afterpay Touch Group Ltd (ASX: APT), Altium Limited (ASX: ALU), A2 Milk Company Ltd (ASX: A2M) and so on.

I think it’s a good idea to invest in ASX shares that are growing globally and also to choose investments that provide direct or indirect exposure to international shares like exchange-traded funds (ETFs). 

But what’s definitely not a retirement myth is that if you can identify the next best growth shares you can build your wealth at a much faster pace than the ASX share market.

Some leading investors have identified these shares with great growth potential as the ones to be invested in for the coming years.

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Tristan Harrison owns shares of Altium. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of AFTERPAY T FPO and CSL Ltd. The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited and Telstra Limited. The Motley Fool Australia owns shares of A2 Milk and Altium. The Motley Fool Australia has recommended Scentre Group. 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.

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