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Should you invest in super or your ASX share portfolio?

It’s an age-old question for Aussie investors – should I invest in super or in my ASX share portfolio? Let’s take a quick look at some of the pros and cons of investing inside and outside of super in 2020.

Why you should invest in super

One big benefit the superannuation system has going for it over and above investing in shares is that it’s tax-advantaged. Superannuation contributions are taxed at just 15% which can result in considerable tax savings for the average Aussie.

The lowest tax rate, starting at $18,201 in taxable income, is 19%. The rates then increase as you ascend the various tax brackets up to a sizeable 45% at the very top of the tree. So, as you can see, particularly if you’re in a higher tax bracket, it makes sense to invest in super. Your super account has the potential to help you to reduce your tax and increase your after-tax returns.

As well as the tax benefits, superannuation has another key advantage – size. Industry super funds have billions of dollars in assets under management which means they can invest in asset classes that aren’t available in your ASX share portfolio. Some examples include hedge funds, private equity, commercial real estate and infrastructure projects.

So while buying Nextdc Ltd (ASX: NXT) shares could boost your wealth, you could potentially think even bigger if you invest in your super.

But having an ASX share portfolio is important

Despite its benefits, there are drawbacks to super. For one, it can’t be accessed until you hit preservation age which is currently between 55 and 60, depending on the year you were born. On top of this, there is exposure to regulatory risk if you choose to invest in super. For example, the government could easily make changes to the super system in the coming years in order to raise tax revenues.

Personally, I think there needs to be a balance between investing in super and ASX shares. Super is a great, long-term investment but a diversified ASX share portfolio can also pay dividends (literally!). That means investing in large-cap shares like CSL Limited (ASX: CSL) today could be just the ticket to a safe and comfortable retirement in the years to come.

Foolish takeaway

Whether you choose to invest in super or your ASX share portfolio, putting your hard-earned cash away for the long-term is the key to building wealth. This means diversified investments and consistent savings should pay off, however you choose to invest.

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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 CSL Ltd. 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.