Superannuation is one of the best places to invest for passive income given how tax effective it is. For some older investors, the tax cost may be zero.
For a full-time working Australian, holding higher-yielding investments in their own name does have negatives because the tax rate could be well over 30%. At least capital gains aren't taxed until they're sold.
So, if someone did have $5,000 (or materially more) to invest in superannuation, where would be a good place to invest it?
There are a few names that really stand out to me. I want to highlight two that I've put my own family's money into.
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MFF Capital Investments Ltd (ASX: MFF)
MFF is best known as a listed investment company (LIC) that invests in a high-quality portfolio of global shares from across the world, including regions such as North America and Europe. It only invests in those stocks on "satisfactory or better terms".
LICs are appealing because they have diversified portfolios and can deliver a good level of passive income to investors, since the board of directors decide on size of the dividend payments each year.
LICs can build up investment returns as retained profit and pay a growing dividend from those profits. This is great for superannuation investors.
MFF has grown its regular annual dividend per share each year since 2018 and it's expecting to increase its annual dividend per share to 21 cents. That translates into a grossed-up dividend yield of 5.3%, including franking credits, at the time of writing.
Impressively, over the past five years, MFF shares have delivered an average return per year of 15.3%, showing both passive income and capital growth. Past performance is not a guarantee of future returns, though.
L1 Long Short Fund Ltd (ASX: LSF)
This business is another LIC that I'm also very optimistic about.
It invests in a mixture of both ASX shares and global shares, giving the portfolio significant diversification. Additionally, L1 Long Short Fund utilises short-selling to bet on those share prices declining.
Therefore, it can generate returns whether the market is going up or down. Over the five years to 31 March 2026, its portfolio returned an average of 16.1% per year, which is strong enough to fund passive income and achieve good capital growth.
It has a steadily growing dividend, which has increased each year since 2021. I think the regularity of the hikes make it a very appealing option for passive income in superannuation.
I like how the business provides investors with exposure to a high-performing portfolio, and does so by identifying in sectors that are sometimes unloved by the market. I like its willingness to invest with a contrarian attitude.
I expect the company's next four quarterly dividends to amount to a grossed-up dividend yield of 5.2%, including franking credits, at the time of writing.
