Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 260

Five simple checks when investing long term

The investment vehicles you choose can make a huge difference to returns, especially for long-term investments. Retirement is perhaps the most common long-term financial goal, but it is far from the only one. Investing to pay for a child or grandchild’s education, to buy a house, or fund some other dream are expensive goals that need to be planned for. The best way to do so is with a long-term investment plan, started as early as possible and contributed to regularly.

For most of us, superannuation is the best long-term investment plan. It is only taxed at 15% in accumulation phase, and because contributing is mandatory, there is no need for discipline in terms of regular contributions. The problem with super is that you can’t access it until you reach retirement age (i.e. between 55 and 67, depending on your age now), so it usually is not a suitable vehicle for any goal other than retirement.

Recent legislative changes have also capped the amounts that you can contribute to super on a pre-tax basis to just $25,000 per annum. There is also now a cap of $1.6 million on how much you can have in an allocated pension for retirement. Another factor seldom discussed is that, in the event of death resulting in the passing of superannuation or pension funds to a non-dependant, there are significant tax penalties incurred by the beneficiaries. This is a form of inheritance tax that many retirees are unaware of until it is too late.

Managed funds, on the other hand, are a good way to invest for the long term. The challenge is that you need to include any returns in your annual tax return, which means that all distributions or dividends you receive are taxed at your personal rate, which can be up to 45%.

Choosing how to invest long term

There are five features that should be considered when choosing new investments:

1. Risk profile

Risk is a fundamental consideration in investing. Identifying, quantifying and assessing your risk appetite against the risk category of the investment options should be the first step in any investment process. It will influence your investment decisions and impact the time required for you to meet your objectives.

2. Investment timeframe

Generally, the longer the investment timeframe, the higher the level of risk you can typically take. Conversely, if you have a short investment timeframe and may need to access your money, then investing in riskier or growth assets like equities may not be the best option.

3. Returns required to achieve goal

Once you have decided on your financial goal, the next step is a realistic assessment of how much it is going to cost, how much you need to invest, and the return you will require to get there. This will help you determine which investment assets or the mix of assets to suit you.

4. Tax effectiveness of the vehicle

The amount of tax you pay makes a big difference to the money you end up with in your pocket, particularly if you are on a high personal tax rate. When and how you pay the tax can also be important.

For example, investment bonds can be tax-effective because tax on returns from the underlying portfolio is paid from within the bond at the company tax rate of 30%. The effective tax rate can be even less if the underlying investment portfolio generates franking credits.

Returns from the bond are not distributed but are re-invested into the bond. This means that the investment bond or any returns from the bond do not need to be included in your tax return.

Another advantage of investment bonds is the lack of capital gains tax liability. Because earnings are automatically reinvested in the bond, there is no capital gain tax liability and reinvestment dates do not need to be tracked for capital gains tax purposes. Investment bonds are tax-effective on an ongoing basis, but the biggest advantage they have over other investment structures comes if they are held for 10 years, in which case, all the proceeds, principal and investment returns are distributed to the investor entirely tax free.

5. Flexibility of the investment structure

Despite your best-laid plans, you may need to withdraw funds from a long-term investment or switch investments due to changed requirements. It is important to compare the flexibility of the various investment options you may be considering.

It is possible to withdraw funds from an investment bond at any time within its 10-year tax-free period for example, although you may lose some or all of the tax benefits if funds are withdrawn early. It is also possible to switch between investment options without triggering personal capital gains tax.

What is an investment bond and how does it work?

An investment bond is like a tax-paid managed fund: investors choose from an underlying portfolio of assets that differ in terms of their risk profile and likely investment returns, and can include different asset classes – including equities, fixed interest, real estate or a mixture.

Investment bonds are simple to set up and can be started with as little as $500 or as much as you like, and additional contributions can be made up to 125% of the previous year’s contribution.

Due to their unique structure, investment bonds can make powerful estate planning tools. You can nominate a beneficiary, and if you die, this beneficiary will receive the proceeds of the bond tax-free, regardless of when this occurs. An insurance bond does not form part of your estate for the purposes of you will, so cannot be challenged.

Conclusion

The sooner we all begin contributing to our financial future, or to any long-term financial goal, the more likely we are to achieve it. The superannuation system is predicated on exactly this fact and super remains the most tax-effective investment strategy available when it comes to planning for retirement.

If, on the other hand, you are working towards a different, and not quite so long-term financial goal, like paying for tertiary education for your children or retiring early, then super may not be the best choice, because you won’t be able to access it when you need it. Investment bonds may have a role to play to meet this type of investment goal.

 

Michael Blake is Head of Centuria Life, a provider of investment bonds. This article is general sponsored information and does not consider the circumstances of any investor.


 

Leave a Comment:

banner

Most viewed in recent weeks

Australian house prices close in on world record

Sydney is set to become the world’s most expensive city for housing over the next 12 months, a new report shows. Our other major cities aren’t far behind unless there are major changes to improve housing affordability.

The case for the $3 million super tax

The Government's proposed tax has copped a lot of flack though I think it's a reasonable approach to improve the long-term sustainability of superannuation and the retirement income system. Here’s why.

Tariffs are a smokescreen to Trump's real endgame

Behind market volatility and tariff threats lies a deeper strategy. Trump’s real goal isn’t trade reform but managing America's massive debts, preserving bond market confidence, and preparing for potential QE.

The super tax and the defined benefits scandal

Australia's superannuation inequities date back to poor decisions made by Parliament two decades ago. If super for the wealthy needs resetting, so too does the defined benefits schemes for our public servants.

Meg on SMSFs: Withdrawing assets ahead of the $3m super tax

The super tax has caused an almighty scuffle, but for SMSFs impacted by the proposed tax, a big question remains: what should they do now? Here are ideas for those wanting to withdraw money from their SMSF.

Getting rich vs staying rich

Strategies to get rich versus stay rich are markedly different. Here is a look at the five main ways to get rich, including through work, business, investing and luck, as well as those that preserve wealth.

Latest Updates

SMSF strategies

Meg on SMSFs: Withdrawing assets ahead of the $3m super tax

The super tax has caused an almighty scuffle, but for SMSFs impacted by the proposed tax, a big question remains: what should they do now? Here are ideas for those wanting to withdraw money from their SMSF.

Superannuation

The huge cost of super tax concessions

The current net annual cost of superannuation tax subsidies is around $40 billion, growing to more than $110 billion by 2060. These subsidies have always been bad policy, representing a waste of taxpayers' money.

Planning

How to avoid inheritance fights

Inspired by the papal conclave, this explores how families can avoid post-death drama through honest conversations, better planning, and trial runs - so there are no surprises when it really matters.

Superannuation

Super contribution splitting

Super contribution splitting allows couples to divide before-tax contributions to super between spouses, maximizing savings. It’s not for everyone, but in the right circumstances, it can be a smart strategy worth exploring.

Economy

Trump vs Powell: Who will blink first?

The US economy faces an unprecedented clash in leadership styles, but the President and Fed Chair could both take a lesson from the other. Not least because the fiscal and monetary authorities need to work together.

Gold

Credit cuts, rising risks, and the case for gold

Shares trade at steep valuations despite higher risks of a recession. Amid doubts that a 60/40 portfolio can still provide enough protection through times of market stress, gold's record shines bright.

Investment strategies

Buffett acolyte warns passive investors of mediocre future returns

While Chris Bloomstan doesn't have the track record of his hero, it's impressive nonetheless. And he's recently warned that today has uncanny resemblances to the 1990s tech bubble and US returns are likely to be disappointing.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.