Tax-effective investing

The key advantage to investing outside super, for example in shares or managed funds, is that you can access the money whenever you like. This strategy could suit you if you'd like to retire earlier than the minimum age or need flexibility in the way you plan to use your investments if opportunities arise.

But the downside is earnings will be taxed at your marginal rate, which could be as high as 46.5%. So, even though investing outside super can provide added flexibility, it may not be the most tax-effective option.

Personal or non-concessional super contributions are made with after-tax pay or savings. By investing into super you can reduce tax on investment income to 15%. While there is a cap on these contributions, it's different to the one that applies to concessional super contributions.

And if you're under age 65, you can contribute up to $450,000 provided your total non-concessional contributions in this financial year and the following two financial years don't exceed $450,000.

Investing a combination of your own money and borrowed money outside super can provide better long-term results than making personal after-tax super contributions and investing your own money outside super.

This is because by borrowing money you can make a larger investment than if you relied exclusively on your own capital. Also, even though investment earnings are taxable at your marginal rate, you can generally claim the interest on the investment loan as a tax deduction.

However, gearing can enhance your losses if your investments fall in value. And for gearing to be successful in the long term, you need the investments you buy with borrowed money to generate a total return (including income and capital growth) that exceeds the after-tax costs of financing the investment.