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

16 ASX stocks to buy and hold forever, updated

This time last year, I highlighted 16 ASX stocks that investors could own indefinitely. One year on, I look at whether there should be any changes to the list of stocks as well as which companies are worth buying now. 

UniSuper’s boss flags a potential correction ahead

The CIO of Australia’s fourth largest super fund by assets, John Pearce, suggests the odds favour a flat year for markets, with the possibility of a correction of 10% or more. However, he’ll use any dip as a buying opportunity.

2025-26 super thresholds – key changes and implications

The ABS recently released figures which are used to determine key superannuation rates and thresholds that will apply from 1 July 2025. This outlines the rates and thresholds that are changing and those that aren’t.  

Is Gen X ready for retirement?

With the arrival of the new year, the first members of ‘Generation X’ turned 60, marking the start of the MTV generation’s collective journey towards retirement. Are Gen Xers and our retirement system ready for the transition?

Why the $5.4 trillion wealth transfer is a generational tragedy

The intergenerational wealth transfer, largely driven by a housing boom, exacerbates economic inequality, stifles productivity, and impedes social mobility. Solutions lie in addressing the housing problem, not taxing wealth.

What Warren Buffett isn’t saying speaks volumes

Warren Buffett's annual shareholder letter has been fixture for avid investors for decades. In his latest letter, Buffett is reticent on many key topics, but his actions rather than words are sending clear signals to investors.

Latest Updates

Investing

Designing a life, with money to spare

Are you living your life by default or by design? It strikes me that many people are doing the former and living according to others’ expectations of them, leading to poor choices including with their finances.

Investment strategies

A closer look at defensive assets for turbulent times

After the recent market slump, it's a good time to brush up on the defensive asset classes – what they are, why hold them, and how they can both deliver on your goals and increase the reliability of your desired outcomes.

Financial planning

Are lifetime income streams the answer or just the easy way out?

Lately, there's been a push by Government for lifetime income streams as a solution to retirement income challenges. We run the numbers on these products to see whether they deliver on what they promise.

Shares

Is it time to buy the Big Four banks?

The stellar run of the major ASX banks last year left many investors scratching their heads. After a recent share price pullback, has value emerged in these banks, or is it best to steer clear of them?

Investment strategies

The useful role that subordinated debt can play in your portfolio

If you’re struggling to replace the hybrid exposure in your portfolio, you’re not alone. Subordinated debt is an option, and here is a guide on what it is and how it can fit into your investment mix.

Shares

Europe is back and small caps there offer significant opportunities

Trump’s moves on tariffs, defence, and Ukraine, have awoken European Governments after a decade of lethargy. European small cap manager, Alantra Asset Management, says it could herald a new era for the continent.

Shares

Lessons from the rise and fall of founder-led companies

Founder-led companies often attract investors due to leaders' personal stakes and long-term vision. But founder presence alone does not guarantee success, and the challenge is to identify which ones will succeed in the long term.

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.