Matching index can maximise both income and growth

In a recent article you gave examples of the amount of money that could be accumulated by investing in a fund that matched the All Ordinaries Accumulation Index. I am keen to take advantage of compounding but would appreciate your telling me what kind of fund would match that index.

The All Ordinaries Index is a measure of the market capitalisation of the Australian Securities Exchange – so it measures the growth of the exchange.

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The All Ordinaries Accumulation Index takes into account income as well as growth.

Right now, the index is producing an income of just over 4 per cent per annum, so when we say the Australian stock market has achieved a return of around 9 per cent per annum over the past 30 years, we are factoring in growth of about 5 per cent and income of around 4%.

All you need to do to match the Accumulation Index is to pick an index fund and reinvest all income. A good example is Vanguard Australian Shares Index ETF, whose ASX code is VAS.

I have been looking on the Australian Taxation Office website but haven't been able to find an answer to my question regarding the government co-contribution to super for low-income earners, so I am hoping you may know. My 14-year-old recently started a part-time job. I am aware that you can open a super account at any age (but can't touch the money till retirement) and, that to qualify for the government co-contribution of $500 to super, you must have employment-related income, make a voluntary contribution of up to $1000, be under the income threshold and lodge a tax return. Would my 14-year-old therefore qualify for this? Would his sibling, who is 13 and does some sports refereeing and is paid by the sporting association, also qualify? Is there is a lower-age limit?

You appear to tick all the boxes – the income is required to come from paid employment and there is no lower-age limit. I think it’s a great idea. And each year you can discuss with your child how their super is performing, and whether adjustments need to be made.

I am a 65-year-old single parent working four days a week in an ongoing position. I intend to work another 6-7 years, salary sacrificing to super $24,000 annually. I have $420,000 in super. As well as good wages, I receive an ESS Super pension of $30,000 annually, which rises each year. I want to give $40,000 of my super to my daughter, to assist with a first home purchase, and take out a further $30,000 from my super for my home renovations. My daughter and her husband are in stable ongoing employment with a child and renting. I would appreciate your thoughts, as house prices in Melbourne will probably only rise.

You are at an age where you can access your super, even though you are still working, and I agree with your thinking that it’s better to help your children when they need it, rather than have them wait until you are of advanced years.

I am 63 and retired. My super balance is $230,000. I have recently sold an investment property and, once settled in February, 2020, I intend to contribute $180,000 to my super accumulation account. I intend to make a tax deduction claim of $180,000 for my personal super contributions for this financial year in order to reduce my capital gains tax from the sale of my investment property. I am aware that there will be a 15 per cent tax on this $180,000. Given my age and being fully retired and with a low super balance, will I be allowed to claim a $180,000 tax deduction?

There is just one flaw in your thinking – the maximum tax deduction allowable for contributions to super is $25,000 a year. This includes employer contributions, if applicable.

We have three young children and owe $350,000 on our home loan and have no other debt. We have another 20 years before we retire. We earn $175,000 and $40,000 per year, respectively. We are thinking of buying an investment property to reduce the tax on the higher income and have something for our kids’ future. Our question is, is it better to buy an investment property for $500,000 or salary sacrifice into super?

Buying an investment property will save a minimum amount of tax in these days of low interest rates. I believe a combination of salary sacrificing to the maximum in the name of the highest income earner, plus using all spare money to quickly reduce the mortgage, is the best option for you at this time. Every year you can re-examine your position and adjust your strategy, if needed.

Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. [email protected]

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