08.Did you borrow to invest?
30 June 2007 was the deadline set that allowed investments of up to $1 million in super before penalty tax kicked in. Before that you’d always been able to invest large amounts in super, but from July last year, caps were introduced (see contribution limits
Hype around the ‘once in a lifetime opportunity’ resulted in many investors selling other assets, such as investment properties, and even borrowing money, to invest in the tax-beneficial environment. Many investors subsequently experienced a significant drop in the value of their super funds, as share markets slumped after the June 2007 investments were made. Some investors fell foul of the technical rules (for example, they invested more than the limits allowed) and got a hefty tax bill . Others borrowed money to invest in super and now have to decide whether to repay their loans or hope for markets to pick up.
If you’re in one of these situations, licensed financial advice might help. But in general, remember that super is for the long term — even for those close to retiring and considering investing in a pension. Negative returns in share markets can be expected every five or six years, but it’s the long-term average that matters most. Try not to overreact to short-term market fluctuations and declines.