I am pretty new to investing but I am enjoying the experience. A friend of mine who is around 45 years of age is doing all of his investing in the market, and with other things such as fixed deposits, through his self-managed super fund and he told me it is more tax effective. Is this true and should I also do my investing through a self-managed super fund? I am 35 years of age. Jason, Noosa Heads, QLD.

Peter Switzer answers:

If I was to compare investing say in shares inside a self-managed super fund (SMSF) and outside as a normal taxpayer, a SMSF is definitely the way to go.

The tax rate on a super fund is 15% compared to your marginal tax rate when you invest outside a SMSF. Some people will buy fully franked shares only, which give a tax credit and if their income from their investments is at a certain level that attracts a tax rate less than the company tax rate of 30%, then they can even get a tax refund which goes to the super fund.

On the other hand, some investors will borrow to invest outside a super fund and the interest is tax deductible, which can reduce your overall tax rate, and depending on how much you borrow, there could be an argument to invest outside a super fund. Also it's more difficult to borrow inside a super fund, though some people will buy geared investment funds done by professional fund managers, to give their super fund more leverage.

That said, I like the idea of my shares being locked away in my SMSF and these assets are treated miles better in terms of capital gains tax sitting inside a fund. I have seen case studies of someone who has invested inside and outside a super fund and it's the capital gains tax slug that can really make the difference in deciding to go with a SMSF.

Given your age compared to your friend you could have different goals and that's why it might suit your friend more to be in a SMSF. If you want to access the money, say for a home purchase, then locking your money up in a super fund would be silly. If you cannot answer these questions, you should find a trustworthy financial planner who could help you.

A great plan designed to help you meet your goals should be done as early in your income-earning life as possible. Many of us have cost ourselves lots of money because we didn't know the tax laws, the super rules or other important information that can increase or decrease our future nest eggs.

As I always say, you can teach yourself this stuff but if you haven't got the time, nor the interest, find a good financial adviser.