When it comes to long-term investing in Australia, two options often come up: core ETFs and superannuation. Both are designed to help Australians grow their wealth over time and achieve specific financial goals. But while they share some similarities, there are also significant differences between them that can impact an investor’s decision.

Superannuation in Australia: A quick overview

Superannuation , or “super,” is Australia’s compulsory retirement savings system. Employers are required to contribute a percentage of their employees' earnings into a fund, which is then invested to grow over time. Since its inception in 1992, super has become a core part of Australian retirement planning . The goal? To help Australians save and provide them with a reliable income when they stop working.

Super funds offer various investment options, each with different fees and performance histories. Most funds come with a default balanced option – a portfolio that spreads investments across asset classes like Australian and international shares, bonds , property, and cash. Many of these funds are actively managed by investment professionals who monitor and adjust the portfolio to suit changing market conditions.

One important aspect of super is that it’s designed to be accessed only in retirement. ( Early access to super is granted in very strict circumstances.) This means most Australians cannot access their super until they reach preservation age (currently between 55 and 60, depending on their birth year). This restriction, along with attractive tax incentives, aims to preserve super savings exclusively for retirement.

What are core ETFs?

Core ETFs (exchange-traded funds) are low-cost, passively managed funds that aim to track the performance of a broad market index, like the ASX 200 or the S&P 500 . This makes them popular among investors looking for simple, long-term investment options with minimal fees.

Core ETFs can be bought and sold easily through a brokerage account, making them highly accessible. Unlike super, they have no restrictions on when you can access your funds, offering investors more flexibility. They may lack superannuation’s tax benefits , but they provide a straightforward way to diversify an investment portfolio without complex management.

Investors use core ETFs for a range of financial goals, not just retirement. Whether you’re aiming to build a buffer for long-term expenses, grow wealth, or diversify an existing portfolio, core ETFs may offer a sound foundation for many financial strategies.

Learn in our comprehensive guide to core ETFs .

Key differences between core ETFs and superannuation

While superannuation and core ETFs both encourage long-term investing, they diverge in some key areas that can impact your decision on which to prioritise.

Access to funds

One of the most striking differences between core ETFs and super is fund accessibility. Super is designed exclusively for retirement savings, with regulations that generally prevent Australians from accessing their funds until they reach preservation age. Exceptions exist, like financial hardship or certain medical situations, but in general, super is locked away to ensure it serves its purpose.

( NOTE: it is also possible to save for a first home using your super. For more information, see our article on the First Home Super Saver Scheme .)

Core ETFs, however, offer liquidity and flexibility. You can buy or sell them anytime during trading hours, meaning you can use your funds for goals beyond retirement. Want to buy a home , cover education costs, or seize a new investment opportunity? Core ETFs could give you more freedom to do that.

Tax treatment

Super contributions and earnings come with potential tax perks. Contributions within the annual cap are taxed at a concessional rate of 15%, usually lower than the average income tax rate. Plus, earnings within a super fund are generally taxed at 15% during the accumulation phase and a comfortable 0% during the retirement phase, potentially providing substantial savings over the long term.

ETFs, on the other hand, are subject to standard taxes based on your marginal tax rate. Dividends and distributions are taxable as income, and capital gains made on selling ETFs are taxed as well. While ETFs may not offer the tax advantages of super, there are still tax management strategies, like offsetting capital losses or selecting specific ETFs for income or growth. If you've held them for more than 12 months, you can also receive a 50% CGT discount.

Australian core ETFs also enjoy the benefit of franking credits , which essentially ensure you avoid paying double tax on an investment. For insights into how you can make tax-sensible investing decisions, speak with a licensed tax accountant.

Fees and costs

Fees are a big consideration when comparing super and core ETFs. Super funds generally come with a mix of fees, including administration, investment, and sometimes even performance fees. Insurance fees are also often included, which can eat into super returns. These fees can vary widely depending on the type of fund and investing strategy, with retail funds or actively managed funds often carrying higher costs.

Core ETFs, known for their affordability, are often passively managed and have low fees. Because they track an index, there’s no need for active oversight, which keeps costs down. However, brokerage fees still apply when buying or selling ETFs , so consider these costs if you’re trading frequently. Also ensure you always review the underlying fees of any investment.

Management style

Superannuation is often actively managed, especially if you’re in a “balanced” fund option. Investment professionals monitor market conditions and adjust portfolios accordingly, offering a “hands-off” investment that aims to evolve with economic shifts. Some super funds even allow members to tailor their investment approach, choosing different asset classes or specific stocks if they wish.

Core ETFs are purely passive. They track a particular index without any active decision-making about which stocks to include or exclude. This simplicity can be a plus for investors who want a low-maintenance, predictable approach, though it may lack the adaptability that superannuation funds offer with their active management.

Finding the right balance

For many Australians, superannuation and core ETFs can work in harmony within a diversified portfolio . Super seeks to provide a stable foundation for retirement, with tax benefits and professional management, while core ETFs aim to offer flexibility, liquidity, and low costs. For those focused on building long-term wealth, using a combination of both might be a strategic approach.

Investing can be complex, and the “right” choice varies by individual goals, risk tolerance , and personal preferences. At the end of the day, deciding between superannuation and core ETFs depends on your unique goals and how much access and control you want over your investments. Assess your financial priorities, and if you’re uncertain, consider speaking with a financial adviser to clarify how each option might complement your broader plans.

Happy investing!