How much should you invest in property, shares and super?

A common question I receive is how much should I invest in property? That is, how do you know when you have enough, and should you start investing in other assets?

It’s a good question because it invites people to consider their goals and develop a long-term strategy to achieve them. I set out some of the factors that you should consider below. But ultimately, it really depends on personal circumstances.  

Rule of thumb is you need 20 to 25 times income

The first consideration is the value of the investment assets you have today compared to what you need by the time you want to retire.

As a rule of thumb, you need to accumulate investment assets equal to 20 to 25 times the annual income you require to fund retirement. For example, if you aim to spend $100k p.a. when you are retired, you need to accumulate $2 to $2.5 million of net investment assets by the time you retire. These assets could include equity in investment properties (i.e., net sales proceeds less CGT and outstanding loans), shares and superannuation.

Lifecycle of an investor

If you are a long way from achieving your net asset goal, then it is likely that your investment strategy will need to be more aggressive e.g., borrowing to invest. However, if you are close to achieving this goal, then your focus should be on ensuring the mix of assets are correct.

This video sets out the typical lifecycle of an investor e.g., why it’s best to start with property, then invest in super and shares.

What is the right mix?

Longevity risk is the risk that you will live longer than your financial resources will allow i.e., you’ll run out of money. To protect yourself against longevity, your investments must generate a combination of capital growth and income. Income will help you fund living expenses and capital growth will protect your asset base against the impact of inflation.

For example, if you have $2.5 million of investment assets, your average return might consist of 3.5% income and 3.5% growth. This will provide you with approximately $88k p.a. of income. If some of this income is franked (imputation credits) or from super, you probably won’t pay any tax. In addition to income, the value of your investments will appreciate by $88k, of which you’ll need to spend $12k to top-up living expenses (i.e., to give you $100k p.a.). The remaining $76k will be reinvested and compound. This should ensure your investment assets keep up with inflation i.e., no real change in value. If that happens, theoretically (i.e., mathematically), you can afford to live forever.


I discuss some of the factors that I consider when contemplating whether an investor has the right mix of assets.

Consider the impact of debt servicing costs

Investing in more (investment-grade) property will help you accumulate more wealth over the long run. However, if you are borrowing money to fund these investments, which most people do, it means your cash flow will become more sensitive to changes in interest rates. That’s not what you want if you are approaching retirement or would like the flexibility to enable you to reduce your employment income. In this situation, you really want less debt, not more.

The other consideration is that investing in property absorbs more of your surplus cash flow i.e., funding the shortfall between rental income and interest cost. If you contribute all your cash flow towards funding investment property holding costs, you won’t have any ability to invest in other assets (shares and super) or repay debt. This creates an opportunity cost and might cause you to be further away from retirement, not closer to it.

Property doesn’t generate much income

Investing in (investment-grade) residential property is the perfect asset to help you increase your net worth. Quality residential property provides most of its total return in the form of capital growth and very little income. After all expenses, residential property might generate 1% to 2% of income. From that perspective, it’s a lazy asset. Therefore, it is difficult to fund retirement by investing in property alone, unless you have a strong cash flow that allows you to repay debt, or you are many decades away from retirement.

The other disadvantage of property is that it’s not a very liquid asset. It takes a few months to sell a property and unfortunately, you can’t sell a small percentage, you must sell the whole property.

The best approach is to aim to have a mixture of assets by the time you retire. Some assets that generate more income, some assets that generate more capital and some assets that allow you to sell down small amounts if required, which helps defray any CGT liabilities too.

Shares allow you to retire or reduce income prior to age 60

If you would like to have the flexibility to reduce your income/working hours prior to age 60 (or retire in full), then often investing in shares is a better approach (compared to investing in property). The reason is that shares will generate more passive income than property and you are able to sell down shares progressively to pay for living expenses. If this is part of your strategy, then you should think carefully about the ownership structure, as a family trust might be the best investment entity.

Don’t ignore super as it is very tax effective 

Many investors are wary of super because the government keeps changing the rules, which is understandable. I don’t expect the government will ever stop playing around with the super rules – it’s an easy thing to do, that doesn’t cost many votes. But the reality is that super will always be concessionally taxed.

As the law stands, each person can have up to $1.7 million in tax-free super. That means you don’t pay any tax on any earnings (income and capital gains) or pensions that you draw. It can’t get better than that.

The table below sets out what happens if $1 doubles 20 times – the middle column is without any tax and the righthand column includes a 30% tax rate. It perfectly illustrates the impact of taxes on investment balances.   

Tax versus no tax

Hedge your bets

I think most people would be well served by spreading their wealth across several asset classes. Every asset class has its pros and cons – no one asset class is perfect. Therefore, by investing in a combination of asset classes you aim to balance out these pros and cons at a portfolio level by the time you get to retirement.  

Perhaps the best combination would be to have something like 30% to 50% of your overall wealth in super, 20% to 30% in property and 20% to 30% in shares (or other liquid investments). However, the exact combinations very much depend on your individual circumstances.