Investing for the long term - a wise choice right now?

[mani99]

Hi all,

I have $10k to invest for my son (looking at 10 years) and was thinking about what options would be best right now. I am not trading expert so was thinking maybe putting the money into a fund, or alternatively to buy into AIA as I a pretty good level of knowledge on the organisation.

Any advice would be greatly appreciated.

Thanks.

[G on]

Have you thought of spreading it into the platforms in NZ , Simplicity I think its called, where you can drip feed it into an ETF type structure. 10 year time frame is quite short for a young person and if a GFC type shock hit how would you react with it dropping drastically and have to wait for recovery or take a loss??

[percy]

Hi all,

I have $10k to invest for my son (looking at 10 years) and was thinking about what options would be best right now. I am not trading expert so was thinking maybe putting the money into a fund, or alternatively to buy into AIA as I a pretty good level of knowledge on the organisation.

Any advice would be greatly appreciated.

Thanks.

If you have a "good level of knowledge" about AIA, buy them.Always best to invest in what you know.

[silverblizzard888]

First advice is always to go for index funds if you don't have the time, knowledge or experience for investing, since they tend to perform well over long periods of time, but don't invest it all at once, do it over time in order to get good average pricing, so that you aren't left buying at a high price and watching it fall and waiting for it to recover for a long time before getting to break-even.

If you have some knowledge or are willing to do more research then I'd say picking some individual companies along with a portion allocated to index funds would be ideal, so you get the best of both worlds. Choose companies that have a durable competitive advantage and since you have a 10 year time frame I'd say have a preference to companies with more than average growth.

[Tronald Dump]

Have you thought of spreading it into the platforms in NZ , Simplicity I think its called, where you can drip feed it into an ETF type structure. 10 year time frame is quite short for a young person and if a GFC type shock hit how would you react with it dropping drastically and have to wait for recovery or take a loss??

I think you mean Smartshares, not Simplicity. You can also look at the Sharesies and InvestNow platforms which offer access to ETFs with very low minimum investments.

[hogie]

Investing for the long term is ALWAYS a wise choice ... only the investors that are in it for the short term get burnt when things go bad.

If you are worried about a "crash" then invest in a solid company with solid dividends (e.g. AIA?) .

[justakiwi]

Simplicity now offers Investment Funds alongside its KiwiSaver Funds.


I think you mean Smartshares, not Simplicity. You can also look at the Sharesies and InvestNow platforms which offer access to ETFs with very low minimum investments.

[mani99]

Thanks for the advice, very useful.

Although I mentioned a 10 year time frame, it will probably be more like 15 years. I think I will take a look at the funds etc before making a decision, but I'm edging towards AIA and maybe even POT.

[iceman]

I would suggest like some others have done, to drip feed the money into an ETF like the USF through either Smartshares or Sharesies. Both low fees and easy to do with small regular amounts.

[percy]

Thanks for the advice, very useful.

Although I mentioned a 10 year time frame, it will probably be more like 15 years. I think I will take a look at the funds etc before making a decision, but I'm edging towards AIA and maybe even POT.

Both are gateways to NZ.
Good choices.

[Joshuatree]

Yep if you really want to start now,dripped in over time as the Bull mkt is looking dodgy , stale atm. Id be tempted to sit and watch for the next month or so and leave the cash earning a little interest(its low but so is inflation). The signs of a big correction/possible flight to safety (indeed happening now) could accelerate anytime. Our reserve bank taking off .5 % of the cash rate is a pretty big flag imo. All about ones level of risk and ones level of reward.

Its time in the market but getting the timing right (roughly) will magnify returns manyfold.

[Aarrgghh]

I have personally recently pulled several of my more speculative shares in favour of higher yielding, more stable shares. I went for the Smartshares DIV ETF, which as it happens invests in AIA reasonably heavily. I also hold GDX Gold producers ETF and PMGOLD but I don't intend on holding these for 10 years (at least I hope not!)

[couta1]

Investing for the long term is ALWAYS a wise choice ... only the investors that are in it for the short term get burnt when things go bad.

If you are worried about a "crash" then invest in a solid company with solid dividends (e.g. AIA?) . Not always is long term ALWAYS a wise choice, plenty of trainwrecks like WYN/IQE/PPL/CBL etc where people took a long term position and got completely skunked. You can also get skunked if you pay too much for long term solid divvy paying companies. PS-I wouldn't buy any of the blue chip divvy paying companies at the moment excepting a couple and certainly not AIA.

[Joshuatree]

Just the risk of doing it near/at a top atm imo. Why not wait and see how this pans out. Long way down . I personally would not do any lump sum investing atpit but thats just my opinion

[Lewylewylewy]

If you feed <= $1000 or <= $2000 at a time, asb charge <= $150 to buy $10k worth.

That will give the advantage of spreading the risk of buy in timing (especially with all the dumb stuff from trump, Brexit and Jacinda to deal with), and also enable you to diversify.

Personally, I don't like EFTs.

For a bit and hold strategy my spread would be selected from the following picks, based on value investing at the time:

NZX.AIA (i haven't looked into how expensive these are currently)
NZX.POT (pricey at the moment...as always... but strange times may present a bargain)
NZX.NPH (I'd buy these if the price drops within the next 6 months)
ASX.LVT (good growth for at least the next 2 years. You could buy then sell after a few years to buy something else. I'd buy a small parcel now, then average down on trump's next news :p)
NZX.SEK
NZX.ATM (USA currently kicked out the major market, despite currency I expect Chinese to pay for the superior milk for their lil emperors. With usa kicked out, China poses less industry threat with recent decisions to aim for a percentage of the market to be locally sourced)
NZX.EBO (Boring share... in a good way)
NZX.SUM (some property exposure)
NZX.SCL (not super excited with these at the moment, but good in a long hold)
NZX FPH (I'm not that excited about these right now, but would buy in a crash if nothing else interested me at the time. I feel like their priced in for too much of the available market, but a well run company)

Itd be nice to have some retail stock in there, but id be fearful of disruption in a long hold portfolio.

[Lewylewylewy]

1.2% extra isn't much to pay for the benefits of diversity and being able to derisk by averaging down.

[Tronald Dump]

You can invest directly in Smartshares monthly with a one off $30 account opening fee, and after that no further transaction costs. You get instant diversification and 31 different ETFs to choose from. Why pay the extra 1.2%?

[Lewylewylewy]

Because you can choose your investment which i prefer (i accept that some would prefer not to). Also there isn't a hidden management fee of someone managing the ETF.

Personally i just don't like managed funds, I find the return is lower than the stocks I pick for myself.

[peat]

NZX.AIA (i haven't looked into how expensive these are currently) VERY EXPENSIVE
NZX.POT (pricey at the moment...as always... but strange times may present a bargain) VERY EXPENSIVE
NZX.EBO (Boring share... in a good way) QUITE EXPENSIVE CURRENTLY BUT YEH A GOOD COMPANY (As all the above are too)


Itd be nice to have some retail stock in there, but id be fearful of disruption in a long hold portfolio.HALLENSTEINS - BEEN AROUND FOR 120 YEARS. IS THAT LONG ENOUGH?

My comments above in red

[iceman]

Because you can choose your investment which i prefer (i accept that some would prefer not to). Also there isn't a hidden management fee of someone managing the ETF.

Personally i just don't like managed funds, I find the return is lower than the stocks I pick for myself.

But the question posed at the start of this thread was quite specific and for a person not used to share trading. No doubt in my mind that a well diversified ETF such as US500 would be quite appropriate for his/her situation, drip fed in over several months.

[justakiwi]

Well said. Unfortunately a lot of people here forget that some of us are new to this and don't have the skill or confidence to pick our own stocks. ETFs are great for people getting started.

[Lewylewylewy]

I feel like I'm being attacked here lol

Peat, i agree, looks expensive at the moment, but good companies. Hence I think I suggested a buy the lows approach with the comment in brackets on POT.

Jak, yup, ETFs might take the pressure off, but it's important to know the alternative. I think the OP mentioned confidence with AIA and seemed set on buying that, so i suggested a strategy that can derisk with diversity and still be able to get a chunk of AIA in there. I also gave imo some good stocks to add to his watch list for a long term hold as per the parameters of his post as I understood them. Ultimately he will buy what he's comfortable with, and hopefully do well.

I think it's good to have different perspectives presented because it helps learning, but Im done defending my posts, so I'll butt out of this thread because i seem to have an unwelcome polarising view.

Im off to top up my wine. Happy Friday all :)

PS: The are other options for investing that can add some diversity, such as squirrel p2p which has some guarantees, etc. And better than the bank roi.

[RupertBear]

I feel like I'm being attacked here lol

Peat, i agree, looks expensive at the moment, but good companies. Hence I think I suggested a buy the lows approach with the comment in brackets on POT.

Jak, yup, ETFs might take the pressure off, but it's important to know the alternative. I think the OP mentioned confidence with AIA and seemed set on buying that, so i suggested a strategy that can derisk with diversity and still be able to get a chunk of AIA in there. I also gave imo some good stocks to add to his watch list for a long term hold as per the parameters of his post as I understood them. Ultimately he will buy what he's comfortable with, and hopefully do well.

I think it's good to have different perspectives presented because it helps learning, but Im done defending my posts, so I'll butt out of this thread because i seem to have an unwelcome polarising view.

Im off to top up my wine. Happy Friday all :)

PS: The are other options for investing that can add some diversity, such as squirrel p2p which has some guarantees, etc. And better than the bank roi.

I found your original post very good Lewy x 3 thank you and a happy Friday to you too :)

[kiora]

Well said. Unfortunately a lot of people here forget that some of us are new to this and don't have the skill or confidence to pick our own stocks. ETFs are great for people getting started.

Skill & confidence only comes by walking the talk.Sometimes it takes a toe in the water.Even if in hindsight it may be not the best investment an investor will learn more & gain confidence

[justakiwi]

Yes I agree with you. But I think ETFs are a good way for beginners to get started. As one gains knowledge, understanding and confidence it is then less daunting to Branch out into individual companies. Depending on how much one has to invest, they are also an ideal way to get instant diversity, which takes much more time and money when picking your own.


Skill & confidence only comes by walking the talk.Sometimes it takes a toe in the water.Even if in hindsight it may be not the best investment an investor will learn more & gain confidence

[kiora]

Yes I agree with you. But I think ETFs are a good way for beginners to get started. As one gains knowledge, understanding and confidence it is then less daunting to Branch out into individual companies. Depending on how much one has to invest, they are also an ideal way to get instant diversity, which takes much more time and money when picking your own.

If one was to ask Couta diversity will likely only end up with average returns.That is not what the typical STer is looking for I suspect.

[ratkin]

I have some term deposits maturing soon, and am a little stuck about what to do with the cash. Do not want anymore in the NZ market as feel it very overvalued, and already have enough exposure to it.

What would be a decent smartshare to park some money in? Preferably one that has nothing to do with NZ or Australia as want to diversify away from this region.

[Tronald Dump]

I have some term deposits maturing soon, and am a little stuck about what to do with the cash. Do not want anymore in the NZ market as feel it very overvalued, and already have enough exposure to it.

What would be a decent smartshare to park some money in? Preferably one that has nothing to do with NZ or Australia as want to diversify away from this region.

Smartshares offers a big range of offshore funds. Personally I have Emerging Markets, US Value and Europe.

[SBQ]

Smartshares offers a big range of offshore funds. Personally I have Emerging Markets, US Value and Europe.

How does Smartshares or others like Sharesies get around IRD's FIF rule where if your portfolio exceeds $50K if (foreign stock holdings), then FIF kicks in. Does Smartshares automatically deduct the maximum 5% FIF tax with-holding in a year if the portfolio gains exceed that? Or by 'comparative analysis method' take ie 3% if your paper gains was only 3% ? Because for any long term retirement planning $50K is not a lot of $ and when you invest for the long term, in 20 or 50 years time, inflation would of gone up and that $50K portfolio would buy a lot less.

[Tronald Dump]

How does Smartshares or others like Sharesies get around IRD's FIF rule where if your portfolio exceeds $50K if (foreign stock holdings), then FIF kicks in. Does Smartshares automatically deduct the maximum 5% FIF tax with-holding in a year if the portfolio gains exceed that? Or by 'comparative analysis method' take ie 3% if your paper gains was only 3% ? Because for any long term retirement planning $50K is not a lot of $ and when you invest for the long term, in 20 or 50 years time, inflation would of gone up and that $50K portfolio would buy a lot less.

I think all NZ based international equity managed funds and ETFs are subject to the FIF rules. It's hard to get around the them - that's the point of rules! However, paying tax on investments is just part of the deal. If you go the DIY route, buy a few offshore shares through a broker and keep your overseas holdings below $50k you'll get way less diversification, spend a lot more time and effort and pay FAR more in brokerage, forex and custody costs than the extra FIF tax will cost you. FIF tax in a PIE structure is max. 1.4% (28% of 5%). All Smartshares ETFs are PIEs.

I think of it this way: if I was earning $60K p.a. and someone offered me a job earning $90K p.a., would I refuse the job because that means paying more tax? Of course not, because I'd still make a lot more after tax.

I invest in offshore ETFs because they give me broad diversification in a single trade (with no commission if I go direct to Smartshares). I'm also investing in offshore ETFs because I expect to get better long term returns after tax than I'll get from NZ equities in the next few years, so I don't worry about the tax.

[Snoopy]

How does Smartshares or others like Sharesies get around IRD's FIF rule where if your portfolio exceeds $50K if (foreign stock holdings), then FIF kicks in.


SBQ, the FIF tax is levied (or not) based on your purchase price being more than $50k. So if you buy $50k worth of shares hold them for 30 years and sell for $500k you will pay no FIF tax. You will have to pay NZ income tax on the dividends you receive along on the way though.



Does Smartshares automatically deduct the maximum 5% FIF tax with-holding in a year if the portfolio gains exceed that? Or by 'comparative analysis method' take ie 3% if your paper gains was only 3% ? Because for any long term retirement planning $50K is not a lot of $ and when you invest for the long term, in 20 or 50 years time, inflation would of gone up and that $50K portfolio would buy a lot less.


There is no such thing as 'maximum 5% FIF tax'. You are taxed on 5% of your cumulative FIF holding opening balance at your marginal tax rate. That generally works out to be about 1.5% of the opening balance, offset by dividends that are untaxed separately in NZ. Whether Smartshares deduct FIF tax at the start of the financial year I am not sure. But if they do, then all they are doing is paying tax on your behalf. The problem with Smartshares paying FIF tax for you is that is that they may not know the extent of your full FIF portfolio. So they won't know what your FIF tax liability is, because FIF tax is calculated on a 'whole of FIF portfolio' basis.

When you hold foreign shares with an NZ third party provider, you will get to nominate how you wish them to treat you for tax. That won't make any difference to your tax bill in the end. But it might make some difference to the withholding tax deducted along the way.

SNOOPY

[Tronald Dump]

SBQ, the FIF tax is levied (or not) based on your purchase price being more than $50k. So if you buy $50k worth of shares hold them for 30 years and sell for $500k you will pay no FIF tax. You will have to pay NZ income tax on the dividends you receive along on the way though.



There is no such thing as 'maximum 5% FIF tax'. You are taxed on 5% of your cumulative FIF holding opening balance at your marginal tax rate. That generally works out to be about 1.5% of the opening balance, offset by dividends that are untaxed separately in NZ. Whether Smartshares deduct FIF tax at the start of the financial year I am not sure. But if they do, then all they are doing is paying tax on your behalf. The problem with Smartshares paying FIF tax for you is that is that they may not know the extent of your full FIF portfolio. So they won't know what your FIF tax liability is, because FIF tax is calculated on a 'whole of FIF portfolio' basis.

When you hold foreign shares with an NZ third party provider, you will get to nominate how you wish them to treat you for tax. That won't make any difference to your tax bill in the end. But it might make some difference to the withholding tax deducted along the way.

SNOOPY

Thanks Snoopy, much better explanation than mine! You also make another key point - Smartshares calculates and pays all my tax so I don't have to worry about including dividends my on tax returns.

[ratkin]

FIF is a pain in the arse, I mean what is even the point of it. As for the 50k limit, that is ridiculously low. Hardly worth the trouble of investing overseas for less than 50k, so basically cannot avoid it

[SBQ]

SBQ, the FIF tax is levied (or not) based on your purchase price being more than $50k. So if you buy $50k worth of shares hold them for 30 years and sell for $500k you will pay no FIF tax. You will have to pay NZ income tax on the dividends you receive along on the way though.



Page 15 of IRD's FIF document states once you hit $50K of total portfolio value, then FIF applies:
https://www.classic.ird.govt.nz/resources/5/9/59f8ae2e-bf47-4df6-8b86-6b021aba2f11/ir461.pdf

It has nothing to do with the purchase price or how many times you've traded in the year. All IRD cares is if you breach that threshold, then you have to work out FIF and if you trade the same stock multiple times, then you have a much more complicated 'quick sale' calculation to do.

You do realise the FIF applies annually on the PAPER GAINS on the portfolio and applies on the TOTAL value (no exemption on the first $50K)? This is important because if say you're at retirement age and have say a $2M portfolio - you would be stuck with total taxable income of $100K. How many seniors have other sources of income to support paying this tax liability - assuming say 40% so $40K of income? The most likely scenario is the senior would be forced to sell some of their shares in the portfolio to meet the tax obligation. If there's no worse way of devaluing the performance of your portfolio, then I don't know what else is because famed John Bogel (the father of ETF) has always said and i'm paraphrasing, "there's no better way to reduce or devalue the performance of your portfolio than paying high management fees... that many hedge or managed funds claimed to do better for their investors" IMO, I view the FIF taxing no different to such high management fees and has the very same effect.



There is no such thing as 'maximum 5% FIF tax'. You are taxed on 5% of your cumulative FIF holding opening balance at your marginal tax rate. That generally works out to be about 1.5% of the opening balance, offset by dividends that are untaxed separately in NZ. Whether Smartshares deduct FIF tax at the start of the financial year I am not sure. But if they do, then all they are doing is paying tax on your behalf. The problem with Smartshares paying FIF tax for you is that is that they may not know the extent of your full FIF portfolio. So they won't know what your FIF tax liability is, because FIF tax is calculated on a 'whole of FIF portfolio' basis.

When you hold foreign shares with an NZ third party provider, you will get to nominate how you wish them to treat you for tax. That won't make any difference to your tax bill in the end. But it might make some difference to the withholding tax deducted along the way.

SNOOPY

If you use the 'Fair Dividend Rate' that amount is 5%. I'm well aware of the taxing of FIF. However, any person receiving dividends abroad say from US equities are stuck with IRS tax with-holding - 33% as marked on the W8BEN form account holders have to file every 3 years. The dividends are deposited into the same portfolio account and then IRD slaps on FIF which in effect, is a double taxation on the dividend because the calculation works on the whole total of the account. There's no consideration for broker fee deductions / credits with FDR. But the worse thing about this FIF is on years where you go negative, you get NO CREDIT BACK. So on the future years when you rebound back, you're taxed on the paper gains when you try to go back to your previous 'high' account value.

Fundamentally, the FIF is a huge minus to the NZ investor (in Kiwi Saver or invested directly). Way back when Michael Cullen was pushing it through Parliament, the reason was clear to address the differences between NZ investing vs overseas N. American investing because their approaches are different. That is NZ share investors focus on dividend returns vs N. American investors focus on capital gain growth (on most part tax free capital gains). So as i've read back during the FIF introduction, "A savy investor in NZ could get away paying no tax on their US equities on capital gains". Yet at the same token, NZ investors in the Auckland housing market got away with paying any taxes on their capital gains. I was critical to Mr Cullen's office saying "You guys are pushing a double standard in NZ".

How exactly does Smartshares deduct the FIF tax? If the account is fully invested in US equities and has no cash balance on hand to pay the tax liability? and you hit it right about investors can have multiple accounts and Smartshares being 1 account would have no idea of the person's total tax liability.

[SBQ]

FIF is a pain in the arse, I mean what is even the point of it. As for the 50k limit, that is ridiculously low. Hardly worth the trouble of investing overseas for less than 50k, so basically cannot avoid it

This is exactly my point. $50K is a joke and the process involved to comply is a headache. I've been vocal against FIF because it's an unfair tax approach just to address the capital gains of shares abroad. Very unfair to only look at the tax on the gains but not on the on years with losses. In a business you can claim a loss in a business year towards gains future years.

I also find it very difficult to assess the performance of NZ funds that have FIF exposure. Are their returns greater than buying NZ local shares of similar business after tax?

On the issue of taxation - i'm firmly not against paying it (the gains have to be paid somewhere). But what i'm against is an unforseen tax liability (ie say when the company randomly issues a dividend of varying %), or directly taxing the value of the portfolio where the investor has no cash flow (especially important to those in retirement age). I find this very foreign to me because back in Canada, investors structure their retirement portfolio so they contribute the most towards their fund or ETF where it grows tax free (and I may be being repetitive here...) and then upon retirement age, the senior CAN CHOOSE how much they want to sell in their portfolio and elect how much tax THEY WOULD LIKE to pay (ie for that fancy boat, car, or vacation).

Again, sorry for being repetitive but surely, there must be a better way for NZ investors to get into shares without being walked on by FIF or ring fenced with picking only NZ shares (which comes with a much higher risk).

[mfd]

I'm not an expert and don't pay FiF, but page 15 talks about the 'amount' of your foreign investments being under 50k. 'Amount' is defined in the glossary as the cost - even going so far as if you inherit foreign shares, the 'amount' of them is the initial cost the deceased person paid. You do not appear to have to continually value your holdings if you leave them alone.

I'm sure we'd all agree an investment will do worse if it is taxed. For better or worse, NZ has fewer tax benefits for investors than countries like the US and the UK (although imputation credits are rare internationally and very valuable). As most of these benefits would accrue to those who are doing quite nicely, I don't have a problem with this approach. If you're in a position to save and invest significant amounts of money you are big enough to stand on your own two feet and not expect too much of a government handout.

[SBQ]

@mfd:

Page 15 spells it very clear. Once you breach the $50K value at anytime in the year, you have to do FIF. Look to the further examples in that IRD doc. Those that look for tax fairness on portfolio gains won't find it in NZ. Just like major corporations don't look to NZ to setup as headquarters because of the 28% corporate tax rate is uncompetitive to US or Canada corporate rates. The FIF is a poor approach just because NZ has no capital gains tax and the National Party at the time wanted to address this anomaly while not caring about the massive capital gains made from the NZ real estate markets decade after decade.

I make no mention about gov't hand outs (those are only for the needy and those with disabilities etc.). I'm talking those with huge sums of $ (in another post I made many months ago talking to Chch financial advisers my situation where if I inherited a significant size portfolio based on US equities from abroad - how could I get the same performance as before by being a NZ resident?). None of those financial advisers could tell me straight or show me an investment profile that would better than what my parents have done abroad. I also asked why NZ real estate comes with no capital gains tax and would I be better off buying houses than buying shares? Again, they come back with the same excuse that you would be exposed to only 1 asset class and would be exposed to too much risk story. But the reality is those that bought Auckland houses 20+ years ago would be sitting on gains far higher than returns on the NZ shares net of taxes. ie. if Auckland house prices avg 7% / year for the past 10 years ; you would need like 10 or 12% of dividend returns, then less the tax, to get the same return.

Don't forget the example at senior retirement. Typically have no cash flow income but having a large portfolio under FIF would force them to sell shares just to pay the tax liability.

[Snow Leopard]

Hi all,

I have $10k to invest for my son (looking at 10 years) and was thinking about what options would be best right now. I am not trading expert so was thinking maybe putting the money into a fund, or alternatively to buy into AIA as I a pretty good level of knowledge on the organisation.

Any advice would be greatly appreciated.

Thanks.

Just checked, see bold bit, and we are talking about $10k which is, as far as I am aware less than $50k so FIF does not come into it.

If I had a son and felt sufficiently generous to park $10k for him for 10 years then I would definitely go for diversity via a passive index fund or two covering either/or/some/all of NZ & ROW.

[Snoopy]

I'm not an expert and don't pay FiF, but page 15 talks about the 'amount' of your foreign investments being under 50k. 'Amount' is defined in the glossary as the cost - even going so far as if you inherit foreign shares, the 'amount' of them is the initial cost the deceased person paid. You do not appear to have to continually value your holdings if you leave them alone.



@mfd:
Page 15 spells it very clear. Once you breach the $50K value at anytime in the year, you have to do FIF.


SBQ, you have to look at the glossary, like mfd did, to see what the document means, which may not be the same meaning as the plain English meaning of those words. Breaching the $50k threshold in this instance refers to owning shares that you paid less than $50,000 for, then making another purchase that puts you over that $50,000 threshold. In this context your comments are correct. In the subsequent tax year, our hapless 'overseas investor' will come under the cloud of the FIF tax regime. But such a change is not retrospective. In the context of an 'overseas investment' rising from a cost below $50,000 to above $50,000 your interpretation of automatically coming under the FIF regime is not correct.

SNOOPY

P.S. I don't think mfd is right about inheriting shares at an historic cost. Once those inherited shares are transferred into your name you purchase those shares at the market price on the day of transfer as far as FIF is concerned. I remember the day FIF came in. I had purchased some overseas shares for about ten grand that had risen in value to over fifty. I got done under the FIF regime because those shares transferred into the scheme at market value on day 0 of the scheme, notwithstanding the much lower price I had bought them at.

[Snoopy]

If you trade the same stock multiple times, then you have a much more complicated 'quick sale' calculation to do.


Yes under the FIF regime that is right.



You do realise the FIF applies annually on the PAPER GAINS on the portfolio and applies on the TOTAL value (no exemption on the first $50K)?


Yes I do know that.



This is important because if say you're at retirement age and have say a $2M portfolio - you would be stuck with total taxable income of $100K. How many seniors have other sources of income to support paying this tax liability - assuming say 40% so $40K of income? The most likely scenario is the senior would be forced to sell some of their shares in the portfolio to meet the tax obligation.


Yes. However I believe that some US share registers at least will allow shareholders to unload quite a small parcel of shares at a reasonable cost to allow our "$2m man" to sell close to the number of shares required to meet their tax obligation.

SNOOPY

[mani99]

Thanks for the replies all.

A question around Smartshares - wouldn't it be better to purchase the ETF through the likes of ASB rather than through smartshare and pay the fees?

Im thinking of splitting the $10k into AIA and an ETF (Maybe US Large Growth USG).

[Snoopy]

If you use the 'Fair Dividend Rate' that amount is 5%.


Just to be clear, your 'FIF income' is deemed to be 5% of the opening value of your FIF portfolio. You pay tax on that figure. But that is in no way the same as paying over 5% on the opening value of your FIF asset portfolio as FIF tax. That previous sentence is a misunderstanding of how the FIF regime works.



I'm well aware of the taxing of FIF. However, any person receiving dividends abroad say from US equities are stuck with IRS tax with-holding - 33% as marked on the W8BEN form account holders have to file every 3 years. The dividends are deposited into the same portfolio account and then IRD slaps on FIF which in effect, is a double taxation on the dividend because the calculation works on the whole total of the account.


If you structure your affairs so that cash from dividends is held under the same legal enveloping structure that also owns your overseas shares then you have a point about your 'cash' being taxed as if it was shares. I would suggest you do not use such a structure to organize your affairs for that reason. Banking your overseas dividends into an NZD account as they are paid should avoid this problem.

Dividend withholding tax in the USA is recognised under NZ's double taxation rules and can go towards your FIF bill. So you don't pay double tax as you claim.



There's no consideration for broker fee deductions / credits with FDR.


I am afraid that is wrong as well. I am enrolled in an overseas DRP for which I am charged a fee for reinvesting my dividends. This share comes under the NZ FIF regime. This reinvestment fee is tax deductible in New Zealand. I can also deduct portfolio management fees from my NZ income.



But the worse thing about this FIF is on years where you go negative, you get NO CREDIT BACK. So on the future years when you rebound back, you're taxed on the paper gains when you try to go back to your previous 'high' account value.


Yes there is no credit back on any capital loss you make, that is true. But as an investor on the NZX (not a trader) you get no capital credit back if one of your shares goes broke either. You could argue that both scenarios are unfair. But they are both equally unfair, which is the point!



Fundamentally, the FIF is a huge minus to the NZ investor (in Kiwi Saver or invested directly). Way back when Michael Cullen was pushing it through Parliament, the reason was clear to address the differences between NZ investing vs overseas N. American investing because their approaches are different. That is NZ share investors focus on dividend returns vs N. American investors focus on capital gain growth (on most part tax free capital gains). So as i've read back during the FIF introduction, "A savy investor in NZ could get away paying no tax on their US equities on capital gains". Yet at the same token, NZ investors in the Auckland housing market got away without paying any taxes on their capital gains. I was critical to Mr Cullen's office saying "You guys are pushing a double standard in NZ".


Those same housing investors in Auckland could have got a tax free capital gain on the sharemarket in NZ, if they had put their money there instead of housing.
Property investors were not favoured, except in being able to claim depreciation on their rental properties, when it was clear the asset was not depreciating. Even that was only a cashflow loophole, albeit a loophole that has now been closed.

Overseas markets like the USA tend to have larger capital gains than NZ because when you reinvest your earnings back into the business in a larger market the growth path is more straightforward. The number of NZ companies that have tried and failed to successfully reinvest their profits outside of NZ is telling. Sometimes when the right opportunity to expand is not there, it makes good sense to pay your shareholders dividends rather than chase some investment folly off-shore.

SNOOPY

[SBQ]

Just checked, see bold bit, and we are talking about $10k which is, as far as I am aware less than $50k so FIF does not come into it.

If I had a son and felt sufficiently generous to park $10k for him for 10 years then I would definitely go for diversity via a passive index fund or two covering either/or/some/all of NZ & ROW.

Yes the past page has been riddled with my comments and I must not forget we're only dealing with $10K. However, all models like in Kiwi Saver work out at the end with much larger figures for retirement (with their fancy window dressing). So, sooner or later the $50K threshold will hit ; and then where? What if another $10K or $20K cash were to come along?

I'm not sure if 'age' has been mentioned but it seems the general consensus is if your young (in 20s) and looking to invest, then going with the aggressive return portfolio would be best. But equally as aggressive is to simply hold on to the cash and wait for the next global stock market crash. Sure this is a timing game and as I said before (in different posts), no one has made $ panicking and when the market crashes, you don't see people around you flushed with cash. Human fear always prevails and irrational thinking comes into play. Does the young investor have the tolerance in a major share market crash? I remember back during the dot.com crash, almost all my friends had rushed to cash in their retirement portfolio despite the advice by their financial advisers to not do so. It's bad when from age 20 - 30, they spent all those year for contribution to only witness losing 50% of their portfolio... then they see they lose another 10%.. so they panic with fear to their financial adviser saying their portfolio could lose another 20 or 30% which would net them with nothing.

[iceman]

Thanks for the replies all.

A question around Smartshares - wouldn't it be better to purchase the ETF through the likes of ASB rather than through smartshare and pay the fees?

Im thinking of splitting the $10k into AIA and an ETF (Maybe US Large Growth USG).

Mani99, I don´t think you will find a cheaper and less complicated way to invest into an ETF fund by reputable companies like Blackrock or Vanguard, than Smartshares or Sharesies. I invest in small monthly installments with Smartshares and never worry about the small and very fair fees I pay.

[SBQ]

Just to be clear, your 'FIF income' is deemed to be 5% of the opening value of your FIF portfolio. You pay tax on that figure. But that is in no way the same as paying over 5% on the opening value of your FIF asset portfolio as FIF tax. That previous sentence is a misunderstanding of how the FIF regime works.


Correct and if I recall correctly, it's the last year of your portfolio where you can simply sell up and walk away with any gain as the FIF only accounts for opening value on the following year.



If you structure your affairs so that cash from dividends is held under the same legal enveloping structure that also owns your overseas shares then you have a point about your 'cash' being taxed as if it was shares. I would suggest you do not use such a structure to organize your affairs for that reason. Banking your overseas dividends into an NZD account as they are paid should avoid this problem.

Generally, that's not normally done (where you choose to deposit the dividends into a separate bank account, especially one from overseas). It probably is possible to do from a N. American perspective but I can assure you this will have fees and if you want to it in NZD (fx from USD). As difficult now as it is for foreigners to open US or Cdn brokerage accounts / or bank accounts (because of FACTA, CRS / AML regulations by most OECD nations), the hassle and tax reporting of an additional account wouldn't be worth it. The only way I could see this done cost effective is to have another account with the same brokerage firm ; but then the client will have 2 sets of W8BEN Forms to fill out every 3 years ; a hassle. Wire TTs aren't cheap and cheque processing by international means is also not cheap. At a recent NZSA event I met a person that received dividends in chq payment form from Singapore. The amounts were around $10 in foreign currency so his local NZ bank could not process it as a 1 off transaction. To simply open up a foreign currency bank account just to clear 2 dividend chq payments, again not worth the hassle and fees to clear the chqs alone would be a waste of time. It's interesting in this day of age where so much online banking is done but on the international front, they still rely on cheque writing for the paper trail and tax tracking.

[Tronald Dump]

I think you’ll find Smartshares is much cheaper than any online broker if you buy directly. There’s a one-off $30 set up fee and after that you don’t pay any transaction fees to invest if you go through their monthly process (transfer your cash in by the 20th of the month and it goes into the market on the first trading day of the following month). And you can do this from $50 per month.

[Snoopy]

At a recent NZSA event I met a person that received dividends in chq payment form from Singapore. The amounts were around $10 in foreign currency so his local NZ bank could not process it as a 1 off transaction. To simply open up a foreign currency bank account just to clear 2 dividend chq payments, again not worth the hassle and fees to clear the chqs alone would be a waste of time.


Yes this is the reason I opted into a DRP on an overseas share I hold. I found the NZ bank charges on overseas small cheques too high. I guess one silver lining is that if we can't cash such cheques, we no longer have to declare them as income? Will Grant Robertson be pleased?



It's interesting in this day of age where so much online banking is done but on the international front, they still rely on cheque writing for the paper trail and tax tracking.


Personally I think NZ banks are making a big mistake trying to phase out the banking of overseas cheques. Or defacto doing so by making their bank charges so high that it becomes uneconomic to present them. They don't understand that the rest of the world is not as 'advanced' (sic) as New Zealand in doing electronic payments. As a result they will probably end up doing significant damage to our export sector, because they are so greedy with their bank charges.

SNOOPY

[mani99]

Yes the past page has been riddled with my comments and I must not forget we're only dealing with $10K. However, all models like in Kiwi Saver work out at the end with much larger figures for retirement (with their fancy window dressing). So, sooner or later the $50K threshold will hit ; and then where? What if another $10K or $20K cash were to come along?

I'm not sure if 'age' has been mentioned but it seems the general consensus is if your young (in 20s) and looking to invest, then going with the aggressive return portfolio would be best. But equally as aggressive is to simply hold on to the cash and wait for the next global stock market crash. Sure this is a timing game and as I said before (in different posts), no one has made $ panicking and when the market crashes, you don't see people around you flushed with cash. Human fear always prevails and irrational thinking comes into play. Does the young investor have the tolerance in a major share market crash? I remember back during the dot.com crash, almost all my friends had rushed to cash in their retirement portfolio despite the advice by their financial advisers to not do so. It's bad when from age 20 - 30, they spent all those year for contribution to only witness losing 50% of their portfolio... then they see they lose another 10%.. so they panic with fear to their financial adviser saying their portfolio could lose another 20 or 30% which would net them with nothing.


Maybe I should've mentioned that my son is 4 years old. I thought now would be a good time to start investing for his future. Im looking to save/invest around $7k a year.

Smartshare looks very good, I need to look into a bit more.

[mani99]

Mani99, I don´t think you will find a cheaper and less complicated way to invest into an ETF fund by reputable companies like Blackrock or Vanguard, than Smartshares or Sharesies. I invest in small monthly installments with Smartshares and never worry about the small and very fair fees I pay.

Thanks.

Would you invest a one-off large sum?

[iceman]

Thanks.

Would you invest a one-off large sum?

With the way the World and markets are at the moment, no I would not. I think you de-risk it significantly by spreading the sum you originally mentioned on this thread, over several months.
Your 4 year old son is very lucky you are doing this for him and I agree, Smartshares is a great method for this purpose.

[ratkin]

Just re checked all my Australian holdings for FIF
and was suprised to see that MFF was exempt from FIF

It is a LIC (Listed investment company.)

What I cannot understand is why MFF is exempt yet WAM is not

https://brc1.ird.govt.nz/opa12/web-determinations/0/investigate/FIF_Exemption_Determination/en-GB/ScreenOrder~Main~qs%24summary%24global%24global

[kiora]

https://www.stuff.co.nz/business/money/114865350/budget-buster-investing-in-overseas-shares

[ratkin]

https://www.stuff.co.nz/business/money/114865350/budget-buster-investing-in-overseas-shares

Was that article inspired by this thread, or was it just a coincidence.

[SBQ]

I think you’ll find Smartshares is much cheaper than any online broker if you buy directly. There’s a one-off $30 set up fee and after that you don’t pay any transaction fees to invest if you go through their monthly process (transfer your cash in by the 20th of the month and it goes into the market on the first trading day of the following month). And you can do this from $50 per month.

Can you do limit orders and GTC orders on Smartshares? I wouldn't be comfortable with the delayed arrangement where the orders go in on the 1st day of the month. If you sent funds on the 20th, this leaves an insider at Smartshares to speculate by taking a position to profit until the 1st trading day. I mean 10 days lead time is a long time for bad or good news to come out, knowing that clients are committed to the purchase of the ETF until the next month.

Yes seems sensible for the small investor, $50 minimum per month contributions. At the seminar I attended, the guest speaker was from a local brokerage firm looking for large clients (ie $500K minimum) to handle their portfolio / management. I have a problem with that because significant sums in the hands of other people can be a recipe for under-performance.

[mani99]

I think I've narrowed it down to:

Long term: AIA/POT
Medium/Short: SUM, ATM, SKO, EBO

I can feel the judging from the readers already.... :-)

[kiora]

From Ray Dalio
"Identify the paradigm you’re in, examine if and how it is unsustainable, and visualize how the paradigm shift will transpire when that which is unsustainable stops."
"Though not always perfectly aligned, paradigm shifts have coincidently tended to happen around decade shifts—e.g., the 1920s were “roaring,” the 1930s were in “depression,” the 1970s were inflationary, the 1980s were disinflationary, etc"
https://www.linkedin.com/pulse/parad...fts-ray-dalio/

Will flight shaming or C neutral NZ affect AIA?
Does SUM rely in part to the housing market?
etc

[Tronald Dump]

[QUOTE=SBQ;768004]Can you do limit orders and GTC orders on Smartshares? I wouldn't be comfortable with the delayed arrangement where the orders go in on the 1st day of the month. If you sent funds on the 20th, this leaves an insider at Smartshares to speculate by taking a position to profit until the 1st trading day. I mean 10 days lead time is a long time for bad or good news to come out, knowing that clients are committed to the purchase of the ETF until the next month.

Yes, you can buy Smartshares on the market through any NZ broker just like any other share, but of course you'll have to pay the broker commission. For investing small amounts it makes more sense to go direct to Smartshares or buy the ETFs through a platform like Sharesies or InvestNow, both of whom invest your funds on the day they are received. Smartshares doesn't 'speculate' with the money - it sits on deposit until it is invested. The reason they do it this way is so they can pool the trades from all direct investors and invest through a unit creation process rather than buying on-market, which is why there are no transaction costs.

[voltage]

Smartshares ETFs are still expensive with an MER around 0.5%. Simplicity has there own NZ50 Fund with an expense ratio of 0.1%. Also, many ETFs are available on the ASX with much lower expense ratios.

[couta1]

I think I've narrowed it down to:

Long term: AIA/POT
Medium/Short: SUM, ATM, SKO, EBO

I can feel the judging from the readers already.... :-) I could narrow that group down even further for you.
Short/Medium/Long: ATM
Long: SUM

[Schrodinger]

Yes this is the reason I opted into a DRP on an overseas share I hold. I found the NZ bank charges on overseas small cheques too high. I guess one silver lining is that if we can't cash such cheques, we no longer have to declare them as income? Will Grant Robertson be pleased?



Personally I think NZ banks are making a big mistake trying to phase out the banking of overseas cheques. Or defacto doing so by making their bank charges so high that it becomes uneconomic to present them. They don't understand that the rest of the world is not as 'advanced' (sic) as New Zealand in doing electronic payments. As a result they will probably end up doing significant damage to our export sector, because they are so greedy with their bank charges.

SNOOPY
Hi Snoopy a significant part of the world has leapfrogged NZ payments system and now have real time instant bank transfers and transactions can be done with mobile numbers and text rather than b/a numbers. Australia now has a more advanced system than us.

[Tronald Dump]

Smartshares ETFs are still expensive with an MER around 0.5%. Simplicity has there own NZ50 Fund with an expense ratio of 0.1%. Also, many ETFs are available on the ASX with much lower expense ratios.

I've looked at ASX listed ETFs but once you take into account broking fees and forex spreads they're not that cheap. The TER can be quite a small part of the total expenses of investing in offshore ETFs. e.g. one of the local online brokers charges up to 1.5% each way for forex trades.

I like that Smartshares are all NZD so I don't have to worry about forex costs, and for the NZ market they have 5 different NZ equity ETFs, including NZ50, property, high dividend and mid cap so there is much more choice of which companies and sectors to emphasise. The Mid Cap ETF has been a fantastic performer.

[SBQ]

[QUOTE=SBQ;768004]Can you do limit orders and GTC orders on Smartshares? I wouldn't be comfortable with the delayed arrangement where the orders go in on the 1st day of the month. If you sent funds on the 20th, this leaves an insider at Smartshares to speculate by taking a position to profit until the 1st trading day. I mean 10 days lead time is a long time for bad or good news to come out, knowing that clients are committed to the purchase of the ETF until the next month.

Yes, you can buy Smartshares on the market through any NZ broker just like any other share, but of course you'll have to pay the broker commission. For investing small amounts it makes more sense to go direct to Smartshares or buy the ETFs through a platform like Sharesies or InvestNow, both of whom invest your funds on the day they are received. Smartshares doesn't 'speculate' with the money - it sits on deposit until it is invested. The reason they do it this way is so they can pool the trades from all direct investors and invest through a unit creation process rather than buying on-market, which is why there are no transaction costs.

I understand the pooling of funds so they're purchased at 1 go in a month. My US online discount broker only charges me $10 per trade on any market, limit, ext-hours, and GTC orders. Haven't read what Smartshares actually charges on mgt / admin fees?

I also understand that if I was in a position where numerous different accounts sent me $ to pool and I told them their orders will go in on the 1st day of trading on each month, then this would also create a speculation opportunity to hedge against the funds. Because in 10 to 20 days time (however early clients send $), news is rampant and the market can change drastically. Just take recent example last week. The DOW lost over 1,000 within 2 - 3 days. You can be sure no Smartshare investor would of taken advantage of this market pull back because they're stuck on a 'buy on the 1st day of the month' scheme.

For more risky or complicated approach, what's not stopping someone at Smartshares to continuously go on the options market. Buy lots of call options knowingly they have clients wanting the buy the stock at the beginning of the following month or better yet, many months ahead (as most of the Smartshares customers would be locked into a minimum $50/month contribution plan).

Keep in mind, what the account holders in Smartshares don't know is a # on their account is just only that. There needs to be no programming on what the insiders in Smartshares can do with those funds during the holding period.

and to make this post relevant, does buying at the beginning of each month makes much of a difference in the "long term wise choice" as started by this thread? Most say it doesn't matter when to buy but I strongly disagree. Expert investors like Buffet know well that when to buy is equally as important as knowing how competitive the company they want to buy will last.

[SBQ]

Hi Snoopy a significant part of the world has leapfrogged NZ payments system and now have real time instant bank transfers and transactions can be done with mobile numbers and text rather than b/a numbers. Australia now has a more advanced system than us.

While that may be true on the consumer front, this is far from practice in the commerce business front where transactions are dealt in much larger figures. I'm speaking from a US/Cdn experience where online bank payment is discourage by businesses for the simple reason of accounting and taxation that require a formal 'paper trail'. You may think it's crazy but it's not because cheque writing provides the paper trail security that online phone or bank transfers don't have. Don't believe me? Then why in this day of age exists so much online fraud, theft, for people that accidentally give out their bank details and credit card #s etc or EFTPOS scanning machines etc? Not to mention it's a nightmare for accounting having to follow up online payments where a customer claims they've made payment sometime last year but not sure when the exact date it was. Then the accounting dept for that business has to double check their bank account end if payment was really sent and, then back to the customer saying they didn't receive it (was it not sent to the wrong account #?). You don't get this problem with cheque writing in businesses and no IRS/tax dept will question the cheque clearing process as being fraudulent like many do with online banking. ie "someone hacked into my bank account! vs someone forged my signature on the cheque"? For the latter to happen, the fraudster would have to 1st, obtain the blank cheque and then need to know what the signature looks like and then try to forge it, then try to present it at the bank. A lot of steps involved vs easily hacked bank accounts.

Anyways, for the small investor with routine monthly payments - places like Smartshares will work fine in NZ. What could make them better? If the client chooses to invest in US equities exclusively, give them the option to hold the funds in USD - meaning once their NZD is deposited, have it exchanged to USD and the currency stays in USD until they want to cash out. Because in 20 or 30 years time, you'll find the NZD will buy far less than what the USD can buy in terms of standard of living. I find this very important because there was a point that the NZD was very high around $0.88/$1 (NZD/USD). Now we're around $0.65 USD to $1NZD which is a significant drop in buying power in the past 5 or 6 years time frame. Of course no one can accurately predict the future but if one chooses to invest in US ETFs that are denominated in USD, then it's prudent to keep the currency in USD. In Canada the online discount broker Questrade does this for their clients because they know investing in the US market is a big part, so they allow clients to choose holding either CDN or USD currency exclusively.

[Tronald Dump]

Anyways, for the small investor with routine monthly payments - places like Smartshares will work fine in NZ. What could make them better? If the client chooses to invest in US equities exclusively, give them the option to hold the funds in USD - meaning once their NZD is deposited, have it exchanged to USD and the currency stays in USD until they want to cash out. Because in 20 or 30 years time, you'll find the NZD will buy far less than what the USD can buy in terms of standard of living. I find this very important because there was a point that the NZD was very high around $0.88/$1 (NZD/USD). Now we're around $0.65 USD to $1NZD which is a significant drop in buying power in the past 5 or 6 years time frame. Of course no one can accurately predict the future but if one chooses to invest in US ETFs that are denominated in USD, then it's prudent to keep the currency in USD. In Canada the online discount broker Questrade does this for their clients because they know investing in the US market is a big part, so they allow clients to choose holding either CDN or USD currency exclusively.

Smartshares are traded in NZD but the underlying exposure to overseas currencies is not hedged, so if you invest in a Smartshares US ETF you do in effect hold USD denominated assets. When you invest, Smartshares buys the USD then invests in the relevant underlying US market exposure, without hedging back to NZD. So the daily NAV (quoted in NZD) reflects both the return of the market and any currency movement.

[SBQ]

From Ray Dalio
"Identify the paradigm you’re in, examine if and how it is unsustainable, and visualize how the paradigm shift will transpire when that which is unsustainable stops."
"Though not always perfectly aligned, paradigm shifts have coincidently tended to happen around decade shifts—e.g., the 1920s were “roaring,” the 1930s were in “depression,” the 1970s were inflationary, the 1980s were disinflationary, etc"
https://www.linkedin.com/pulse/parad...fts-ray-dalio/

Will flight shaming or C neutral NZ affect AIA?
Does SUM rely in part to the housing market?
etc

Link doesn't work but eitherway big guys like Dalio do have a vested interest in making such statements. For eg like the one here about investors should keep investing in China
https://ca.finance.yahoo.com/news/ray-dalio-now-is-the-time-to-invest-in-china-164637178.html

and plenty of those on the other side that claim we should be fleeing from investing into China:
https://t.co/8ZHYMfWlrX

So Dalio's comment about the past century may be no indication what will happen in the future. Not at all because 100 years ago, did people talk about 'intellectual property rights'? There's a lot of factors at play today that weren't an issue back then (more like each country grew and prospered on it's own). Today you can see countries wiped out by a competing country that obtains a clear technical advantage. ie. NZ's ability to produce dairy far exceeds the ability of Canada's diary industry to compete (so in response Canada puts up tariffs as high as 300% on imported cheese; kinda makes Trumps 10% on China goods look like a joke).

Capital flights of $$ is a serious issue and the NZ gov't (regardless who's in power) knows that a small country doesn't have many options. Once the wealthy have left, it's gone. Housing prices and all. And straight off the press:

https://www.fxstreet.com/news/new-zealand-treasury-rbnz-could-cut-ocr-to-minus-035-in-a-crisis-201908120040

"New Zealand Treasury has come out and confirmed that the Reserve Bank of New Zealand, (RBNZ), could cut OCR to minus 0.35% in a crisis."

For those that don't see the distinction, interest rates play a huge roll in the currency FX rate. Cash won't simply be put in NZD just to sit as cash term deposits. When you talk at such low rates, such as one where it goes lower than the USD fed rate, then the end result is the cash leaves NZ, leading to a weaker NZD to USD exchange rate. Hardly flight shaming IMO.

You see, that is why the NZ gov't won't touch the NZ real estate card ever because the last thing they want is a capital flight of wealth going from selling off NZ real estate and the wealthy move it abroad. It's been mentioned by previous NZ gov'ts that the NZ housing market is the 'pillar of all NZ investment'. Fine to tax other ventures and those who seek gains abroad with FIF, but when it comes to houses.. HANDS OFF - no CGT!!

The race for the RBNZ to lower interest rates to 0 will simply increase the cost of living in NZ. The same deal with China's RMB losing it's buying power to the USD recently. When the people have less buying power, they're going to consume less and the currency that can demand the most... wins!

Hope this hasn't been a huge bore and certainly getting off topic with the original post.

[kiora]

Probably needs unblocking activated
https://www.linkedin.com/pulse/paradigm-shifts-ray-dalio
flygskam
https://www.mnn.com/lifestyle/eco-tourism/stories/flygskam-sweden-air-travel-industry-shame

[mani99]

Update: First purchase made, 50% of budget has gone to Smartshares NZ Mid cap ETF (via ASB and not Smartshare).

I may use the other 50% on another ETF or a more short term play. The more I research, the more my gut tells me that the prices for the "solid" stocks are overpriced and it may be better to wait a while.

[greater fool]

Removed. Thread dead.

[Brovendell]

Update: First purchase made, 50% of budget has gone to Smartshares NZ Mid cap ETF (via ASB and not Smartshare).

I may use the other 50% on another ETF or a more short term play. The more I research, the more my gut tells me that the prices for the "solid" stocks are overpriced and it may be better to wait a while.

A good choice. I have held this ETF since 2003 and it has served me well.
In fact I use it as my benchmark.

[greater fool]

Thread dead.

[Kernel]

To be clear, all NZ PIE funds are required to calculate FIF tax using the Fair Dividend Rate (FDR) method. The end investors balance is not a determinant in the calculation - so no matter how much you invest into an NZ PIE fund with global exposure, you will be paying FIF under the FDR method.

[Kernel]

Exactly, there is a lot more to consider than just the TER/MER. There is also the potential tax leakage to consider when investing offshore, especially if you are buying Aus based products that offer exposure to the US market.



I've looked at ASX listed ETFs but once you take into account broking fees and forex spreads they're not that cheap. The TER can be quite a small part of the total expenses of investing in offshore ETFs. e.g. one of the local online brokers charges up to 1.5% each way for forex trades.

[morphs]

Exactly, there is a lot more to consider than just the TER/MER. There is also the potential tax leakage to consider when investing offshore, especially if you are buying Aus based products that offer exposure to the US market.


Would you mind explaining how the tax leakage arises? Does this still occur if you buy the US ETFs directly rather than via the ASX equivalents?

[Kernel]

Would you mind explaining how the tax leakage arises? Does this still occur if you buy the US ETFs directly rather than via the ASX equivalents?

One of the issues is US withholding tax. Indirect purchases (i.e. the type of products discussed) may be unable to claim back the withholding tax credit, meaning that the US withholding tax on the distributions are taxed at 30% rather than 15%.

[SailorRob]

Great thread. On the topic of Smartshares, does anyone know why the quoted PE ratio of the smartshares NZX 50 fund (NZX FNZ) is only 7? I though the PE of the fund should roughly match the PE of the index which must be far higher than that. Also on the topic does anyone know the mechanics of the NZX 50 PE ratio as commonly quoted, i.e. how is it calculated?

Thanks

[Tronald Dump]

Great thread. On the topic of Smartshares, does anyone know why the quoted PE ratio of the smartshares NZX 50 fund (NZX FNZ) is only 7? I though the PE of the fund should roughly match the PE of the index which must be far higher than that. Also on the topic does anyone know the mechanics of the NZX 50 PE ratio as commonly quoted, i.e. how is it calculated?

Thanks

Basically, the quoted PE on Smartshares ETFs is the last 12 months return in cents (in this case, around 43 cents per share) divided by the current price. It's not the same as the PE on an individual company so is not an indication of 'value'.

[greater fool]

Covid-19 changed everything............

[macduffy]

It's just a teaser before the big election campaign spend-up. Nothing unusual in that.

[Kernel]

Suspect some of you will find this, and our other blogs, worthy of discussion:
https://kernelwealth.co.nz/time-the-stock-market/

[Zeitgeist]

Hi Greater Fool,

Leaving aside the politics, do you not think economies around the world could do with some Keynesian pump prime spending at the moment? Granted, the K word has been a naughty word since the 1980s, but I don't think even the most Ardent(!) supporters of monetarism would say that system has been a roaring success between 2008-2019. I'm in favour of a bit of Government spending at the moment, we've got the balance sheet to do it and a massive backlog of infrastructure projects to complete just to bring it up to first world standards. The key will be in ensuring robust business like decisions are made with the cash and also that the debt/gdp ratio is not breached.

Perhaps in addition to responding to the above you could enlighten us how you would spend say a $20,000 tax cut?

[greater fool]

Leaving aside the politics, do you not think economies around the world could do with some Keynesian pump prime spending at the moment? Granted, the K word has been a naughty word since the 1980s, but I don't think even the most Ardent(!) supporters of monetarism would say that system has been a roaring success between 2008-2019. I'm in favour of a bit of Government spending at the moment, we've got the balance sheet to do it and a massive backlog of infrastructure projects to complete just to bring it up to first world standards. The key will be in ensuring robust business like decisions are made with the cash and also that the debt/gdp ratio is not breached.

The problem is not which school of economics has the answers. Politics is the problem,so leaving it aside ain't going to solve anything.
Read some of these books, starting with Empire of Democracy.
Then Democracy Betrayed, The future is Asian, and The end of Myth.

https://www.sharetrader.co.nz/showthread.php?11586-Recommended-Read&p=767921&viewfull=1#post767921

Since the second world war the politicians have screwed voters over by abandoning them to market forces.
The end of the Social Contract sees services such health, education, welfare, social housing etc massively underfunded
and the politicians say 'we've done the best we can, but there's not enough money to do everything'. Austerity, Austerity, Austerity!
Meantime, an almost unlimited budget for something like moving Ports of Auckland to Northland.
The whole scheme is predicated not on your 'robust business like decisions', instead, we can sell the Auckland waterfront to property
developers and they can make a fortune.
By all means build the Auckland to Northland rail line, extend commuter rail on it, reducing congestion and greenhouse gases and all
that virtue signalling. And, build the rail to a standard that it could used as a contingency to Marsden Point pipeline failure,
solving another infrastructure deficit. I'd build heavy rail from Puhinui to Auckland Airport as well, use as commuter rail, saving
all those greenhouse gas emissions and congestion, and to get all that contingency jet fuel to the atmosphere killing Boeing and Airbuses.
Save another few $billion NOT building light rail down Dominion Rd.
Now if shippers currently using Ports of Auckland, can see a benefit in voluntarily using Northport and the railway, then Ports of
Auckland will downsize by attrition, can sell off the waterfront to property developers, and the $12billion cost to tax and rate payers
could instead be spent on fixing many of the ills that afflict society. End of Austerity.

[greater fool]

11785 (https://www.smh.com.au/national/trivialising-politics-has-helped-fashion-a-trivial-prime-minister-20200105-p53owj.html)