Retirement/Passive Income: Dividend Shares vs Growth Shares vs PIE Funds

Was listening to this today https://www.nzherald.co.nz/business/...OY5DPEXUQNBNY/ and the guy made an interesting point I would love to get feedback on from here.

He is from Kernel Wealth so obviously biased towards funds, but was saying that instead of owning a dividend stock where your capital might go more or less nowhere (thinking of something like SPK here), and you get your 5% or so yield each year fairly safely, why not invest in a PIE managed fund and (this next part is the key for me that I hadn't considered) withdraw 5% of that every year as your dividend.

That way, your "pseudo dividends" are untaxed (as capital gains) and also any dividends that get paid into the fund will be 28%.

Of course, the big thing is that your fund needs to return 5% or more each year, however that seems reasonably achievable, on average of course.

Anyway, it got me thinking, especially with reference to the likes of SPK, GNE, etc... you may get your 5-7% yield pretty comfortably, but your capital is going nowhere, and you're paying tax.

Instead, if you can invest in a PIE fund that returns at least 5% each year (on average) then you should be able to outperform a dividend stock very easily on the tax savings alone (no tax on capital gains) by withdrawing 5% out of the fund every year.

Or, you could also invest in something like IFT, instead of a PIE fund, and do the same thing very easily.

I guess, for me personally, looking at how retirement might look, I was only really considering dividend shares where I can get my safe 5% dividend payout each year. The above kind of opened my eyes though quite a bit, especially the 5% annual withdrawal tax free as a pseudo dividend.

Anyway, would love to hear other's opinions. Maybe everyone else knew this?

FYI I am just starting my journey now on how sustainable retirement might look.

Cheers

I also listened to the podcast. The guy gave quite a good explanation on tax on foreign shares.

I will have to check that podcast out, I recently joined kernel to consider their funds againt Simplicity as they have similarly low fees and much less social responsibility.
I'm not stock picker evidently so I'm keen to put any future contributions into PIE's.

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Originally Posted by thegreatestben

I will have to check that podcast out, I recently joined kernel to consider their funds againt Simplicity as they have similarly low fees and much less social responsibility.
I'm not stock picker evidently so I'm keen to put any future contributions into PIE's.

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Well worth listening to for amateurs like me, that's for sure. Quite thought provoking and I will go back and listen again.

I put a good chunk of my current lunch budget into PIEs and the growth is becoming apparent!

Yep in the age of the PIE fund the old "income versus growth" distinction has become artificial for most investors.

With a PIE fund having all the tax treatment wrapped up in the fund, you can take as much or as little as you like out as withdrawals and create your own income stream annually that way.

You have to be mindful of the risk/volatility profile of the underlying assets, to avoid being stuck in a big drawdown and having your withdrawals create negative compounding effects, but something like the Kernel NZX20 fund makes a lot of sense to me. You get the 20 largest companies on the NZX which are biased towards dividend payers but there is also some growth there, you can create your own income stream in a tax effective way. Very low fees too.

Disc: i have no affiliation with Kernel but am a Kiwisaver client of theirs.

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Originally Posted by Lego_Man

Yep in the age of the PIE fund the old "income versus growth" distinction has become artificial for most investors.

With a PIE fund having all the tax treatment wrapped up in the fund, you can take as much or as little as you like out as withdrawals and create your own income stream annually that way.

You have to be mindful of the risk/volatility profile of the underlying assets, to avoid being stuck in a big drawdown and having your withdrawals create negative compounding effects, but something like the Kernel NZX20 fund makes a lot of sense to me. You get the 20 largest companies on the NZX which are biased towards dividend payers but there is also some growth there, you can create your own income stream in a tax effective way. Very low fees too.

Disc: i have no affiliation with Kernel but am a Kiwisaver client of theirs.

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Thanks lego man!

It doesn't necessarily need to be a PIE fund though right?

Take something like IFT. You would pay your marginal tax rate on the dividends, but the capital gains would still be untaxed if you sold some actual stock annually, right?

I agree Entrep,easy peasy.I do have a considerable amount in shares directly but more of the investment portfolio Is PIE FUM,some even pay a dividend & they don't need to be included in tax return as long as the correct PIR rate is registered