Should I actively avoid FIF investments?

[JonathanGiles]

Hi all,

Sorry if this is the wrong forum - perhaps this is better suited as a newbies corner question. Anyway, I'll ask here.

I'm in the final stages of preparation for investing in the share market. I am happy to be boring and average, and therefore want to primarily focus on index funds / ETFs. I am keen to get diversification internationally. It seems to me I have (at least) three options:

1) Invest in US stock market in Vanguard Total Market Index ETF (VTI) and similar international ETFs (e.g. VXUS). Expense ratio 0.05% / 0.14% and definitely falls under the FIF taxation rules.

2) Invest in AU stock market in Vanguard Total Market Index ETF (VTS) and similar international ETFs (e.g. VGS). Expense ratio 0.05% / 0.18%, and presumably does not fall under the FIF taxation rules.

3) Invest in NZX smartshares. Expense ratio is 0.75%, and certainly doesn't fall under FIF taxation rules.

Given option 1) and 2) are both very low expense ratios, and assuming I am correct about option 2) not being a FIF-related investment, I would love to hear peoples thoughts on whether it is wiser to take option 1) with the possibly lower expense ratio (and fees obviously matter over the long term), or whether not dealing with FIF in option 2) is the better option.

In other words, the thing tripping me up now is what is the lower cost option. I can appreciate and calculate the costs related to FIF taxes, but I'm not clear on the costs involved in something like option 2) or 3). Any details would be really appreciated.

Some interesting links:

1) Here is the list of Vanguard ETFs on offer in Australia (including VTS and VGS). Note that VTS is still based on US dollars - so I'm not sure if we can avoid FIF with this?
https://www.vanguardinvestments.com....fs.jsp#etfstab

2) The IRD advice on FIF Australian exemption:
http://www.ird.govt.nz/toii/fif/how-...tax-exemption/

4) The latest IR871 exemption list from March 2014 does not include these shares, but that may be because they weren't created until November 2014. How do we get guidance on such shares?
http://www.ird.govt.nz/calculators/t...l?id=righttabs

Thanks!