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  1. #1
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    Default Portfolio composition

    I have a considerable share portfolio containing a mixture of shares, ETFs investment trusts locally and globally. This is my hobby to administer. I have retired and now becoming concerned that if I was not around my wife or daughters will have no interest in administering and maintaining this type of portfolio. Of course I could hand it over to a full broker but the fees I would find hard to justify. The alternative is to simplify the portfolio and have a handful of ETFs. I would be interested to know how others handle this for the long term. Also, is there a point to have investments in a trust?

  2. #2
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    yes, not interesting in buying specific shares, so will need to keep strategy simple. I would be interested to know how others handle this

  3. #3
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    Quote Originally Posted by voltage View Post
    I have a considerable share portfolio containing a mixture of shares, ETFs investment trusts locally and globally. This is my hobby to administer. I have retired and now becoming concerned that if I was not around my wife or daughters will have no interest in administering and maintaining this type of portfolio. Of course I could hand it over to a full broker but the fees I would find hard to justify. The alternative is to simplify the portfolio and have a handful of ETFs. I would be interested to know how others handle this for the long term.
    Voltage, brokers will charge different fees depending on what service they offer you. You don't have to go the whole hog and have a full quarterly rebalance every quarter at full service fee level. You could start with an instruction only oversight (i.e. acting on your instruction). That should be much cheaper. If neither your wife or daughters have a particular aptitude for managing investments, then at some stage down the track the portfolio could move to a more 'fully managed' level.

    You might start with putting just a small portion of the portfolio of what you own under 'broker management'. Find a broker, more towards your daughters' age group than yours. Then introduce your wife and daughters to them to see if they are comfortable with dealing with that person. Your wife and daughters don't need to be investing experts themselves. But it would be helpful to build up their knowledge to the extent they know what questions to ask. If this broker in tandem with you are able to explain to them why you have structured your portfolio the way you have, then hopefully they will figure out, for example. that panic reacting to every short term itch or TV headline is not the way to manage an investment portfolio.

    Once they learn to trust a competent broker, this should take a lot of worry out of their heads in the future, and yours right now.

    Also, is there a point to have investments in a trust?
    If the ETFs you own in your own name are overseas domiciled - possibly. Although NZ has abolished death duty, it still exists in the UK and USA, for example. So you may find your estate gets stung by overseas jurisdictions if the lawyers have to write to a registry overseas and say you have died and can you please transfer those shares to your wife's or daughters' names. By owning overseas shares in the name of a trust all the transfers of ultimate ownership can be done within NZ.

    SNOOPY
    Last edited by Snoopy; 26-05-2019 at 09:14 PM.
    To be free or not to be free. That is the cash-flow question....

  4. #4
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    Thank you Snoopy, very enlightening.

  5. #5
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    Quote Originally Posted by Snoopy View Post
    Voltage wrote: "Also, is there a point to have investments in a trust?"

    If the ETFs you own in your own name are overseas domiciled - possibly. Although NZ has abolished death duty, it still exists in the UK and USA, for example. So you may find your estate gets stung by overseas jurisdictions if the lawyers have to write to a registry overseas and say you have died and can you please transfer those shares to your wife's or daughters' names. By owning overseas shares in the name of a trust all the transfers of ultimate ownership can be done within NZ.
    I should add that if an NZ broker holds shares on your behalf in a UK or USA domiciled share entity, those should be held in a broker nominee company here in NZ. If they are not held in your name, that means the broker should be able to get around any overseas death duty issues. And that means no need to set up your own trust in NZ to get around overseas death duty issues.

    In the USA at least, death duties start at quite a high net worth level for US citizens. But for overseas holders owning US based assets, the level where death duties kick in is much lower.

    SNOOPY
    Last edited by Snoopy; 27-05-2019 at 09:14 AM.
    To be free or not to be free. That is the cash-flow question....

  6. #6
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    Quote Originally Posted by voltage View Post
    IAlso, is there a point to have investments in a trust?
    Having your investments in Trust could increase complications but the potential advantages are being able to distribute trust income to beneficiaries in the most tax efficient manner you like. Also depending on how you did your gifting it may be advantageous if you or your wife require long term care and apply for a taxpayer subsidy for long term care. Outrageous that taxpayers would pay to protect your children's inheritance but I believe it does happen.

    I have the same problem getting my kids to care about such things and I prefer to not discuss finances too much with my wife as she is more likely to spend now and worry later, terrible not sharing with my significant other, I know but it helps us stay together.

    Have you ever considered that property/investments in Trust for most discretionary family trusts the kids are the final beneficiaries with the parents discretionary beneficiaries. Once the kids are old enough to look after themselves there is not much preventing them from asking for their property. As trustee you are only managing it on their behalf. Have only heard of one case where this happened but will be interesting to see if this happens more with the proliferation of Trusts in NZ. Your kids would have to be rotten to destroy a family over money but it is theoretically possible.

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    Thanks for all the comments, nothing is straight forward. Snoopy, what are acceptable custodial fees?

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    Quote Originally Posted by voltage View Post
    Snoopy, what are acceptable custodial fees?
    0.5% on the value of the portfolio per annum? I think most brokers have a minimum charge as a dollar amount though.

    SNOOPY



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    To be free or not to be free. That is the cash-flow question....

  9. #9
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    Interesting article
    Long term consequences
    https://www.investopedia.com/how-ind...ral&yptr=yahoo

  10. #10
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    I can't see how holding ETFs or US equities directly by a NZ resident IN THEIR OWN NAME would be beneficial from a tax perspective. NZ has that nasty FIF (FDR Comparative Rate etc) calculation to tax paper gains (with no carried forward on years for losses). Furthermore the risk of US's estate death taxes which from what I recall, has no exemption limit that US residents have (ie. $10M). I think it's a flat rate tax of 33% of total value to non-resident account holders.

    The structure of NZ's FIF is to deter direct ownership of foreign share investments and allow the Kiwi Saver funds to handle that for NZ investors.

    Having the investments in a trust also creates complications ; if in US, registration and reporting may be required to the IRS by the US broker. Furthermore there may be limits what the beneficiaries can do in the trust. The lawyers and accountants love to collect their annual administration fees on trusts. To the small guy, trusts offer no real benefit.

  11. #11
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    Quote Originally Posted by kiora View Post
    Interesting article
    Long term consequences
    https://www.investopedia.com/how-ind...ral&yptr=yahoo
    Nothing interesting about it and it's complete hogwash. Article didn't explain the risk of having 3 major funds owning 50% of the market; the risk is a market sell off can easily be manipulated by having few big players that determine the direction of the market (and that's what Jack Bogel was worried that too few big players can have too much manipulation of the market). But it has nothing to do with competition of the individual shares they hold, if the fundamentals hold well, so will the stocks and thus investment returns.

    Something to think about if you really want to use an adviser or an investment manager or some personal investment broker:

    https://www.quantumamc.com/mailer/20...ep16/Money.pdf
    (Link originally from WSJ but requires silly subscription registration to view it wholly)

    Basically he says the S&P500 won and the managed funds didn't over the 10 year time frame. Why? because of management fees, something many Kiwi Saver funds are guilty of. Think you can find a good broker in NZ that is that savvy enough to consistently beat the market? They're only riding on luck. The consultant's only interest is to extract fees from their clients, plain and simple.

    And to think he was lucky on that bet, he's willing to offer it again:
    https://www.cnbc.com/2017/10/03/afte...dex-funds.html

    In Buffet's 2017 Annual meeting he also described to his shareholders on the problem between active investing (the "Hyperactives) vs Passive investing. He says by "default" the passive investor gets a whole market share of the US economy (or the S&P500). Whlie the hyperactives are just only trying to guess which stocks (that operate under the US economy model) would do better than the other. So in relation to that article about lack of competitiveness ; by default the S&P500 pool of stocks already hold a majority portion of American stocks, you don't need to question about their competitiveness.

  12. #12
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    Passive funds might be great in Bull markets BUT not in Bear markets
    https://www.ccmmarketmodel.com/passive-in-a-bear-market
    In bear markets when retail investors sell out of passive fund,fund needs to liquidate underlying asset causing self perpetuating drop in value of the funds.
    Not just my view
    https://www.ft.com/content/cdbdd01a-...8-8640db9060a7

  13. #13
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    Composition of investments are important
    https://www.goodreturns.co.nz/articl...or+29+May+2019
    "
    considers how much to deviate from the optimal portfolio to reduce biased decisions, building a portfolio the client can stick with. It includes three criteria:
    Relative level of wealth: investors with high levels of wealth compared to their lifestyle can afford to deviate away from the optimal portfolio
    Standard of living risk: is the client’s standard of living at risk if their portfolio was sub-optimally allocated. High standard of living risk reduces ability to deviate from the optimal portfolio
    Biases: the primary type of biases will also impact the decision. Cognitive biases are easier to moderate, proper education can reduce the need to deviate. Emotional biases are more difficult to deal with and will typically need to be adapted to allowing a larger deviation from the optimal portfolio would help the client stay the course."

  14. #14
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    Quote Originally Posted by kiora View Post
    Composition of investments are important
    https://www.goodreturns.co.nz/articl...or+29+May+2019
    "
    considers how much to deviate from the optimal portfolio to reduce biased decisions, building a portfolio the client can stick with. It includes three criteria:
    Relative level of wealth: investors with high levels of wealth compared to their lifestyle can afford to deviate away from the optimal portfolio
    Standard of living risk: is the client’s standard of living at risk if their portfolio was sub-optimally allocated. High standard of living risk reduces ability to deviate from the optimal portfolio
    Biases: the primary type of biases will also impact the decision. Cognitive biases are easier to moderate, proper education can reduce the need to deviate. Emotional biases are more difficult to deal with and will typically need to be adapted to allowing a larger deviation from the optimal portfolio would help the client stay the course."

    The same kind of hogwash that Buffet has been ranting on for years so i'll post his quotes instead of spewing my own words:


    "There's been far, far, far more money made by people in Wall Street through salesmanship abilities than through investment abilities"


    “A lot of very smart people set out to do better than average in securities markets. Call them active investors. Their opposites, passive investors, will by definition do about average. In aggregate their positions will more or less approximate those of an index fund. Therefore, the balance of the universe—the active investors—must do about average as well. However, these investors will incur far greater costs. So, on balance, their aggregate results after these costs will be worse than those of passive investors.”


    “If 1,000 managers make a market prediction at the beginning of the year, it’s very likely that the calls of at least one will be correct for nine consecutive years. Of course, 1,000 monkeys would be just as likely to produce a seemingly all-wise prophet. But there would remain a difference: The lucky monkey would not find people standing in line to invest with him.”


    “The bottom line: When trillions of dollars are managed by Wall Streeters charging high fees, it will usually be the managers who reap outsized profits, not the clients. Both large and small investors should stick with low-cost index funds.”



    and as an adage for Jack Bogle (may he RIP):


    “If a statue is ever erected to honor the person who has done the most for American investors, the hands-down choice should be Jack Bogle. For decades, Jack has urged investors to invest in ultra-low-cost index funds. In his crusade, he amassed only a tiny percentage of the wealth that has typically flowed to managers who have promised their investors large rewards while delivering them nothing—or, as in our bet, less than nothing—of added value.”


    https://www.ifa.com/articles/buffett..._crash_stands/


    Do these metrics still apply in NZ? You bet they do! The only problem is in NZ, you have a limited choice of shares to choose and with returns that are very mediocre. It is so bad that the risk tolerances are not even comparable to the investors in N. America. Ie. for the level of risk the NZ risk adverse investor would be exposed to by choosing NZ50 stocks vs S&P500 is on a different plane.
    Last edited by SBQ; 30-05-2019 at 09:51 AM.

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