Index fund v ETF

[SBQ]

"An ETF is just a term that the 'fund's shares are bought and sold on the exchange so retail investors can buy & sell the holding/fund in the same manner as buying & selling shares of a individual companies. There are 'mutual/managed funds' and there are 'index funds' for which ALL can be classed as ETFs because their shares are bought and sold in the same manner as buying shares on the stock exchange."

No, this is not correct. An ETF is simply a managed fund that trades on the stock exchange. This means it has intra-day pricing and liquidity (i.e. it can be bought or sold any time the market is open). Managed funds are typically priced once per day, and some have long notice periods for getting your money back. ETFs can be passive or active, and so can managed funds.

and then you say below:

ETFs are NOT 'a bunch of managed funds'. An ETF IS a managed fund that hold assets either directly (e.g. Smartshares NZ50 Fund or Vanguard S&P500 fund) or indirectly (e.g Smartshares US500 fund, which invests via Vanguard). An index fund can be either an ETF or a managed fund.

You're slicing hairs and won't stand to be corrected. Who cares if the assets are held directly or indirectly, it's still funds or portfolios.

I have a problem with companies like Sharesies because what they're doing is basically skimming NZ investors that want to buy their S&P500 fund since all they are doing is buying the Vanguard S&P500 Index ETF. Sharesies will get charged a managed fee by Vanguard and Sharesies will add their cut on top of that to the NZ investor. So why doesn't the NZ investor buy the Vanguard index fund directly? Because in NZ we have this stupid regulation called the FMA and also, issues around the FIF taxing of foreign investments (on account balances over $50K value). Yes it could be argued that Sharesies may handle the FDR 5% rate for clients buying their USF500 fund but I haven't seen the details on how they're addressing FIF for each client and how they assess resident witholding taxes.

Why buy Smartshares ETFs rather than going direct to Vanguard? Because it's FAR cheaper. If you put $10,000 into Vanguard's US500 ETF in the US market through Direct Broking or similar, you'll pay:

$60 commission
$90 forex spread (to change the NZD to USD)
0.25% p.a. custody fee
$60 p.a. admin fee
0.03% Vanguard management fee

This adds up to around $240 in year one (or 2.4% of your investment). Then you have 33% tax on dividends (assuming you're a higher rate taxpayer).

If you buy the same fund directly through Smartshares you'll pay:
$30 account set up fee (one off)
0.34% management fee
All other costs (e.g. forex spreads, custody) are included in the management fee.

This adds up to $64 total cost in year one. The Smartshares ETFs are also PIEs so you'll pay 28% tax, and the tax is taken care of for you within the fund.

When you come to sell your Vanguard ETF via Direct Broking, you'll pay another $60 commission, $90 forex spread and a $100 custody release fee. When you sell your Smartshares ETF you'll pay $30 commission.

What??? Which direct broker are you getting these figures from? Many brokers TDAmeritrade and Charles Schwab offer FREE commission trades and have none of those fees. Better yet, they get you near market exchange rates on foreign currency better than any NZ bank would offer. As a matter of interest, those in Canada & US can exchange currency with nearly no spread using the Norbert Gambit move : https://www.genymoney.ca/norbert-gam...usd-questrade/
But I have not heard such transaction done for NZD / USD exchanges (mainly because NZ brokers are great at charging fees on everything).

Have a look at the expense ratios here: https://investorjunkie.com/12474/commission-free-etfs/
and they don't show $60 commissions or the extra fees you've mentioned. One thing certain is NZ brokers and managed funds will not have a lower expense ratio than those that can buy direct using a US broker. All thanks to the FMA which recently US brokers have either closed accounts for NZ residents or restrict their trading ability. Certainly, not opening new accounts for NZ residents.

and since we're talking about fees, the biggest theft IMO is NZ's taxing of such overseas funds via the FIF rules. No fund operates in a way where the total balance of the fund would be subjected to a max of 5% (FDR) without considering ANY tax credit on years when the stock market goes down. I can only imagine how unsettled John Bogle would feel if his investors were to be stung with such a fee (or in IRD's view, an annual tax) because at the end of the day, the FIF will simply erode the compound returns of any fund period. I would also ask where is the transparency of Sharesies on the handling of FIF on their S&P500 ETF? Because I can assure you the managing of FIF on their foreign invested ETFs comes at an added cost to the investors vs the one that buys direct with a US broker and managed their own FIF filing.

But who am I kidding? Any person with serious $ would not pick NZ to reside in if they're going on this path of long term investing. In N. America the vast majority invest into ETFs and stocks which grow in a 'deferred TAX FREE compounding' way (or in some cases, in Canada they have 100% tax free investment plans such as RESP (reg. education savings plan) and RDSP (reg. disability savings plan) all on the focus on growth with no tax to pay. It's also very logical on employee matching investment plans that at retirement time, the person would have little or no income and would begin to withdraw their investment in a controlled way to the tax bracket they desire to be taxed in. A senior wanting a new motorhome? Well they just sell a certain portion of their ETF investment (that they invested for many decades) and pay the tax. Not like in NZ where IRD's greedy hands is to tax the NZ funds indiscrinimantly regardless what person's resident tax bracket they're in. Oh.. wait a min.. they've thrown out dog bite with the PIE funds at a top tax of 28% which is a free bee for the top tax bracket income earner...