Quote Originally Posted by Stumpynuts View Post
Basically, my strategy is to sign up my kids to some of the most highly aggressive KS funds out there and set them both up with fairly hefty sums for adulthood - Hopefully by then KS rules are changed as well to allow more investment flexibility and fluidity.
I have 2 kids both signed up with Kiwisaver - Voluntary contributions of $21 per week.

My older child's current account balance is sitting at just short of $15,000 - The older child is currently 7 1/2 years old. We received the $1000 KS kickstart bonus but I didn't start Kiwisaver with our older child until they were 3 years old, so I've missed about $2000 there.

My younger child's current account balance is sitting at just over $5000 - They're 3 1/2 years old, No $1000 KS kickstart as it was removed for new KS members a few years back.

Current 12mth return for both of their KS accounts is sitting at just over 30%p.a, after fees and tax.
Both of them are averaging 12-15%p.a returns over the whole life of their KS.

I remember back when I got my first $1000 saved up in my own bank account I was 10 years old, had my bank account from back in the days when ASB would sign up kids at 5 years old.

If I had access to the sort of funds in my teenage years as my kids have currently I reckon it would have opened up so many options for me.
For example all throughout my high school years I've been interested in stock markets. When I had just finished high school Apple was considered a joke of a company at the time (around 2002-2003), they had yet to launch the very first iPods, iPhones didn't even exist at that time.

I wanted so badly to invest in those sorts of companies MS/Apple and the likes but only limited due to lack of funds. I know for certain that if I had like $20k or $30k I would have done the young, dumb thing and invested in both of those.
instead I invested in the likes of HGD/NTL... but making up for it nowadays via ASX stocks.
First of all - it's great you are taking interest in their children's future by setting up a plan for investing. I do feel finance in NZ is a subject that has little discussion; more importantly, real discussion of how finance works. To this day I still do not understand why NZ brokers and NZ investors have this fascination that "dividends" must be paid despite having a tax liability, when if the company keeps the profits year after year in retained earnings, the book value per share goes up, and thus the share price will go up = a tax free capital gain. Warren Buffet has said, dividends trigger a tax liability which is not ideal. If you want annual income, just elect to sell a portion of the shares and being in NZ, for NZX shares the gains are tax free. But go figure the people want dividends for some strange reason.

I'll admit, i've set nothing up for my 2 children in terms of investment planning in NZ for them. My reasons have been explained before that under Kiwi Saver, we have an uneven taxing between NZ shares vs foreign shares. It's so warped that the financial advisors won't care to explain the difference. For eg. you rave how you wanted to buy stock in Apple. But the fact being is owning AAPL under KS scheme attracts FIF tax - for which PAPER GAINS are taxed at the individuals RWT or under a PIE fund, 28%. If the individual invests directly through a broker, FIF does not apply until it hits $50K in portfolio value. Many of these KS funds do nothing more than buy the overseas ETF such as Vanguard's VOO S&P500 (which you can buy directly). Yet they're privy to charge a massive fee on top of Vanguards low 0.08% administration fee. Sure the may say they have paperwork and taxation issues but there's no reason to have fees in excess of 0.5% - 2 or 3% pa that I see in many of the KS prospectus.

Don't get me wrong, I have a solid plan for my children and unfortunately, that is not to be in NZ. Our long term sights will be to retire back in Canada. But since living in NZ for well over 20 years (self employed) i've learned that US equities outperform NZ / ASX ones by a long shot and for the whole time, the majority of my wealth has been held under my father's name who is a resident in Canada. Can you imagine my accountant's unusual thought when I told her that "it is ME that is gifting my wealth to my father" because what she understood was the common arrangement is, the father running the small business in partnership with the son, gives his wealth to the next generation. I said no no, I had to clarify that where my dad resides in Canada (despite being a non-resident in NZ but a partner to the business we have in NZ), investments there are treated more equitable in terms of taxation than here in NZ. At the end she said that's a bold move and not something she has ever seen. (but then no one ever plans that far ahead wanting to live in another country? or do they?)

I've worked out the #s on spreadsheet. I've calculated the taxation year after year under NZ FIF vs 0% taxation in Canada year after year (as CGT only applies when the shares are sold). After a 30 or 40 year compound interest, it was clear that the same person living in Canada with the same return of investment would considerably have a much larger portfolio value at the end. But what really sealed the deal was the issue of deferred taxation and that is at retirement age, taxation on CGT is far less to a pensioner than to a person in their 30s to 50s as their incomes are MUCH higher in this age group. See this is a problem with KS, they're taxing individuals who are at the peak of their income earning ability - and thus are at the high tax bracket because a person can't contribute more to KS if they don't have a higher income level. But the more they contribute, the more they lose in tax. Very different to in Canada where their comparable pension scheme to the KS is the RRSP and all gains within the fund grow 100% tax free. Then at retirement age, the shares are sold and naturally the pensioner will be unemployed and would only be taxed at the low income levels (unless they choose to sell big and buy the new boat or motorhome etc.).

Oh by the why, Warren Buffet again has been a major critic of loss of compound interest due to how much adminstration / mgt fees these managed funds take. If you complain how much 1 or 2% takes per year, then consider how much IRD gets to take under FIF of up to 5% per year? Because essentially the net result under FIF is a robbing of future compound returns.

and as always, hind sight is always 20/20.