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  1. #1
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    Default Better options to invest large sum of cash than Term Deposits???

    Anyone? I would be glad to hear what others are doing (or have heard) with cash? I have a family relative that is not happy with 2.7% pa at BNZ Term Deposit. Large sum amount to mature this week - well over $1M principle.

    I know it seems it would be best to put it in real estate? Suggestions?

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    Quote Originally Posted by SBQ View Post
    Anyone? I would be glad to hear what others are doing (or have heard) with cash? I have a family relative that is not happy with 2.7% pa at BNZ Term Deposit. Large sum amount to mature this week - well over $1M principle.

    I know it seems it would be best to put it in real estate? Suggestions?
    I used to use Milford Diversified Income Fund....but I did sell in August as while the yield was good, the capital gain was too good for me not to realise. Milford will also give personal attention to an investment of over $500k. No doubt there will be other financial companies that will do the same - this is not a plug for Milford, merely my only experience. The other option could be the DIV ETF if they were to dollar-cost-average in to it.

    Property is good but to get a good yield, nowadays, it involves a lot of work in optimizing the investment or accepting a ‘challenging’ location. If the relative is young and wants leverage - still could be a good idea....if more mature and not wanting debt, there will be other options.

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    Quote Originally Posted by BeeBop View Post
    I used to use Milford Diversified Income Fund....but I did sell in August as while the yield was good, the capital gain was too good for me not to realise. Milford will also give personal attention to an investment of over $500k. No doubt there will be other financial companies that will do the same - this is not a plug for Milford, merely my only experience. The other option could be the DIV ETF if they were to dollar-cost-average in to it.

    Property is good but to get a good yield, nowadays, it involves a lot of work in optimizing the investment or accepting a ‘challenging’ location. If the relative is young and wants leverage - still could be a good idea....if more mature and not wanting debt, there will be other options.
    The problem I find with NZ brokerage firms is their magangement fee - somewhere around 1% on total value per year.

    Since you sold up in August, can I ask what did you do instead ; where did the proceeds go to?

    A Div ETF again, would be subjected to management fees by various managed funds and account holdings ; for the level of risk, if it's being NZ based, how much return would it be? (scapling higher gains for an immense level of risk).

    FIF also restricts options from investing abroad. Meaning if I invested $1M abroad in a US ETF or stock and it returns 5% in the year, then I would have to declare 5% under FDR as taxable income. Which effectively, is no different to having a 5% term deposit return. The worse thing about FIF is it factors capital gains... if I were to buy a house, and make it a long term decision to hold it for more than 5 years, it would seem that would be a way better option than lowly term deposit returns. Recent news on the NZ housing market showed Dunedin being the biggest performer having a whopping 20% return over the past year.

    My heart says I want some of that US equity market action.. but then that would require being a non-resident in NZ and moving abroad.

    Would anyone be confident to move such large sums into say Sharesies into one of their ETFs? But the horror from my NZ relatives that warned me of the past ; how countless of NZ listed shares have gone bust while real estate still keeps going up. It's a real problem when you have $.. what do you do with it?

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    Quote Originally Posted by SBQ View Post
    Anyone? I would be glad to hear what others are doing (or have heard) with cash? I have a family relative that is not happy with 2.7% pa at BNZ Term Deposit. Large sum amount to mature this week - well over $1M principal.

    I know it seems it would be best to put it in real estate? Suggestions?
    SBQ, I didn't have the problem you describe on the scale of your relative. But I did get my biggest ever shareholder payout when I sold the bulk of my RBD shares into the takeover offer last year. I couldn't face investing what was for me a large sum. So I elected to 'kick the can down the road' and divide my windfall into five. This meant I had five bank term deposits maturing in 6 months, 1 year , 18 months, 2 years and 3 years. I have since reinvested my six month term deposit for two years. So I now have an equal amount of capital maturing in six monthly blocks for the next two and one half years.

    2.7% may not seem a lot for a term deposit. But it still beats putting your money into an overvalued asset that will plunge in value. My aim is to buy good dividend paying NZ shares with this money eventually and I am now seeing opportunities that I did not see even six months ago.

    Personally I would keep well clear of real estate in New Zealand. If you see the relative affordability of property in Auckland to be 10% worse than in London or 20% worse than Sydney or Vancouver then you know a serious correction is coming. Best bet in real estate IMO would be to buy a flat in New York - seriously! Very expensive in NZ dollar terms, but there are lots of well heeled people there that can pay a high rent

    SNOOPY
    Industry shorthand sees BNZ employees still called 'bankers' but ANZ employees now called 'anchors'. Westpac has opted out of banking industry shorthand...

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    Quote Originally Posted by SBQ View Post
    The problem I find with NZ brokerage firms is their magangement fee - somewhere around 1% on total value per year.

    Since you sold up in August, can I ask what did you do instead ; where did the proceeds go to?

    A Div ETF again, would be subjected to management fees by various managed funds and account holdings ; for the level of risk, if it's being NZ based, how much return would it be? (scapling higher gains for an immense level of risk).
    my situation is a bit different as I operate internationally and am not NZ tax resident with three main asset classes.

    1. So where did the money go? Boring...I paid down another mortgage as I have done with NZD over the past many years. It does reduce my leverage benefit but means that when I find a ‘unique’ undervalued property situation, I can use the equity e.g. I bought in Dunedin in 2014 when NO ONE wanted to buy housing (yes the house has gone up 150% since then and has low debt thanks to Milford).

    2. Scalping: yes NZ funds to seem to scalp but I look at the AFTER tax and scalp returns balanced with the risk. Milford was good for this...and when I purchased, it did seem undervalued and was prior to the OCR drop.

    3. DIV ETF....I would buy directly from the NZX (still have higher fees even in the vanguard system) but the diversification is easy.

    4. You can get in on the international action by purchasing Investment Trusts listed on the NZX e.g Bankers, City of London, Henderson Far East (it should have a good yield as I own some on the LSE due to yield and may well be quite depressed at the moment due to Corona).

    But I am a non-resident and have property, cold hard cash in a 0% bank account, and shares in three markets. I also note that it is difficult to purchase large parcels of smaller/mid-cap stocks in NZ as you can move the price too easily.

    If I wasn’t doing what I was doing at the moment, I would purchase a blue-chip property in central Auckland to hold as a gold bar (with very low debt)...I would rent it out (as long as the rent covered the basic outgoings)...but $1m won’t be enough to do this (closer to $2m would be better) and the income would be low.

    My thoughts only....and I always, always, always hold cash in relevant to life-style currencies and I have rental income...if it all hits the fan, you don’t need to sell the assets to cover costs in the next year or so....

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    Quote Originally Posted by Snoopy View Post
    SBQ, I didn't have the problem you describe on the scale of your relative. But I did get my biggest ever shareholder payout when I sold the bulk of my RBD shares into the takeover offer last year. I couldn't face investing what was for me a large sum. So I elected to 'kick the can down the road' and divide my windfall into five. This meant I had five bank term deposits maturing in 6 months, 1 year , 18 months, 2 years and 3 years. I have since reinvested my six month term deposit for two years. So I now have an equal amount of capital maturing in six monthly blocks for the next two and one half years.

    2.7% may not seem a lot for a term deposit. But it still beats putting your money into an overvalued asset that will plunge in value. My aim is to buy good dividend paying NZ shares with this money eventually and I am now seeing opportunities that I did not see even six months ago.

    Personally I would keep well clear of real estate in New Zealand. If you see the relative affordability of property in Auckland to be 10% worse than in London or 20% worse than Sydney or Vancouver then you know a serious correction is coming. Best bet in real estate IMO would be to buy a flat in New York - seriously! Very expensive in NZ dollar terms, but there are lots of well heeled people there that can pay a high rent

    SNOOPY
    The compelling issue with buying real estate in NZ is the huge difference in tax treatment than in interest earning term deposits. While NZ housing market is over valued, the metrics have not changed. It was over valued when I 1st came to NZ 20+ years ago and the NZ gov't has done nothing to promote affordability. We are not seeing anything changed and that's the reality. It seems from a tax perspective, all the incentive is not to invest overseas and instead, buy bricks and motar.

    Meanwhile, the NZD currency continues to erode...

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    Quote Originally Posted by BeeBop View Post
    my situation is a bit different as I operate internationally and am not NZ tax resident with three main asset classes.

    1. So where did the money go? Boring...I paid down another mortgage as I have done with NZD over the past many years. It does reduce my leverage benefit but means that when I find a ‘unique’ undervalued property situation, I can use the equity e.g. I bought in Dunedin in 2014 when NO ONE wanted to buy housing (yes the house has gone up 150% since then and has low debt thanks to Milford).

    2. Scalping: yes NZ funds to seem to scalp but I look at the AFTER tax and scalp returns balanced with the risk. Milford was good for this...and when I purchased, it did seem undervalued and was prior to the OCR drop.

    3. DIV ETF....I would buy directly from the NZX (still have higher fees even in the vanguard system) but the diversification is easy.

    4. You can get in on the international action by purchasing Investment Trusts listed on the NZX e.g Bankers, City of London, Henderson Far East (it should have a good yield as I own some on the LSE due to yield and may well be quite depressed at the moment due to Corona).

    But I am a non-resident and have property, cold hard cash in a 0% bank account, and shares in three markets. I also note that it is difficult to purchase large parcels of smaller/mid-cap stocks in NZ as you can move the price too easily.

    If I wasn’t doing what I was doing at the moment, I would purchase a blue-chip property in central Auckland to hold as a gold bar (with very low debt)...I would rent it out (as long as the rent covered the basic outgoings)...but $1m won’t be enough to do this (closer to $2m would be better) and the income would be low.

    My thoughts only....and I always, always, always hold cash in relevant to life-style currencies and I have rental income...if it all hits the fan, you don’t need to sell the assets to cover costs in the next year or so....
    Non-residency is a key issue in my future estate planning.

    Having checked local NZ brokers, it seems the fees are excessive compared to discount brokers in the US that have gone to a 0% fee base commission. I looked at www.directbroking.co.nz and they charge 0.2% for NZ equities and 0.3% for Aus and for 'telephone' rates it's a whopping 0.8% each way. So to buy you pay the commission.. and to sell you pay that same commission, either way the broker is laughing all the way.

    Liquidity is a problem on NZX listed shares and agree... any person with a significant position will affect the share price too much... no wonder NZ brokers love the 'hyperactives'.

    I've learned about Peer 2 Peer lending. Have spoken to a person at Squirrel and their market is to lend on "Personal Loans" which scares me. I mean it's really scary that they're paying lenders 6% and lending out at whopping rates like x2 times, in addition it's all unsecured.

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    if you (or your proxy) really cant accept the rates offered by a Trading Bank then another option is to lend to NBDT's, Non Bank Deposit Takers. Finance companies as such, and there are higher rates available with perhaps not so much risk as you thought. You could examine the reports of say Liberty or General and see what you think.
    I only mention the ones I know of without an explicit recommendation as such, although I probably would use General the one I know most about. I understand they have good mortgages over real estate for most of their loans and will pay up to 5% for 2 years, and rates varying around that. At the same duration as you got 2.7% from ASB they offer 4.1% so its quite a big % increase in income generated by the deposit.

    Finance companies come in different sectors and different structures of course but I think its fair to say they largely don't resemble the bad times of them which the sector remains tainted with.

    Its an option to be considered and and the amount used in this fashion would all depend on the persons risk tolerance and values apportioned appropriately etc etc
    Im just saying its an option to increase return. Whether the risk is justified or not is a personal decision.

    PS I have no interest in the mentioned firms.
    Last edited by peat; 11-02-2020 at 05:02 PM.
    For clarity, nothing I say is advice....

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    Quote Originally Posted by SBQ View Post
    Non-residency is a key issue in my future estate planning.

    Having checked local NZ brokers, it seems the fees are excessive compared to discount brokers in the US that have gone to a 0% fee base commission. I looked at www.directbroking.co.nz and they charge 0.2% for NZ equities and 0.3% for Aus and for 'telephone' rates it's a whopping 0.8% each way. So to buy you pay the commission.. and to sell you pay that same commission, either way the broker is laughing all the way.

    Liquidity is a problem on NZX listed shares and agree... any person with a significant position will affect the share price too much... no wonder NZ brokers love the 'hyperactives'.

    I've learned about Peer 2 Peer lending. Have spoken to a person at Squirrel and their market is to lend on "Personal Loans" which scares me. I mean it's really scary that they're paying lenders 6% and lending out at whopping rates like x2 times, in addition it's all unsecured.

    NZ is expensive whichever way you look at it. It is hard to get ahead living as a regular person in Kiwiland....all about life-style. Hotels, rent, food, entertainment, broker rates, management fees....it is all high. But people pay it because they like NZ and its relatively good living standard - having just completed five nights in a dodgy area of a “developing” city - there is no comparison.

    Mostly safe income will come at 2.7%, unsecured at 6%, diversified via the NZX should deliver around 4.5%, leveraged via property may deliver 1 - 3% with a history of capital gains. But for the property income, I really think that rents may well have hit their ceiling....every man and his dog is now jumping into the spaces and competition has increased....plus there are more cheaply constructed new builds passing off as good rentals (until the unsuspecting buyer sees the maintenance issues in 5 years time).

    And remember, it is the AFTER commission yield that you need to consider in NZ and balance that with the risk that is acceptable (as noted by Peat with the NBDTs).

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    Quote Originally Posted by SBQ View Post
    The compelling issue with buying real estate in NZ is the huge difference in tax treatment than in interest earning term deposits. While NZ housing market is over valued, the metrics have not changed. It was over valued when I 1st came to NZ 20+ years ago and the NZ gov't has done nothing to promote affordability. We are not seeing anything changed and that's the reality. It seems from a tax perspective, all (1) the incentive is not to invest overseas and instead, buy bricks and mortar.

    (2) Meanwhile, the NZD currency continues to erode...
    I invite you to look at your sentences that I have labelled (1) and (2) SBQ. If (2) isn't a good incentive to invest overseas, then I don't know what is.

    I should add that one way our property market can correct on the international comparative yardstick is for our currency to heavily depreciate relative to those comparator currencies of countries we like to compare ourselves to!

    SNOOPY
    Industry shorthand sees BNZ employees still called 'bankers' but ANZ employees now called 'anchors'. Westpac has opted out of banking industry shorthand...

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    Quote Originally Posted by Snoopy View Post
    I invite you to look at your sentences that I have labelled (1) and (2) SBQ. If (2) isn't a good incentive to invest overseas, then I don't know what is.

    I should add that one way our property market can correct on the international comparative yardstick is for our currency to heavily depreciate relative to those comparator currencies of countries we like to compare ourselves to!

    SNOOPY
    Well it's an interesting point and kind of a tug-O-war. We have locals in NZ that view investments as... buying real estate and we have those in NZ that invest in shares.. looking to invest abroad (ie. foreign index ETFs). The weakening of the NZD will hurt EVERYONE (both who are pro-real estate and those who are pro-kiwi Saver that have a focus on overseas equities). Don't forget, even the savers of the NZD will get slammed as interest rates continue to tread lower.

    The incentive is not simply there to invest overseas because as NZ residents, we earn in NZD - well pretty much most people make a living earning paid in NZD. We also have an issue of the NZ FMA regulation that from a tax perspective, disadvantages those that invest abroad or conversely, incentivises those to buy NZ equities despite they may have marginal performance (ie. higher corporate taxes compared to overseas corporations) + NZ equity market is like 0.4% of the global investment market.

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    If I was an Australian looking at Term Deposit rates, I would be finding that 2.7% on offer in New Zealand quite attractive:

    https://www.anz.com.au/personal/bank...fees-terms/#td

    I have some Australian term deposits coming due this month, and those AUD sure won't be going back into bank TDs. They'll be going into an Australian government bond ETF, current yield +/-2.75%, maintaining the current asset class allocation and currency profile.

    If I was a New Zealander and convinced that the NZD/USD rate was due to fall, I would be looking at a 0% foreign currency account - possibly in Australia to take advantage of the government deposit guarantee scheme. I note that Betashares are forecasting an AUD/USD rate of $0.62 later in the year, and the NZD has a strong tendency to follow the AUD.

    As far as fees, charges and the like go, the New Zealand financial services industry may have become dramatically cheaper over the past 25 years, but it remains ridiculously expensive and overpoweringly entitled, and the options for investment outside New Zealand may be cripplingly limited, but those are, sadly, the rules of the game.

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    Quote Originally Posted by SBQ View Post
    Would anyone be confident to move such large sums into say Sharesies into one of their ETFs? But the horror from my NZ relatives that warned me of the past ; how countless of NZ listed shares have gone bust while real estate still keeps going up. It's a real problem when you have $.. what do you do with it?
    If you were going down this route I'd go straight to Superlife - cuts out the middleman and is cheaper.

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    GTM3442
    "If I was a New Zealander and convinced that the NZD/USD rate was due to fall, I would be looking at a 0% foreign currency account"

    Hi GTM, re the 0% account above ,ive been offered a $US account paying 1% to put some $NZ in. Are their fishhooks/ conditions/extra fees over the 0% FCA you mention? Thanks in advance

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    Quote Originally Posted by Joshuatree View Post
    GTM3442
    "If I was a New Zealander and convinced that the NZD/USD rate was due to fall, I would be looking at a 0% foreign currency account"

    Hi GTM, re the 0% account above ,ive been offered a $US account paying 1% to put some $NZ in. Are their fishhooks/ conditions/extra fees over the 0% FCA you mention? Thanks in advance
    I just keep various currencies in accounts with CBA in Australia. The Australian government guarantees the deposits, CBA don't pay me any interest, and I don't pay CBA any fees. It seems like lose-lose all round, which is good enough for me.

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    Quote Originally Posted by GTM 3442 View Post
    If I was an Australian looking at Term Deposit rates, I would be finding that 2.7% on offer in New Zealand quite attractive:

    https://www.anz.com.au/personal/bank...fees-terms/#td

    I have some Australian term deposits coming due this month, and those AUD sure won't be going back into bank TDs. They'll be going into an Australian government bond ETF, current yield +/-2.75%, maintaining the current asset class allocation and currency profile.

    If I was a New Zealander and convinced that the NZD/USD rate was due to fall, I would be looking at a 0% foreign currency account - possibly in Australia to take advantage of the government deposit guarantee scheme. I note that Betashares are forecasting an AUD/USD rate of $0.62 later in the year, and the NZD has a strong tendency to follow the AUD.

    As far as fees, charges and the like go, the New Zealand financial services industry may have become dramatically cheaper over the past 25 years, but it remains ridiculously expensive and overpoweringly entitled, and the options for investment outside New Zealand may be cripplingly limited, but those are, sadly, the rules of the game.
    Yes they are rules of the game according to NZ's FMA. Interestingly, they're imposing foreign brokers 'who provide services to NZ residents, AND if these firms offers derivatives / options / FX in their business, then they must be 'licensed by the FMA' in order to deal with NZ clients. This is sound a bit extreme and I remember globally how bad it was when the US imposed FACTA around the world. It's 1 thing to ask banks to report to the IRS for tax reporting on their US citizens but, to say to foreign sovereign nations that they're doing things illegally by serving to NZ clients?

    As a matter of interest, here is cash deposit schedule at TDAmeritrade. FDIC insured and funds that are simply left in the account (ie. not actioned to be put in a term deposit):

    https://imgur.com/ONv1ZXc

    Canada use to have similar fee schemes by their brokers, circa in the 80s and early 90s. It could not of lasted long being next to the US but in NZ's case, I highly doubt it would change much. Not with FIF which distorts the global investment field.

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    Quote Originally Posted by peat View Post
    if you (or your proxy) really cant accept the rates offered by a Trading Bank then another option is to lend to NBDT's, Non Bank Deposit Takers. Finance companies as such, and there are higher rates available with perhaps not so much risk as you thought. You could examine the reports of say Liberty or General and see what you think...
    I'm in a similar situation: cash heavy, which is a good place to be right now, I reckon. Until recently, I was invested with Liberty Financial at good rates (4.4%) but it was due to drop to 3.4% on renewal, so I took the cash. I'm sure they'll be fine, but Liberty's BBB- rating wouldn't let me sleep at night in these uncertain times. Now I'm looking at commercial property and/or NZX shares, but in no rush to jump into either. I can see all the world's markets re-visiting their March lows before we work our way out of this recession, even NZ.

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