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  1. #1
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    Default ETF Investment Strategy

    Hi All,
    As we are in lockdown I wanted to take the opportunity to ask other sharemarket investors some questions.. Note - I've worked in banking / finance sector and have been active property investor for ~2 decades, and have learned a lot being an active investor. I consider myself an expert on property, having owned residential property throughout NZ and commercial property. However when it comes to shares I'm no expert. I know that I don't want to invest in individual shares and I prefer and enjoy investing in ETF's.

    Due to raising 3 young kids and with all the Gov't changes, I'm over tax changes and tweaks Govt will likely continue to make. I have been investing in Australasian and US share ETF via Smartshares since Covid hit last year. I'm going to continue to focus on passive path to building wealth. I'm very comfortable holding at least 80% of my wealth in shares and 20% cash long-term.

    My kiwisaver is with Superlife high growth fund. As these funds are managed by Smartshares (owned by the NZX) it makes me think about the possible risks of investing more in Smartshare ETF (i.e. not diversifying providers in case something was ever to happen to the NZX?). ie Would you be comfortable having most of your wealth with 1 financial provider in Smartshares/Superlife?

    I recently was recommended and read the book by Jim Collins (simple path to wealth) about investing solely in Vanguards VTI index long-term (I'm aware this is only US exposure). However the simple path really does resonate with me, in that I only want to invest in a few ETF funds for the long-term, ride out the bull and toughen up with the bear market hits. (I do currently own some Vanguard VTI and Smartshares US500 via Sharesies platform outside of Kiwisaver. I also have Hatch platform owned by Kiwi Wealth). Last week I attended Kernel Wealth seminar (low cost ETF provider) which was very interesting to consider as ETF provider.

    That is the background. My questions are:
    If you were to invest (next 10 years+) and you were to only choose 1-4 funds MAX in ETF what funds would you invest in, using what platform and what % percentage allocation in each?

    Would you be comfortable investing only in Vanguards VTI and if so what provider / platform would you use?

    Do you have a preference over owning the same ETF/shares on the ASX to the NYSE?

    Are you comfortable investing in Smartshare Funds (paying 0.2% - 0.5%+) in management fees (which to be honest is a drag on your return over the long-term?)

    OR would you invest Directly in likely Vanguard / iShares on ASX (e.g. Sharesies) or NYSE via Hatch where fund fees are as low as 0.3 over the long-term this adds up. (I am aware of the FIF / FDR rules for overseas investments for more than $50K etc).

    I'm really wanting a simple set and forget investment strategy so I can continue regular investing while I'm working full time with no debt.

    I would appreciate any thoughts on above queries.
    Kind regards.

  2. #2
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    Default

    I'm no expert and this isn't financial advice, I could be incorrect in my understandings and am open to being corrected.
    If you want set and forget you don't want to exceed the FIF 50k de minimis exemption. FIF tax calculations can be a hassle. That 50k of FIF tax exempt investments is your most tax efficient way of investing in low dividend yield stocks/etfs that tend to be found in the USA. That's 50k NZD of cost not value, so long as your under that you just pay tax on dividends. I invest in ETFs also, and consider filling up that 50k limit to be my first priority.

    As far as I'm aware ASX listed ETFs count towards that precious FIF amount. Additionally ASX ETFs must pay out any realised capital gains (from rebalancing etc) as dividends so some capital is paid out as dividends. They aren't very tax efficient so I personally avoid them altogether.

    My allocation would be:

    $49,990 NZD of VOO, VTI, QQQM or whatever USA etfs you like best. (I prefer QQQM as tech exposure is hard to get in NZ/AU markets)
    Everything after that into NZX listed etfs and managed funds, eg NZG, USF.
    The smart shares Australian funds are fine, but I avoid NZX:AUS as it holds 100% of assets as the etf ASX:IOZ and so pays FIF on its holdings. You lose 1.85% every year from tax + management fee, not including the fees and taxes incurred by holding IOZ.

    Cheapest platform to buy NZX listed ETFs is Sharesies, fees are 0.5% for first $3000 of an order and 0.1% for everything after. If you want to hold them in your own name you can transfer out from their service for $5 per holding. For foreign investments (eg NYSE) I use Interactive Brokers, not certain if it is the cheapest but it is very cheap regardless especially on currency exchanges compared to Sharesies (who charge 0.4% fee for currency exchange).

  3. #3
    Member
    Join Date
    Apr 2020
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    New Zealand
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    Default

    A lot of questions, I don't buy ETFs for a multitude of reasons, but I'll answer a couple with my 2 cents:

    * If someone is clipping the ticket, I want them to add more value than I'm paying them (think Morrisons with IFT or Fisherfunds with MLN, BRM). A lot of "smartshares" funds, they are not adding any investing knowledge nor value e.g. e.g. US500 is just VOO with 0.34% added on!

    * 10 years plus I absolutely 100% want the shares/ETF in my own name, not owned by someone else (e.g. you don't own the shares in your name with Sharesies!)

    * Again, given the 10 year timeframe, I want some exposure to emerging markets rather than established markets as I see them performing better.

  4. #4
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    Dec 2018
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    Whanganui
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    70

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    Quote Originally Posted by GRADS View Post
    Hi All,
    As we are in lockdown I wanted to take the opportunity to ask other sharemarket investors some questions.. Note - I've worked in banking / finance sector and have been active property investor for ~2 decades, and have learned a lot being an active investor. I consider myself an expert on property, having owned residential property throughout NZ and commercial property. However when it comes to shares I'm no expert. I know that I don't want to invest in individual shares and I prefer and enjoy investing in ETF's.

    Due to raising 3 young kids and with all the Gov't changes, I'm over tax changes and tweaks Govt will likely continue to make. I have been investing in Australasian and US share ETF via Smartshares since Covid hit last year. I'm going to continue to focus on passive path to building wealth. I'm very comfortable holding at least 80% of my wealth in shares and 20% cash long-term.

    My kiwisaver is with Superlife high growth fund. As these funds are managed by Smartshares (owned by the NZX) it makes me think about the possible risks of investing more in Smartshare ETF (i.e. not diversifying providers in case something was ever to happen to the NZX?). ie Would you be comfortable having most of your wealth with 1 financial provider in Smartshares/Superlife?

    I recently was recommended and read the book by Jim Collins (simple path to wealth) about investing solely in Vanguards VTI index long-term (I'm aware this is only US exposure). However the simple path really does resonate with me, in that I only want to invest in a few ETF funds for the long-term, ride out the bull and toughen up with the bear market hits. (I do currently own some Vanguard VTI and Smartshares US500 via Sharesies platform outside of Kiwisaver. I also have Hatch platform owned by Kiwi Wealth). Last week I attended Kernel Wealth seminar (low cost ETF provider) which was very interesting to consider as ETF provider.

    That is the background. My questions are:
    If you were to invest (next 10 years+) and you were to only choose 1-4 funds MAX in ETF what funds would you invest in, using what platform and what % percentage allocation in each?

    Would you be comfortable investing only in Vanguards VTI and if so what provider / platform would you use?

    Do you have a preference over owning the same ETF/shares on the ASX to the NYSE?

    Are you comfortable investing in Smartshare Funds (paying 0.2% - 0.5%+) in management fees (which to be honest is a drag on your return over the long-term?)

    OR would you invest Directly in likely Vanguard / iShares on ASX (e.g. Sharesies) or NYSE via Hatch where fund fees are as low as 0.3 over the long-term this adds up. (I am aware of the FIF / FDR rules for overseas investments for more than $50K etc).

    I'm really wanting a simple set and forget investment strategy so I can continue regular investing while I'm working full time with no debt.

    I would appreciate any thoughts on above queries.
    Kind regards.
    I have some funds with various Smartshare ETFs. The management fee is to some extent offset by the fact that these are all PIEs in NZ, subject to tax at a maximum rate of 28%. This is ordinarily both better and easier than the FIF tax rules

    In your situation I'd be tempted to move my Kiwisaver to another provider for the sake of diversity
    Last edited by JeffW; 21-08-2021 at 01:25 PM.

  5. #5
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    Join Date
    Jun 2015
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    Default

    hey guys, thanks for the replies so far! I will digest properly once the kids are tired out
    yes sorry for lots of questions.. I'm passionate about personal finance and I suppose its like property investment you have to get the 'entity right first' so your foundation is sorted.

    I have just found out that as my sharesies account is owned by 'family trust' that FIF rules apply now. so I will be selling these asap I think and put in personal account.

    Jeff.. thank you.. that makes sense that I change my kiwisaver before most my wealth may be with superlife/smartshares ownership. I didn't even consider this.. i know simplicity has the lowest fund costs.

    Just reading this forum today.. I have seen that holdings can be transferred out of sharesies.. I have an inactive 'asb securities' account that I just logged into.. so that's good to know that I can transfer holdings simply in the future thank you.

    Monarch.. thank you I like that simple approach to invest most of the $50K into VOO / VTI etc. I think this year I have invested ~20K into foreign funds, so I will work out the balance and when right I will invest the balance e.g. $30K left into VTI or similiar

    Does anyone own their shares in 'trust' entity.. I have always operated a trust (although it doesn't provide same protection as in past) it is still good for asset protection, tax minimisation succession planning etc.

    and thanks for this tip!! The smart shares Australian funds are fine, but I avoid NZX:AUS as it holds 100% of assets as the etf ASX:IOZ and so pays FIF on its holdings. You lose 1.85% every year from tax + management fee, not including the fees and taxes incurred by holding IOZ.

    Right back to kids.. Thanks again!

  6. #6
    Senior Member
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    Nov 2018
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    Christchurch
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    Many have read my views in the forum about the gross inequity of NZ's taxation among different asset classes. I'm glad you've brought up the issue of taxation (PIE/KS/FIF RWT) because this is a VERY lacking subject when you walk into the office of a NZ financial advisor. They are quick to recommend a 'good tax accountant' so they can clip the ticket and pile on the charges. For 1 financial advisor I spoke to in Christchurch, her angle was to use all these expenditure (monthly financial advice fees, tax accountant fees, etc) as a tax write off deduction on the investment gains ; much like in a business sort of way. Certainly not something I would be comfortable with.

    What Monarch has done by maxing out the $50K FIF exemption is what i've been giving as advice to my friends and neighbours. For a married couple that's nearly $100K that they can use to invest abroad directly and not be subjected to capital gains tax. If you have a 40 year time frame, that $100K initial capital investment could grow into something considerable into 7 figs easily. When you compare this approach to say Kiwi Saver, for eg., at the minimum one gets under KS that is earning $100K/year income is a measly $6K investment into the managed fund. Then you net off the fees and taxes in how these KS / PIE funds operate, it will go to show the net-tax return may not be so hot when you compare the $50K approach being exempted from FIF. Of course it's been argued that not many people have $50K to invest and most would rather use that as a deposit towards their 1st home.

  7. #7
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    Quote Originally Posted by Norwest View Post
    A lot of questions, I don't buy ETFs for a multitude of reasons, but I'll answer a couple with my 2 cents:

    * If someone is clipping the ticket, I want them to add more value than I'm paying them (think Morrisons with IFT or Fisherfunds with MLN, BRM). A lot of "smartshares" funds, they are not adding any investing knowledge nor value e.g. e.g. US500 is just VOO with 0.34% added on!

    * 10 years plus I absolutely 100% want the shares/ETF in my own name, not owned by someone else (e.g. you don't own the shares in your name with Sharesies!)

    * Again, given the 10 year timeframe, I want some exposure to emerging markets rather than established markets as I see them performing better.
    You got that right!!! Exactly the issue what i've expressed in this forum in the past around buying NZ based funds that buy nothing but Vanguard's ETF. As a matter of interest Vanguards entire family of ETFs has an average annual mgt fee of 0.08% So when a person sits in the office looking at this financial advisor, and they start discussing fees, are they really being 'transparent'? This would be a definite NO or they simply say that's how the funds present themselves and the NZ FMA doesn't do a good job enforcing such rip offs.

    If you can find your way to establishing an overseas brokerage account, you can own the ETFs directly in your name. Don't let the haze of the FMA illusion you into thinking these brokerage firms are risky because they're not registered by the FMA. When these brokerage firms grow to $100B or $200B in size, you will know they are bigger than any bank in NZ/Australasia, that bankruptcy is less likely than any of the of the NZ banks or brokers going bust here.

    Are ETFs great? They certainly are when you find the right ones. But don't my advice on it. You question Jack Bogle why he pioneered his Vanguard funds to have the lowest mgt fees in industry? You question why Warren Buffet tells the layman person that buying the S&P500 index will serve them better than using some fancy hedge fund manager. It amazes me how in NZ industry, the salesmanship selling financial packages to would be investors is no different to going to a car salesman. In order to be trusting you need to be transparent, in order to achieve the overall end return amount, you need to consider taxation, and equally important you also have to consider estate planning. Where I come from (Canada) all these issues are part of the CFP designation for providing financial advice.

    So what kind of strategy we are going to have from now on? I've mentioned this before many years ago pre-Covid that the stock market is riding pretty high so it may be wise to wait and see for a pull back or a crash. Of course no one really know when the next crash will be but the DOW is at 35K, the S&P is under 4500. We are talking stellar record highs.

    One think certain as I told my neighbour, you need to have the brokerage account ready and the fund there loaded. There's no point to watch a crash when it could take many weeks to get a fully funded brokerage account going.

  8. #8
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    thanks SBQ! its makes sense that my partner and I first max out the $50K FIF rule first.

    I'm wanting to stick with a simple diversified EFT strategy with only 3-4 funds that I will stick with long time.

    I appreciate any comments! Cheers
    Last edited by GRADS; 23-08-2021 at 07:20 AM.

  9. #9
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    "COPY LINK
    OPINION REVIEW & OUTLOOK
    Calling Out ‘Emperor’ Larry Fink
    Charlie Munger says what many CEOs think but decline to say.
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    By The Editorial Board
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    When you’re 98 years old you can say things others can’t, so bravo to Charlie Munger for daring to speak an important but too muffled truth about today’s financial markets. “We have a new bunch of emperors, and they’re the people who vote the shares in the index funds,” Warren Buffett’s Berkshire Hathaway partner said Wednesday. “I think the world of Larry Fink, but I’m not sure I want him to be my emperor."
    https://www.wsj.com/articles/calling...40?mod=itp_wsj

  10. #10
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    @kiora: WSJ link blocked with a pay subscription popup.

    He's referring to Larry Fink of the hedge fund Blackrock which has recently been buying up real estate all over the US. Because of their large status, Munger is saying that they've become too large that they no longer play the typical role of finding the best return for their shareholders. Hedge funds being so large that they continue to attract large amounts of capital, too much money to have such as SPAC funding, where the CEO's of companies they invest in, no longer play a simple role. They become the majority shareholder of the company and can undermine the CEO's job and direction of the company by ie. placing their own board of members into the invested company.

    However, i'm not so fond of what Munger has been saying recently. I feel he's going to be wrong in many instances. For eg he's been wrong about Tesla, and I think he may be wrong on his massive investment in Alibaba. At his age, it probably doesn't matter. Another thing is the status he's achieve came mostly from being Warren Buffet's right hand man. I doubt he would achieve anything close to what Buffet alone has achieved as far as investment returns.

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