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  1. #1
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    Default How Do I: invest in overseas index fund

    Hi

    We are considering investing in an index tracking fund. I like the looks of Vanguard (https://personal.vanguard.com/us/fun...tExt=INT#tab=0) but may consider others as well.

    One of the reasons I like it is because it has a really low fee, 0.18%. And for right or wrong I would like to invest in a passive index tracker rather than in a managed fund.


    My question is: how do I go about doing this, and what are the tax implications and requirements (if any).

    Do I need to use a NZ broker or similar? Or can I invest directly, or do I need to do something else?


    I saw that Craigs Investments lets you invest in it through them, but they charge 1.25% for the privilege (!) so I was thinking of going it alone.

    The purpose of this investment is to invest a chunk of money we have been putting away each week into bank deposits for our young son for his future (uni or similar). He's only 2 now, so it is a long term investment, and is for his rather than our benefit. Not sure if that changes anything re tax.

    Thanks in advance

    Andy C
    Last edited by andrewfreestuff; 07-04-2014 at 04:26 PM. Reason: typos etc

  2. #2
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    Hey mate, the easiest way to invest into low cost index funds like Vanguard and Blackrock (iShares) is through their ETFs listed on the ASX. You can buy shares in these through any NZ broker like ASB Securities or Direct Broking. If the purchase price of your shares in an ETF is greater than 50k then you have to deal with Foreign investment fund (FIF) tax, otherwise you only have to pay tax on the dividends like normal. They only direct credit dividends to Australian bank accounts but will send a cheque to NZ investors.

    If you want simple then check out Smartshares, they have ETFs for the NZ and Aussie markets, and you can drip feed money in each month with no brokerage charge. They get flak because their fees are high compared to overseas ETFs but they're still way cheaper than managed funds, which I think are a complete rip in NZ.

    This is pretty brief and I could go on but that's a start for your own research. Also you should think about opening a Kiwisaver account for your son.

  3. #3
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    I concur with what Kaspar has written. Smartshares in NZ are good but they only focus on the NZ and Australian markets. Buying through the ASX is with a discount broker would seem to be the cheapest way to go purchasing your Vanguard unless you are able to open a brokerage account in the foreign jurisdiction in which they operate.

  4. #4
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    What is the liquidity like of these NZ and Australia efts?

  5. #5
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    Kaspar is quite correct. ASX is the best choice using a discount broker. Also this eliminates custodial fees if you use other exchanges. It is extremely disappointing that NZX has no other ETF products. I phoned them they show little interest in adding more products. On the ASX there is a list of ETF products available. In the US it is amazing how the brokerages are so low but too complicated to access from NZ.

  6. #6
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    Many thanks to all those who have replied, greatly appreciated I will contact ASB and find out how I can go about investing in these on the ASX.

    As the purpose of our saving is for our son's future usage rather than our own, I assume they need to be in his name so that they are taxed at his rate? If so I guess I will need to set him up at the shareholding register.

    This FIF tax was unknown to me before Kaspar mentioned it. At this stage we only have 10k to invest, but can I ask a theoretical question: lets imagine we get up to having $40k invested in these ETFs over the next 10 years, and lets also imagine my son ends up with say $20k in his kiwisaver (or any other NZ based managed account) of which most is invested overseas - assume he now has more than 50k invested in overseas funds and shares. Would that mean we now have to deal with FIF, or are kiwisaver / NZ based managed funds excluded?
    Last edited by andrewfreestuff; 08-04-2014 at 11:30 AM.

  7. #7
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    Quote Originally Posted by blackcap View Post
    Buying through the ASX is with a discount broker
    If I understand it correctly, ASB will charge us 0.3% to invest in the Vanguard product on the ASX. As I plan to split our $10k investment 50:50 into the US only and everywhere-but-US ETFs on the ASX (Vanguard do actually offer a fund that is fully worldwide, but its not on the ASX) it will be $60.

    What sort of rates does a discount broker charge, and how do you go about finding one? At $60 this may be a worthless question, but it could be useful to know for the future.

    Cheers

  8. #8
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    Quote Originally Posted by Corporate View Post
    What is the liquidity like of these NZ and Australia efts?
    Your looking at 10's of thousands dollar turnover for the Smartshares ones compared to millions for the larger ASX listed ones. FNZ is the largest ETF on the NZX and has the best liquidity by far compared to the rest of the NZ listed ETFs. I think yesterday turnover was approx 184k for FNZ.

  9. #9
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    Quote Originally Posted by andrewfreestuff View Post
    This FIF tax was unknown to me before Kaspar mentioned it. At this stage we only have 10k to invest, but can I ask a theoretical question: lets imagine we get up to having $40k invested in these ETFs over the next 10 years, and lets also imagine my son ends up with say $20k in his kiwisaver (or any other NZ based managed account) of which most is invested overseas - assume he now has more than 50k invested in overseas funds and shares. Would that mean we now have to deal with FIF, or are kiwisaver / NZ based managed funds excluded?
    Great question. I think all Kiwisaver funds are PIE, and PIEs are exempt from FIF. A quick google search brings up this, check page 1: http://www.coombesmith.co.nz/files/d...ds%20rules.pdf and the IRD website mentions it on question 3 if you go through their FIF check: https://www.ird.govt.nz/toii/fif/workout/

    Quote Originally Posted by andrewfreestuff View Post
    If I understand it correctly, ASB will charge us 0.3% to invest in the Vanguard product on the ASX. As I plan to split our $10k investment 50:50 into the US only and everywhere-but-US ETFs on the ASX (Vanguard do actually offer a fund that is fully worldwide, but its not on the ASX) it will be $60.

    What sort of rates does a discount broker charge, and how do you go about finding one? At $60 this may be a worthless question, but it could be useful to know for the future.

    Cheers
    That brokerage charge looks about right, although you will also get charged on FX as you are buying shares in Aussie dollars, this rate will obviously depend on the day. ASB and Direct are discount brokers

  10. #10
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    I have done a little more research into investing in Vanguard, and thought I would post some findings here in case any other newbies like myself find them helpful. To me, finding out about the pitfalls has been the most useful bit of this whole exercise

    The background

    1. Vanguard is a US based investment firm that offers a multitude of index tracking (passive) funds with really low fees, for example one I looked as was 0.10% ! (yes, you read that right).

    2. You may be able to invest in Vanguard directly somehow, but probably need a US broker and US bank account. I haven't found a way to do this, I made enquiries with ASB Securities and they said they cannot help me do this.

    3. You can however invest in Vanguard ETFs (exchange traded funds) on the ASX. ASX traded stocks/funds have been set up that basically just invest in the Vanguard products, and you can buy and sell these on the ASX.

    4. The ASX only offer a subset of the Vanguard ETFs, with a bias towards Australian funds. You cannot get access to all the Vanguard products. There are a few US and international ETFs there though.


    The pitfalls (if anyone wants to expand on this I think it would be really helpful to those of us who are new to this game)

    1. As the investment is a US fund you will be subject to the FIF tax and will need to sort this out with IRD yourself. My understanding of the ins and outs of this is very low, but it boils down to assuming you made a 5% gain on the value of your investment and making you pay tax on that (if you can prove you made less than this, including capital gain, you can pay tax on the lesser amount). You are exempt however if you have less than $50,000 invested in overseas funds.

    2a. As the ETF you are purchasing is on the ASX there is some foreign exchange risk, it is possible the exchange rate between OZ<-->NZ will not go in your favour. Plus the actual Vanguard fund itself is in US currency and not hedged to $AU, there is foreign exchange risk between Oz<-->US as well. So overall there are a couple of exchange rate risks in play between you and your money US<-->Oz<-->NZ

    2b. The Australian Vanguard does offer a managed fund with really low fees that is hedged to the NZD, but it has a minimum $500,000 investment. Massively outside my ability to access.

    3. Tax is paid on the dividend in Oz, but you will have to pay tax again here in NZ, so you get taxed twice [does anyone have a different view on this???]

    4. You have to take the dividend, there is no reinvestment option available. The dividend can be paid into an Oz bank if you have one, or you will get an Oz cheque. There might be a cost in clearing an Oz cheque.

    Does anyone else have any tips/pitfalls to add?

    Cheers
    Andy

  11. #11
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    With so many platforms available right now IB, SAXO etc I would rather trade US ETFs due to liquidity issues and various options you have in the ETF field. You can always hedge your currency risk on the same platform but this will depend on the amount exposed.

  12. #12
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    bluesman please can you explain these platforms are there costs involved and where do we find them.
    andewwfreestuff, a good summary, I too wish to involve investing in vanguard. This is so difficult from NZ. Of course you can do this thru a full broker but you will need to hold products in custodial services and likely to be charged a brokerage fee of 1.5%

  13. #13
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    http://www.nzherald.co.nz/business/n...ectid=11234951

    For those considering a Vanguard ETF, you are not the only one.

  14. #14
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    I contacted nzx today they will be offering a global eft within a year

  15. #15
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    Quote Originally Posted by voltage View Post
    I contacted nzx today they will be offering a global eft within a year
    '

    Is that under the smartshares umbrella Voltage? I did call smartshares a few months ago and they were musing such an issue.

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