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