Simplicity cease offering on InvestNow… but don’t let it stop you

Last Friday I wrote about investing Simplicity non-KiwiSaver fund via InvestNow from as little as $250.

However, I am sorry to say this opinion is no longer available. Simplicity decided to cease offering on InvestNow.

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You can read the statement from InvestNow here.

I am personally disappointed as this is a great way for anyone to invest in a quality low-cost fund with a low initial investment. I was planning to invest in Simplicity fund but I don’t have the fund until next month, so I missed out on that.

What does it mean for the investors?

If you are InvestNow user and you already invested your money into Simplicity fund via InvestNow, you will be able to hold your investment in the fund, but you will not be able to make new investment.

For those who wanted to join Simplicity Fund but don’t have $10k available, you will have to keep saving until you reach $10k…. or not. Hear me out!

Don’t wait, Start NOW!

If you have some money to invest now, you don’t have to wait. I would suggest you invest those fund elsewhere rather than save for months and years to reach $10K.

I know Simplicity fund is excellent, and I may even say it’s the best fund in this country. However, that is just the best fund when you have $10k or more. It doesn’t mean you can’t invest in anything else before you come up with $10K.

You can invest in Superlife 80, which is similar to Simplicity growth fund. Superlife 80 holds 80% growth asset (Share, property) and 20% income asset (Bond, cash). They also invested in Vanguard fund and ETF. Superlife a higher management fee (0.50%) and small annual fee ($12). The most important thing is there is no minimum initial investment requirement. If you are young and happy with the risk, you can go with Superlife 100, a managed fund with 100% growth asset, something Simplicity do not offer.

If you already put the money in InvestNow, you can invest in their Vanguard fund with just 0.26% fee. Simplicity Growth invested 60% into that fund (and you will have to pay tax on dividends received). I’ve done a blog post on that.

My point is, there are lots different opinion for investor out there. Don’t let that $10K hurdles stop you and start investing. You will reach $10k before you know it.

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Do you need KiwiSaver if you plan to retire early?

(This post contains the concept of  Financial Independence & Retire Early (FIRE), and terms like 4% withdrawal rate that may sound confusing. If you like to know more, jump to the end of this blog post for more information.)

When we approaching June in New Zealand, you can see lots of personal finance articles tell everyone to put in some money into their KiwiSaver and get the free money. I want to focus on a group of people who is working toward financial independence and wants to retire early. They may think since they are planning to retire way ahead of 65, KiwiSaver is irrelevant to them. They could be in KiwiSaver, but not sure if they should include KiwiSaver as part of their financial independence plan.

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Return on your KiwiSaver contribution

If you wish to live off your saving and investment, you ought to find the best return on investment out there. For KiwiSaver, your employer has to match your 3% contribution, and some employer may go higher. That’s 100% return on investment!

The government also provide KiwiSaver member tax credit for the first $1042.86 contribution from you each year (not counting your employer contribution). The Government will pay 50 cents for every dollar of member contribution annually up to a maximum payment of $521.43.  That’s 50% return on your first $1042.

If your wife/husband/partner is not working and you are working full time, you should consider contributing $1042 into their account as well. Those credits are risk-free and guaranteed.  It is hard to find such return on the market with basically no-risk.

Locked until 65

Some people think the big problem of KiwiSaver is you cannot access the fund until you turn 65 or to buy your first home. For the people who are planning an early retirement, they like to put every dollar into their investment so the investment can generate enough income to support their living expenses.  They don’t count on KiwiSaver and NZ superannuation to retire. However, you should still put money into your KiwiSaver.

One simple question: Do you plan to live beyond 65? If yes, then you should contribute to your KiwiSaver because it’s your money! You will spend on your investment before 65, and you will still spend on your investment after 65. The KiwiSaver fund is just one of your investment funds, and you don’t draw on that fund before 65, it will still help you to achieve your financial independence.

KS Before and After

Include KiwiSaver fund into your early retirement number

Look at the graph below. We assume you need 1 million portfolios to retire early, $300k in KiwiSaver and $700k in a normal investment fund. Your annual withdrawal rate 4%.Blank Diagram - Page 1(1).jpeg

You just need to stack up your investment and put KiwiSaver at the bottom and only draw the fund at the top. You keep drawing your non-KiwiSaver investment fund before you turn 65 and let your KiwiSaver Fund untouched. Yes, your non-Kiwisaver fund may get smaller and smaller (depends on your withdrawal rate) because you are drawing $40K (4% of 1 million) on a 700k investment fund. However, your KiwiSaver fund will keep growing. When you reach 65, you can draw from both funds.

Therefore, you should keep contributing to your KiwiSaver and include KiwiSaver as part of your early retirement plan.

Don’t over contribute into KiwiSaver

The key is you should not put too much into your KiwiSaver. You don’t want your non-KiwiSaver fund run out of money before you reach 65. Although it’s unlikely but possible.

Let’s assume you are 40 years old and have 1 million investment portfolio. You plan to draw 4% on your investment every year for living expenses. The expected return on investment is 6%. However, for some unknown reason, 70% of your investment are in KiwiSaver, and only 30% of your investment are in non-KiwiSaver Fund. You can only draw from your non-KiwiSaver fund before you turn 65.

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By age 48, your total portfolio growth to 1.24 million but your non-KiwiSaver fund ran out. Most of your money are locked in KiwiSaver, and you are 17 years away to access them. You need to go back to work.

To avoid that, you just simply contribute up to wherever your employer will match and enough to get the member tax credit every year. Put all extra cash into your non-KiwiSaver investment, including paying off mortgage, shares, bond, property, etc.

Now, if we reverse that situation and put 30% investment in KiwiSaver, 70% in non-KiwiSaver. That non-KiwiSaver fund will least 30 years. Here is the how the fund works.

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How long will you non-KiwiSaver fund least?

I actually worked out the formula on how many years your non-KiwiSaver fund will least base on percentage of your portfolio in KiwiSaver. The graph was based on 4% withdraw rate. KS empty at 4.png

X is the percentage of your KiwiSaver and Y is the number of years will your non-KiwiSaver fund last.

If your Kiwisaver is about 18% of your total investment and you are 28, do you need to worry? Using that formula y = -24.61(0.18) + 0.3429, y =42.5. Your Non-Kiwisaver fund will least 42.5 years, by the time your non-KiwiSaver fund runs out, you are already 70 years old.

If you plan to retire at age 38, you will have to draw on your non-KiwiSaver fund for 27 years. Using that formula 27 = -24.61 In(x) + 0.3429, x = 33.85%. So your KiwiSaver needs to be less than 33.85% of your total investment portfolio.

That formula only works with 4% withdraw rate. You can work out how long will your non-KiwiSaver fund least with your own figure. Check out this google sheets. Make a copy and play around.

Conclusion

  • KiwiSaver is a great investment with a high return on investment due to employer match and government tax credit. It is one of the best investment in New Zealand.
  • You should contribute toward your KiwiSaver to achieve Finacial independence and include your KiwiSaver amount into your equation.
  • Do not over contribute into your KiwiSaver.
  • If you are employed, you should contribute up to your employer match and no more.
  • If you are self- employed, just put in $1042.86 to get your $521.43 tax credit every year.
  • All extra cash goes into non-KiwiSaver investment.
  • If you are not retiring extremely early (in your 20s) and your KiwiSaver is below 20% of your total investment portfolio, you will be alright.

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About FIRE

If you want to know more about Financial Independence & Retire Early, I will cover that in the future. Meanwhile, Check out the link below.

What is Financial Independence & Retire Early (FIRE)

The Shockingly Simple Math Behind Early Retirement

The 4% Rule: The Easy Answer to “How Much Do I Need for Retirement?”

Kiwi Mustachians – New Zealand FIRE community (Facebook Group)

Email thesmartandlazy@gmail.com or follow me on Twitter @thesmartandlazy if you have any questions.

Investnow – Invest in Vanguard fund with 0.20% fee

Investnow is a new online investment platform and fund management service just started this year in New Zealand. It is NOT an investment firm but a marketplace for investment funds. Kiwi investor can directly invest into the selected fund on investnow platform without the middle man. I’ve done some research on the company and invested some money via the service. Here are my findings.
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Range of Fund

Investnow offers 33 different investment funds from both local and international fund manager. The investor needs to deposit minimum $1000 $250 into Investnow transaction account and invest into the fund on their platform at $250 minimum.
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Here is the list of the fund provider
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No Transaction/Admin/Joining/Setup/Exit Fee

The main selling point for Investnow is no transaction/admin/Joining/Setup/Exit fee at all. When you put $1000 $250 into Investnow, Investnow won’t charge anything on your money. You can invest that full $1000 $250 into different funds. You only need to pay the cost of each investment fund.
Investnow made their profit by charging investment fund providers to list their funds on their platform.

The REAL selling point

Since investor can contact most of those investment funds directly and set up an account, no transaction/admin fee is not a real selling point here. For me, the real selling point for Investnow is low barriers to entry and Vanguard fund.
If you want to invest into those funds directly without Investnow, the majority of those funds have a minimum initial investment amount from $2000 to $500000. For example, Fisher Fund’s International Growth fund require minimum $2000 initial investment and Mint asset management’s Australia New Zealand Real Estate Investment Trust minimum investment is $5000. If you invest from investnow platform, you can put only $250 into those funds. It dramatically lowers the entry requirement for those funds and makes it more accessible to the average retail investor.

Vanguard fund

Vanguard

The most significant benefit with investnow (for me at least) is you got access to Vanguard International Shares Select Exclusions Index Fund. That fund launched for AUS and NZ market in late 2016. It contains about 1500 listed companies across 20 developed international markets (without Australia). This fund is an ethical fund as they excluded Tobacco, controversial weapons and nuclear weapons investment.
Simplicity Kiwisaver invests heavily into this Vanguard fund. 61% of Simplicity Growth fund invested in Vanguard International Shares Select Exclusions Index Fund.
There are two versions of this fund. Vanguard International Shares Select Exclusions Index Fund has a low managed fee at 0.20%. The Fund is exposed to the fluctuating values of foreign currencies, as there will not be any hedging of foreign currencies to the Australian dollar. So this fund has a higher risk due to foreign exchange fluctuation. Vanguard International Shares Select Exclusions Index Fund – NZD Hedged are hedged in New Zealand Dollar with a higher management fee at 0.26% but with lower risk.
For individual investors, if you want to invest into this fund directly, you will have to start with $500,000 AUD. Investnow lower that entry barrier down to just $250. In my opinion, this is a great fund to invest because of the low-cost, diversified portfolio and low barriers to entry.

Everything sounds good, so what’s the catch?

Yes, there one thing not so good about Investnow. You’d need to do your tax return if you invested in Vanguard funds.
Admittedly, I am not good at tax. So the following information may be wrong.
From what I understand, those two Vanguard funds are not the same with other listed fund on their platform as they are not PIEs fund. Vanguard funds are Australian Unit Trusts. Accordingly, they are taxed under the FIF rules (that apply to global shares). Investors need to do their own tax return. Investnow produces consolidated tax information to help investors to complete their own FIF tax return.

My Experience

After some research and background check on the company, I invested $1000 into Investnow and tested it out.
The sign-up process was quite simple; I managed to complete in 5 mins. The interface is easy to understand. The funding and investing took 1-2 days to complete. You can check out your holding and performance any time.
Check out the screenshots below. 
 
One thing worth mentioning is Investnow use a Two-Factor Authentication for login. You need your username, password and a six-digit passcode that send to your email or phone to log in. I recommend using your phone to received that passcode in txt.

Conclusion

So far I am happy with the Investnow as its allow me to access Vanguard fund with just $1000 $250 investment AND no one charging me extra fees in the middle. The service is straightforward and easy to use. The only concern will be the tax implications on its investor if you invest in the Vanguard fund. (Personally, I need to figure that out before next April.)
InvestNow is free to join. You don’t have to deposit $250 to become a user. You can just sign up with an email address and check out the offering.
Investnow is a new company; some investor will (and they should) question the legitimacy of the company/service and the safety of their investment. I’ve done research on that and I will share that in the next post.
(UPDATE: InvestNow recently lower their minimum deposit amount to just $250.)
Email thesmartandlazy@gmail.com or follow me on Twitter @thesmartandlazy if you have any questions.

How easy to get your money out from SmartShares ETF

SmartShares offer 23 exchange-traded fund (ETF) in New Zealand. They tracked different stock and industry index in New Zealand, Australia, United States and international market. It is an excellent opinion for Kiwis investor due to the low-cost and diversified portfolio. So, how easy to get your money out? (Spoiler alert: Very easy)

ETF is tradable share

ETF is similar to an index fund that tracks an index, a commodity, bonds, a sector or a basket of assets. However, ETF can be traded on the stock market like any other stock. ETF shareholders are entitled to a proportion of the profits, such as earned interest and dividends paid.

Liquidity of shares

Since ETF is a share, i. In order to get the money out, you will have to sell your ETF in the stock market, just like any other stocks. This brings us to Liquidity of a share.

Liquidity means how easy for you to sell your share into cash on the stock market. If lots of people wanting to buy that share and lots of willing seller on the market, the liquidity is good.

We use trade me as an example here. If you are selling a brand new iPhone on trade me at a price closed to everyone else is selling, you will be able to sell that iPhone quickly.  Also, you can use similar amount cash to buy an iPhone on trade me without any problem. So the liquidity of an iPhone is good on trade me.

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However, if you want to sell an expensive and rare antique phone on trade me, it may take months and multiple listing to sell that phone. You may have to lower your price to get it sold. It also hard to find another expensive and rare antique phone on trade. So, the liquidity of an expensive and rare antique phone is bad.

Let’s take a look at Auckland International Airport’s stock info.

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You can see there is lots of buying (Bids) and selling (Asks) order. Lots of trade happened in 13 mins. The different between buy and sell price (a.k.a. Bid-Ask Spread) is only $0.5c.

Now compare that to Delegat Group Limited’s Share.

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There are some buy and sell order, but there was no trade at all. The different between buy and sell price is $10c. There is a seller want to sell 2000 units of share at $6.25, but there is no one taking that offer. If the owner of that 2000 share intends to liquidate the stock quickly, they will have to lower their selling price by $10c to $6.15 to meet the closest bid. That is $200 less on 2000 share.

If you are an owner of Auckland International Airport share, It will be very easy to liquidate your stock in a short time. On the other hand, if you hold shares in Delegat Group Limited, you will have to wait or lower your price for someone to buy your share.
Here is the info on two popular SmartShare ETF, NZ Top 50 and US S&P 500.

 

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Both of them have a good amount of bid/ask and the spread is small. Therefore, the liquidity is good.
Also, there is a market maker for all Smartshare ETF.

Market Maker

A market maker is an investment firm that guarantees liquidity of stock by putting out buy and sells order on the stock market. They make sure investor can always buy or sell the shares.
The Bid and Ask below are the market maker order.
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At December 2014, SmartShares appoints Craigs Investment Partners as the market maker. Craigs will offer two-way quotes of agreed minimum volume and maximum spread for an agreed minimum period of the full trading day. This will cover all current Smartshares ETFs, plus future ETFs launched by Smartshares.

Always ready to sell

With a market maker on all Smartshare product, its very easy to liquidate your Smartshares holding. However, you will need a stock broker to sell your shares. Especially for those who purchase Smartshares via monthly contribution plan since you don’t need a broker account to do that. Smartshare is not an investment fund, they will not cash out the ETF for you. Lots of people don’t know that.
In order to sell your Smartshare ETF, you will need a broker to put your holding on the stock market. You can google “Stock Broker NZ” to contact any broker firm and set up an account. The cheapest way for most people is to use ASB and ANZ securities to trade online. ANZ cheapest rate is $29.90/trade under $15000. However, you have to be an Online Multi-Currency Account (OMCA) holders with sufficient cleared funds available to fully cover the purchase of securities prior to submission of the order. Otherwise, ANZ charge $29.90 + 0.40% on trade. If you are not an OMCA holder with ANZ, go with ASB Securities, they charge $30 or 0.30% per transactions, whichever higher.
If you currently hold SmartShares ETF and don’t have a brokerage account, do it ASAP. You never know when you need to sell you share in a short period. It will take 2-10 days to set up account with ASB and ANZ. If you starting a monthly contribution plan with SmartShares, make sure you open a brokerage account as well.
Email thesmartandlazy@gmail.com or follow me on Twitter @thesmartandlazy if you have any questions.

Investing: it’s only getting easier

I think the hardest part of investing is the beginning. When you are starting out, the return on investment seems minimal (unless you start out with 50k+ lump sum). I started my investment with $500 each in Smartshare and Superlife. I remember the first couple months, returns are under $10 and I lose money in some months as well. However, as I slowly build up my investment by monthly contribution and reinvest my returns, the returns are getting better over time. My portfolio passes its milestone with less and less time. Investing is getting easier
Here is a simulation for someone who investing into a growth asset with $500 a month. The average annual return is 7% and the goal is to reach $100,000. It took 11 years and 2 months to reach 100K
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If you break down the investment by $10,000 block and measure the months it took to reach each one of them, it took less and less time.
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The first $10,000 took you 20 months and the last $10,000 only took you 9 months. It’s just getting easier.
Also, around the 10th year mark, the monthly return on investment actually is more than your $500 monthly contribution.
Overall, you’ve only contributed $66,500. The rest came from the return of your investment. investment easy 3.png
You may think you only got a tiny amount right now, it won’t make a difference. From our example, the first $500 contribution turns into $1,226 at the end. That small $500 contribution is only 0.75% of your total contribution. However, with the power of reinvesting, continues contribution and compounding interest, the return on that first $500 represent 1.23% on the $100,000. So if you haven’t started your investment, start now! That small initial investment could be your biggest return. If you already started, the hardest part is already over, just enjoy the downhill ride.
Also, don’t be afraid to aim for a big number. The path to get there is a lot shorter than you think. Currently, I am only 5% on my investment goal, but I know the hardest 5% is over. Investing, it’s only getting easier.

Cheapest Way to buy and hold NZ Top 50 ETF

I always encourage people to start a small investment with NZ Top 50 ETF and US 500 ETF when they are starting out. Those two ETFs are easy to understand, diversified, low-cost and have low minimum investment requirement ($500). They are ideal for long term (7 years+) investment. So here is the cheapest way to buy and hold NZ Top 50 ETF.

I will be discussing average investment here. I do not include KiwiSaver opinion here because you can’t get the money out before 65. (Anyway, ETF still an excellence option for KiwiSaver, especially for anyone aged under 50)

What is NZ Top 50 ETF?

Quote from Smart Shares Web Site:

The NZ Top 50 Fund invests in financial products listed on the NZX Main Board and is designed to track the return on the S&P/NZX 50 Portfolio Index. The S&P/NZX 50 Portfolio Index is made up of 50 of the largest financial products listed on the NZX Main Board. The S&P/NZX 50 Portfolio Index is made up of the same financial products as the S&P/NZX 50 Index, but with a 5% cap on the weight of each product.

So basically when you invest in NZ Top 50, you will have a share in the top 50 companies in NZ stock market.

Stock code for NZ Top 50 ETF is FNZ.NZ

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Where and how to buy?

There are three ways to purchase NZ Top 50 ETF, on the stock market, with investment fund or monthly contribution.

Trade on the stock exchange – NZ Top 50 ETF can be traded as share on stock market via any stock broker. I will be using ANZ Securities online and ASB securities online here as they are amongst the cheapest brokers in New Zealand.

Purchase with FundSuperlife (Smartshare’s sister company) offer NZ Top 50 ETF fund that holds shares in NZ Top 50 ETF. You can set up an account and purchase those fund with Superlife.

Purchase via monthly contribution – This is the most accessible and fixable way to buy into ETF, both Superlife and Smartshare offer that service. You need set up an account with at least $500 initial investment, and contribution $50 monthly to purchase that ETF or fund.

What’re the fees?

Basically, you should look for the lowest fee when you consider investing into the same product.

ANZ & ASB Securities online: You can purchase FNZ directly on the stock market with ANZ Securities. ANZ cheapest rate is $29.90/trade under $15000. However, you have to be an Online Multi-Currency Account (OMCA) holders with sufficient cleared funds available to fully cover the purchase of securities prior to submission of the order. Otherwise, ANZ charge $29.90 + 0.40% on trade. If you are not an OMCA holder with ANZ, go with ASB Securities, they charge $30 or 0.30% per transactions, whichever higher. On top of that, NZ 50 ETF charge 0.50% p.a. on management fee base on your total holding before they pay out. If you did the calculation, in order to pay the least amount of fees, you should only make one trade a year with over $10000, which will bring the fee% to 0.80%.

Smartshares: You can make lump sum investment and monthly contribution with smartshare. They will charge a one-time $30 account setup fee and charge 0.50% p.a. management fee base on your total holding. Check out the SmartShares disclosure statement here.

Superlife: Same as Smartshare, you can do lump sum investment and monthly contribution. They charge a $12 p.a. administration fee and 0.49% management for NZ 50 Top ETF. Check out Superlife disclosure statement here.

Cheapest Way?

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Smartshares is the cheapest way to buy and hold FNZ. Superlife’s fee will become cheaper once the holding passed 120K.

I personally used both Smartshares and Superlife, and I think Superlife have a much better user interface and app. The $12 admin fee can be shared with other Superlife funds.

So if you just want to buy FNZ, Smartshare is the best deal out there. If you already have other funds with Superlife, there is not much difference in cost between Superlife and SmartShares.

Although ASB and ANZ Securities’ cost are higher, you should open an account with them if you got ETF from SmartShares. Since you are buying actually share of ETF via Smartshare, you will need a stock broker when you need to sell your share.

Email thesmartandlazy@gmail.com or follow me on Twitter @thesmartandlazy if you have any questions.

Where to invest your money in New Zealand (Part 2)

At the last post, I made a simple graph to explain where to invest your money. Now let’s break it down in more detail

where to invest HMobile-friendly version

Within 1 year – Cash in Savings

For such a short terms, your best bet will be keeping your money in a savings account. Most banks offer serious saver or notice saver accounts with interest around 2.25 – 2.75%. I know it’s not a good return but its better than nothing. You may also consider a 6 months to 1-year term deposit for higher interest (3 – 3.5%). However, if you need to get your money out early, you may lose the interest and pay a break fee.

Recommended products: ASB Saver Plus, ANZ Serious Saver, BNZ Rapid Save, Westpac Online Bonus Saver, Kiwi Bank Notice Saver, RaboDirect Premium Saver and Notice Saver.

2 to 3 years – Cash in Term Deposit

You still want to play it safe so you should keep the money in cash. In this time frame, you can use a term deposit as they have a higher return of interest, around 3.5 – 4%. As mentioned previously, watch out of the penalties for early termination.

Recommended products: Term Deposit for all major bank.

3 to 5 years – Income Asset (Bond and Dividend Stocks)

If your money can stay in the market for 3-5 years, income assets become a feasible opinion. BBonds are not as stable as term deposit return, but they do offer the potential to earn a higher yield. I would suggest investing in a Bond ETF or a Bond Fund over buying individual bonds via a stock broker for small investors due to the cost of trade. Bond ETFs and Funds  invested in multiple corporate and government bonds, which should reduce the risk

If you are willing to dip your toes in the share market, you can buy some dividend shares at this stage. Dividend shares are usually associated with established and mature companies on the board that pays out dividends constantly. Don’t expect those companies to have rapid growth but they usually pay out dividends every quarter. The volatility of those shares is smaller compared to other shares on the market. Spark, Auckland Airport, and power companies are considered dividend stock in New Zealand.

Recommended products: NZ Bond ETF, NZ Dividend ETF, NZ Bonds Fund, Global bonds ETF, Overseas Bonds Fund.

5 to 7 years – Shares, Property, and Bond

At this stage, growth assets will play an important part in your investments. Growth assets are shares, properties, and managed funds. The reason we shouldn’t touch growth assets until this stage is because of the volatility of the return. Year-to-year return can be ranged from -80% to +80% , but over longer periods it usually goes up. Take a look at the graph below. It shows the NZ stock market’s return in 2 years from April 2007 to April 2009.

If you invested in the stock market in April 2007 and planned to exit the market in April 2009, you would have lost about 35% of your investment.

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On the other hand, if you had stayed in the market for 7 years, you would have gained 24% on your investment.

The same principle applies to property investment. The House Price index from 2000 to 2016 shows New Zealand property prices are trending up in the long term. You can see there was a dip during the 2008 GFC and the price recovered within a few years.

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Therefore, in this timeframe, you should invest more and more into growth assets and the ratio of Bond and Dividend stocks should decrease.

Recommended product

30-80% of Growth Asset: NZ Top 50 ETF, S&P 500 ETF, Total World ETF,  Property Fund, Oversea Shares Fund, Australian Shares Fund.

70-20% of Bond and Dividend shares.

 7 years+ Mostly Growth Asset 

At this point, I recommend invest 90% of your investments in growth assets and expect a long-term positive return on share and property. You may wonder why the income asset portion goes down to 10%. Although income assets are considered a safer investment, but they cannot match the high return of growth assets. Having a small amount of income assets in your investment will help offset potential downturns in your growth assets. Income assets don’t crash like growth asset, it will act as a cushion to soften any drops in the market.

Some people think if you are young and you can handle a market crash, you should have 100% growth assets as your investment. Whilst I agree with this point of view, it basically comes down to risk tolerance and personal preference.

Recommended product

90-100% of Growth Asset: NZ Top 50 ETF, S&P 500 ETF, Total World ETF,  Property Fund, Oversea Shares Fund, Australian Shares Fund.

10-0% of Bond and Dividend shares.

What’s Next?

So this is the guide that I used to decide where to invest my money based on how long I was going to invest. In the next post, I will talk about risk tolerance adjustment and how KiwiSaver funds fit into this graph.

The timeline and investment ratio used in the graph are based on my own studies and conventional wisdom. Investment suggestions are based on neutral risk tolerance. Investment products listed are based on popularity, ease of access in New Zealand and a bit of personal preference.

Just a reminder, this graph is for GENERAL ADVICE ONLY. Your own situation may be different. Please thoroughly research everything you read here and seek professional advice if you need to.

Email thesmartandlazy@gmail.com or follow me on Twitter @thesmartandlazy if you have any questions.

10 Mistakes I made as First Home Buyer

In this blog post I listed 10 mistakes that I made as a First home buyer. Now, here are more details about what I’ve done wrong.

  1. I walked into my bank and get the personal banker to do my mortgage.
    You can get a better deal and service from a mobile mortgage manager for that bank or a mortgage broker. A good mortgage broker will not only get you a deal on interest and cash back, they can also help you to structure a home loan so you pay it off faster.  Moreover – if you are getting a quote from the bank, don’t ask just one bank. Make sure you get at least 3 quotes and be prepared to switch banks to get the best deal for you.
  2. I took the advertised rate.
    Bank’s advertised rates are for SUCKERS! You should ALWAYS ask for a lower rate. If you can’t get a better rate, ask another bank. There is 95% of the time you will get a lower rate unless you are a ‘high risk’ lender. Do not settle for the advertised rate. And remember – both fixed and floating rates are negotiable.
  3. I 100% fixed my mortgage.
    100% fixed mortgage gives certainty on your payment so lots of people are taking that. However, you will end up with extra cash sitting in a saving account and earning low interest. It would be better to set up a small revolving credit or offset mortgage for that cash to offset the home loan interest. You will be paying less interest while having the flexibility of cash in your account.
  4. I paid my mortgage based on what the bank said.
    If you have a 600K, 30 years term mortgage at 4.79%, the bank will ask you to pay $3144.37 monthly.  Keep in mind that amount is NOT the absolute amount, it’s just the MINIMUM amount you should pay. You can (and should) always ask to increase the payment amount. Even a $50 increase or rounding up to the nearest $100 can save a lot of interest and time (I am talking about years) on your mortgage. For instance, If you up the 600k payment to $3250/month ($106 extra/month, just$3.5/day), we will reduce the loan by 2 years and save $42611 on interest.
  5. I pay monthly.
    You will save more on interest if you pay fortnightly. Using a 600K loan as an example, the monthly payment will be $3144.37. If you pay fortnightly, the payment amount will be $725.12. The annual amount when paid monthly is 3144.37 x 12 = $37732.44, compared to a fortnightly payment of $725.12 x 52 = $37706.24, a $26.20 different. Although the amount is small, a saving is saving.
  6. I accepted the $1000 cash back.
    This is the same principal as point no.2; you should always ask for a better deal. Although it may not be that easy to get more cash back at the moment.
  7. I did not get a friend to do a referral despite heaps of my friends are with that Bank.
    My bank, at that time, offered $500 cash if you got your friends and family to start a mortgage with them. I could’ve got friends to do a referral and split the $500.
  8. I buy insurance from the bank.
    Insurance from the bank is more expensive compared to insurance companies while offering a similar service. In my case, it was about 20% different. It is very easy to get an online quote for home, content and life insurance now.
  9. I did not ask for fee-free credit card
    Again, this is the same principal as no.2, you may not get it but at least you asked.
  10. About 18 months into that fixed term, some news headline saying interest rate is going up. I considered to break the contract and refinance.
    I didn’t in the end. However, I shouldn’t have been affected by a couple of news headlines or what the radio says.

So, those were my rookie mistakes when I first started my mortgage. Hope you guys won’t make the same mistakes that I made. Now, my mortgage set up is optimal for my situation and I will write about it in a coming blog post.

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Email thesmartandlazy@gmail.com or follow me on Twitter @thesmartandlazy if you have any questions.

A Simple Graph that explains… where to invest your money

The No. 1 personal finance question being asked online is “I have $XXX in saving, where should I put it?” or “What should I do with my term deposit?”. People who are unfamiliar with personal finance usually have no idea where to investment their money except term deposit and property (Oh, the old Kiwi dream). While property seems out of reach and interest rate on term deposit are hitting all time low, Kiwis are looking for another way to invest for their future.

Before you jumping into the world of investing…

You should put your money to invest after you pay off your consumer/personal debt, join KiwiSaver, and have an emergency fund. I believe you are not in the position of investing if you still haven’t got your financial basic sorted out.

The most important question

The first thing you’ll need to work out is How long can you leave the money in the investment? or how long before you will need to use that money?

If you are saving for a new car in 3 years, then 3 years is your answer. If you are saving for retirement and you are 30, 10+ years will be your answer.

Make sure you have money set aside for emergency before you invest. You don’t want to be in a situation where you plan to invest in the stock market for 8 years, some emergency happen in year 2 and you are forced to sell your investment at a loss.

Once you’ve worked out the time, apply that to the graph below.

where to invest HMobile-friendly version

Example

Let’s say if you plan to invest for 6 years, according to the graph, you may want to consider invest 60% of that money into growth assets such as stock, property, ETF, and index fund, while the other 40% investment into Bond or Dividend stocks.

If you invest for your retirement in 20 years, you may want to have a portfolio with 5-10% bond and the rest with stock.

On the other hand, if you wish to use the money to buy a car in 2 years. It’s best to put it in a term deposit.

Break down your plan

You may have multiple plans for your money, such as $3000 for travel next year, $12000 for a new car in 30 months, and $20000 for the first home in 8 years.

You need to apply those plan individually to the graph.

$3000 travel fund in saving account

$12000 car fund in term deposit

$20000 in a 10:90 mix portfolio while you keep adding more into the investment every month.

What’s next?

I will explain the basic idea of this graph, the mix of investment in this post and how to apply risk tolerance in the next post.

The timeline and investment ratio on the graph are based on my own study and conventional wisdom. Investment suggestion is based on neutral risk tolerance. Investment product listed on the graph are based on popularity, ease of access in New Zealand and a bit of personal preference.

Just a reminder, this graph is for GENERAL ADVISE ONLY. Your own situation may be different. Please thoroughly research everything you read here and seek professional advice if you need to.

Email thesmartandlazy@gmail.com or follow me on Twitter @thesmartandlazy if you have any questions.

My First mortgage as a noob

I was sorting my paperwork and saw my old mortgage paper. I was such a noob back then and made a lot of mistakes when I set up that mortgage.

Hunting for our First home

When I and my wife start hunting for house couple years back, we’ve done the first timer mistake by walking into my friendly local bank which I’ve been banking with for 10+ years, ask about home mortgage and got introduced to a personal banker. Had a 30 mins meeting where the banker took our account statement and worked out our income, expense, and deposit. We walk away with a 600K loan pre-approval.

So, we went on to house-hunting and luckily got a house at auction (passed-in then negotiate). We took the purchase agreement to went to the bank again. This time stayed there for an hour. Got a 500K fixed 2-year at the advertised rate home loan, pay monthly plus a life insurance for both of us, house and content insurance. I was so proud of myself because I also got a $1000 cash back and used that to pay the lawyer. The mortgage payment was about $2400/month plus $180 for the insurance. I remember when I walk out of that bank I felt a sense of accomplishment. I knocked down home ownership, mortgage, life, content, and house insurance on the same day.

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The list of stupid things that we’ve done.

Now I look back at the mortgage statement, I was such a NOOB!!!! I’ve made so many first timer mistakes!!!

  1. I walked into a bank and get the personal banker to do my mortgage.
  2. I took the advertised rate.
  3. I 100% fixed my mortgage.
  4. I pay my mortgage based on what the bank said.
  5. I pay monthly.
  6. I accepted the $1000 cash back.
  7. I did not get a friend to do a referral despite heaps of my friends are with that Bank.
  8. I buy insurance from the bank.
  9. I did not ask for fee-free credit card
  10. About 18 months into that fixed term, some news headline saying interest rate is going up. I considered very hard to break the contract and refinance.

The ONLY thing we did right was the downpayment. At that time, you can get a home mortgage with just 5% deposit and lots of people did that. We decided to put over 20% as deposit since we saved up some money already.

At that time we didn’t know much about mortgage….actually, we don’t know much about money, personal finance, saving and spending at all. We were stuck with this deal for 2 years and within that time, we had a money crisis that forced me to educate myself about money. I read books from the library, research online,  builds home loan model in excel and ran a bunch of analysis. Now I have a nice setup on a home mortgage with every dollar working to reduced the interest expense.

I am interested to know any of you made those mistake when you first took on a mortgage?

Also if you don’t know what I’ve done wrong or you actually doing the same thing, check out this blog post and I will explain what I’ve done wrong.

Email thesmartandlazy@gmail.com or follow me on Twitter @thesmartandlazy if you have any questions.