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 great for long term (7 years+) investment. So here is the cheapest way to buy and hold NZ Top 50 ETF.

I will be discussing normal 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

Screen Shot 2017-04-11 at 2.11.33 PM.png

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 market – 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 broers 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?

7mwzj4C.png

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.

Will you switch KiwiSaver plan during a market correction?

[I wrote this back in 5th Oct 2016]

I’ve got into a discussion with a colleague about changing KiwiSaver plan. He is in his 30s and he decided to switch his growth plan to a defensive scheme. The reason was he thinks there is a market correction coming in late 2016 or first half of 2017, by switching to the defensive scheme, he can avoid a drop in his investment. He will switch back to growth once we are out of the correction.

I do agree there is a market correction coming and defensive scheme will do better in a down market compared to growth plan.

Let’s use Superlife income (defensive scheme) and Superlife60 (growth) as an example.

superlifeincome2015.PNGsuperlife60.PNG

During 2008 GFC, most markets were down by A LOT. Superlife income returning about 6% to 8% during 2008-2009 and Superlife60 was returning -8% to -14% at the same time. So if you start your Kiwisaver in 07 in Superlife 60 (returning 4.8%), then switch to Superlife Income at 08, 09 (6% and 8%), switch back to Superlife 60 at 2010 (15%). You will be doing average 8.45% p.a. while Superlife 60 doing -0.55% in those four years.

By looking at the math, it’s all great, but the main question is HOW DO YOU KNOW WHEN TO SWITCH? We are trying to time the market. The return looks great when we do it retrospectively but in reality, it took lots of time, resource and knowledge to time the market and people who are experts in that area still don’t get it right. If we switch too early, we may miss out on the last bit of gain. On the other hand, if we change too late, we will take the hit of initial crash.

I am personally not sure about this. I was trying to time the market back at 2014, and I was wrong. The conventional wisdom was to ignore the ups and downs of the market and keep it in a growth fund. You will ride it out eventually. However, somewhere in my mind I still think I can get a better return by switching. Not to a defensive scheme but a balanced scheme to smooth it out.

[Now, back to March 2017]

I ended up keeping the growth fund and it turns out great. The return on those months is far better than the defensive fund. The main reason was due to the poor performance of income asset in the last quarter 2016.

However, is not about growth fund did better than the defensive fund. In fact, I’ll still be happy if the defensive fund did better because the performance for my KiwiSaver in a single quarter only have a tiny impact on the lifetime of my fund. The lesson I learn was to stick to right fund for me, just sit back and let it growth.

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

Compare ETF cost between SuperLife and SmartShares

In case you don’t know, I am in the camp of passive low-cost investing. So most of my investment are in ETF and index fund.

Currently, the easiest way to buy and hold ETF in New Zealand is with SmartShares and SuperLife. Both companies are owned by NZX and they are selling basically the same ETF product. However, the cost of the ETF are different with those 2 companies and I’ve put together a table to compare it.

In general, Superlife offers lower fund management fee. However, they do charge a $12/year admin fee which makes Superlife more expensive when you are starting out. So you should start with Smartshare and once your hold reaches the “When to Switch” amount, you can move your fund to Superlife to enjoy the lower cost and the better user interface.

My table is based on you have only 1 fund in SuperLife. If you have multiple funds with SuperLife, that $12 Admin fee will be shared by those funds and you can divide the “Switch to SuperLife” amount by the numbers of funds you’ve got.

Here is an example:

You are holding $15000 Global Bond ETF and $12000 Aust Property ETF with Smartshare. Both of them alone did not pass the “When to switch” limit. However, if you switch both of them to Superlife, the “When to switch” will be divided by the numbers of funds, which is 2, and the new “when to switch” amount will be $24000/2 = $12000. So you should switch both of them over to save fees.

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