October 31, 2017 Investing adminis, custodial service, Custodian, FMA, investnow, investor protection, public trust, Superlife Leave a comment

Custodian: What is that and How does it Protect your Investment

by Alpha

Here is a frequent question from anyone who is interested in investing:

“If I put my money in XXX, how do I know if they won’t take my money and run away? What will happen to my money if XXX went out of business? Will my money go to the creditors? ”

It’s a legitimate question especially after those financial companies collapse and many kiwis loss their life saving over it. Currently, the standard practice for an investment company to protect their client’s asset is to use a custodial service. We are going to look at what is a custodian and how does it protect your investment.

I am not a legal expert so the information below could be incorrect. Always do your own research before you invest.

What is Custodian?

Under Financial Advisers Act, a custodian is a financial service provider who holds, transfers or makes payments with client money or property, on behalf of the client.

A custodian is required to register on Financial Service Providers Register. Their account need to be audited by a qualified auditor every year and a copy of the report will send to Financial Markets Authority. They also required reporting all client transactions at least twice a year to their client.

The custodian is usually independent of the Fund manager or investment service provider. David Campbell, former head of custody of Public Trust and current head of custody at Adminis Limited said, “Adminis holds all client assets on trust in a dedicated custody account. This ensures that there are complete separation and segregations between fund manager as a business, and their clients’ assets. This means that fund manager can’t touch or control client assets in any way.” Adminis provide custodial service for InvestNow.

Follow the Money

Lots of investors don’t know their money and investment are actually held by the custodian, not with the investment company.

For example, you decided to put $1000 in Superlife to invest in NZ Shares Fund. When you deposit the money, you are not paying into Superlife’s operation account, your money is held by their custodian, which is Public Trust. Superlife will tell Public Trust to use that $1000 and buy NZ Shares Fund. The only money goes to Superlife’s bank will be the admin fee and management fee.

The assets are held in custody, and the investor is recorded as the ‘beneficial owner’. This ensures that investor owns the asset, and also that there is complete separation of client assets from SuperLife – if SuperLife is not around, investors’ asset would still be held by the custodian, and the investor would still be recorded as the beneficial owner.

How does it Protect your Investment?

Since the fund manager and investment service provider didn’t hold investor’s asset, the asset is safe from the collapse of the fund manager.

If the investment company poorly runs, owe lots of money from different creditors and went out of business. All asset within the investment company will be sold to repay the creditors. Since the client’s asset are held by the custodian, they are a different legal entity, investment company’s creditors cannot access to their client’s money. So your investment will be safe from investment company collapse.

Also, the fund manager cannot transfer client’s name into their own bank account because they have no control over the asset. The fund manager can’t run a ponzi scam with custodian controlling the asset.

One of the largest Ponzi Scam in New Zealand – Ross Asset Managment was running by an Authorised Financial Advisers who did not use a custodial service, held all client’s asset on his own and ran a ponzi scam from his office.

Custodian is required to be audited by an independent qualified auditor annually. So it will reduce the risk of misconduct at custodian side.

What if Custodian went out of business?

You may worry if the custodian itself is poorly run and went out of business, their creditor can get their hands on your asset. Afterall, the custodian is holding your asset, right?

Not really, the custodian is actually hold their client’s asset in an another separated legal entity. It will protect your asset from custodian creditor.

Here is a real-life example. Adminis provide custodial service for InvestNow client. InvestNow’s clients’ asset is held on trust in Adminis Custodial Nominees Limited. That nominee limited does not have revenue, staff and expenses. So that company will not generate any debt and its separated from Adminis daily operation.

If Adminis goes out of business, Adminis creditors can only get Adminis’ asset, they can’t get Adminis Custodial Nominees Limited asset.

No Guarantees

Custodian is NOT a silver bullet for the financial scam, but it adds a layer of protection for investors from creditors. It makes harder for rogue fund manager or financial service provider to misplace your money and reduce the risk of misconduct.

Custodian would not protect your asset if the fund invested in junk asset or some highly speculative asset. You will still have the risk of losing your money in a bad investment decision.

If you decided to invest in a high-risk fund that focuses on cryptocurrency, and the fund manager decided to put all client money into PonziCoin. (Yes, that’s a real cryptocurrency) The custodian will use your money to invest on PonziCoin under fund manager instruction. If the PonziCoin value drops to nothing, you will lose the value of your investment. Custodian will not protect you from that. Always make sure you understand what asset you are invested in and the risk involved.

Who is using Custodian?

According to FMA, all licensed managed investment scheme managers, whether for a KiwiSaver scheme or any other type of managed investment scheme, have to ensure that a scheme’s money and property are held at arm’s length by the independent supervisor of the scheme or a custodian approved by the supervisor.

So all of your KiwiSaver providers are held under a custodian. For those non-KiwiSaver investments that I’ve been recommended from Superlife, SmartShares, InvestNow and Simplicity, they are all using independent custodian service to hold their client asset as well.

SmartShare ETF investment use custodian to hold your money for a short period of time between 20th of each month to 1st of next month. After that, they will use your money to buy the ETF, and the ETF will be under your own name.

Sharesies, the new investment start-up in Wellington, currently is not using an independent custodian service. According to section 16 of their terms and condition, Sharesies is holding investors’ asset with Sharesies Nominee Limited. That entity is separated from Sharesies Limited but fully owned by Sharesies and share the same directors.

Conclusion

The most fund manager, KiwiSaver provider held investor’s money and asset with an independent custodian.
An asset in held under independent custodian is separated from Fund Manager’s asset. In the event of fund manager bankruptcy, the creditors cannot access the asset under custodial control.
It will be hard for a fund manager to misplace the fund as they don’t have direct access to their client’s money.
Custodian is required to be audited by independent qualified auditor every year. The audit report will send to FMA.
Custodian will further separate client asset by putting them in a non-trading nominees entity to protect from their own creditors.
Custodian will reduce the risk of misconduct from the fund manager. It will NOT protect the investor from asset devalue.
Always make sure you understand what asset you are invested in and the risk involved.

Special thanks to Anthony from InvestNow and David from Aminins answered some of my questions.

October 3, 2017 ETF, Index Fund, Investing investnow, Sharesies, SmartShares, Superlife Leave a comment

Fund Update: Regular Investing with InvestNow, Cheaper SmartShares and More Funds in Sharesies

by Alpha

Got a couple fund updates in October 2017 including regular investing with InvestNow, cheaper SmartShares management cost, more fund options in Sharesies and new fund with Simplicity.

Regular Investing with InvestNow

InvestNow just rollout their regular investing options. Yay! Before that, every time investors transfer money to InvestNow, the money will be sitting in their “Transaction account”. The investor was required to log into their account and manually invest that money into funds. Not very robust.

Now with regular investing, you just need to instruct InvestNow how you want your fund distributed once and they will do it automatically. Also, with regular investing, the minimum transaction amount is lowered to $50. Here is how it works.

Once you login to InvestNow, you will see a new option called “My Plan”.

Click create to start a new plan.

You decide how much you want to invest and how frequently. You can invest on a weekly, monthly, quarterly or six-monthly basis. Also, you can choose when the plan start and end. Below is an example for $100 invested monthly with no end date.

Next is to instruct which fund you would like to invest by percentage. The minimum investment amount for a single fund is $50/transaction. If you are investing $100, you can invest in 2 different funds at $50/each or $100 in a single fund. Below is an example for $100 invested into two Vanguard funds.

After that, click save and you are done. Make sure you set up an automatic payment from your bank!

I am glad InvestNow introduces regular investing options and lower the transaction amount to $50. It makes it easier for investors to set up automatic payment and use the dollar-cost averaging method to invest. It further lowers the barrier of entry and makes InvestNow be a “set and forget” investment solutions.

Check out their Regular Investment Plan page for more info.

Just be aware that minimum lump sum investment amount is still at $250/transaction.

InvestNow buy RaboDirect’s managed funds line

InvestNow just announced they acquired the Managed Funds product line of RaboDirect. RaboDirect started a marketplace for investment funds in 2006. In fact, the InvestNow’s managing director, Mike Heath, set up RaboDirect’s platform back then.

Now InvestNow acquired the Managed Funds product line from RaboDirect, their customer will transit to InvestNow platform.

I think it’s great as RaboDirect customer get to stay in the same fund and will save more on fees because InvestNow does not charge admin or transaction fee. It will also expand InvestNow customer based. I hope it will lead InvestNow to bring more high quality and low-cost index fund to New Zealand like Vanguard and Blackrock.

Check out my blog on InvestNow here.

Investnow – Invest in Vanguard Fund with 0.20% Fee

InvestNow Added SmartShares ETFs into their Offerings

Smartshares reduces fee on award-winning ETF

SmartShares’ NZ Mid Cap ETF recently won the New Zealand Equity Sector Fund of the year at the 2017 FundSource Awards.

The NZ Mid Cap ETF tracks the share price of 38 New Zealand Stock and its median market cap at 1,090 million. The index is made up of top 50 companies in NZ stock exchange but excluded the top 10 companies and product issued by non-New Zealand issuers. You can find the stock of The A2 Milk Company, Xero, Air New Zealand, Mercury, Mainfreight and Port of Tauranga in this ETF.

Here is the sector breakdown on Mid Cap ETF.

SmartShares just lower their management fee from 0.75% to 0.60%. So this is good news for their current investors. This ETF used to have the biggest cost difference with their ETF fund counterpart in SuperLife. Now the cost is more in line with SuperLife ETF fund. However, SuperLife still has the lower management cost at 0.49%.

Check out my comparison on management fee between SmartShares and SuperLife.

Sharesies added New Socially Responsible Funds

Sharesies, the new Wellington start-up, just added two socially responsible funds from Pathfinder Asset Management. They are The Pathfinder Global Responsibility Fund and the Pathfinder Global Water Fund.

Socially responsible investing also known as sustainable, socially conscious, “green” or ethical investing, is any investment strategy which seeks to consider both financial return and social good to bring about a social change. Those funds will invest in companies practices that promote environmental stewardship, consumer protection, human rights, and diversity. They avoid business involved in armaments, gambling, tobacco, thermal coal and pornography.

Pathfinder Asset Management said Environmental, Social and Governance (ESG) scores as one of the factors to invest with those two funds. Pathfinder Global Responsibility Fund targets 250 stocks from around the world and Pathfinder Global Water Fund target on 50 to 100 companies that generate significant income from water-related activities. Both funds are actively managed, and the management cost is 0.93% and 1.3% per year. Also, those two funds have a transaction fee on buy and sell of 0.05%. So if you invested $50 in either fund, $0.025 would be charged as a transaction fee.

I think Sharesies did a great job adding socially responsible funds on their platform as the fund will appeal to their core customers. However be aware of those two funds are actively managed, and there is a transaction fee on buy and sell.

Check out the fund info here. The Pathfinder Global Responsibility Fund and the Pathfinder Global Water Fund.

One More Thing

One last thing, Simplicity added Guaranteed income fund and I’ve got a sperate blog on that.

September 19, 2017 ETF, Index Fund, Investing Children, investnow, Kids, Superlife, Vanguard 9 Comments

The Best Way to Invest for Your Children in New Zealand – What to Invest

by Alpha

This is the second part of my investing for children series. In a previous post, we talked about why should we invest for your kids and what you need to know beforehand. Now, let’s dive into what to invest for your children in New Zealand.

Index Fund & ETF for Kids

In case you don’t know, I am a big fan of the low-cost index fund and ETF because this is a low-cost investment option with a diversified portfolio and low entry requirement. Naturally, I will put my kid’s investment into them as well as a managed fund with ETF and Index fund in it. However, lots of investment services won’t accept anyone who is under 18 years old as investors. Basically, under their terms and conditions, you will have to be 18 years old or over to sign that agreement. Therefore, there are not a lot of choices for children.

Looking for investment options for my kids

Furthermore, a good investment for kids is kind of the hidden gem out there. The one that advertised heavily aren’t very good, and you will have to dig deep to find the good ones. After lots of googling, emailing and reading, here are my top picks.

SuperLife MyFutureFund

Hidden Gem No.1 is Superlife MyFutureFund. This is a different service from SuperLife KiwiSaver and SuperLife Invest (non-KiwiSaver Service). This service doesn’t have a web page at the moment so you won’t find it on SuperLife web site. The information is buried under SuperLife Invest Product Disclosure Statement, page 26 and 27 of that PDF file.

(Superlife is currently redesigning their website. The myfuturefund page will return after that.)

MyFutureFund itself is NOT an index fund or managed fund, it’s just a way that allows children to invest in SuperLife’s product. The account is in the child’s name but the guardian/person opening the account has control of the account including access to the funds through until 18 years of age. The account is separate from parents account, but you would be able to view the account through a “linked” membership.

MyFutureFund has access to the all Superlife investment options. There are over 40 different investment options available for kids including ETF, index fund, sector fund and managed fund. My personal picks for my kids are SuperLife 100 and Overseas Shares (Currency Hedged) Fund.

SuperLife 100 is made up of mostly Vanguard Index fund and ETF plus fund from Somerset. The investment included, 55% of international shares, 33% of Australasian shares and 12% listed property. The management cost is 0.52% and risk indicator at level 4. Three years return after tax (PIR at 28%), and fees are 8.35%. Seven years return is not available.

Overseas Shares (Currency Hedged) Fund is made up of eight Vanguard ETF. Invested 100% in international shares and mainly in US and Europe stock market. The management cost is 0.48% and risk indicator at level 4. Three years return after tax (PIR at 28%), and fees are 7.52%. Seven years return is 11.47%.

I picked those two funds because they are both diversified and contain 100% growth asset. Regarding fees, the management fees are relatively low, and SuperLife’s annual admin fees are only $12/years. They do not have regular contribution requirement, minimum investment amount can be just $1. So Superlife is great for both regular and irregular investing for your kids. I already got an account with SuperLife on my own so linking the kid’s account is straightforward and easy.

What about Investment for Mid-term

Those two fund that I suggested were 100% growth asset, so they are aggressive fund. They provide a great return for long-term investing. However, they will be too risky for mid-term investment. If you plan to use that money within 4-10 years, you may consider some other fund with lower growth asset.

SuperLife 30, 60 and 80 are similar to SuperLife 100 but added a different percentage of income asset. Fund with more income asset will have a lower range of gain and loss in any given year, and better return during recession compare to 100% growth asset fund. On the other hand, when the market is booming, those funds will have a lower return.

I think Superlife 30 will be ideal for 4-6 years investment, Superlife 60 will be great for 6-8 years, and Superlife 80 will be ideal for 8-10 years. For example, if your kid is 12 years old and planning to use that money for the university at 19-year-olds. Your investment timeframe will be 7 years, and you should consider Superlife 60. For any plan under 4 years, term deposit with the bank is a good choice.

How To Join MyFutureFund

SuperLife doesn’t have the easiest way to join so there is how you can join them. You will need to fill in the application form from SuperLife and send it over by mail or email.

Download and read SuperLife Invest Product Disclosure Statement
Go to Applications form (page 22 of the PDF file) and fill out your kid’s details and use a separate email set up for kids investing.
Under Saving section, you choose how you are going to invest. It can be one lump sum investment, regular investment or both. The example below starts with $500 lump sum investment with NO regular contribution.
Fill out the Communications and ID verification. You should be using NZ passport or NZ Birth Certificate for the kid.
Under Investment strategy, they will ask if you would pick their managed fund first. If you wish to join SuperLife 100, just tick as below.
If you wish to join other funds or join multiple funds, you’ll need to tick “My Mix” and go to the next page.
At page 5 of the application form (page 26 of the PDF file), fill in initial investment or regular investment. You can set the amount by actual dollar value or by percentage. At the example below, I invest 50% to Superlife100 and 50% to Overseas Shares (Currency Hedged Fund).
On the right side of My Mix page, you can decide what to do with your investment income. They can be reinvested into the fund or save the return in cash fund. Reinvestment is the most common choice for kids. Below that, you can decide rebalancing options, I suggest to use the standard rebalancing for the kids.
At the next page (page 25 of the PDF file), after you pick the beneficiaries (usually “My estate”), DO NOT sign at the bottom. You should move onto the next page.
At the next two pages (Page 26 and 27 of the PDF file), you will have to fill in your own information as the guardian, supply the ID information, and sign it.
Once you completed the application form, you can send it over to SuperLife, and the investment account will be ready in a couple days.

If you have any other questions, contact Superlife with superlife@superlife.co.nz or call them at 0800 27 87 37.

InvestNow’s Vanguard Fund

The second gem is InvestNow. InvestNow is an online investment platform provide multiple investment fund for their investors with low entry require and no middle-man fee. You can check out my blog post on InvestNow here. Unlike other investment services, InvestNow’s term and condition do not have an age restriction. Therefore, InvestNow opens the door are a whole range of investment fund for your kids. You can check out the full range of investment fund from InvestNow here.

Out of all those investment options, my pick for my kids is 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.

The BEST things about this fund are the cost. It only charges 0.20%/year on management fees and NO annual admin fee. The fund itself is a wholesale fund, which means it usually only accept institutional invest. The minimum initial investment required was AUD $500,000. The good news is, investors can join this fund via InvestNow with just $250 investment. (InvestNow will lower that requirement to $50 shortly.)

There is two version of this fund, one with NZD currency hedged with 0.26% management fee and one without currency hedged with 0.20% management fee. Without currency hedge, the fund is exposed to the fluctuating values of foreign currencies. So this fund will have a higher risk and lower cost. On the other hand, you will pay a higher fee for a more stable return with the currency hedged fund.

Here is the link to check out those two funds in details.

Vanguard International Shares Select Exclusions Index Fund

Vanguard International Shares Select Exclusions Index Fund – NZD Hedged

Pay Tax on Investment

Those two funds have a different tax treatment compare to common PIE fund. With PIE fund, the investor usually just need to submit their IRD number and PIR rate once, then they don’t need to worry about tax. With those Vanguard funds in InvestNow, they are Australian Unit Trusts and will be taxed under Foreign investment funds (FIF) rule. Investors are required to submit their income from FIF and file a tax return every year. If the holding amount is under NZD $50,000, which should be the case for most children investors, you will need to pay tax on the dividend you received with the kids’ RWT rate. If the holding is over NZD $50,000, you will have to calculate your taxable income with either Fair dividend rate (FDR) method or Comparative value (CV) method.

For children investors with portfolio value under $50,000, filing a tax return on dividend received is not too hard. You will need to file a Personal tax summaries (PTS) with IRD, and it can be done online. I will share how I do that with my kids next year. Regarding FDR and CV method, I personally don’t know how to do it. You better to talk to a tax accountant for that.

How to Join InvestNow

InvestNow sign-up process is very straight forward so there won’t be a step by step guide. You’ll need to click on the join link on InvestNow home page and use a separate email address to sign up. After you sign up an account, InvestNow will ask you to provide information on identification. You don’t have to complete that. Instead, contact them directly with contact form or call them at 0800 499 466 and let them know you want to set up an account for your children. Make sure you got the following information ready

Email address of the account
NZ birth certificate or a passport for a child
IRD number of the child
PIR and RWT rate for the child
Proof of guardian’s address

InvestNow will be able to set up an investment account from here. They can also link multiple child accounts to your current InvestNow account if you have one already.

Update on functions

Currently (at 19 Sept 2017), InvestNow don’t have auto-invest function, and the minimum transaction amount is at $250. So it’s not the best choice for someone who wants to regularly invest for their kids because they will have to transfer $250 into InvestNow, then login to their platform and manually invest that money into the fund. The Good news is InvestNow will implement auto-invest function and lower the minimum transaction limited to $50 shortly. So Investors can set up instruction to let InvestNow automatically invest into your preferred fund everytime you transfer money to them.

(Update, InvestNow added auto-invest function with $50/transaction.)

Conclusion

Here is the breakdown of my top picks compare to our kid’s investment requirement.

Superlife MyFutureFund provides a full range of fund for different investment timeframe. They have all necessary function for you to setup different investment plan for your kids. A great “set and forget” solution. However, they don’t have the lowest fee.
InvestNow allows user to invest in a great Vanguard investment fund with 0.20% management fee and no annual fee. However, you will have to do a tax return for your kid every year.
Feel free to contact them before you sign up and understand the process. I found both companies is great with answering customer questions.

In next part of my investing for kids series, we will look at some other investment options including KiwiSaver, Bonus Bond, SmartShares and more. If you are currently invested in or considering some investment program for your kids and want me to cover them, drop me an email at thesmartandlazy@gmail.com. I will try my best to cover that.SaveSave

SaveSave

August 23, 2017 ETF, Investing, Personal Finance Advanced Investing, IRD, New Zealand, PIE, PIR, RWT, SmartShares, Superlife, Tax 5 Comments

Different Tax on SmartShares and SuperLife ETF

by Alpha

Recently a tax accountant contacted me regarding my post on comparing cost on ETF investing between SmartShares and Superlife. He pointed out that apart from the admin fee and management cost, investors also need to consider the tax implication when investing. I’ve known about this issue but did not include on my blog because I did not fully understand the rules. After I’ve asked around and done some research, here is my finding on different tax treatment on SmartShares and Superlife ETF and why does it matter to New Zealand investor.

Disclaimer: I am NOT a tax accountant or expert. In fact, I am pretty bad at tax despite I’ve done a couple tax papers at university. So what I am going to say would be incorrect. If you notice anything wrong in my blog post, please let me know and I will correct that ASAP. You should contact a tax accountant or IRD for tax advice.

What are PIE and PIR?

According to IRD website, a portfolio investment entity (PIE) is a type of entity, such as a managed fund that invests the contributions from investors in different types of investments. Eligible entities that elect to become a PIE will generally pay tax on investment income based on the prescribed investor rate (PIR) of their investors, rather than at the entity’s tax rate.

Prescribed investor rate (PIR) is the tax rate that PIE fund use to calculate the tax on the income it derives from investing your contributions. It based on your taxable income, e.g. income from salary, wages and any additional sources of income (including the income from your investment) that you would include on your income tax return.

For an individual, your PIR can be 10.5%, 17.5% and 28%. Check out IRD web site to work out your PIR rate.

How PIE Works?

I will explain PIE with ‘interest on saving account’ as an example. You usually received interest by saving money in a bank account. If you look closely at that interest transaction, you can see the bank gave you some interest, then IRD take away some as ‘Withholding tax’. Check out the transaction below.

So I earned $0.79 in interest, but IRD took $0.26 away. The amount decided how much IRD can take is based on my Resident withholding tax (RWT). In this situation, the RWT is 0.26/0.79 = 33%. You can work out your RWT here.

For people who are having a full-time job, their RWT rate will likely to be 30% or 33%. That’s where PIE come in. The most common PIE fund you will see is the PIE account at your Bank. There are ANZ PIE Fund, Term PIE at BNZ, PIE Funds at Kiwibank and Westpac Online Saver PIE.

If you put money in those PIE accounts, in stead of paying 30% or 33% on your interest earned, you will be paying the max PIR rate at 28%. So in my situation, IRD will only tax $0.22 on my $0.79 interest income. The amount may seem tiny here, but if you have $20,000 saved in a PIE Term deposit with 3.5% interest, you will just have to pay $196 on tax instead of $231.

Different PIEs with SmartShares and SuperLife ETF

There are different types of PIEs and we will talk about Multi-Rate PIE and Listed PIEs here.

Multi-rate PIE (MRP) is a type of PIE that uses the investors’ prescribed investor rates (PIRs) to calculate the tax on the investment income it earns from the investors’ contributions. Most PIEs are multi-rate PIE including SuperLife and Simplicity fund.

A listed PIE is a type of PIE listed on a recognised exchange in New Zealand, and they calculate the tax on a fixed rate regardless of investors PIR. SmartShares ETFs are listed PIE, and they will pay tax at 28%. Check out section 6 on SmartShares’ product disclosure statement.

So the main difference between those two investments are you will pay 28% tax on SmartShares ETF and with SuperLife ETF Fund, you will pay tax according to your PIR.

Why Does it Matter to Investor

An investor needs to work out their PIR so they can decide each provider is more tax efficient. You don’t want to overpay your tax. There are three different PIRs for individuals: 10.5%, 17.5% and 28%.

For people who earn over $48,000 a year for the past 2 years, their PIR will likely to be at 28%. In this case, there is no tax different between SmartShares and SuperLife ETF as you will pay 28% on taxable income with both funds.

For people who are on low or no income, their PIR could be at 10.5% or 17.5%. They can be students, children, part-time/casual worker, stay-home mum/dad and retirees. In this case, they will pay tax on their PIR with SuperLife ETF Fund while SmartShares will still charge 28% tax on them. Therefore, they will pay extra tax with SmartShares.

Here is an example on US 500 ETF valued at $20,000. We will compare the value after tax and fee with the different tax rate. Assume there was no contribution and no value change during the year. Taxable income calculated at 5% of the portfolio under FIF rule. Ignored Smartshares $30 setup fee.

Despite SmartShares have a lower management cost and no annual admin fee, investors with 10.5% or 17.5% PIR will end up better with SuperLife as they paid less tax. That’s more reason for you to choose SuperLife ETF Fund if you are on low PIR rate.

Conclusion

If your PIR is at 28%, pick SmartShares or SuperLife based on cost, functions, and experience. In my opinion, SuperLife is the better choice for most ETF except US 500 ETF. You can check out my comparison here.
If your PIR is at 17.5% or 10.5% SuperLife ETF Fund provide a better return due to the lower tax paid. The amount of tax saved will increase the value of your portfolio.
Investor at lower PIR can get the excess tax back with a tax return.
Since most of the investment funds are multi-rate PIE. It is essential you work out the correct PIR and submit that to your fund manager. You can work out your PIR here.
Consult IRD or a tax accountant for tax advice.

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

August 18, 2017 ETF, Investing ETF, investnow, Sharesies, SmartShares, Superlife, US500 3 Comments

InvestNow Added SmartShares ETFs into their Offerings

by Alpha

InvestNow announced they added 7 SmartShares ETFs into their investment platform. They are the following:

You can access to those ETFs from SmartShares, Superlife, and Sharesies (on some ETF) already. I’ve compared the cost on those ETFs on the previous post and concluded you should get most of the ETF from Superlife except US 500; SmartShares was the better choice for US 500. You can check out the related post below

Cheapest Option for US 500 ETF

Smartshare was the cheapest option for investing in US 500 ETF because of the low management fee at 0.35% and no annual admin fee. There is a $30 set up fee if you use SmartShares contribution plan and at least $30 exit fee when you sell your ETF.
If you buy or sell the ETF on the share market, there will be $30+ transaction fee on each transaction. Superlife US 500 ETF fund has a higher management fee at 0.49% and charges a $12 annual fee. Sharesies have the same management fee with SmartShare, but they charge $30/year on admin fee. Therefore SmartShares contribution the cheapest option for US500 ETF investing.

Now InvestNow added SmartShares ETF into their offerings, it further lower the cost of US500 ETF. InvestNow offers an investment platform for investors with no annual admin fee. Investors can also bypass the $30 set up fee and the cost of exit the fund on SmartShares ETF. The minimum investment amount lower at $250 and no contribution commitment required. The management fee will be the same with SmartShares at 0.35%. Check out the comparison below. (Update: InvestNow client can now set up regular investment with just $50/transaction.)

Screen Shot 2017-08-17 at 10.15.08 PM.png

Comparing cost on US 500 ETF. Best option in yellow.

Different Way of Contribution

By looking at the number, InvestNow investors can save on $30 set up and the $30+ cost of exit, so it appears to be a better deal to SmartShares. There is a difference on how you contribute to the fund between Smartshares and InvestNow. Take a look at the function difference below.

The main limitation for InvestNow investors is the lack of small amount direct debit. SmartShares Investor will be committed to at least $50/month contribution (can be stopped at request). InvestNow investors are free to contribute whenever they want. However, the minimum contribution amount will be $250/transaction. If you only have $50/month to invest, you will have to put money in InvestNow once every five months to reach the $250 requirements. So on the one hand, you will save $30 in the beginning, but you will miss five months possible loss/return. (Update: InvestNow client can now set up regular investment with just $50/transaction.)

Compare Return Between InvestNow and SmartShares

(Update: InvestNow customer can now set up regular investment plan with just $50/transcation. InvestNow will be a better choice over SmartShares in terms of cost.)

To work out which one is the better deal on US 500, I ran an analysis to compare the return between InvestNow and SmartShares.

I assume the investor has $500 available to invest and can contribute $50/month. With SmartShares, the fund going to start with $470 due the to $30 setup fee and the investor will contribute $50/month. At InvestNow, investor’s fund will start with $500 and will contribute $250 every five months. The investor will continue for five years (60 months) without any withdrawal. Expected return rate is 10.32% before tax. Here is the breakdown.

Although SmarShares charge a $30 setup fee up front which lowered the starting amount to $470, they ended up with a higher end balance at $4,640.51. The reason is Smartshares investor contribute $50 every month, and those funds are growing while InvestNow customer’s money is sitting in the bank doing nothing.

Here is the result of different levels of contribution at the end of the fifth year.

SmartShares investor has a higher return over InvestNow at a lower rate, the gap close as they reach $250 marks. I stopped at $250/month because once you can contribute that amount, you can put money in InvestNow every month. From this point, InvestNow customer will always have better return over SmartShares

It seems SmartShares will be a better deal if your contribution under $200/month. However, there is a flaw in this analysis.

In my assumption, I set the rate of return at 10.32% for all five years. It assumpts the share price of the ETF going up in a straight line and investor will have a positive return every month. However, in real life share price goes up and down every day. By contributing less frequently, InvestNow investor may lose some of the gains during those five months, but they also avoid some drop as well. Afterall, the share price looks like this in real life.

Applying Real Data

So I collected the share price of US 500 ETF for the past 24 months and plugged that into our analysis. Here is the result. Click here to see the ROI.

This time InvestNow ended up with a higher balance over SmartShares. In fact, Investnow beats SmartShares on every contribution level with past data. Check out the result below.

The Real Deciding Factor

No one knows how the US 500 ETF is going to perform in the future so either service can be cheaper. If you look closely at the amount, the cost difference between InvestNow and SmartShares are insignificant, less than 0.1% of your fund. So investors will need to consider their contribution level and the experience of those two services.

In my opinion, InvestNow functions and its user interface are much better than SmartShare. InvestNow have a modern, clean and easy to understand platform. SmartShares’ holder will be checking their current stock holding on Link Market Service web site. The interface feels like it stuck in 2010.

Related post on InvestNow and SmartShares (Link Market Service)

The main limitation on InvestNow is lack direct debit option, so it’s not a “set and forget” type of investment solution. The investor will have to deposit the money into InvestNow platform and manually invest US 500 ETF on InvestNow website. InvestNow said the direct debit function is on the road map so the situation may improve in the future.

Link Market Service interface for SmartShares is not good, but you can view your holding on other services like ShareSight, Google Finance, and Yahoo Finance to improve that experience.

Conclusion

It’s great to see InvestNow adding more and more fund onto their platform. I prefer InvestNow interface and function over SmartShares. However, I understand everyone circumstances are different so here are some recommendations which service you should consider on US 500 ETF.

~~Use SmartShares if you want a ‘Set and Forget’ solution and you plan to contribution between $50 – $200/month.~~ (Update: InvestNow customer can now set up regular investment plan with just $50/transcation. InvestNow will be a better choice over SmartShares in terms of cost.)
Use InvestNow if you like their user interface (you can register for free on InvestNow to check out the interface), don’t want to commit to a monthly contribution plan and happy to invest manually at minimum $250.
Use SuperLife if you already have a portfolio with SuperLife and want to have all funds under one flexible service with great functions.
Use Sharesies if you like their interface. Check out my comparison here.
For other ETFs, you should use SuperLife, here is why.

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

August 4, 2017 Investing, KiwiSaver Fees, Simplicity, Superlife Leave a comment

How to Check Your Investment Fund and KiwiSaver Fund’s Admin Fee

by Alpha

A reader asked me about their Superlife fund charges. She notices something funny on her transaction list: Instead of charging $1/month on admin fee, she got charged $1/day.

After checking my transaction, I believe those charges are incorrect and she contacted Superlife. Superlife immediately said the charges were wrong and reversed them straight away.

This is a good reminder for all investors to a take look at their transaction once in a while. I am all for ‘set and forget’ method to invest but we should look at those charges maybe once or twice a year. Not only to Superlife but all of your investments including your KiwiSaver.

I have account with Superlife and KiwiSaver with Simplicity, here is how to check those transactions

Superlife

Go to superlife.co.nz and click on “Log in”

Click “Transaction history” on the left

Select ‘last 12 months’ on period, select ‘All’ on Funds, select ‘Administration Fees’ on Transaction types.

They should charge $1/month. (The $2.75 charges was before the admin fee price drop)

Simplicity KiwiSaver

Go to Simplicity.kiwi and Log in.

Click ‘My transaction’ on the menu.

There will be a list of transactions and Simplicity should charge $2.5/month on member fee.

If you are with a different fund or service and don’t know how to check transactions, call the service provider and ask them.

If there is anything out of the ordinary, you should contact the fund manager and get them to correct that as soon as possible.

June 28, 2017 ETF, Investing, Personal Finance Basic ETF, Investing, New Zealand, Sharesies, SmartShares, Superlife 20 Comments

Sharesies (Beta) – How does it stack up to SuperLife and SmartShares on ETF Investing

by Alpha

Sharesies is rolling out their trial run (a.k.a beta) investments options couple weeks ago. I’ve got their invitation recently and checked out their offerings. Sharesies is currently offering six SmartShares ETFs for their investor including NZ Top 50, AUS Top 20, US 500, NZ Bond, NZ Property and AUS Resources. You can check out their current offers here.

What is Sharesies

Sharesies is a New Zealand financial start-up company supported by Kiwibank Fintech Accelerator. They are an investment platform where users can make investments with small amounts of money. One of their mission is to make investment fun, easy and affordable.

The main selling point of Sharesies is by paying a $30 annual fee, an investor can invest into multiple investments with the minimum at just $5. Also, there is a $20 credit for the early Beta investor.

Invest $5 into ETF

In comparison, SmartShares ETF initial investment is $500, set up cost is $30/ETF and monthly contribution minimum is $50. So Sharesies is a great way for beginner investor to invest in a small amount into many low-cost, diversified ETFs. It bypasses the $500 initial investment and $30 set up fee with each ETFs.

On the other hand, SuperLife also offers the same ETF in their investment fund with a different management cost. You can check out the detailed comparison here.

While Superlife also doesn’t require initial investment and the minimum contribution can be just $1. How does Sharesies stack up to SuperLife and SmartShares on ETF investing?

Sharesies vs SuperLife & SmartShares

I’ve picked two popular ETF, NZ Top 50 and US 500, to run an analysis for 60 months (5 years). The analysis will compare the result on different contribution level(low and high contribution) for all three services. The low contribution will be at Sharesies minimum requirement, $30 initial investment (for the annual admin fee), $20/month contribution (about $5/week); The high contribution will be at SmartShares minimum requirement, $500 initial on each ETF, $50/month conditions.

NZ Top 50 ETF at low contribution

Here is the fees structure on the ETF

This is the amount of low contribution and expected return

So Sharesies have a higher admin fee ($30) and ETF management cost (0.50%), so its expenses should be higher then Superlife NZ top 50 ETF. Since Sharesies are aiming for beginner investor, I put around $5/week as a low-level contribution. The $30 initial investment cost is to cover Sharesies annual fee. Smartshares will not be included in this analysis as the investment amount is too low.

Here is the investment return each year

Superlife did better as it has a lower management fee and admin fee resulted in a higher return for the customer. The 5-years different is $135.81, 8.4%.

NZ Top 50 ETF at high contribution

This is the amount of high contribution and expected return

We increased the contribution to $50/month, put $500 as an initial investment and include SmartShares into the mix.

Here is the investment return each year

SmartShares came out on top despite the fact that they have a higher management cost. The main reason is that Smartshares don’t have an annual admin fee while Superlife charges $1/month. However, if you wish to cash out those Smartshares at this stage, it will cost you at least $30.

The difference between SmartShares and Sharesies is $163.34, 3.3%. Although both services have the same management cost, Sharesies charge $30/year admin fee which brings down the balance.

US 500 ETF at low contribution

Here is the fees structure on US 500 ETF

This is the amount of low contribution and expected return

This is more interesting as Sharesies have a lower management (0.31%) cost compare to Superlife (0.44%).

Here is the investment return each year

Due to the small amount of holding, the lower management cost (0.35%) did not cover the higher annual fee ($30) with Sharesies. Superlife holding was $122.28 more then Sharesies in year 5, 8.1%.

US 500 ETF at high contribution

This is the amount of high contribution and expected return

Now we will do the same thing by increasing the investment to Smartshares minimum requirement.

SmartShares USF came out on top with no annual fee and lower management cost. The different between SmartShares and Sharesies at year 5 is $154.75, 3.3%. The different to Superlife is $41.5, 0.9%.

In both scenario, Investor with low contribution level and better with SuperLife. If you have the $500 and $50/month to invest, SmartShares is the cheaper way. (Although I will suggest going with Superlife on NZ top 50. I’ve already covered that in another post)

How about portfolio building?

Since Sharesies investors can bypass SmartShares setup fee and initial investment requirement. So Sharesies is actually a great tool to build a simple portfolio. I will use US 500 ETF, NZ Top 50 ETF and NZ Bond ETF to build a portfolio.

Here is a balanced portfolio you can easily build with Sharesies. 25% NZ Bond, 37.5% US 500 and 37.5% NZ Top 50. If we keep the low contribution at $20/month, you can put $5 in NZ Bond, $7.5 in US 500 and $7.5 in NZ Top 50.

If you wish to set up something similar in SmartShares, you will have to spend $30 x 3 =$90 on set up fees, at least $500 x 3 = $1500 initial investment and $50 x 3 = $150/month contribution. Not feasible at all.

SuperLife, on the other hand, as my best pick for portfolio builder in New Zealand can easily build the same portfolio. Let’s check out the cost difference.

Here are the contribution and return

Here is the investment return each year

Superlife still edged out at year 5 with $123.15 more, 8.2%. I didn’t do a high contribution comparison here because SmartShares are really not fir for portfolio building.

Conclusion

Based on the analysis, SuperLife is still the better choice on low contribution and most of the high contribution (except US 500 ETF) regarding cost. However, I still think Sharesies is doing something good here.

Sharesies is promoting to young Kiwis who never invested before by providing a straightforward and easy-to-use app. The sign-up process is simple and painless. The interface is robust and delightful. They’ve done an excellent job on explaining each investment options to beginner investment and make it accessible. Check out the screenshots below.

I don’t mind about the $30 admin fee if that what’s it take for a newbie to start investing for their future. I’ve been telling readers to spend $12/year on Superlife as they have a better user interface and functions over SmartShares. Sharesies interface and user experience are way better than both of them. They made investing as easy as shopping online, which should bring a lot of people into the world of investing.

Sharesies are still in beta, so there are some functions are missing, like reinvest and auto allocation. I am sure Sharesies will continue to improve on their functions and brign in more investment options. Hope more companies like Sharesies will pop up in New Zealand to bring more people into investing.

More investor, bigger the market size, lower the cost!

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

June 13, 2017 ETF, Index Fund, Investing, Personal Finance Advanced Financial, Investing, investnow, Simplicity, SmartShares, Stock market, Superlife, Tax 5 Comments

SmartShares, SuperLife, Simplicity & InvestNow. ETF & Index Fund Investing in New Zealand

by Alpha

ETF and Index Fund are simple, low-cost and diversified investment option with a positive result in the long term. It plays an important part in my plan to achieve financial freedom by only do a few smart things and nothing much else. To put my money where my mouth is, over 90% of my investment is in ETF and Index Fund. I believe everyone should have at least some investment in those products. SmartShares, SuperLife, Simplicity, and InvestNow are the four investment services in New Zealand that I am currently using. Here is a breakdown of them.

The Breakdown

(updated Oct 2017)

SmartShares

New Zealand Stock Exchange owns SmartShares. They issue the ETF for local share markets such as NZ Top 50 (FNZ), NZ Top 10 (TNZ), NZ MID CAP (MDZ) and NZ Bond (NZB). They also repackage ETFs and index funds from overseas to sell to New Zealand investor. Those ETFs cover Austraila, Europe, Asia Pacific, US, emerging markets and world markets. You can check out the list of offering here. The most popular overseas ETF is US 500. It tracks the top 500 companies on US stock example, most of them are top international corporations.

Some people have mistaken SmartShares as an investment service provider but in fact, SmartShares is an ETF issuer. Their job is to manage and issue ETF for New Zealand stock exchange. That’s why investor can’t log onto SmartShares site for track their holding because they are not managing the holding for you (hence there is no annual admin fee).

If you invested in their ETF, you are basically buying a share on the share market. You can but those ETF directly on share market if you wish. SmartShares will direct investor to Link Market Service to register and track their ETF holdings. An investor can track their holding on other services like ASB securities, ANZ Securities or Share Sight.

SuperLife

Superlife offer the most ETF and Index Funds investment options in New Zealand. They not only offer SmartShares ETF in fund format but also provide managed fund and sector fund options for the investor. All of those funds invested in a passive index fund or ETF.

The Sector fund cover different country (NZ, AUS, Overseas), industry (Property, Shares) and investment vehicle (Cash, Bond, Shares). Those are great options to build your own balanced and diversified portfolio.

The Managed Fund is is a grouping of financial assets such as stocks, bonds, and cash equivalents. The nature of those financial assets can be classified into two groups, income asset, and growth asset. Income asset includes cash and bond. They tend to carry lower risk levels and, therefore, are more likely to generate lower levels of return over the long term. Growth assets are shares and property. They tend to carry higher levels of risk, yet have the potential to deliver higher returns over longer investment time frames.

Superlife managed fund has different names, like SuperLife 30 or SuperLife 80. The number at the end show the target portion of growth asset in that fund. Superlife 30 will aim to hold around 30% of growth asset and 70% of income asset in the portfolio. So this fund is a low risk (or conservative) fund. On the other hand, Superlife 100 will aim to invest 100% into the growth asset. So the risk is high. Here is a breakdown.

SuperLife offer the most options, functions in the breakdown. The entry requirement is basically nonexistent, and the cost is relatively low. That’s why I recommend the beginner to start with Superlife.

Simplicity

Simplicity started as a nonprofit KiwiSaver provider. They provide low-cost KiwiSaver options to New Zealander while donating 15% their income to charity. Simplicity recently opened up their investment fund as non-KiwiSaver options as investors can deposit and withdraw their investment anytime they want. Simplicity only offers three managed funds as conservative, balance and growth fund. The majority of Simplicity fund invested in Vanguard’s funds or ETFs. The management fees are the lowest in New Zealand at 0.31% for managed fund. However, the initial investment requirement is $10,000.

InvestNow

InvestNow is a new online investment platform. Investors can directly invest into the selected fund on their platform with as little of $250. InvestNow does not charge any transaction, admin, setup or exit fee at this stage. Investor only needs to pay the management fee on an individual fund.

The biggest advantage of InvestNow is to allow the investor to directly invest into two Vanguard index fund in Australia. They are Vanguard International Shares Select Exclusions Index Fund (currency hedged and non-hedged version) with management fee at 0.20% and 0.26%. Those two funds are not PIE fund, means you will have to do your own tax return. For under 50k holding, you will only have to do tax return on dividend received, which is not that hard. You can check out the detail in this blog post.

Fund Comparison

I picked a couple of index funds and ETFs from each provider and made a comparison. Here is the breakdown.

(updated Oct 2017)

As you can see, most of the option’s underlying asset are Vanguard ETFs and Index Fund. That’s basically what I am trying to do on my international exposure, putting money into low-cost Vanguard cost for long term.

Accurate description of my international investment strategy.

Conclusion

Superlife have the most function, investment options and easy to start. Also, have the lowest cost aggressive managed fund in NZ. It is great for both beginner and experienced investor.
Simplicity has the lowest cost managed fund in Conservative, balance and growth area. Great for anyone with $10,000 to start investing.
InvestNow user can easily invest in Vanguard index fund in Australia with 0.20% – 0.26% fee. Great for someone who can handle their tax return on dividend received (not that hard) or calculate under FIF rule.
SmartShares is good if you wish to buy ETF on the share market.
There are other ways to invest into a passive fund and ETF in New Zealand, like ASB Investment Fund, AMP, and Lifestages. However, the cost of those funds is quite high compared to these four services, which defeat the purpose of low-cost passive investing.
New Zealand investors can buy Vanguard ETFs on Australian Stock market. The management fee can go as low as 0.04%. I will go into that later once I’ve done it myself.

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June 8, 2017 ETF, Investing, Personal Finance Advanced ETF, Financial, Investing, New Zealand, SmartShares, Superlife 12 Comments

Compare ETF Fund Cost between Superlife and Smartshares (2017 Update)

by Alpha

Recently SuperLife and SmartShares lower the management fee on four ETFs. So it’s time to update the ETF cost comparison. Also, I am changing my initial recommendation on starting your investment with SmartShares then switch to SuperLife.

Cost update

Both Superlife and SmartShares lower their cost on Total World, Europe, Asia Pacific and Emerging Markets ETF. The reason was Vanguard reduce their underlying fee, so SuperLife and SmartShares passed on the cost saving to its customer.

Should you start with SmartShare?

In the past, I recommended to start your ETF investment with SmartShares then switch to Superlife when the fund hit a certain amount. The main reason was Superlife charge a $12/year admin fee, it will cost more in terms of percentage for beginners with a small amount of investment. However, that calculation ignored the $30 one-off initial fee, the cost of setting up extra funds with SmartShares and the exit cost.

Let’s look the following example for an investor started NZ Top 50 ETF with $500 initial investment and $50/month contribution for 5 years. NZ Top 50 ETF 5 years annualized return is 16.49%. I’ve put it in a simple simulation to compare investment between SuperLife and SmartSharesand for 5 years.

SmartShaers started with $30 less due to the setup fee. That $30 initial different made Smartshares cost more for that first 3 years, (38 months to be exact). By the end of the 5 years, the different between Superlife and Smartshares is only $24.09. That’s about 2 years of SuperLife admin fees and represent about 0.44% of your holding. That percentage will decrease if we increase the investment amount. So, there are some saving with Smartshare, but the saving is insignificant.

Also, there are some other benefits with SuperLife.

Better user interface compared to Link Market Service
Easy to switch fund with no cost
No setup cost for new fund
More fund options included sector fund and passively managed fund
No withdrawal cost

Personally, I think those benefit worth that $12/year with Superlife.

My Recommendation

If you wish to invest in S&P500 ETF, NZ Cash ETF and Emerging Market ETF, start with SmartShares because their management fee is still lower than SuperLife.

(UPDATE at Aug 2017, InvestNow added S&P 500 on their platform. An investor can bypass the $30 setup fee with SmartShares while having the low management cost at 0.35%. Check out the details here )

For any other ETF, just go and join SuperLife. You will be much better off.

If you are currently holding SmartShares ETF and want to switch to SuperLife. There is a way to switch without open a brokage account and pay $30 to sell your Smartshare. However, you will have to email me on that.

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

May 31, 2017 Index Fund, Investing, Personal Finance Basic ETF, Index Fund, Investing, Personal Ffinance, Superlife, Vanguard 8 Comments

The Best Way to Start Your Investment as Beginner in New Zealand

by Alpha

You may already know you need to start investing for your future, but you have no idea where to start. There are so many options out there like the sharemarket, investment property, P2P lending, the bond market, active and passive fund, etc. You have no idea which one is the best for you.

Well, I don’t know what is best for you because everyone’s situation is different. However, I think it’s better to start somewhere rather than sit here and do nothing. People say, “you need time in the market, not timing the market” or “The earlier you start the better”. I believe both of them are true. So, here is my suggestion on where to start your investment.

What you need to do before you start investing

Before you jump into the world of investing, you need to have a solid financial foundation. Here is what you should do.

Pay off your consumer debt like credit card balances, personal loans, store credit, overdrafts and hire purchases. It doesn’t make sense to chase for 6-7% return on investment while paying 19-22% interest on your credit card debt.
Join KiwiSaver. KiwiSaver is one of the best investments available in New Zealand because of the employer contribution and member tax credit. You will have an instant risk-free return on your investment.
Set up an emergency fund for 3-6 months of living expenses. This fund will help you to deal with any unexpected situations, so you’re not forced to cash out your investment, especially during a market downturn
Live on less than you make. Naturally, no one can become successful with their money without first learning how to live on less than they make. Where will you get the money to invest if you live paycheck to paycheck?

Better to start with a plan, however…

You should have a plan for your money before you start investing. Failing to plan is planning to fail, right? That why in my previous post I said 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?

On the other hand, I know how hard it is to come up with a plan when you don’t understand most of the investment terms. It’s hard to learn something from the outside when you don’t have personal experience. You may be afraid you will make a mistake and lose your hard-earned money.

I also understand how busy life is and how lazy we are (Well, at least how lazy I am). It took me six months to finally put down some cash into an investment. I kept making ‘plans’ and doing ‘research’ for my investments (actually I’ve been putting it off because I am lazy).

I started looking into investment strategies on the Internet in April, but I looked around without making any decisions for 4 months. I remember I found out about Smartshares and SuperLife and decided an index fund is the way to go in August, but it still took me two more months to pick which fund or ETF to invest in. Who knows if that is analysis paralysis or just laziness paralysis?

It may be just me, but I know lots of people are in the same boat, especially the beginners. You know you need it start investing, but you don’t have a complete plan yet. So you wait. To those people, hear me out!

If you don’t have a plan, just start without one.

Start small and start early

I am not talking about putting in your life saving without a plan. I suggest you dip your toe in the water. Just put under $500 into an investment and get it started. TODAY!

That small amount of cash should not affect your financial situation (if that is a problem, you should make sure you have a solid financial foundation). You should be able to move it quickly to start a small investment. You may not even care if you lost it, so you don’t need a plan for that small initial investment. You can put it in almost any fund as the start of your investment.

The most important thing is to get you started on something. Once you dip your toe in the water, you’ll have a personal stake in the investment. Looking at the value go up or down will motivate you to know more about investment. It will help you put together a plan for your investment.

Best way to start – SuperLife

SuperLife provides 40+ different passive investment fund to New Zealander. They also offer superannuation, KiwiSaver, and insurance solutions. They are great for beginner to start because:

No minimum investment requirement – You can invest by making regular or lump sum payments to the scheme at any time. There is no minimum contribution amount.
Passive Index Fund – All investment fund with SuperLife are passive index funds. They either invest in a fund designed to track an index or in a number of assets for the long term. It is a cost-effective and diversified investment opinion with a proven result.
Low cost – The annual admin fee is $12/year (or $30/year if you want paper documents) which covers all fund in SuperLife. The management cost on each fund is around 0.39% – 0.94%, fees for the most popular funds is around 0.49%. SuperLife’s fees are relatively low in New Zealand standard(2nd lowest in the country), and some aggressive funds and sector funds have the lowest cost in New Zealand. There is no joining fee, exit fee, and no cost for you add/close/or switch funds.
Flexible – SuperLife provides 40 different investment products on managed fund, sector fund and ETF. An investor can invest in a single fund or multiple funds with their own asset allocation. You can switch fund allocation on SuperLife website.
Web Site and App – Investors can log onto SuperLife website to check the performance and value of their holding. They’ve also got an iOS and Android App for that.
Simple Tax – SuperLife’s investment fund is a portfolio investment entity (PIE). The amount of tax you pay is based on your prescribed investor rate (PIR). SuperLife will pay the tax from your holding, and you don’t need to manage your tax return.
Lots of functions – Investors can make lump sum investments or regular contributions with direct debit from their bank account. You can organise your portfolio and allocation your contribution into different funds based on your preferred percentage. SuperLife can auto rebalance your portfolio, which is a great tool for the investor who wants to build a portfolio with their own asset allocation. It can also reinvest your dividends.
Owned by New Zealand Stock Exchange – NZX is New Zealand stock market operator. They 100% own SuperLife. In my opinion, this makes SuperLife a very safe company.

Start with Index Fund

For those who don’t have a plan and want to start small and test it out, here are a couple Funds/ETF in Superlife I think are ideal for beginners.

SuperLife Age Step: This is a managed portfolio invested in multiple Vanguard ETF in both income and growth assets. The ratio between income and growth assets depends on your age. When you are young, over 90% of that portfolio is invested in growth assets (shares and property). It will increase the ratio of income assets (Bond and fixed income assets) as you age. If you join at 28 years old, 80% will be in growth assets, and 20% will be in income assets. On the other hand, if you join at 58, 60.5% will be in growth assets, 30% in income assets and 9.5% in cash. This is a great fund to start especially if you aim for retirement. You can basically set it up and forget about it for decades. The management fees are 0.45%-0.52%.

NZ Top 50 ETF: This growth asset ETF is the same as FNZ from SmartShares. They invest in financial products listed on the NZX Main Board and is designed to track the return on the S&P/NZX 50 Portfolio Index. You are basically investing in the 50 biggest companies on New Zealand Stock Market. The concept is simple and easy to understand, so this is a great starting point for beginners. One disadvantage is this ETF is not as diversified as others because it is only invested in 50 companies in one country while other funds invest in between 100 to 7000+ companies all over the world. On the other hand, investors can take the tax advantage on local investing. You only need to pay tax on dividends and no tax on capital gain. The management fee is 0.49%.

Overseas Shares (Currency Hedged) Fund: This growth asset fund invests in shares in major stock markets all over the world via the Vanguard ETF. The number of companies included is over 7000. This fund is currency hedged, which reduces the currency fluctuations and exchange rate risk on the fund. The management fee is 0.48%.

Conclusion

Make sure you have a good financial foundation before you start investing. Clear your consumer debt, Join KiwiSaver, have an Emergency Fund and live on less than you make.
Best to start with a plan
If you don’t have a plan, start small while you make your plan.
The hardest part is getting started. By starting small, you make the first step so much easier.
SuperLife is the best place to start your investment in my opinion because there is no initial requirement, and it is diversified, low-cost, flexible and straightforward.
If you have no idea what fund to invest in, consider SuperLife Age Step, NZ top 50 ETF and Overseas Shares (Currency Hedged) Fund
Start small and START NOW!

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