Popular Articles Looks like you have JavaScript disabled. Use this link to access the no JavaScript friendly site. Buying shares on the NZX – Sharesies vs ASB Securities and Direct BrokingThere’s a new kid on the block. Previously ASB Securities and Direct Broking were the cheapest brokers to buy and sell shares on the New Zealand sharemarket (NZX). We now have Sharesies, a popular Fund Platform with over 50,000 users, offering this service. How does it stack up against the traditional share brokers? This article is an early comparison between Sharesies, ASB Securities, and Direct Broking across criteria such as fees, user experience, ownership of shares, and other features. Because the Sharesies share trading feature is in beta, aspects of this comparison are likely to change as their functionality is gradually improved. 1. Minimum investment Sharesies The minimum investment amount with Sharesies remains at a super-low $1. Sharesies offers fractional share investing, so even if a share costs more than the amount of money you want to invest, you can still buy a fraction of that share. Investing $1 in Spark got me 0.2522 shares in the company ASB Securities and Direct Broking Investors using ASB Securities or Direct Broking must buy enough shares to meet NZX minimum holding requirements. This requirement is currently $1,000. Winner: Sharesies 2. Brokerage Fees Brokers charge brokerage fees on every trade i.e. whenever you buy or sell shares. The brokerage fees for each service are: Sharesies0.5% for trades up to $3,000Plus 0.1% for amounts above $3,000 ASB Securities$15 for trades up to $1,000$30 for trades between $1,000 and $10,0000.3% for trades over $10,000Direct Broking$29.90 for trades up to $15,000Plus 0.2% for amounts above $15,000 The table below shows the brokerage fee that would apply to different dollar amounts invested (ASB Securities and Direct Broking show n/a for $100 invested because this falls below the minimum investment amount). The result is that Sharesies is significantly cheaper, especially for smaller investment amounts. The only thing to watch out for when brokerage is so cheap, is that it could facilitate “taking a punt” or “dabbling” in various companies, while high brokerage fees encourages investors to thoroughly evaluate a company before investing. Winner: Sharesies 3. Total cost of ownership With Sharesies, brokerage is not the only fee you’ll pay. Sharesies will charge you a monthly/annual account fee, while ASB Securities and Direct Broking don’t. Sharesies account fee Therefore we need to factor the account fee into the total cost of owning your shares. The total cost of owning your shares includes: Brokerage fees to buy the sharesAccount fees to hold the sharesBrokerage fees to sell the shares The table below compares the total cost of ownership over 10 years (given shares are a long-term investment), of shares bought through each broker, for various portfolio sizes, and various number of companies in the portfolio: Most of the time buying shares through ASB Securities or Direct Broking will give you the lowest cost of ownership (e.g. a $10,000 portfolio spread evenly across 3 different shares has a total cost of ownership of $396 on Sharesies and $180 on Direct Broking). Direct Broking is like buying a more expensive car upfront, and never having to pay anything to maintain it, while Sharesies is like buying a cheap car, but having to pay for maintenance regularly. However, Sharesies does work out cheaper overall when you’re investing in smaller parcels of shares. Just be careful that with small investment amounts, their account fee makes up a horribly large percentage of your portfolio. Winner: ASB Securities and Direct Broking 4. User experience Sharesies In typical Sharesies fashion, they have provided a fantastic user experience for buying shares. The user interface is uncluttered, and easy to navigate. I would say the following are the current weak points of the interface: You can’t search for companies. You must scroll through a long list of over 100 companies to find the one you want. I’m sure this is an oversight that will be fixed soon.You can sort the companies list by “Highest annual dividends” and “Highest annual returns”. This is very concerning – given Sharesies’ target market is beginner investors, this feature could encourage investing based simply on the biggest dividends and biggest returns. This is absolutely NOT a good investment strategy. Past performance is not an indicator of future performance, and the very highest paying dividend companies are almost always “Dividend Traps“.Sharesies displays each company’s gross dividend yield, but their data for this is often totally inaccurate.You can’t see fundamental company statistics such as market capitalisation, P/E ratio, and Net Tangible Assets, nor can you see any important company announcements. However this data is publicly available on the NZX website.There is no watchlist where you can place companies you want to keep an eye on. This feature is standard in other brokers. It’s not the best idea to offer beginner investors the ability to sort by highest returns and dividends ASB Securities and Direct Broking These interfaces are dated, cluttered, and unfriendly compared to Sharesies. I’ll let the screenshots do the talking. Direct Broking’s interface. Not too bad, but not the best. ASB Securities’ interface. Needs improvement. Winner: Sharesies 5. Ownership of shares Sharesies When you buy shares through Sharesies, you do not get direct ownership of them. Instead they are owned by a “Sharesies Nominee” which is essentially a custodian holding the shares on your behalf. This has a number of implications: You can only sell your shares via Sharesies, so you’re locked into using their platform and paying their account fees.You can’t participate in Dividend Reinvestment Plans (DRPs). DRPs are where some companies allow you to reinvest your dividends into buying more shares, with no brokerage costs, and usually at a discounted price. DRPs are a great way to grow and compound your investment. With Sharesies, your dividends are always paid into your wallet.It is unclear how Sharesies will handle “corporate actions” on your shares. There is no guarantee you’ll get the full benefits of being a shareholder like being able to vote on important company issues, or participating in rights offers. “You acknowledge that we don’t have to forward to you, or take any action on, reports, notices, proxy forms, or other communications we receive about Investments in your Portfolio.” Sharesies Terms and Conditions ASB Securities and Direct Broking Shares bought through ASB Securities and Direct Broking are held under your CSN (Common Shareholder Number). This allows you to buy and sell your shares through any share broker. This also means that your shares are held directly in your name on a company’s share registry. Having direct ownership gives you the full benefits of being able to participate in DRPs, corporate actions, and Annual General Meetings. Winner: ASB Securities and Direct Broking 6. Trading features Sharesies’ basic, but elegant interface becomes a disadvantage as it is missing features you’d expect to find with a traditional broker. These features are: Live market prices and depth The share prices are shown on Sharesies are delayed by at least 20 minutes. Because share prices can be volatile, the delay can be problematic as the price of a share could surge, but not be reflected in the price you see on Sharesies. Meanwhile, ASB Securities and Direct Broking show live prices (as long as you have traded with them in the last 90 days), as well as market depth which is a list of buy and sell orders for a particular share. Limit orders When you buy shares through Sharesies, you place a market order, which means the price you buy your shares at depends on the current selling price. Using the above Spark depth chart as an example, a market order will get you shares at a price of $3.95 per share. This is a slight premium over the current $3.925 share price. ASB Securities and Direct Broking allow you to place limit orders. This allows you to specify a maximum price you’re willing to pay for the shares, providing you with more control and certainty. Placing a limit order for Spark at $3.93 per share Advanced Features Sharesies also do not offer: Trigger orders – an instruction to place an order to buy or sell a share if it reaches a certain priceMargin lending – the ability to borrow money to trade shares in order to leverage your investment (similar to a mortgage) Winner: ASB Securities and Direct Broking Conclusion If you are serious about investing in shares for the long-term, and have a decent amount of money to do so, stick with a traditional broker. Although the upfront brokerage costs will be more expensive, the total cost of ownership will be lower. You will directly own the shares under your name, won’t be locked in to Sharesies for holding and selling the shares, and can fully participate in any DRPs, rights issues, and voting. Don’t write off Sharesies as an option for investing in shares though. They offer low-cost brokerage and ultra-low minimum investment amounts, meaning it’s perfect if you want to invest small amounts to learn and/or slowly build up a portfolio (particularly if you are already paying for a Sharesies account to invest in their Funds). However, those with small portfolios may want to consider sticking to investing in funds, due to their convenience and instant diversification benefits. See my comparison between investing in funds vs individual companies to help you decide. If you’re keen to start building your investment portfolio with Sharesies, you can sign up with this link, and I’ll get $5 in my own Sharesies account. A great way to show your support for this site! Found this article helpful? Please share, and Follow or Subscribe to keep up with the latest news and posts! More articles Comparing NZ bank savings products21 June 2019 4 things to know about investing in Equity Crowdfunding8 July 2019 The best bank accounts and credit cards for managing your everyday finances28 July 2019 Disclaimer The content of this article is based on my personal opinion and should not be considered financial advice. The information should never be used without first assessing your own personal and financial situation, and conducting your own research. You may wish to consult with a qualified financial advisor before making any investment decisions.... Read more...What’s the difference between InvestNow, Sharesies, Simplicity, Hatch, and more?InvestNow, Sharesies, Simplicty, Vanguard, SuperLife, Smartshares, and Hatch. Whether you’ve been investing for a while, or you’re new, you’ve probably heard of these popular New Zealand investment services. They are all fantastic options for Kiwis wanting to invest, but it is often difficult and confusing for investors to decide which one to sign up for and use. On the surface, they all have one thing in common – they all provide you with access to funds to invest in. But if you dig deeper, they are actually all quite different things, offering unique services and working in different ways: InvestNow and Sharesies are what I call Fund PlatformsSimplicity, Vanguard, and SuperLife are Fund ManagersSmartshares is an Exchange Traded Fund (ETF) issuer. Vanguard also issues ETFs, but sadly not in the NZ marketHatch is what I call a Brokers (or Broker-like service). Sharesies is also a broker Below I’ll be explaining what each of these services do and offer, as well as giving a brief mention of the fees, minimum investment amount, and who they’re suitable for. Update (15 July 2019) – Sharesies is now included in the brokers section, as they have released the ability to buy and sell shares listed on the NZX. Fund Platforms Fund Platforms are services that offer you access to a variety of different funds to invest in, sometimes described as a “Fund Supermarket”. They do not manage your funds – instead they act as a “middleman” between investors and Fund Managers. Fund Platforms are a good option for everyone – both beginners and experts – as they allow you to invest in lots of different funds in one place. They also have low minimum investment amounts, making investing very accessible to ordinary people. Fund Platforms provide investors with good online portals, allowing you to buy, sell, and view your investments at anytime and anywhere. InvestNow Minimum investment$50Fees$0 InvestNow offers over 100 funds on its platform, from 20 fund managers/issuers including AMP, Smartshares, and Vanguard. They don’t charge any fees, making it a frequently recommended choice for investors (they make money by charging Fund Managers to list their funds on the platform). However, InvestNow’s interface isn’t the most user-friendly – while that should be fine for knowledgable investors, beginners might find it overwhelming. Check out the article How to choose which fund to invest in on InvestNow to help you get started on the platform. Sharesies Minimum investment$1FeesBased on the size of your portfolio:$0 for under $50$1.5/month between $50 and $3,000$3/month for over $3,000OR $30 per year The trendy Sharesies platform offers around 30 funds – comprising mainly of Smartshares ETFs and a few socially responsible funds. Their ultra low minimum investment amount opens up the ability to invest to almost anyone. Sharesies is known for having a simple, beginner-friendly user interface, however, this nice online portal doesn’t become cheap – they charge investors a monthly account fee if your account value is over $50. If you’re keen to start building your investment portfolio with Sharesies, you can sign up with this link, and I’ll get $5 in my own Sharesies account. A great way to show your support for this site! Fund Managers Fund Managers are the people who actually provide and manage the funds you invest in, taking your money and putting it into assets like shares and bonds. For doing so, they charge investors a management fee which is a small percentage of the amount you have invested. Some Fund Managers also charge a fixed administration fee. There are heaps of Fund Managers out there, and they tend to require a few thousand dollars as a minimum investment if you invest in a fund directly through them. However, a lot of managers offer their funds on platforms like InvestNow and Sharesies, where the minimum investment amount is lower. Most New Zealand Fund Managers also offer KiwiSaver funds, but I won’t cover these here. Simplicity Minimum investment$5,000Fees0.1% – 0.31%Plus $30 per year Simplicity is an attractive choice among investors because of their super low fees. Simplicity has five different fund options (Conservative, Balanced, Growth, NZ Share, NZ Bond). However, the minimum investment is high at $5,000 and their funds aren’t available on InvestNow or Sharesies, making Simplicity a much less accessible investment option. Also be careful of their $30 annual fee – with $5,000 invested, that fee equates to 0.6% which is quite high compared to other investment options. Vanguard Minimum investment$500,000 directly via Vanguardor $50 via InvestNowFees0.20% unhedged0.26% NZD hedged Vanguard currently has two global share funds (Vanguard International Shares Select Exclusions Index Fund – NZD Hedged/Unhedged) accessible in the New Zealand market, and they are investor favourites, again due to their very low management fee. Don’t be scared off by the $500,000 minimum investment amount because thanks to InvestNow, you can invest with only $50. Just be aware that these are Australian domiciled funds, so are considered Foreign Investment Funds. This may introduce additional tax implications to you. Overseas, Vanguard has a much more comprehensive offering, with over $5 trillion under management across a huge range of funds and ETFs. SuperLife Minimum investment$1Fees0.44% – 0.63%Plus $12 per year SuperLife offers 44 funds, investing almost entirely into Smartshares ETFs (e.g. the NZ Top 50 Fund invests exclusively in the Smartshares NZ Top 50 ETF). Even more confusing, is that sometimes SuperLife’s fund management fee differs from its Smartshares ETF equivalent e.g: The SuperLife Australian Mid Cap Fund has a management fee of 0.49%, while the Smartshares Australian Mid Cap ETF charges 0.75%The SuperLife US 500 Fund charges 0.44%, while the Smartshares US 500 ETF charges only 0.34%. Because SuperLife’s online portal is relatively poor, and their offering mirrors Smartshares so closely, it is probably easier to stick with buying the equivalent Smartshares ETF from InvestNow or Sharesies. That is unless: The fund offered on SuperLife has cheaper fees than the Smartshares ETF equivalent AND you are investing enough money to make the fee savings cover the $12 annual fee e.g. you need to invest over $4,616 in the SuperLife Aussie Mid Cap Fund for it to work out cheaper than investing in the Smartshares ETF equivalent.The Smartshares ETF you want is not offered on InvestNow or Sharesies e.g. the US Small Cap ETF. Other fund providers Your bank – New Zealand’s big banks offer their own funds, but they tend to charge high management fees.AMP – Offer popular, low-fee index funds (Global Shares Index, Global Fixed Interest Index, NZ Shares Index, Australasian Property Index) accessible through InvestNow.Heaps more – Devon, Harbour Asset Management, Milford, and Pathfinder are examples on Fund Providers offering funds on InvestNow. ETF Issuers ETF Issuers are pretty much the same as Fund Managers. ETF stands for Exchange Traded Fund, and they work the same as normal funds, apart from the key difference being that ETFs are listed and tradable on an exchange (i.e. a sharemarket). This difference less important these days, because with Fund Platforms like InvestNow and Sharesies, you no longer have to go through the sharemarket to access ETFs. However, buying and selling ETFs on the sharemarket is much more prevalent in countries like Australia where brokerage fees are cheaper, and the ETF selection is much greater. Smartshares Minimum investment$500FeesBetween 0.3% – 0.75% management fee$30 one-off fee, if buying directly from Smartshares Smartshares is the dominant ETF issuer in NZ with over 30 ETFs, and are owned by the operator of NZ’s sharemarket, NZX. Interestingly, their non-Australasian ETFs simply invest in Vanguard and Blackrock ETFs, so they are really ETFs within an ETF! You can buy Smartshares ETFs from the NZ sharemarket through a broker, or directly from Smartshares (note – ETFs bought from Smartshares must be sold via a broker). In addition, a large collection of Smartshares ETFs can be found on InvestNow and Sharesies – which is probably the easier way to invest in these ETFs due to their lower fees and superior online portals. Other ETF Issuers Unfortunately these ETF issuers don’t offer anything in the New Zealand market. But that’s where brokers come in (see below section). Blackrock – the world’s largest ETF issuer under the iShares brandVanguard – the world’s 2nd largest ETF issuerBetashares – an Australian ETF issuer Brokers Brokers allow you to buy and sell shares in individual companies on the sharemarket. Because ETFs are listed on the sharemarket, you can also buy and sell ETFs through brokers. They charge brokerage fees whenever you make a trade (buy or sell something). Brokers are probably more suited to more experienced investors, as the large number of share and ETF offerings might be overwhelming for beginners, particularly if investing in the United States market. Hatch Minimum investment$1Fees50bps on NZD-USD currency exchange$3 per trade of fractional shares$8+ per trade of whole sharesFull details on Hatch fees here Hatch is a service that allows you to buy and sell shares and ETFs from the United States sharemarkets. This gives you access to the dirt cheap Vanguard and Blackrock ETFs, as well as individual companies like Apple, Facebook, Netflix, and Tesla. However, you must change your NZD to USD before buying anything through Hatch, and to do this they’ll charge you a 50bps fee on the exchange rate. When withdrawing your investment you’ll need to change the USD back to NZD, costing you another 50bps on the exchange rate. Another thing to be aware of is that Hatch is not a true broker, as they do not allow you to trade directly on the sharemarket. Instead, trades are done through DriveWealth, a platform which holds your shares and ETFs on your behalf. Sharesies Minimum investment$1FeesAccount fee based on the size of your portfolio:$0 for under $50$1.5/month between $50 and $3,000$3/month for over $3,000OR $30 per yearPlus a brokerage fee of:0.5% for orders up to $3,000+0.1% for amounts above $3,000 It’s Sharesies again. In addition to being a Fund Platform, they provide a brokerage service for shares listed on the NZX, New Zealand’s sharemarket. Brokerage is cheap (compared to other NZX options), and they offer fractional shares, which means you can invest with any amount (compared to a minimum of ~$250 through other channels). However, unlike traditional brokers, any shares bought off Sharesies are not held directly in your name – instead they are held by a custodian on your behalf. See my full comparison between Sharesies and ASB Securities/Direct Broking here. If you’re keen to start building your investment portfolio with Sharesies, you can sign up with this link, and I’ll get $5 in my own Sharesies account. A great way to show your support for this site! Other Brokers Stake – Identical service to Hatch, for Australians. Stake is planning to launch in New Zealand soon.Direct Broking, ASB Securities – Brokers for shares and ETFs on the NZ and Aussie sharemarket. Conclusion New Zealanders are spoilt for choice these days when it comes to investing options. So what kind of service should you use? Fund Platforms: Suitable for everyone, as they provide easy online access to many funds at a low minimum investment amount. A great way to build a “set and forget” investment portfolio.Fund Managers: Suitable if you have a large amount to invest and want to invest in a specific fund.ETF Issuers: Suitable for everyone, but it’s easier to buy ETFs from a Fund Platform (or from a broker if you’re in Aussie).Brokers: Suitable for intermediate or expert investors who want to invest in a specific company, or an ETF from overseas. Fantastic for hands-on investors. The complex world of investment services Found this article helpful? Please share, and Follow or Subscribe to keep up with the latest news and posts! More articles How much money do I need to start investing?16 June 2019 The best bank accounts and credit cards for managing your everyday finances28 July 2019 3 tips to get the most out of KiwiSaver19 June 2019 Disclaimer The content of this article is based on my personal opinion and should not be considered financial advice. The information should never be used without first assessing your own personal and financial situation, and conducting your own research. You may wish to consult with a qualified financial advisor before making any investment decisions.... Read more...How to choose which fund to invest in on InvestNow and SharesiesWith an offering of over 100 funds, choosing which funds to invest in with InvestNow can be a daunting task – especially because InvestNow is aimed at self-directed investors and does not offer investment advice to prospective investors. Sharesies has fewer funds to choose from (approximately 30), but that’s still a lot of choice. Sharesies also offers the ability to invest in individual companies, but that’s a topic for another article. So here’s a beginner’s guide to choosing which fund to invest in on these platforms with three simple steps: Determine your investment objectives and timeframeDetermine your asset allocationChoose your fund(s) Update (5 August 2019) – Updated the article to include information on Sharesies 1. Determine your investment objectives and timeframe Think about why you want to invest, and more importantly, how long you are willing to invest for. Use the below table as a guide to determine whether you’re a short, medium, or long term investor: Investment timeframeYears to investShort-term0-5 yearsMedium-term5-10 yearsLong-term10+ years Examples A short-term investor could be someone saving for a house that they expect to buy in a couple years timeA medium-term investor could be someone who’s a few years away from retirementA long-term investors could be a younger person saving for retirement, or someone wanting to grow their wealth over the long-term 2. Determine your asset allocation Your investment timeframe from above will be used to inform your asset allocation – whether you should be putting your money in cash, bonds or shares. The table below provides a suggested asset allocation for each timeframe: Investment timeframeSuggested asset allocationShort-termInvest mostly in cashMedium-termA mix of bonds and sharesLong-termInvest mostly in shares Why the above asset allocations? Short-term – You’ll get relatively low returns with cash, but its’ value tends to be very stable. Therefore there’s a low risk you’ll lose money in the short-term Medium-term – You can expect bonds to make more money than cash over the medium-term, while being more stable than shares Long-term – Shares tend to go up and down like a roller-coaster, but over the long-term have the potential to grow much more than cash and bonds These are guidelines rather than rules The above are not set rules, but are guidelines only. For example, there’s nothing stopping you from investing in shares if you’re a short-term investor. You’d just be exposing yourself to more risk – there’s not much worse than seeing a big chunk of your house deposit wiped out with a share market crash, just as you’re about to buy a house 🙁 Conversely, there’s nothing stopping you from investing more in cash or bonds if you’re a long-term investor, especially if you’re risk adverse and don’t want to see your investment value fluctuate too much. You’d just miss out on potentially higher investment returns when you go for a safer asset allocation. Also remember you can invest in more than one fund in InvestNow and Sharesies. You could allocate some money to cash for short-term investing (e.g. for a house deposit), and some to shares for long-term investment (e.g. for retirement). Lastly, everyone’s situation is unique, so you may want to consult with a professional financial adviser to help determine the most suitable asset allocation for you. 3. Choose your fund(s) Now you can choose which fund(s) to invest in based on your desired asset allocation. I’ve suggested some of the best funds on InvestNow and Sharesies for each asset class (cash, bonds and shares) below. First, a brief note on actively managed vs passively managed funds. Actively managed funds have a fund manager who decides what the fund should invest in. Passively managed funds simply invest in a market index (e.g. top 50 NZ shares, or top 500 US shares). I’m recommending passively managed funds in this article because I think they’re more suitable for beginners. Firstly, the fund management fees for passively managed funds are lower because there is no fund manager actively involved in deciding what the fund should invest in. Secondly, most actively managed funds tend to perform worse than passively managed funds over the long-term. Cash funds There is not much choice here on InvestNow. Only actively managed cash funds are available. The fund management fees are in brackets. AMP Capital NZ Cash Fund (0.27%)Nikko AM NZ Cash Fund (0.35%) On Sharesies, there’s only one to choose from: NZ Cash Fund (0.33%) These funds invest primarily in bank deposits. I think a better alternative is to just deposit money with your bank directly (in term deposits or notice savers) instead of investing in these funds – you’ll save on fees that way. Check out my guide to bank savings products here. Bond funds There are a couple of passively managed bond funds available, the cheapest one being: Smartshares Global Aggregate Bond ETF (0.30%) – invests in almost 4,000 bond issues from around the world Sharesies also offers a relatively cheap New Zealand specific bond fund: NZ Bond Fund (0.33%) – Invests in New Zealand government and corporate bonds Share funds You’re spoilt for choice when it comes to passively managed share funds. I have split them into four categories: Global funds Invests in shares from a very wide range of countries. They are the best funds to start your portfolio with, and for most people all you need to invest in, as they provide a huge amount of diversification. AMP Capital All Country Global Shares Index Fund (0.38%) – Invests in over 2,800 of the world’s largest companies in both developed countries and emerging markets (China, India, Brazil etc.)Smartshares Global Equities ESG (0.54%) – Invests in over 1,500 of the largest companies in developed countries, excluding those involved in thermal coal, controversial weapons, tobacco, and other controversial industries. Country/Region specific funds Invests in shares from a specific country or region(s). They aren’t essential in your portfolio if you’re buying global funds, but you can use them to get extra exposure to a particular region. Smartshares NZ Top 50 ETF (0.50%) – Invests in the 50 largest companies in the NZ marketSmartshares US 500 ETF (0.34%) – Invests in the 500 largest companies in the US marketSmartshares Emerging Markets Equities ESG (0.59%) – Invests in the largest companies in emerging markets (e.g. China, South Korea, India, Brazil), excluding companies involved in contentious activities like tobacco, nuclear power, weapons. Characteristic specific funds Only invests in companies with certain characteristics e.g. based on company size or high dividend yield. Again, they aren’t essential in your portfolio, but you can use them if you want to achieve a very specific investment objective such as obtaining dividend income. Smartshares NZ Dividend ETF (0.54%) – Invests in the 25 highest dividend yielding companies from the Top 50 NZ FundSmartshares US Large Growth ETF (0.51%) – Invests in large US companies that are expected to grow faster than average, but typically pay small dividends Sector specific funds Invests in shares from a specific industry. They offer low diversification, so use these funds to complement your portfolio, rather than make up a core part of it. AMP Capital Australasian Property Index Fund (0.42%) (InvestNow only) – Invests in property funds listed in the NZ and Aussie markets. An alternative fund available on Sharesies is the NZ Property Fund (0.54%).Smartshares Healthcare Innovation ETF (0.75%) – Invests in companies innovating in medical treatment and technology.Smartshares Automation and Robotics ETF (0.75%) – Invests in companies associated with the development of automatic and robotic technology. Note the above isn’t a complete list of all passively managed funds available on InvestNow and Sharesies. For example, InvestNow also offers the popular Vanguard International Shares Select Exclusions Index Funds (0.20%-0.26%), but you should be aware of the tax implications of these funds as they are “Australian Unit Trusts”. You can see a complete list of funds offered by InvestNow here. If you’re keen to start building your investment portfolio with Sharesies, you can sign up with this link, and I’ll get $5 in my own Sharesies account. A great way to show your support for this site! Once you’ve selected your fund(s), it’s time to get investing. If you’re not sure how much money you need to start investing, check out my post here. Found this article helpful? Please share, and Follow or Subscribe to keep up with the latest news and posts! More articles Disclaimer The content of this article is based on my personal opinion and should not be considered financial advice. The information should never be used without first assessing your own personal and financial situation, and conducting your own research. You may wish to consult with a qualified financial advisor before making any investment decisions.... Read more... New to investing? Start with Investing 101 Latest Articles Looks like you have JavaScript disabled. Use this link to access the no JavaScript friendly site. Simplicity vs JUNO vs BNZ – Battle of the low cost KiwiSaver funds12 August 2019KiwiSaver has been around since 2007, but Simplicity shook things up in 2016, when they launched new KiwiSaver funds with dramatically lower fees than most other funds out there. They had good reason to shake things up, with the average Growth fund charging fees of around 1.4%, and over a lifetime of investing in KiwiSaver, these high fees can impact your retirement savings by hundreds of thousands of dollars. Since 2016 we’ve had the launch of more low cost KiwiSaver providers – JUNO who launched in August 2018, and BNZ who revamped their KiwiSaver scheme to become a low fee one in May 2019. In this article I’ll be comparing the Simplicity, JUNO, and BNZ schemes. What are the pros and cons of each scheme? Are they really as cheap as they advertise, and if so, are they really worth it? I will also compare against the Milford KiwiSaver scheme as a “benchmark” provider – Milford aren’t a low cost provider, but have been the top performing fund manager over the last 5 years. Do they offer anything that the low cost providers don’t? This comparison is based on data from each provider’s Quarterly Fund Update documents for the quarter ending 30 June 2019. Quarterly Fund Updates are legally required to be published by providers, and contain details on a fund’s fees, performance, and what they’re investing in. 1. What’s on offer All three low cost KiwSaver providers, as well as Milford, our benchmark provider, offer Conservative, Balanced, and Growth funds, which we’ll be comparing throughout this article. Simplicity Simplicity started up in 2016 and call themselves a low-cost, ethical KiwiSaver provider. They use a passive investing strategy and are a not-for-profit provider, with an aim to leave their members with more profit and money for retirement. Members$ Under ManagementConservative1,233$46,140,682Balanced3,897$131,793,640Growth16,983$509,813,377 Simplicity also offers the Guaranteed Income Fund for members over 60 – this works as an annuity/insurance plan (charging a 1.3% fee as an insurance premium, for a total fee of 1.61%), giving a guaranteed income to the member for the rest of their life (once they qualify for withdrawing their KiwiSaver), even if the money in their fund runs out. JUNO JUNO is a relatively new KiwSaver scheme, launching in August 2018. The scheme is managed by PIE funds, a boutique investment manager who’ve been around since 2007. Unlike Simplicity, they use an active investing strategy, where a fund manager actively makes decisions about where to invest the scheme’s money, with the aim to outperform the market. Members$ Under ManagementConservative106$2,515,510Balanced330$7,432,429Growth1,879$42,138,246 BNZ It’s not often you associate big banks with low fees. BNZ used to offer a typical high-fee (and problematic) KiwiSaver scheme. However, BNZ completely revamped their scheme in May 2019, adopting a passive investing strategy and dropping their fees to be among the lowest in New Zealand. Members$ Under ManagementConservative67,152$683,531,633Balanced28,053$398,563,260Growth37,293$490,890,844 BNZ also offer Cash, Moderate, and First Home Buyer funds. Milford Our benchmark provider, Milford, has been a KiwiSaver provider since 2010, with their massively popular Growth Fund at $1.36 billion in size. They use an active investing strategy, and are far from being the cheapest provider, but their funds have been the best performing KiwiSaver funds over the last 5 years. Members$ Under ManagementConservative2,708$98,273,773Balanced7,544$309,806,848Growth25,294$1,360,794,725 Milford also offers an Aggressive KiwiSaver fund, which they have just launched this month. 2. Fees All KiwiSaver providers charge fees, which are typically made up of: a Variable Management Fee (which may include performance fees), charged as a percentage of your balancea Fixed Membership Fee, charged monthly or annually as a fixed dollar amount Having low fees are the main selling point of our low-cost providers as they aim to significantly undercut traditional providers like Milford, potentially saving an investor hundreds of thousand of dollars over a lifetime of investing. Below are examples of the marketing used on Simplicity’s and JUNO’s websites: The below table shows the fees charged by Simplicity, JUNO, BNZ, and Milford: Variable feeFixed feeSimplicity0.31%$30 per yearJUNOn/a (0%)Tiered fee based on balance:Under $5,000: Free$5,000-$24,999: $5/month$25,000-$49,999: $15/month$50,000-$99,999: $25/month$100,000-$1m: $50/monthOver $1m: $100/month per $1mBNZConservative: 0.50%Balanced & Growth: 0.58%n/a ($0)MilfordConservative: 0.95%Balanced: 1.29%Growth: 1.06%$36 per year We can convert this into the below table which shows the percentage fee, for different amounts invested in each provider’s Growth fund: $2,500$5,000$10,000$20,000$40,000Simplicity1.51%0.91%0.61%0.46%0.39%JUNO0.00%1.20%0.60%0.30%0.45%BNZ0.58%0.58%0.58%0.58%0.58%Milford2.50%1.78%1.42%1.24%1.15% Simplicity are widely regarded as the cheapest provider, but that isn’t true if you have a smaller balance – the 1.51% fee at $2,500 is quite high. Although, Simplicity’s fee trends down as your balance grows largerJUNO‘s fee (as a %) jumps up and down as you move between fee tiers, although remains consistently cheap. JUNO’s best feature is zero fees for balances under $5,000BNZ‘s fee stays at a consistently low 0.58% for all balancesMilford are significantly more expensive than our low-cost funds across all balances We can also work out what provider is cheapest for each precise amount invested. BNZ is the cheapest provider for only between $5,000 and $10,345, while Simplicity doesn’t become the cheapest until you reach a balance of $25,000. JUNO is the cheapest for various different balances, but are clear winners for balances under $5,000 or over $183,872: BalanceCheapest ProviderUnder $5,000JUNO$5,000 – $10,345BNZ$10,346 – $24,999JUNO$25,000 – $48,387Simplicity$48,388 – $49,999JUNO$50,000 – $87,097Simplicity$87,098 – $99,999JUNO$100,000 – $183,871Simplicity$183,872 or moreJUNO *An earlier version of this table (published on social media) incorrectly had Simplicity as the cheapest between $10,346 and $24,999. This has been corrected above. 3. What the funds are invested in For each type of fund, we would expect to see them invested in the following assets (their investment mix): Conservative: Mostly bonds and cash to reduce volatility and preserve capital over the short-medium termBalanced: Roughly evenly split between bonds and sharesGrowth: Mostly shares to achieve high growth over the long-term Each fund has an actual investment mix (what asset classes they’re actually invested in) and a target investment mix (what the fund manager intends the funds to be invested in). Below are each fund’s actual investment mix as at 30 June 2019, with their target investment mix in brackets: Conservative Funds CashBondsSharesSimplicity4.28% (2%)74.04% (76%)21.68% (22%)JUNO*92.03% (65%)1.48% (10%)6.42% (25%)BNZ38.69% (35%)42.06% (45%)19.25% (20%)Milford^6.72% (6%)79.25% (76%)13.16% (18%) *0.07% other; ^0.86% other Balanced Funds CashBondsSharesSimplicity3.34% (2%)41.08% (42%)55.58% (56%)JUNO*70.95% (20%)5.40% (20%)23.39% (60%)BNZ7.09% (5%)42.71% (45%)50.20% (50%)Milford^9.45% (8%)32.96% (31%)56.99% (61%) *0.26% other; ^0.60% other Growth Funds CashBondsSharesSimplicity3.23% (2%)19.49% (20%)77.28% (78%)JUNO*52.01% (20%)0.00% (0%)47.47% (80%)BNZ7.43% (5%)23.09% (25%)69.48% (70%)Milford^7.77% (6%)20.11% (14%)71.15% (80%) *0.52% other; ^0.97% other Simplicity – They are spot on with their actual asset allocations being very close to their targets. It’s what you get from passive investing – they have a plan, and they stick to it (as opposed to trying to time the market), removing the need for an expensive team of fund managers making decisions on where and when to invest. JUNO – You’ll notice a common theme among JUNO funds – they’re holding bucketloads of cash. This is because share prices are at historic highs, and the global economic outlook is uncertain, so they’re trying to time the market by saving cash to buy shares when prices drop. This demonstrates their active investing strategy – although this doesn’t guarantee better performance and adds risk – they’ll look like geniuses if sharemarkets plummet sometime soon, but they’ll look like fools if the markets continue to rise, causing JUNO’s performance to suffer from an underexposure to shares. BNZ – BNZ have the least aggressive funds, for example, the Growth fund targets only 70% invested in shares, compared to approximately 80% for other providers. This feels too conservative to me, given people enrolled in Growth funds can potentially have decades to go before retirement, and will likely result in this fund performing worse than our other Growth funds. Milford – Milford’s target asset mixes aren’t too much different from Simplicity’s. Although they have demonstrated some flexibility with their active investing strategy, holding slightly more bonds than their target in the growth fund, as share valuations are high, making it hard to find value in the sharemarket. Responsible Investing KiwiSaver providers have come under fire in recent years for investing in controversial industries such as those dealing with firearms, tobacco, fossil fuels, and nuclear weapons. As a result, many providers now have Responsible Investment Policies, excluding certain types of companies from their portfolios. Simplicity, JUNO, BNZ, and Milford all have Responsible Investment Policies which exclude companies dealing with controversial weapons, tobacco, and cannabis. Simplicity and JUNO take their exclusions further, banning gambling and adult entertainment companies from their portfolios. JUNO’s KiwiSaver scheme exclusions But Simplicity has the most exclusions of them all, banning companies involved with alcohol and fossil fuels in addition to the above. Alcohol sure does have the potential to cause harm in our society, but my personal opinion is that excluding alcohol companies is taking it a step too far. What’s next? Banning fast food operators and soda manufacturers for causing obesity? Where do you draw the line between ethical and non-ethical companies? 4. Performance Performance, how much a fund returned, is not the best criteria to look at when comparing funds – past performance doesn’t guarantee future results. It’s still a handy metric to look at (particularly at long-term returns), as we can spot any consistent under-performers, or any consistent outperformers. Unfortunately, we don’t have enough long-term data to make any meaningful performance comparisons. Only BNZ and Milford schemes have been around for over 5 years, and only Milford’s Growth Fund has been around for 10 years (returning 13.2%/year over that time). Below is the limited performance data we do have. Returns are after fees and before tax *JUNO’s returns are for the year between August 2019 and July 2019, and are after tax, but before fees (they have not been running long enough to release their standardised 1 year performance data). Conservative Funds Past year’s returnsAvg. return over 5 yearsSimplicity8.03%n/aJUNO*2.61%n/aBNZ4.92%5.46%Milford6.90%7.82% Balanced Funds Past year’s returnsAvg. return over 5 yearsSimplicity8.63%n/aJUNO*5.37%n/aBNZ6.74%8.00%Milford7.76%10.25% Growth Funds Past year’s returnsAvg. return over 5 yearsSimplicity9.21%n/aJUNO*11.79%n/aBNZ7.20%9.24%Milford7.89%11.75% Simplicity‘s funds have had the best performance in the past year. But a one-year timeframe is too short to make any meaningful conclusions. Going forward, Simplicity will deliver an market average performance each year, since they use a passive strategy – the idea behind this being that it’s very hard for an active fund manager to beat this average year after year. We only have BNZ and Milford to compare over a 5-year period, and BNZ has been lagging behind Milford by quite a bit (over 2% per year!). Although most of this is under BNZ’s old high-fee fund model. Can they turn around this under-performance with their revamped scheme? JUNO‘s performance so far is interesting. It was abysmal for their Conservative and Balanced funds – not surprising given they’re mostly invested in cash. Their Growth fund has performed very well though. Another interesting fact is that JUNO’s manager, PIE funds, has achieved returns of 16.6%/year since December 2007 with their flagship Growth Fund. It would be impressive if they could achieve similar results with JUNO’s KiwiSaver funds. 5. Additional features Here are additional features of each provider that you may want to consider when deciding on one, although none of them appear to be anything major. Simplicity The $30 annual membership fee is waived for under 18s. You’ll still be charged the 0.31% fund management fee15% of Simplicity’s fund management fees go to charity JUNO All fees are waived for under 18s, although there are probably very few under 18s who would pay the fee (for having a balance of $5,000 or more) anywayYou get a free digital subscription to the JUNO Investing magazine (worth $15.80 per year) BNZ If you’re a Flybuys member, you can covert your points into KiwiSaver contributions towards your BNZ KiwiSaver fund at a rate of 108 points for a $20 contributionBNZ has a physical presence through their store/branch network Milford Milford issues monthly reports on their funds, including commentary on the funds’ performance, and what companies they’ve been investing inMilford are the winners of Consumer NZ’s People Choice Award for KiwiSaver customer satisfaction in 2018 and 2019. This award covers “factors such as investment performance, client service and client communications” Limitations There are a couple of limitations to picking Simplicity, JUNO, and BNZ KiwiSaver funds based purely on their low fees: Low fees don’t guarantee outperformance Having low fees don’t guarantee outperformance. The most important measure is a fund’s returns after fees – it’s better to have a fund that charges 1% and consistently returns 10% per year, than a fund that charges 0.5% but only returns 8% per year. Although, it’s rare (but still possible) to find such a fund that can consistently outperform the market. Low cost providers don’t offer aggressive funds (yet) The Growth funds offered by these low cost providers may not be aggressive enough for many investors. For example, Simplicity allocates 22% of the fund to cash and bonds. Those with a higher risk tolerance and a long investment timeframe may prefer their KiwiSaver fund to be 90-100% invested in shares to maximise their long-term potential returns. None of our low cost providers offer an “Aggressive” fund yet. The best alternative provider would have to be SuperLife, which allows you to choose precisely what asset classes to invest in, from 38 different options. You could allocate your KiwiSaver to 100% global shares, or 100% Emerging Markets shares, or any combination you like. Their fees are slightly higher with a $30 annual membership fee, and fund management fees ranging from 0.49-0.73%. Conclusion JUNO is a fantastic option to start your KiwiSaver off with. Having no fees for balances under $5,000 and under 18s is an incredible deal. The scheme is managed by a fantastic fund manager, PIE Funds, however we’re yet to see whether PIE’s great track record will translate into their future performance, and into the KiwiSaver space. BNZ‘s KiwiSaver scheme has struggled in the past, but they are heading in the right direction with their new low cost model. They are even cheaper than Simplicity at low balances. Apart from that, I don’t see anything major that differentiates BNZ from the other providers. The thing I like least about their funds is that their allocation to shares is lower than other providers, which will probably negatively impact returns over the long-term. Looking at Simplicity, I can see why they’re so popular. With their passive investing strategy, they stick to their target asset allocations, so you know exactly what you’re investing in, and there’s no messing around with trying to time the market. Simplicity’s fees are cheap, but they aren’t exactly as cheap as people suggest they are for low balances (compared to JUNO and BNZ), only becoming the cheapest provider after you reach $25,000. Our benchmark provider Milford, has fees significantly higher than the above providers. Apart from their great performance so far, they offer nothing special to differentiate themselves from others. Milford will have to work hard to continue their great performance into the future, to justify their high fees. As for me, I’m with Milford’s Growth fund, and have been for a few years now after switching from Westpac’s scheme. I am tempted to do so, but right now I’m in no rush to switch to a low cost provider, as I’ve been happy with Milford’s performance and communications – but I’ll be keeping Simplicity and JUNO in mind if my thoughts change. Found this article helpful? Please share, and Follow or Subscribe to keep up with the latest news and posts! More articles Bonus Bonds – Is it investing or gambling?6 July 2019 What happened to Property Crowdfunding in New Zealand?18 July 2019 3 tips to get the most out of KiwiSaver19 June 2019 Disclaimer The content of this article is based on my personal opinion and should not be considered financial advice. The information should never be used without first assessing your own personal and financial situation, and conducting your own research. You may wish to consult with a qualified financial advisor before making any investment decisions.... Read more...Peer to Peer Lending review – Harmoney4 August 2019Harmoney is New Zealand’s first and largest Peer to Peer (P2P) Lending platform launching back in September 2014. They’ve since facilitated the lending of over $1.2 billion across over 60,000 loans, significantly more than any other P2P Lending platform in NZ. Harmoney was my very first investment (outside of bank deposits), connecting me and over 8,000 other investors directly to people borrowing money, giving us the opportunity to earn “the lion’s share” of interest. Following on from my article 5 things to know about investing in Peer to Peer Lending, I’ll be reviewing the Harmoney platform. What are their returns, risks, fees, and features like? Is it worth investing on this platform? Disclosure: I actively invested in Harmoney between February 2015 and June 2016. Since then I’ve only been on the platform to withdraw funds as my loans get repaid and check how things are going. While all factual information I’ve reported should be accurate, my subjective thoughts and experiences on the platform may differ from someone who has more recently been active on the platform. 1. Getting Started Why invest through Harmoney? Harmoney allows borrowers to borrow between $3,000 and $70,000. Each loan is split up into $25 lots called “notes”, and then listed on the marketplace for lenders to invest in. As a lender, all you need to get started with Harmoney is to invest in one note, making the minimum investment amount a very accessible $25. Your money can be invested in either 3 or 5 year loan terms, across 30 different risk grades between A1 and F5 (more on that below). There’s no way to withdraw your money early, apart from the monthly loan repayments you’ll get from borrowers over the term, so make sure the terms suit you before investing. Once you’ve signed up for an account, and deposited money, the process for investing in loans is pretty simple. You start by going into the Marketplace where you’ll be presented with a list of loans available to invest in, along with each loan’s term, interest rate, and risk grade. Loan listing on the Harmoney Marketplace If you expand each loan, Harmoney allows you to see basic borrower details like their income, age range, employment, and the infamous borrower comments. I quite liked reading the borrower comments and looking at borrower details, as it allows you to know exactly what you’re investing in, and filter out borrower types that you don’t like. My experience – What did I invest in? My strategy was to invest in risk grades between A4 – E5. I thought grades A1-A3 offered an interest rate that was too low, while F grades were too risky. I also stuck exclusively with 3 year loans as I was just trying out P2P Lending and didn’t want my money locked in for the longer 5 year period. Overall I started with an initial $500 investment in the platform, and built that up to just over $4,000. 2. Potential Returns Interest Harmoney gives you the potential to earn Interest of between 6.99% and 29.99% on each loan. This compares favourably with other P2P Lending platforms, Lending Crowd (6.89% – 18.96%) and Squirrel (6% – 8.5%). Investors receive interest every month as part of a borrower’s loan repayments (each repayment also consists of principal repayments), which you can then withdraw or reinvest into more loans. You’re the one lending the money, and taking the risk, so you’re the one who should get the returnsHarmoney Investing in higher risk grades gives you a higher potential return. Having such as wide spread of risk grades gives investors a lot of control over what returns they want to chase, and the risk they want to be exposed to. Harmoney’s interest rates for each risk grade Harmoney uses a statistic called Realised Annual Return (RAR) to measure your returns (before tax). RAR takes interest earned and subtracts fees and any loan defaults. At time of writing, the average RAR on the platform for retail investors is 12.32%, and has reduced slightly over time as Harmoney’s fees have increased, and interest rates charged to investors have dropped (in the past they were up to 40%!). Graph showing RAR over time Payment Protect There is a second source of returns you can make through Harmoney and that is Payment Protect. This is essentially a type of insurance that borrowers pay for, that allows them to skip repayments in the case of death or terminal illness (for “Partial cover”), as well as disability and redundancy (if they take on “Complete cover”). Harmoney says about 30% of loans have Payment Protect attached to them. The below table shows how much a borrower has to pay on top of their loan to get Payment Protect. Lenders will only earn part of the Payment Protect income though, thanks to a complicated waiver and fee system (more on that later). However, Harmoney suggests loans with Payment Protect attached can return an additional 1% on average, compared to loans without Payment Protect. Payment Protect fees for borrowers My experience – What returns did I get? I achieved a RAR of 13.47% – Much better than putting money in the bank, and I enjoyed getting interest payments every month as I could reinvest that into more loans to compound my investment. I did not invest in loans with Payment Protect as I found it was too complicated for something that would only get you an extra 1% return. As many people say, never invest in something you don’t fully understand. 3. Risk Charge-offs The key risk when lending money through Harmoney is that the borrower doesn’t pay you back (“defaulting” on the loan). When this happens, your loan is “charged-off”, and you lose any money invested in that loan which hasn’t already been repaid. You’re the one lending the money, and taking the risk, so you’re the one who pays when s#!t hits the fanMoney King NZ Harmoney estimates their loans will default at a rate starting at 0.05% per annum for A1 grade loans, increasing to 9.50% for the riskiest F5 grade loans. All loans on Harmoney are unsecured. Harmoney is yet to go through an economic recession, so it is not yet known how the platform will perform when times get tough and unemployment increases. Estimated default rates Harmoney uses fractionalisation to mitigate the impact of loan charge-offs, as each loan is split into $25 notes. This means that investors only need to expose $25 of their money to each loan, and can spread their money across a diverse range of loans. If one loan is charged-off, the investor will only lose the notes they’ve invested into that loan, rather than all of their money. Arrears Arrears are when a borrower misses or does not make their loan repayments on time, but are have not yet defaulted. The impact on investors is that they receive their money later than expected, and arrears often turn into defaults/charge-offs. Loans in higher risk grades are more likely to be in arrears than lower risk grades (as shown in the graph below). You can read more about Harmoney’s process for handling arrears on this page. Arrears as a proportion of loans in each risk grade Harmoney sometimes offers borrowers who are in arrears to enter an “Unforeseen Hardship” payment plan, where they can pay off the loan with smaller repayments over a longer period of time. Below you can see one of my loans which was supposed to be repaid on 3 May 2019 – instead it still has $19.10 outstanding, with the borrower making very small repayments (their last repayment was $0.35 on 24 July 2019). This loan was supposed to be paid off by 3/5/19, but it still has $19 outstanding This arrangement is better than having a loan charged-off completely, but it would be better for this to be more transparent to the lender – there is nothing on the UI to state that the borrower is on a payment plan. Payment Protect Waivers if a loan you’ve invested in has Payment Protect, and the borrower suffers a “Waiver event” (see table below), they can skip their repayments to you for the duration of the waiver (meaning you completely lose any principal and interest you would have received during that time). Personally I don’t like the idea of investing in Payment Protect loans as it adds another layer of risk for little return – you essentially act as an insurer and take the loss if something goes wrong. The events that each Payment Protect plan covers My experience – Did the risk occur for me? I haven’t had the best experience with charge-offs, even having a loan in the very lowest risk grade (A1) charged-off 🙁 . Overall I have had $345.48 charged-off. Out of $1155.41 in interest earned, that equates to 30% of my income lost to charge-offs. Although this high percentage can be partially explained by the fact that I stopped investing in June 2016, resulting in my interest earned gradually decreasing, while my charge-offs increased as time went on. As for arrears, I still have three loans outstanding (on payment plans), even though they should have all been paid off by June 2019. Fortunately it’s only a small amount of money outstanding, but it does prevent me from closing my account for good. 4. Platform Fees Harmoney has a tiered fee structure charging between 15 and 20% of the interest you earn, depending on how much money you have invested with them. This fee structure started in June 2016. Harmoney’s fee structure Prior to June 2016, Harmoney had a different fee structure where lenders paid a service fee of 1.25% on all principal and interest repaid to them. This fee structure was much cheaper and equated to between 5-6% of interest earned. However, it attracted complaints as the fee was charged even in cases where borrowers repaid their principal early (which meant lenders paid a fee just to have their principal repaid). Another fee you’ll pay if you invest in Payment Protect loans are Payment protect fees. This is a 20% commission of the Payment Protect income, plus another 15% annual management fee. The table below (and this link) shows the calculation of a lender’s potential income and fees for a loan with Payment Protect. It is way too complicated for me, and would benefit from some simplification. Does working out Payment Protect returns and fees really have to be this complicated? My experience – Fees I decided to stop investing with Harmoney in June 2016 when they raised their fees to the current level of 20%. Even though the returns I was getting were great, I felt that giving Harmoney a 20% share of my returns was way too much, given that I was undertaking all the risk. Perhaps at a higher tier the fee (which drops to 15-17.5%) would feel more fair. But it is a lot of money you need to invest ($10,000+) to get to those tiers. 5. Platform Features Harmoney’s platform is one of the most feature-rich: Auto-Lend – allows you to automatically invest in loans based on criteria set by you (such as risk grade, age band, residential status). Means you don’t have to be hands-on in picking and placing orders in loansDirect debit – automatically takes funds from your bank account, so good for making regular investmentsAuto-withdraw – allows you to automatically withdraw any excess cash you have on the platform to your bank account every week Reports – see a filterable list of every loan you’ve invested in, its status, how much interest you’ve earned, and how much is left to be repaidPlatform Statistics – a page that gives you heaps of statistics about the platform such as borrower demographics, amount lent, and average returns. Well worth a look, and adds a lot of transparency to the platform Report showing my active loans A major feature missing from Harmoney is a secondary market, where you can sell your loan investments to get your money out early. You will have to wait for borrowers to gradually pay your loans back before you’re able to withdraw your money from the platform. My experience – Platform features While they are handy, I didn’t use any of the special features of the site like Auto-Lend. You had to hold a large amount of cash in your account for Auto-Lend to work – this is because the Auto-Lend function gives priority to lenders holding a high proportion of cash. I preferred to manually invest to keep my idle cash balances to a minimum, and I didn’t mind doing so by logging into the platform a couple of times a day. This also gave me the benefit of knowing exactly what kinds of loans I was investing in. 6. Other Talking Points Loan availability At times there can be very few loans for lenders to invest in. Loan availability is made worse by the fact that Institutional investors (like Heartland and TSB Banks) are taking up around 80% of all loans, leaving only crumbs for retail investors (individuals). This also means that Harmoney isn’t a genuine P2P Lending platform, as most of the lending is coming from institutions, rather than “peers” or individuals. Retail vs Institutional funding of loans over time Rewrites Another thing that makes loan availability even worse is rewrites. Rewrites occur when a borrower wants to increase the amount they’re borrowing. To facilitate this, the original loan is repaid in full to its original lenders, and the new “rewritten loan” is placed onto the Marketplace for new lenders to invest in. I think this causes totally unnecessary churn and that only the additional amount being borrowed should be placed onto the Marketplace for new lenders. It’s made worse by the fact that Harmoney actively encourages borrowers to rewrite their loans. Fraud Sometimes I see loans listed on the marketplace that seem unrealistic, or maybe even fraudulent. Some examples are: A borrower with a whopping $20k monthly income, borrowing $25k to see the dentist.A borrower with a $1,600 monthly income, with monthly loan repayments of $900 (56% of their income).Pictured below, a couple with a $1,200 monthly income, with monthly loan repayments of $1,000! How can they afford rent and food after repaying their loan!? Does this loan seem genuine to you? This gives me the impression that Harmoney is letting non-genuine loans onto the platform, or that they aren’t doing the best job of verifying borrower details, such as their income. In fact, Harmoney did face an issue with fraud where people used stolen IDs to apply for loans. Because lenders take on all the risk in P2P Lending, it was ultimately them (rather than Harmoney) who were the victims of the fraud, losing all of their investment in these dodgy loans. But it must be noted that fraud is a risk that could be encountered on any P2P Lending platform, not just Harmoney. Glitches I’ve occasionally encountered bugs on the platform. For example, eagle-eyed readers of this article may have spotted that the next payment on one of my loans is due on 31 December 3000!! Another time my withdrawal went to the wrong bank account (although they quickly addressed that). Conclusion I liked Harmoney during my time investing on the platform. It’s easy to understand and use, and I achieved satisfactory returns. While I tolerated the glitches and high defaults, the fee increase to 20% was the final straw leading me to quit – I wasn’t prepared to give away a fifth of my income to a platform with so many issues, and when I was the one taking on all the risk. Although, I would probably have stayed with Harmoney a lot longer if the fee was more reasonable. I’m glad that I started with Harmoney, and had a decent experience with it overall, because it led to to continue with P2P Lending via Lending Crowd and Squirrel (Subscribe to know when my reviews of these platforms come out). I’d be confident that I could still achieve better returns than bank deposits if I restarted investing in Harmoney today. But it’s just not for me given the high 20% fee I’d face, and the many cons of the platform. I still think Harmoney could be suitable two groups of people – those new to P2P Lending wanting to give it a go (with it’s low minimum investment and user-friendly platform), and those investing over $50k, qualifying for the lower 15% fee. Pros Potential to achieve much higher returns than bank deposits or even other P2P Lending platformsUseful features like Auto-Lend allows you to be a hands-off investorLow minimum investment amount of $25Easy to use and understand Cons High feesNot true P2P Lending – mostly funded by institutional lenders resulting in low loan availability for retail investorsSometimes feels unsafe – high rate of charge-offs, platform glitches, fraudulent looking loansNo secondary market to get your money out earlyPayment Protect is too complicated and risky for such small returns Found this article helpful? Please share, and Follow or Subscribe to keep up with the latest news and posts! More articles Disclaimer The content of this article is based on my personal opinion and should not be considered financial advice. The information should never be used without first assessing your own personal and financial situation, and conducting your own research. You may wish to consult with a qualified financial advisor before making any investment decisions.... Read more...What I’ve been investing in – July 201931 July 2019What I’ve been investing in is a monthly series covering what investments I’ve made during the month, and any investing related news that I’ve found interesting. This month has been another busy one, with a few big investments made. The below is not financial advice, nor a recommendation to invest in the following. Please do your own research before making any investment decisions. What I’ve been investing in Arvida Group Arvida is another retirement village operator I own shares in. Like Infratil did last month, Arvida raised capital to acquire three new retirement villages in Tauranga and Queenstown. To help facilitate this, Arvida offered existing shareholders the opportunity to buy 1 new share for every 5.7 shares held, at a discounted price of $1.15 (with the current price being around $1.37). As you may already know, I’m a fan of investing in the retirement sector due to our ageing population, so I took up all of the shares offered to me. National Storage National Storage is an Australian Real Estate Investment Trust (REIT), that owns and rents out self storage units in Australia and New Zealand. You may recognise them as the sponsors of one of the best rugby teams in the world, The Hurricanes. National Storage is another company I own shares in, that raised capital this month to fund the acquisition of new storage facilities. To do this, they offered existing shareholders the chance to buy between AUD$2,500 and $15,000 of new shares in the company. I invested $2,500 because self storage is quite a unique type of real estate to invest in – people are always buying stuff, and people are always moving houses, so I think there will always be a demand for storage, even if an economic downturn were to hit. In addition, National Storage pays a reliable dividend in an environment of declining interest rates. Squirrel Money Like last month, I’m continuing to add to my Peer to Peer Lending portfolio with Squirrel. Behemoth Brewing Behemoth Brewing have just completed an Equity Crowdfunding campaign, raising just over $2 million to go towards new brewing facilities and a brewpub. I dedicate 5% of my investment portfolio to more speculative investments like this, so decided to put the minimum investment of $1,000 into this company. Behemoth makes tasty beer, and the funds will hopefully allow them to scale up the business. To learn more about Equity Crowdfunding, check out my article 4 things to know about Equity Crowdfunding. KiwiSaver In addition to the normal monthly contributions from my salary and employer, I received the annual $521.43 Government Contribution into my KiwiSaver account this month. If you’re a KiwiSaver member, I hope you did too! Check out my 3 KiwiSaver tips if you want to learn more. Smaller investments Topped up my InvestNow portfolio with an investment in my core holding, the AMP All Country Global Shares Index FundBought NZ$250 worth of Bitcoin after the price fell to around US$9,500 Investing news Sharesies and the NZX Two weeks ago Sharesies released a public beta allowing users to buy and sell shares in individual companies listed on the NZ sharemarket (NZX). The slick user experience, and cheap brokerage (0.5% at most) is sure to make investing in individual companies explode in popularity here. Check out my review Sharesies vs ASB Securities and Direct Broking. CommSec Pocket launches It’s been a little quiet in New Zealand this month, so here’s an interesting service that’s come out across the ditch. CommSec Pocket, launched by Commonwealth Bank, allows users to buy and sell seven different Exchange Traded Funds (ETFs) for only $2 for each trade up to $1,000 in value. The ETFs are: Aussie Top 200 (IOZ)Aussie Dividends (SYI)Global 100 (IOO)Emerging Markets (IEM)Health Wise (IXJ)Tech Savvy (NDQ)Sustainability Leaders (ETHI) Similar services in Australia are expensive, starting at $9.95 per trade – there’s no Fund Platforms there like InvestNow or Sharesies, so CommSec Pocket is sure to be a hit over there. Money King NZ news The Money King NZ site got some new features this month including: An updated and expanded Resources sectionA form to contact Money King NZSubscribe to get new articles in your inbox every week Most popular article this month: What’s the difference between InvestNow, Sharesies, Simplicity, Hatch, and more? Thanks for all your support! Found this article helpful? Please share, and Follow or Subscribe to keep up with the latest news and posts! More articles Disclaimer The content of this article is based on my personal opinion and should not be considered financial advice. The information should never be used without first assessing your own personal and financial situation, and conducting your own research. You may wish to consult with a qualified financial advisor before making any investment decisions.... Read more...The best bank accounts and credit cards for managing your everyday finances28 July 2019Being an investor isn’t just about signing up to InvestNow/Sharesies/etc. and picking the right fund to invest in. We investors need the support of good products and services to help manage our everyday finances. This could include: Transaction accounts to receive money and make paymentsSavings accounts to keep spare cash and emergency fundsCredit cards to pay for our expensesServices to transfer money to/from overseas In this article, I’ll share my thoughts on what the best bank accounts, credit cards, and services are for managing our everyday finances in New Zealand. As a bonus I’ll also share what I think is the best Children’s bank account in NZ, and the best Australian bank account. Best Transaction Accounts Good transaction accounts are critical as they’re used to receive money from your salary/wages, dividends, and more. They’re also used to pay your money out to bills, expenses, and to distribute your money into investment platforms. For me, pretty much all of my money moves through my transaction account at some point. What I’m looking for in a transaction account: No account feesNo transaction fees or limits, so you can move money in and out freelyAbility to make direct credit payments to any NZ bank account Ability to link your account to an EFTPOS card so you can spend your money in stores ANZ, ASB, Kiwibank, and Westpac Transaction accounts Chances are the bank you’re already with offers a free transaction account. These are: ANZ Go accountASB StreamlineKiwibank Free UpWestpac Everyday You will usually need to pay fees for extras such as having a debit card (although EFTPOS cards are free), paper statements, and manual transactions (those done at a physical branch). BNZ is the only major bank to not feature here as they charge a $5 monthly fee on their YouMoney account. Heartland YouChoose Heartland YouChoose is an interesting product, combining a transaction account, savings account, and overdraft facility all into one. They pay a solid 2% interest rate on positive balances, while giving you the ability to make withdrawals at anytime via EFTPOS or Direct Credit. The YouChoose account gives you huge flexibility without any account or transaction fees, but it could be inconvenient to move all your transactional banking over from your existing bank. Best Savings Accounts Money we’re not immediately using or investing (such as emergency funds) should be kept in a savings account. This ensures your money is earning interest for you, rather than remaining idle. The interest from savings accounts won’t make you rich, and may not even beat the rate of inflation, but it’s better than earning nothing, or risking your emergency funds in volatile investments like shares. What I’m looking for in a savings account: High interest rate compared to similar accountsMoney is accessible without any charges or penalties Just one thing to keep in mind for the below savings accounts is that the rates for them are not fixed, and are likely to fall as wider interest rates drop. Heartland Direct Call account The Heartland Direct Call Account allows you to make free and unlimited withdrawals to a nominated transaction account, and doesn’t have any minimum deposit requirements. It currently offers a rate of 1.90%, which is much higher than any other account offering the same level of access to your money. The main catch is that it takes one business day for you to receive your withdrawn funds (e.g. if you make a withdrawal after 7pm on Friday, you’ll have to wait until Tuesday to receive your funds). In addition, you can only withdraw money out to one account that you’ve linked to it (this can be any account at another NZ bank) – you can’t make withdrawals directly to other accounts. Kiwibank 90 day Notice Saver The Kiwibank 90 day Notice Saver offers one of the highest interest rates you’ll find at a major NZ bank, currently at 2.70%. It has a minimum deposit amount of $2,000 and is a PIE fund so tax on any interest earned is capped at 28%. While it is not suitable for holding funds you might need quickly, due to the 90 day notice required to make a withdrawal, a strategy for managing your emergency fund might be to: put 3 months worth of expenses in the Heartland Direct Call accountput your remaining emergency funds in the Kiwibank Notice Saver account.If emergency strikes, you can withdraw funds from Heartland immediately, and start the 90 day notice period so you’ll have more funds available to you in 90 days time. Alternatively Rabobank offers a 60 day Notice Saver at 2.75%, and Westpac offers a 32-day Notice Saver at 2.00% (also a PIE fund). These two accounts have no minimum deposit requirements. Best Credit Cards Many would argue against using credit cards because they encourage excessive spending and accrual of debt. My opinion is that credit cards can help us when used in the right way, as their use can come with benefits such as rewards points. Their use does require discipline! – to not overspend, and to pay off the balance in full every month to prevent interest being charged – so may not be suitable for everyone. What I’m looking for in a credit card: No account feeBenefits for using the card, such as rewards points American Express Airports Card The American Express Airports Card has no account fee and awards 1 Airpoints Dollar for every $100 spent – a rewards rate that is incredibly rare for a fee-free card. The main drawback is that American Express isn’t widely accepted, but you’ll be fine using it with major retailers. Also, almost all EFTPOS terminals (except for at Countdown supermarkets) don’t allow you to use contactless payments (i.e. payWave) with an American Express card, so you must use Chip and PIN. ASB Visa Light ASB Visa Light has no account fee, and offers a “Smart Purchase” feature instead of rewards. Currently, the Smart Purchase feature gives you 6 months interest free on purchases over $1,000. The interest free period can be used to your advantage by: Spreading the cost of a large purchase over 6 monthsEarning 6 months worth of interest on your money, before the card has to be repaid in fullUsing it to complement the Kiwibank 90 day Notice Saver. For example, if you need to make a large purchase, do so using the Visa Light card, and start the 90 day notice period so that your funds are ready in time for you to repay the card’s balance. The Smart Purchase feature is really designed by ASB to encourage people to spend more and rack up debt, so do use it with care. Those who don’t have the discipline to do so may best avoid the card, while those that do can benefit from the above advantages. Best Services TransferWise Being a diverse nation, many of us in New Zealand have family connections or investments overseas, and need to transfer NZD to/from foreign currencies. I recommend TransferWise as one of the cheapest and fastest money transfer services out there. I did a very quick comparison of four money transfer services to exchange $1,000 NZD into four different currencies, and TransferWise came out on top for all of them. Below are the amounts I’d end up with by using each service (comparison done 26 July 2019): AUDGBPUSDHKDTransferWise952.17530.70659.305,157Western Union951.35530.18644.765,144ANZ943.10525.30653.205,103PayPal914.39510.31642.184,992 Bonus: Best Children’s Bank Account Co-Operative Bank Youth accounts Children need bank accounts too, particularly if they want to learn about money and good savings habits. Co-Operative Bank’s Youth accounts have no account or transaction fees, and allows parents to gradually add online banking and EFTPOS access to the account, when their child is ready for them. Although, the real outstanding feature of Co-Op Bank’s Youth accounts is the massive 4% interest rate paid to balances under $4,000. For those 18 or over, Co-Op Bank also offers a similar product to tertiary students. Bonus: Best Australian Bank Account NAB Classic Banking account 3 out of 4 of Australia’s major banks (ANZ, Commonwealth Bank, Westpac) charge a $5 monthly fee on their accounts, unless you make a deposit of $2,000 or more every month. NAB is the exception to this with their Classic Banking account. This account has no account fees and no deposit requirements, and a debit card is included for free. Do you have any other favourite bank accounts, credit cards or services? Let me know on Facebook or Twitter! Found this article helpful? Please share, and Follow or Subscribe to keep up with the latest news and posts! More articles Peer to Peer Lending review – Harmoney4 August 2019 What happened to Property Crowdfunding in New Zealand?18 July 2019 How to buy Bitcoin in New Zealand16 June 2019 Disclaimer The content of this article is based on my personal opinion and should not be considered financial advice. The information should never be used without first assessing your own personal and financial situation, and conducting your own research. You may wish to consult with a qualified financial advisor before making any investment decisions.... Read more...Bond Basics – 5 things to know about investing in bonds23 July 2019I bet most people reading this are indirectly invested in bonds (often referred to as “Fixed Interest” investments) – either through their KiwiSaver, or through a fund on InvestNow or Sharesies. However, I also bet that almost none of you have invested in bonds directly – i.e. have bought an individual bond issue. Investing in bonds is an often overlooked part of investing, as self-directed investors typically gravitate towards shares, funds, and peer to peer lending. This isn’t surprising as investing in bonds is relatively complicated and less accessible, and this is exemplified in the scarce resources out there about bond investing. As a result I really struggled to grasp several concepts when starting to invest in individual bonds. So here’s five things to know about investing in bonds. Even if you aren’t interested in investing directly in individual bonds, I think you’ll still find this information useful to better understand how the fixed interest portion of your KiwiSaver/fund works. Note the ideas discussed below are applicable to corporate (company issued) bonds, but may differ for government issued bonds. 1. What are bonds? Companies and governments often ask investors to lend money to them. In return, investors who lend money to them are issued bonds. A bond entitles the bondholder to regular interest payments at a fixed interest rate, and for their money to be paid back at some point in the future. A company can issue multiple sets of bonds, each with different interest rates and terms. For example, Infratil currently have 11 different bond issues! Some of Infratil’s current bond issues Role of bonds in an investment portfolio Bonds are considered relatively low risk and conservative investments. Imagine a company whose profits fall during an economic downturn – that company’s share price will probably fall, and it may have to cut its dividends. Meanwhile, that company’s bonds will continue to pay a fixed amount of interest, regardless of the company’s profitability and economic conditions. Bonds provide stability to one’s investment portfolio, and may even increase in value during economic downturns as investors seek safer investments when sharemarkets fall. Bonds also offer a higher returns than bank term deposits, but with the flexibility to sell the investment at any time. However, because of their stability, bonds do not have the potential to grow as much as shares. Overall they are best suited for those with a medium-term investment timeframe. 2. What are the Terms (rules) of a bond issue? Different bond issues will have different terms, or rules, which determine exactly how the bond will work and behave. These are indicated by each bond issue’s terms sheet. Extract from a terms sheet for a recent Trustpower bond issue Some key components of a bond’s terms sheet are: Offer amount – How many dollars worth of bonds are being offered under this bond issueFace value/issue price – The value of each bond/unit being issued (should always be $1)Minimum investment – Almost always $5,000 for corporate bondsTerm – How long the bond is being issued for before being repaid to investors.Maturity date – The end date of the bond issue, when the money will be repaid to investors. On rare occasions bond issues are perpetual (perpetual bonds), meaning they do not have a maturity date – instead they can be repaid anytime at the issuer’s discretion.Interest rate – The interest rate a bondholder will receive, also known as the bond’s couponInterest payment dates and frequency – The dates on which interest will be paid to the bondholder. Usually once every quarter, but sometimes twice a year.Ranking – The priority of the debt. Bonds ranked as “Senior” have priority over bonds ranked as “Subordinated”. This means if the issuer went bankrupt, Senior bondholders would be repaid first before Subordinated bondholders get any repayment.Credit rating – A rating of the bond issue’s creditworthiness by an independent agency. Not all bond issues are rated. Standard & Poor’s credit rating scale A small number of bond issues can have extra rules and features. It’s advisable to read a bond issue’s Terms Sheet carefully to understand these features. Examples of these extra rules are: Reset date – Some bonds will have their interest rate “reset” to a new rate at some point during the termEarly redemption – An option for the bond issuer to repay the bonds before the maturity dateConversion to shares – An option to have the bonds converted into shares in the company (convertible bonds) 3. How can I buy and sell bonds? These are the ways you can obtain and dispose of individual bonds: New issues A company issuing new bonds will offer them through brokers. You will first need to become a client of a broker such as Direct Broking and ASB Securities. The broker will advertise any new bond issues, and those wanting to invest need to call the broker to request a firm allocation of the bonds. Once your allocation is confirmed, you’ll fill in an application form and pay for the bonds. No brokerage fees are charged to the investor. Holding to maturity You can hold a bond until its maturity date, when the money you invested will be returned to you (without any brokerage costs). Occasionally the company issuing the bond will offer you the opportunity to reinvest that money into a new bond issue. Secondary market Corporate bond issues in New Zealand are almost always listed on the NZDX (NZ Debt Exchange). This allows investors to buy and sell bonds from each other, including selling them at anytime before their maturity date. Similar to shares, you’ll need to go through a broker (E.g. Direct Broking) to buy and sell bonds on the NZDX. The brokerage fee to buy or sell bonds starts from around $35. This is expensive so it’s probably best to stick to buying new issues, and holding the bonds to maturity where possible. 4. How does the price and yield of a bond change? Bond prices can change on the secondary market When bonds are first issued and listed on the secondary market (the NZDX), they have a value of $1 per unit. Similar to shares, their market price can go up or down depending on the demand for that bond. Let’s use a bond issued with an interest rate of 4% for example: A bond’s price can go up – If the bond becomes attractive compared to other investments. E.g. interest rates go down, resulting in rates for term deposits and new bond issues to go down, making our 4% bond more attractive and more in demand. This would allow you to sell the bond on the NZDX for a capital gain.A bond’s price can go down – If the bond becomes unattractive compared to other investments. E.g. interest rates go up, making term deposits and new bond issues more attractive than our 4% bond. If you sold the bond on the NZDX, you’d make a loss. If you are holding a bond to maturity you don’t need to worry about its market price, because at maturity the bond will be repaid to you at face value ($1 per unit). So even if you buy a bond on the NZDX for $0.95 per bond, you’ll still be repaid $1 at maturity. Likewise, if you bought a bond for $1.05, you’ll only be repaid $1 at maturity. A bond’s yield changes when its price changes A bond’s yield is the actual annual rate of return you’ll make when buying that bond from the secondary market. Let’s say a bond with an interest rate of 4% is bought for $1.05 per bond. Your yield will be less than that 4% (3.81% in this example) interest rate because you’ve paid a 5% premium in order to obtain these bonds. Likewise if you paid $0.95 per bond, your yield will be higher than 4% (4.21%) because you acquired the bonds at a discount. Therefore: if the price goes up, the yield goes downif the price goes down, its yield increases To further complicate things we must consider the fact that when a bond is repaid at maturity, the bondholder is repaid $1 per bond even if they paid a premium or discount on the bond. If you intend to buy shares off the secondary market and hold it to maturity, then this premium or discount must be factored into your total return. This calculation is known as the Yield to Maturity. Let’s assume our example 4% bond matures in 5 years time: if we pay $1.05 per bond, our yield to maturity is 2.91% – lower than the yield of 3.81%, because we have to factor in the 5 cents per bond that we lose when the bond is repaid.if we pay $0.95 per bond, our yield to maturity is 5.16% – higher than the yield of 4.21%, because we gain 5 cents per bond when it’s repaid. You can check each bond issue’s price and yield to maturity on the NZX website, or calculate yields yourself using this bond yield calculator. The screenshot below shows the details of the IFT260 bond issued by Infratil on the NZX website. The red box shows the Yield to Maturity (at 3.6%), the green box shows the market price you’ll pay per $100 of bonds ($106.107), and the blue box show’s the bond’s original interest rate (4.75%). 5. What are the risks of investing in bonds? Even though bonds are considered conservative investments, there are risks associated with investing in bonds (as with any other investment). The key risks are: Credit risk The bond issuer might get into financial trouble and not be able to pay you back some or all of your money, or miss interest payments (known as defaulting). Bonds with lower credit ratings are more likely to default, but in return offer higher interest rates to investors. Interest rate risk Interest rates could go up, making other investments such as term deposits or newer bond issues more attractive (and making your bonds less attractive). This means you pay the opportunity cost of not having your money in the more attractive investment. This also means if you need to sell your bonds on the secondary market, you’ll have to sell it at below face value. Liquidity risk You may not be able to sell your bonds on the secondary market when you need to if there is a lack of people willing to buy the bond. Your might have to sell your bonds at a lower price than you want in order to attract buyers. Found this article helpful? Please share, and Follow or Subscribe to keep up with the latest news and posts! More articles What’s the difference between InvestNow, Sharesies, Simplicity, Hatch, and more?11 July 2019 Bonus Bonds – Is it investing or gambling?6 July 2019 How to choose which fund to invest in on InvestNow and Sharesies17 June 2019 Disclaimer The content of this article is based on my personal opinion and should not be considered financial advice. The information should never be used without first assessing your own personal and financial situation, and conducting your own research. You may wish to consult with a qualified financial advisor before making any investment decisions.... Read more...What happened to Property Crowdfunding in New Zealand?18 July 2019You probably already know about Crowdfunding (and Equity Crowdfunding) where many people put their money together to fund a common cause. Property Crowdfunding applies this concept to property, allowing many investors to pool their money together in order to invest in real estate. This enables people to get on the property ladder for just a few hundred dollars, as opposed to the tens of thousands you might need for a house deposit. Internationally there are many Property Crowdfunding platforms operating successfully. With ongoing housing affordability problems in New Zealand, you might expect that such a concept would be successful here, with those locked out of the housing market searching for alternative ways to get a slice of the action. However, this has not been the case so far, with two Kiwi platforms failing to gain traction. So let’s take a look at how Property Crowdfunding works, and why it has yet to take off in New Zealand. How does Property Crowdfunding work? This is how a typical Property Crowdfunding platform would work: The Property Crowdfunding platform acquires a property (usually a residential house). They create a holding company to hold the property.The Property Crowdfunding platform offers shares in the property’s holding company (investors will own the property indirectly via the holding company).Investors keen on the offer buy the shares. The money from investors is pooled together and used to fund/settle the property.The property is rented out to tenants and managed by a property management firm.Rental income from the property (minus expenses like management fees and insurance) is paid out to the investors as dividends every month.The value of the shares goes up and down, depending on the value of the property. This means investors can make money on any capital appreciation of the property (or lose money if the house’s value goes down).Investors may be able to sell their shares, either to another investor or back to the Property Crowdfunding platform. I personally like this concept – we can already become a part-owner of a company by buying shares in that company – so it’s great that we can now become a part-owner and landlord of a house, collecting rental income and benefiting from capital gains, without needing to scrape together years of savings for a house deposit. Property Crowdfunding in New Zealand In New Zealand, at least two companies have attempted to offer a Property Crowdfunding to local investors. Unfortunately both companies, The Ownery, and The Property Crowd, have seen little success so far. What happened? Company 1: The Ownery The Ownery launched in 2016, offering shares in a house in Ellerslie, Auckland. The Ownery aimed to lower the barrier of entry onto the property ladder (and the “Kiwi dream” of home ownership) with a minimum investment amount of $500. They reportedly had underwhelming investor interest in the Ellerslie property, with not even a quarter of the shares taken up by investors. In 2017 The Ownery went on to register another holding company to offer a house in Clendon Park, Auckland to investors, but I’m unsure how well this offer went as I can’t find any mention of it in the news or social media. The two properties offered by The Ownery Since the end of 2016, The Ownery’s social media accounts have been inactive (with their Facebook page deactivated), and there is nothing on their website to suggest any activity beyond their first two property offers. I emailed The Ownery to ask if they are still actively operating, and if not, what happened to them. I did not receive a response from them. Company 2: The Property Crowd The Property Crowd launched in April 2019, offering shares in a house in Browns Bay on Auckland’s North Shore. The Property Crowd aimed to make it possible for anyone to get on the property ladder, with the minimum investment being just $100. They also wanted investing in their properties to be a socially responsible investment, by providing a long-term, high quality, and well maintained rental home for tenants. On 28 May 2019, The Property Crowd suddenly withdrew the Browns Bay property from the platform – they closed the platform to further investment, and those who had already invested got their money back. They cited a lack of investor demand for the Browns Bay property, meaning they wouldn’t have enough funds to pay for its purchase. I emailed The Property Crowd to get more insight on the reasons behind withdrawing the Browns Bay property. CEO Jim Janse responded: We decided to withdraw the house before we got to settlement when it became obvious that we didn’t have the support for the house we’d expected. We had hoped to get halfway but that looked increasingly unlikely so the decision was made to withdraw this one and start again.We carried out a number of surveys and ran two open homes where we also managed to talk to investors. That proved really helpful in giving us insights on what we could have done differently. Investors wanted clarity around exit (secondary market) and also different properties (and more properties) were high on the investors’ wish list. Investors also all had their own criteria around yield, location, and type of property they were looking for.As soon as we have more information to share I’ll update everyone. I’m hoping it’s not that far off. There’s a lot of interest in the shared ownership model and what it could do for everyone. I was surprised at the ongoing support (despite our first house being withdrawn) and it’s critical we get things right before we place our next property(s) up for funding.Jim Janse, CEO of The Property Crowd Further updates from The Property Crowd have been scarce apart from the following Facebook video posted on 2 July: Jim reviews what happened to Stapleford Crescent and hints at what's coming up next …Posted by The Property Crowd on Monday, 1 July 2019 What went wrong with Property Crowdfunding in NZ? Two companies had a crack at bringing Property Crowdfunding to New Zealand, and both have failed to gain any traction so far. My take on the reasons they haven’t succeeded yet is: The population in New Zealand is too small to get enough people to invest enough money to fund an entire house. With these platforms offering such a small minimum investment amount, they’d need to convince several hundred (or even thousands of) people to invest in each property to raise enough funds (The Property Crowd’s Browns Bay property only got around 200 investors before it was withdrawn). Perhaps they need some funding from institutional investors to make it work?They have to compete for a potential investor’s attention and money against platforms like InvestNow and Sharesies, who offer more traditional investments. More importantly, these platforms offered investments in trustworthy brands like Vanguard and Smartshares, while the Property Crowdfunding platforms have no track record.These platforms charged a one-off transaction fee when you invested in a property. These fees were quite high, at 5.175% with The Ownery, and 4% at The Property Crowd. It would probably take at least 1.5-2 years of dividend income from your property, just to break-even from this fee.These platforms offered only 1-2 properties for investment, without any guarantee that there would be more properties available for investment in the future. It is not possible for investors to achieve a diversified property portfolio with such few properties available to invest in. As far as I know, The Property Crowd is still hard at work trying to address some of the above concerns before they re-launch, so there is still hope for Property Crowdfunding to be successful in New Zealand. I feel that The Property Crowd CEO Jim Janse is right about there being strong public support for Property Crowdfunding, and I think that having this model of property ownership makes sense given New Zealand’s housing affordability issues. However, they have a massive challenge to make it succeed, like convincing New Zealanders to put their hard earned money into these crowdfunded properties instead of other investments like the hugely popular Sharesies and InvestNow. Lastly, emerging Shared Ownership schemes, like YouOwn, could make Property Crowdfunding less relevant in helping Kiwis get onto the property ladder. Found this article helpful? Please share, and Follow or Subscribe to keep up with the latest news and posts! More articles Disclaimer The content of this article is based on my personal opinion and should not be considered financial advice. The information should never be used without first assessing your own personal and financial situation, and conducting your own research. You may wish to consult with a qualified financial advisor before making any investment decisions.... Read more...Buying shares on the NZX – Sharesies vs ASB Securities and Direct Broking16 July 2019There’s a new kid on the block. Previously ASB Securities and Direct Broking were the cheapest brokers to buy and sell shares on the New Zealand sharemarket (NZX). We now have Sharesies, a popular Fund Platform with over 50,000 users, offering this service. How does it stack up against the traditional share brokers? This article is an early comparison between Sharesies, ASB Securities, and Direct Broking across criteria such as fees, user experience, ownership of shares, and other features. Because the Sharesies share trading feature is in beta, aspects of this comparison are likely to change as their functionality is gradually improved. 1. Minimum investment Sharesies The minimum investment amount with Sharesies remains at a super-low $1. Sharesies offers fractional share investing, so even if a share costs more than the amount of money you want to invest, you can still buy a fraction of that share. Investing $1 in Spark got me 0.2522 shares in the company ASB Securities and Direct Broking Investors using ASB Securities or Direct Broking must buy enough shares to meet NZX minimum holding requirements. This requirement is currently $1,000. Winner: Sharesies 2. Brokerage Fees Brokers charge brokerage fees on every trade i.e. whenever you buy or sell shares. The brokerage fees for each service are: Sharesies0.5% for trades up to $3,000Plus 0.1% for amounts above $3,000 ASB Securities$15 for trades up to $1,000$30 for trades between $1,000 and $10,0000.3% for trades over $10,000Direct Broking$29.90 for trades up to $15,000Plus 0.2% for amounts above $15,000 The table below shows the brokerage fee that would apply to different dollar amounts invested (ASB Securities and Direct Broking show n/a for $100 invested because this falls below the minimum investment amount). The result is that Sharesies is significantly cheaper, especially for smaller investment amounts. The only thing to watch out for when brokerage is so cheap, is that it could facilitate “taking a punt” or “dabbling” in various companies, while high brokerage fees encourages investors to thoroughly evaluate a company before investing. Winner: Sharesies 3. Total cost of ownership With Sharesies, brokerage is not the only fee you’ll pay. Sharesies will charge you a monthly/annual account fee, while ASB Securities and Direct Broking don’t. Sharesies account fee Therefore we need to factor the account fee into the total cost of owning your shares. The total cost of owning your shares includes: Brokerage fees to buy the sharesAccount fees to hold the sharesBrokerage fees to sell the shares The table below compares the total cost of ownership over 10 years (given shares are a long-term investment), of shares bought through each broker, for various portfolio sizes, and various number of companies in the portfolio: Most of the time buying shares through ASB Securities or Direct Broking will give you the lowest cost of ownership (e.g. a $10,000 portfolio spread evenly across 3 different shares has a total cost of ownership of $396 on Sharesies and $180 on Direct Broking). Direct Broking is like buying a more expensive car upfront, and never having to pay anything to maintain it, while Sharesies is like buying a cheap car, but having to pay for maintenance regularly. However, Sharesies does work out cheaper overall when you’re investing in smaller parcels of shares. Just be careful that with small investment amounts, their account fee makes up a horribly large percentage of your portfolio. Winner: ASB Securities and Direct Broking 4. User experience Sharesies In typical Sharesies fashion, they have provided a fantastic user experience for buying shares. The user interface is uncluttered, and easy to navigate. I would say the following are the current weak points of the interface: You can’t search for companies. You must scroll through a long list of over 100 companies to find the one you want. I’m sure this is an oversight that will be fixed soon.You can sort the companies list by “Highest annual dividends” and “Highest annual returns”. This is very concerning – given Sharesies’ target market is beginner investors, this feature could encourage investing based simply on the biggest dividends and biggest returns. This is absolutely NOT a good investment strategy. Past performance is not an indicator of future performance, and the very highest paying dividend companies are almost always “Dividend Traps“.Sharesies displays each company’s gross dividend yield, but their data for this is often totally inaccurate.You can’t see fundamental company statistics such as market capitalisation, P/E ratio, and Net Tangible Assets, nor can you see any important company announcements. However this data is publicly available on the NZX website.There is no watchlist where you can place companies you want to keep an eye on. This feature is standard in other brokers. It’s not the best idea to offer beginner investors the ability to sort by highest returns and dividends ASB Securities and Direct Broking These interfaces are dated, cluttered, and unfriendly compared to Sharesies. I’ll let the screenshots do the talking. Direct Broking’s interface. Not too bad, but not the best. ASB Securities’ interface. Needs improvement. Winner: Sharesies 5. Ownership of shares Sharesies When you buy shares through Sharesies, you do not get direct ownership of them. Instead they are owned by a “Sharesies Nominee” which is essentially a custodian holding the shares on your behalf. This has a number of implications: You can only sell your shares via Sharesies, so you’re locked into using their platform and paying their account fees.You can’t participate in Dividend Reinvestment Plans (DRPs). DRPs are where some companies allow you to reinvest your dividends into buying more shares, with no brokerage costs, and usually at a discounted price. DRPs are a great way to grow and compound your investment. With Sharesies, your dividends are always paid into your wallet.It is unclear how Sharesies will handle “corporate actions” on your shares. There is no guarantee you’ll get the full benefits of being a shareholder like being able to vote on important company issues, or participating in rights offers. “You acknowledge that we don’t have to forward to you, or take any action on, reports, notices, proxy forms, or other communications we receive about Investments in your Portfolio.” Sharesies Terms and Conditions ASB Securities and Direct Broking Shares bought through ASB Securities and Direct Broking are held under your CSN (Common Shareholder Number). This allows you to buy and sell your shares through any share broker. This also means that your shares are held directly in your name on a company’s share registry. Having direct ownership gives you the full benefits of being able to participate in DRPs, corporate actions, and Annual General Meetings. Winner: ASB Securities and Direct Broking 6. Trading features Sharesies’ basic, but elegant interface becomes a disadvantage as it is missing features you’d expect to find with a traditional broker. These features are: Live market prices and depth The share prices are shown on Sharesies are delayed by at least 20 minutes. Because share prices can be volatile, the delay can be problematic as the price of a share could surge, but not be reflected in the price you see on Sharesies. Meanwhile, ASB Securities and Direct Broking show live prices (as long as you have traded with them in the last 90 days), as well as market depth which is a list of buy and sell orders for a particular share. Limit orders When you buy shares through Sharesies, you place a market order, which means the price you buy your shares at depends on the current selling price. Using the above Spark depth chart as an example, a market order will get you shares at a price of $3.95 per share. This is a slight premium over the current $3.925 share price. ASB Securities and Direct Broking allow you to place limit orders. This allows you to specify a maximum price you’re willing to pay for the shares, providing you with more control and certainty. Placing a limit order for Spark at $3.93 per share Advanced Features Sharesies also do not offer: Trigger orders – an instruction to place an order to buy or sell a share if it reaches a certain priceMargin lending – the ability to borrow money to trade shares in order to leverage your investment (similar to a mortgage) Winner: ASB Securities and Direct Broking Conclusion If you are serious about investing in shares for the long-term, and have a decent amount of money to do so, stick with a traditional broker. Although the upfront brokerage costs will be more expensive, the total cost of ownership will be lower. You will directly own the shares under your name, won’t be locked in to Sharesies for holding and selling the shares, and can fully participate in any DRPs, rights issues, and voting. Don’t write off Sharesies as an option for investing in shares though. They offer low-cost brokerage and ultra-low minimum investment amounts, meaning it’s perfect if you want to invest small amounts to learn and/or slowly build up a portfolio (particularly if you are already paying for a Sharesies account to invest in their Funds). However, those with small portfolios may want to consider sticking to investing in funds, due to their convenience and instant diversification benefits. See my comparison between investing in funds vs individual companies to help you decide. If you’re keen to start building your investment portfolio with Sharesies, you can sign up with this link, and I’ll get $5 in my own Sharesies account. A great way to show your support for this site! Found this article helpful? Please share, and Follow or Subscribe to keep up with the latest news and posts! More articles Peer to Peer Lending review – Harmoney4 August 2019 How to buy Bitcoin in New Zealand16 June 2019 4 things to know about investing in Equity Crowdfunding8 July 2019 Disclaimer The content of this article is based on my personal opinion and should not be considered financial advice. The information should never be used without first assessing your own personal and financial situation, and conducting your own research. You may wish to consult with a qualified financial advisor before making any investment decisions.... Read more...What’s the difference between InvestNow, Sharesies, Simplicity, Hatch, and more?11 July 2019InvestNow, Sharesies, Simplicty, Vanguard, SuperLife, Smartshares, and Hatch. Whether you’ve been investing for a while, or you’re new, you’ve probably heard of these popular New Zealand investment services. They are all fantastic options for Kiwis wanting to invest, but it is often difficult and confusing for investors to decide which one to sign up for and use. On the surface, they all have one thing in common – they all provide you with access to funds to invest in. But if you dig deeper, they are actually all quite different things, offering unique services and working in different ways: InvestNow and Sharesies are what I call Fund PlatformsSimplicity, Vanguard, and SuperLife are Fund ManagersSmartshares is an Exchange Traded Fund (ETF) issuer. Vanguard also issues ETFs, but sadly not in the NZ marketHatch is what I call a Brokers (or Broker-like service). Sharesies is also a broker Below I’ll be explaining what each of these services do and offer, as well as giving a brief mention of the fees, minimum investment amount, and who they’re suitable for. Update (15 July 2019) – Sharesies is now included in the brokers section, as they have released the ability to buy and sell shares listed on the NZX. Fund Platforms Fund Platforms are services that offer you access to a variety of different funds to invest in, sometimes described as a “Fund Supermarket”. They do not manage your funds – instead they act as a “middleman” between investors and Fund Managers. Fund Platforms are a good option for everyone – both beginners and experts – as they allow you to invest in lots of different funds in one place. They also have low minimum investment amounts, making investing very accessible to ordinary people. Fund Platforms provide investors with good online portals, allowing you to buy, sell, and view your investments at anytime and anywhere. InvestNow Minimum investment$50Fees$0 InvestNow offers over 100 funds on its platform, from 20 fund managers/issuers including AMP, Smartshares, and Vanguard. They don’t charge any fees, making it a frequently recommended choice for investors (they make money by charging Fund Managers to list their funds on the platform). However, InvestNow’s interface isn’t the most user-friendly – while that should be fine for knowledgable investors, beginners might find it overwhelming. Check out the article How to choose which fund to invest in on InvestNow to help you get started on the platform. Sharesies Minimum investment$1FeesBased on the size of your portfolio:$0 for under $50$1.5/month between $50 and $3,000$3/month for over $3,000OR $30 per year The trendy Sharesies platform offers around 30 funds – comprising mainly of Smartshares ETFs and a few socially responsible funds. Their ultra low minimum investment amount opens up the ability to invest to almost anyone. Sharesies is known for having a simple, beginner-friendly user interface, however, this nice online portal doesn’t become cheap – they charge investors a monthly account fee if your account value is over $50. If you’re keen to start building your investment portfolio with Sharesies, you can sign up with this link, and I’ll get $5 in my own Sharesies account. A great way to show your support for this site! Fund Managers Fund Managers are the people who actually provide and manage the funds you invest in, taking your money and putting it into assets like shares and bonds. For doing so, they charge investors a management fee which is a small percentage of the amount you have invested. Some Fund Managers also charge a fixed administration fee. There are heaps of Fund Managers out there, and they tend to require a few thousand dollars as a minimum investment if you invest in a fund directly through them. However, a lot of managers offer their funds on platforms like InvestNow and Sharesies, where the minimum investment amount is lower. Most New Zealand Fund Managers also offer KiwiSaver funds, but I won’t cover these here. Simplicity Minimum investment$5,000Fees0.1% – 0.31%Plus $30 per year Simplicity is an attractive choice among investors because of their super low fees. Simplicity has five different fund options (Conservative, Balanced, Growth, NZ Share, NZ Bond). However, the minimum investment is high at $5,000 and their funds aren’t available on InvestNow or Sharesies, making Simplicity a much less accessible investment option. Also be careful of their $30 annual fee – with $5,000 invested, that fee equates to 0.6% which is quite high compared to other investment options. Vanguard Minimum investment$500,000 directly via Vanguardor $50 via InvestNowFees0.20% unhedged0.26% NZD hedged Vanguard currently has two global share funds (Vanguard International Shares Select Exclusions Index Fund – NZD Hedged/Unhedged) accessible in the New Zealand market, and they are investor favourites, again due to their very low management fee. Don’t be scared off by the $500,000 minimum investment amount because thanks to InvestNow, you can invest with only $50. Just be aware that these are Australian domiciled funds, so are considered Foreign Investment Funds. This may introduce additional tax implications to you. Overseas, Vanguard has a much more comprehensive offering, with over $5 trillion under management across a huge range of funds and ETFs. SuperLife Minimum investment$1Fees0.44% – 0.63%Plus $12 per year SuperLife offers 44 funds, investing almost entirely into Smartshares ETFs (e.g. the NZ Top 50 Fund invests exclusively in the Smartshares NZ Top 50 ETF). Even more confusing, is that sometimes SuperLife’s fund management fee differs from its Smartshares ETF equivalent e.g: The SuperLife Australian Mid Cap Fund has a management fee of 0.49%, while the Smartshares Australian Mid Cap ETF charges 0.75%The SuperLife US 500 Fund charges 0.44%, while the Smartshares US 500 ETF charges only 0.34%. Because SuperLife’s online portal is relatively poor, and their offering mirrors Smartshares so closely, it is probably easier to stick with buying the equivalent Smartshares ETF from InvestNow or Sharesies. That is unless: The fund offered on SuperLife has cheaper fees than the Smartshares ETF equivalent AND you are investing enough money to make the fee savings cover the $12 annual fee e.g. you need to invest over $4,616 in the SuperLife Aussie Mid Cap Fund for it to work out cheaper than investing in the Smartshares ETF equivalent.The Smartshares ETF you want is not offered on InvestNow or Sharesies e.g. the US Small Cap ETF. Other fund providers Your bank – New Zealand’s big banks offer their own funds, but they tend to charge high management fees.AMP – Offer popular, low-fee index funds (Global Shares Index, Global Fixed Interest Index, NZ Shares Index, Australasian Property Index) accessible through InvestNow.Heaps more – Devon, Harbour Asset Management, Milford, and Pathfinder are examples on Fund Providers offering funds on InvestNow. ETF Issuers ETF Issuers are pretty much the same as Fund Managers. ETF stands for Exchange Traded Fund, and they work the same as normal funds, apart from the key difference being that ETFs are listed and tradable on an exchange (i.e. a sharemarket). This difference less important these days, because with Fund Platforms like InvestNow and Sharesies, you no longer have to go through the sharemarket to access ETFs. However, buying and selling ETFs on the sharemarket is much more prevalent in countries like Australia where brokerage fees are cheaper, and the ETF selection is much greater. Smartshares Minimum investment$500FeesBetween 0.3% – 0.75% management fee$30 one-off fee, if buying directly from Smartshares Smartshares is the dominant ETF issuer in NZ with over 30 ETFs, and are owned by the operator of NZ’s sharemarket, NZX. Interestingly, their non-Australasian ETFs simply invest in Vanguard and Blackrock ETFs, so they are really ETFs within an ETF! You can buy Smartshares ETFs from the NZ sharemarket through a broker, or directly from Smartshares (note – ETFs bought from Smartshares must be sold via a broker). In addition, a large collection of Smartshares ETFs can be found on InvestNow and Sharesies – which is probably the easier way to invest in these ETFs due to their lower fees and superior online portals. Other ETF Issuers Unfortunately these ETF issuers don’t offer anything in the New Zealand market. But that’s where brokers come in (see below section). Blackrock – the world’s largest ETF issuer under the iShares brandVanguard – the world’s 2nd largest ETF issuerBetashares – an Australian ETF issuer Brokers Brokers allow you to buy and sell shares in individual companies on the sharemarket. Because ETFs are listed on the sharemarket, you can also buy and sell ETFs through brokers. They charge brokerage fees whenever you make a trade (buy or sell something). Brokers are probably more suited to more experienced investors, as the large number of share and ETF offerings might be overwhelming for beginners, particularly if investing in the United States market. Hatch Minimum investment$1Fees50bps on NZD-USD currency exchange$3 per trade of fractional shares$8+ per trade of whole sharesFull details on Hatch fees here Hatch is a service that allows you to buy and sell shares and ETFs from the United States sharemarkets. This gives you access to the dirt cheap Vanguard and Blackrock ETFs, as well as individual companies like Apple, Facebook, Netflix, and Tesla. However, you must change your NZD to USD before buying anything through Hatch, and to do this they’ll charge you a 50bps fee on the exchange rate. When withdrawing your investment you’ll need to change the USD back to NZD, costing you another 50bps on the exchange rate. Another thing to be aware of is that Hatch is not a true broker, as they do not allow you to trade directly on the sharemarket. Instead, trades are done through DriveWealth, a platform which holds your shares and ETFs on your behalf. Sharesies Minimum investment$1FeesAccount fee based on the size of your portfolio:$0 for under $50$1.5/month between $50 and $3,000$3/month for over $3,000OR $30 per yearPlus a brokerage fee of:0.5% for orders up to $3,000+0.1% for amounts above $3,000 It’s Sharesies again. In addition to being a Fund Platform, they provide a brokerage service for shares listed on the NZX, New Zealand’s sharemarket. Brokerage is cheap (compared to other NZX options), and they offer fractional shares, which means you can invest with any amount (compared to a minimum of ~$250 through other channels). However, unlike traditional brokers, any shares bought off Sharesies are not held directly in your name – instead they are held by a custodian on your behalf. See my full comparison between Sharesies and ASB Securities/Direct Broking here. If you’re keen to start building your investment portfolio with Sharesies, you can sign up with this link, and I’ll get $5 in my own Sharesies account. A great way to show your support for this site! Other Brokers Stake – Identical service to Hatch, for Australians. Stake is planning to launch in New Zealand soon.Direct Broking, ASB Securities – Brokers for shares and ETFs on the NZ and Aussie sharemarket. Conclusion New Zealanders are spoilt for choice these days when it comes to investing options. So what kind of service should you use? Fund Platforms: Suitable for everyone, as they provide easy online access to many funds at a low minimum investment amount. A great way to build a “set and forget” investment portfolio.Fund Managers: Suitable if you have a large amount to invest and want to invest in a specific fund.ETF Issuers: Suitable for everyone, but it’s easier to buy ETFs from a Fund Platform (or from a broker if you’re in Aussie).Brokers: Suitable for intermediate or expert investors who want to invest in a specific company, or an ETF from overseas. Fantastic for hands-on investors. The complex world of investment services Found this article helpful? Please share, and Follow or Subscribe to keep up with the latest news and posts! More articles 3 tips to get the most out of KiwiSaver19 June 2019 Bond Basics – 5 things to know about investing in bonds23 July 2019 Peer to Peer Lending review – Harmoney4 August 2019 Disclaimer The content of this article is based on my personal opinion and should not be considered financial advice. The information should never be used without first assessing your own personal and financial situation, and conducting your own research. You may wish to consult with a qualified financial advisor before making any investment decisions.... Read more...4 things to know about investing in Equity Crowdfunding8 July 2019Equity Crowdfunding is a relatively new way to invest, becoming available in New Zealand in 2014, and in Australia in 2018. It allows ordinary people to invest and buy shares in smaller, high-growth, or start-up type companies that aren’t available on traditional sharemarkets. I have personally invested a small amount of money into Equity Crowdfunding campaigns, wth companies like Zeffer Cider, Squirrel, and ParrotDog Brewery, making up around 4% of my investment portfolio. In this article, I’ll cover four things you should know about investing in Equity Crowdfunding. 1. What is Equity Crowdfunding? Most of you will already be familiar with the concept of crowdfunding. You’ve probably heard of Givealittle, a site where people can start fundraising campaigns to gather donations from the public to pay for things like medical bills, community projects, or sports trips . You may have also heard about a chap named Israel Folau who attempted to crowdfund $3 million to pay for legal fees to fight his former employers. Essentially, crowdfunding is about raising money from lots of different people (otherwise known as “the crowd”) to fund a common cause. Equity Crowdfunding takes this concept to the next level, allowing companies to raise “equity” or “capital” from the public – money used to run and grow their business. In return, people who give those companies money in an Equity Crowdfunding campaign will receive shares in that company i.e. they become a part owner of that company. Equity Crowdfunding’s impact on companies For companies, Equity Crowdfunding allows them to raise capital more easily, with less time and expense required than going through traditional avenues. It also gives companies the ability to raise money from a wide audience, including giving their own customers a chance to become a shareholder. That’s why companies using Equity Crowdfunding are usually young, small, high-growth companies, that are not ready for the time, expense and regulatory requirements of listing on a public sharemarket. New Zealand’s current regulations allow companies to raise $2 million from crowdfunding per year (although they can raise more money through other sources). What Snowball Effect has to say about what Equity Crowdfunding has to offer for companies Equity Crowdfunding’s impact on investors For investors, Equity Crowdfunding allows ordinary people to get exposure to companies that you won’t find on traditional sharemarkets, and gives them the opportunity to invest in young, high-growth companies. The high-growth nature of these companies provides the potential to achieve massive returns, although this comes with high risk – a company’s growth aspirations may not come to fruition, or they may fail completely. Andrea Moore and Renaissance Brewing are examples of companies that have raised capital through crowdfunding, but have since gone into liquidation. What Snowball Effect has to say about what Equity Crowdfunding has to offer for investors 2. How do I invest in Equity Crowdfunding? Equity Crowdfunding is facilitated through licensed platforms like Snowball Effect, Equitise, and PledgeMe. These are the basic steps of investing in Equity Crowdfunding: A company wanting to raise capital launches an Equity Crowdfunding campaign on a licensed platform.The campaign is accompanied by an Information Memorandum (IM) document. The IM contains key details about the campaign such as what the money will be used for, risks, financial statements and forecasts, how many shares are on offer, and the minimum investment amount.People who are keen to invest sign up to the Equity Crowdfunding platform and agree to invest their desired amount. Anyone in the public can invest, and the minimum investment amount varies for each campaign (this typically starts between $500-$1,000).Each campaign has a minimum target, which is the amount of money that must be raised for the campaign to be deemed successful. Campaigns also have a maximum amount that can be raised. A campaign closes when it reaches its closing date or the maximum amount.If the campaign meets its minimum target, investors’ money is passed to the company, and investors are issued shares in that company. If the campaign fails to meet its minimum target at the closing date, no money changes hands and no shares are issued. Equity Crowdfunding campaigns are often accompanied by a pitch video Tip: See an interesting offer on crowdfunding site Snowball Effect? Sign up using this link to score yourself a $100 Snowball Effect voucher after you make your first investment. 3. What is it like being an investor in Equity Crowdfunding? So you’ve become a shareholder in a company through an Equity Crowdfunding campaign. What happens next? Firstly, the company will hopefully put the money raised to good use. Good companies will also send out regular updates to their investors, sharing their progress, achievements, challenges, and financial metrics. But don’t expect regular dividend payments from these companies, as they are high-growth companies that prefer to reinvest their profits into further growth. Share price One thing that won’t be visible to shareholders is the company’s current value. With companies that are listed on the sharemarket, you can see their share price at anytime, and therefore know how much your shares are worth on any given day. This is not the case with Equity Crowdfunding – similar to investing in a house, you can only estimate its current value. A side effect of not knowing a company’s share price or value is lower volatility. Companies listed on the sharemarket have their share prices go up and down every day, sometimes by large amounts. Equity Crowdfunding stays away from the ups and downs of the public sharemarket, so these companies’ value is significantly more stable. This could serve to stabilise your overall investment portfolio during times of high market volatility. Rewards Lastly, some companies will give their crowdfunding shareholders discounts and rewards. For example, ParrotDog and Zeffer offer shareholder discounts on their beer and cider, and Behemoth Brewing are rewarding their shareholders with goodies like a t-shirt and hat. You may also be invited to annual shareholder meetings, where there is sure to be free food and drinks 🙂 4. How do I sell the shares I bought through Equity Crowdfunding? When you invest in a company through Equity Crowdfunding, prepare to hold your shares for a very long time. These companies aren’t listed on a sharemarket so you can’t go to a broker to sell them. However, some companies will offer trading windows (a short period of time where you can buy and sell the shares) or an informal marketplace where you can privately sell your shares to another person. Even though you can’t sell your shares easily, doesn’t mean you’ll necessarily be holding them for eternity. Most companies will have an exit strategy detailed in their IM. This strategy details how shareholders might eventually “exit” out of their investment. These are typically: An aspiration to be acquired by a larger company (like how Instagram was bought by Facebook) or,An aspiration to grow large and mature enough to list on a public sharemarket However, these aspirations don’t always work out as planned, so prospective investors should always take into account the risk of having their money locked up for the long-term. Found this article helpful? Please share, and Follow or Subscribe to keep up with the latest news and posts! More articles Disclaimer The content of this article is based on my personal opinion and should not be considered financial advice. The information should never be used without first assessing your own personal and financial situation, and conducting your own research. You may wish to consult with a qualified financial advisor before making any investment decisions.... Read more...Bonus Bonds – Is it investing or gambling?6 July 2019Bonus Bonds is a savings scheme that was set up by the government in 1970 to encourage people to save more. Basically investors put money in, and in return they get the chance to win up to $1 million in a monthly prize draw. Bonus Bonds was the second type of investment I ever made – previously I had only invested in bank deposits and was excited to have something new to diversify my portfolio. Even more exciting was the prospect of becoming a millionaire each and every month! Does the thrill of the prize draw and the opportunity to win $1 million every month make Bonus Bonds a worthwhile investment? Or is it just gambling? How Bonus Bonds work The Bonus Bond scheme is an investment fund in disguise. The fund invests your money in conservative assets such as government bonds and bank deposits. These days the scheme is run by ANZ, and you can join by visiting an ANZ branch. Bonus Bonds have a minimum investment amount of $20, and you can withdraw your money at anytime. There is currently over $3 billion invested in Bonus Bonds. The fund invests in conservative assets like bank deposits and government bonds While normal investment funds distribute any returns to investors proportionally to how much they have invested, Bonus Bonds distributes its returns to investors randomly as prizes. To facilitate this, a monthly draw is held where each dollar you have invested, gives you one chance to win a prize. Prizes on offer each month are the big $1 million, $100,000, and $50,000 prizes, and various smaller prizes between $20 and $5,000. Prizes won in the June 2019 prize draw This meant that every month you could win some life changing amounts of money. And if you didn’t win, your money still stays invested in the scheme for future prize draws, so it was safer than buying Lotto tickets. ANZ markets this as “The much more fun investment”. This got me hooked, and as a teenager, any birthday or Christmas money I received was invested into my Bonus Bonds account. Imagine getting the call to say you’ve won $1 million The numbers We can see that the Bonus Bonds scheme is part investment fund, and part lottery. So let’s look at some numbers to see how they stack up: Overall returns of the scheme to see how they compare to similar investmentsThe scheme’s management feesThe odds of winning a prize in Bonus Bonds, compared with Lotto Overall returns of the scheme First, I’ll look at how the performance of the Bonus Bond scheme is overall. Looking at the Bonus Bonds Product Disclosure Statement (PDS), the scheme returned 1.34% (after fees and tax) to investors in the year ending 31 March 2018. This return rates poorly compared to similar investments like the AMP NZ Cash Fund returning 1.55%, and the AMP NZ Fixed Interest Fund returning 3.17% in the same time period. Even term deposits do better, as you can currently earn over 3%. And because the returns of Bonus Bonds are distributed randomly, the majority of investors would have received returns below 1.34%, as the returns are skewed towards those who win big prizes. Bonus Bonds prizes and returns In addition, the scheme’s performance is getting worse over the years as interest rates fall. Even more concerning is that the rate of return is now lower than the rate of inflation (roughly 1.5% in NZ), so keeping your money is Bonus Bonds is resulting in your money eroding away. Fees Now let’s look at the management fees and expenses of the scheme. Looking at the PDS, we can see it’s a whopping 1.23%. I’d consider this a rip-off as funds investing in conservative assets like cash and bonds usually charge much less e.g. The AMP NZ Cash Fund charges 0.27%, AMP NZ Fixed Interest Fund charges 0.57%, and term deposits have no management fee. That helps explain why the returns of the scheme are so low, as almost half of the scheme’s return is eaten by fees. Bonus Bond scheme fees Chances of winning We’ve established that Bonus Bonds is a poor performing investment compared to some of the alternatives. But does the prize draw and the chance to win $1 million make up for it? Let’s examine the chances of winning a prize in each monthly prize draw. For most prize draws over the next year, we expect that the chance of any Bonus Bond winning a prize will range between 1 in 25,000 and 1 in 50,000Bonus Bonds Bonus Bonds have stated that the odds of winning a prize for every dollar invested is 1 in 25,000 in the best case, and 1 in 50,000 in the worst case. In 2018, the odds were 1 in 26,875. In the table below we have the odds of winning for four different amounts invested, under the best and worst cases, and the 2018 odds: Amount investedBest Case (1 in 25,000)2018 odds (1 in 26,875)Worst case (1 in 50,000)$201 in 1,2501 in 1,3441 in 2,500$1,0001 in 251 in 271 in 50$10,0001 in 2.51 in 2.691 in 5$50,000Expect 2 prizesExpect 1.85 prizesExpect 1 prize These odds suggest you can expect to win a prize every few months if you have a decent amount invested. However, almost all the prizes are amounts of $20 (97.7% in the June 2019 prize draw). So in the table below we have the odds of winning a prize larger than $20: Amount investedBest Case (1 in 25,000)2018 odds (1 in 26,875)Worst case (1 in 50,000)$201 in 54,3481 in 58,4351 in 108,696$1,0001 in 1,0871 in 1,1741 in 2,174$10,0001 in 1091 in 1171 in 217$50,0001 in 21.71 in 23.41 in 43.5 No wonder I never won anything more than $20! Even with $50k invested, your chances of winning a prize greater than $20 is fairly slim. Next we have the odds of winning the big $1 million prize (assuming $3.3b units in distribution): Amount investedProbability of winning$201 in 165 million$1,0001 in 3.3 million$10,0001 in 330,000$50,0001 in 66,000 Not likely at all, even with $50k invested! Imagine getting picked as the single winner out of two Westpac Stadiums full of spectators. Lastly, let’s take a look at the odds of winning 1st Division in Lotto (where the prize is typically $1 million) for comparison: Amount spent on ticketsProbability of winning$201 in 137,085$1,0001 in 2,687$10,0001 in 269$50,0001 in 53.7 We can see than even winning Lotto is easier to come by than winning the big one in Bonus Bonds! (although with Bonus Bonds investors get their invested money back, while Lotto players don’t). Are Bonus Bonds a worthwhile investment? Based on the numbers, I don’t think so. The returns (and the resulting prize pool) are too low, and the fees are too high compared to other types of investments. If this was a normal investment fund, it would not be a good deal at all for investors. The odds of winning aren’t great either, with the chances of winning a decent prize being pretty much zero (and even lower than winning Lotto!) But surely there must be a reason why there’s a enormous $3.3 billion “invested” in the scheme. Like what about the chance to become a millionaire each and every month? Well, over the years I’ve learnt that investing is about putting your money into sensible assets and watching it grow over the long-term. Investing is not about getting rich quickly. Getting rich quickly is what gambling is for, but that is much more likely to lose you money. And that’s what I was doing with Bonus Bonds – I was holding onto hope that I could perhaps win the $1 million, and as a result I was letting my money erode away to inflation, and paying the opportunity cost of not investing in more profitable assets like shares. Therefore, I sold half my Bonus Bonds 2 years ago, and just sold the other half earlier this year. I admit it was a hard decision for me to sell the last of my Bonus Bonds because I had FOMO – the Fear Of Missing Out on that potential $1 million prize, even when the chances of winning were so minuscule. Although Bonus Bonds may have helped me develop good savings habits as a teenager, I can now say that my money is invested somewhere that is slowly and steadily contributing to making me rich in the long-term. Casino photo credit – Lidia Found this article helpful? Please share, and Follow or Subscribe to keep up with the latest news and posts! More articles How to choose which fund to invest in on InvestNow and Sharesies17 June 2019 3 tips to get the most out of KiwiSaver19 June 2019 9 ways to invest in New Zealand1 July 2019 Disclaimer The content of this article is based on my personal opinion and should not be considered financial advice. The information should never be used without first assessing your own personal and financial situation, and conducting your own research. You may wish to consult with a qualified financial advisor before making any investment decisions.... Read more... 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