Popular Articles Looks like you have JavaScript disabled. Use this link to access the no JavaScript friendly site.InvestNow vs Sharesies – Ultimate Fund Platform showdown and reviewPak’nSave vs Countdown. Cadbury vs Whittakers. Air New Zealand vs Jetstar. There are heaps of great rivalries around NZ and the world, and InvestNow vs Sharesies is one of them when it comes to the NZ investing scene. Both platforms continue to cause confusion as many investors struggle to decide which to use – the choice as not as easy as deciding between Cadbury and Whittakers! They are both fund platforms providing investors easy and cheap access to a large range of funds, but digging deeper uncovers many differences. So here’s a comprehensive look at both platforms to help you decide which is best for you. Update (15 October 2019) – Added details about InvestNow’s Advanced Fund Selector 1. What’s on offer Both InvestNow and Sharesies are fund platforms. They allow you to invest in large range of funds in once place, and manage your investments through their online portals at anytime of the day or night. InvestNow Owned by Wellington based Implemented Investment Solutions, InvestNow launched in 2017 and now has over 13,000 users, with over $300 million invested through the platform. InvestNow allows you to invest in over 100 funds including: The very popular and cheap Vanguard International Shares Index fundsThe also popular and cheap AMP Index fundsA selection of Smartshares ETFsA large variety of actively managed funds from over 20 fund managers Offering over 100 funds gives investors a huge amount of choice – and they continue to add more! But this is not always a good thing! This can be overwhelming for new investors, and make choosing a fund a lot harder – however, I’ve boiled down the choices in my article How to choose which fund to invest in on InvestNow and Sharesies. To help you research and choose a fund, InvestNow has an ‘Advanced Fund Selector’. It allows you to search and filter funds, and contains handy information such as a fund’s management style, distribution payment frequency, price history chart, and links to a fund’s fact sheet and product disclosure statement. InvestNow also offers term deposits from four different banks, but this won’t be a focus of this article. Sharesies Launched in 2017, Sharesies has around 60,000 users and over $60 million invested. They’re also based in Wellington, and are owned by a variety of shareholders – the largest being Trade Me who own 15.64% of the platform. Sharesies allows you to invest in over 30 funds: 32 Smartshares’ ETFs – their main offeringTwo funds from AMP CapitalThree funds from Pathfinder Asset ManagementThe Salt Carbon Fund, which invests in carbon credits To help you decide which fund to invest in, Sharesies provides a brief overview of each fund, its risk indicator, dividend details, and price history chart. Sharesies also offers you the ability to invest in individual companies listed on the NZX, but this won’t be a focus of this article. See my article Sharesies vs ASB Securities and Direct Broking for more information on investing in individual companies. There is quite a bit of overlap between the funds you can find on InvestNow and Sharesies. The only Sharesies funds you can’t get on InvestNow are: Smartshares Asia Pacific ETFSmartshares Australian Dividend ETFSmartshares Australian Financials ETFSmartshares Australian Resources ETFSmartshares Global Bond ETF (not to be confused with the Global Aggregate Bond ETF)Smartshares NZ Bond ETFSmartshares NZ Cash ETFSmartshares US Large Value ETFSmartshares US Small Cap ETFAMP NZ Responsible FundSalt Carbon Fund But I don’t think any of these 11 funds are compelling enough to make you choose Sharesies purely based on wanting to invest in these funds. Winner: InvestNow 2. Getting started What does it take to get started on each platform? InvestNow InvestNow requires a minimum investment of $250 for a one-off investment into a single fund. This amount can be reduced to $50 per fund if you set up a regular investment plan (see section 3 below). This is low considering investing in funds directly through a fund manager can often require anything from $500 to $2,000, or even $500,000 AUD in the case of the Vanguard Funds. Depositing money into your InvestNow account is done via a bank deposit, and deposits are usually processed overnight. Sharesies Sharesies requires a minimum investment of just one cent! Although investNow already makes starting to invest accessible with a low $50 minimum, Sharesies makes it just a little bit easier to dip your toe in the water. This is partly thanks to fractionalisation – most other services require you to buy whole shares (i.e. at least 1 share at a time), but Sharesies allows you to buy tiny fractions of a share (so even if a share costs $1, you can buy 0.01 shares for 1 cent). You can top-up your Sharesies account through bank deposit or by credit card. The credit card method is instant as you don’t have to wait for bank processing to occur – but topping up by credit card incurs fees of $0.18 + 2.65% (unless it’s your first ever top-up of up to $100), so you really don’t want to rely on this method. 2.65% is really high and could be high enough to eat up all your dividends for the year! Sharesies also allows you to give and redeem gifts of between $5 and $2,000. I really like this idea, as it’s an elegant way of helping a friend or family member build their investment portfolio. However, gifts also incur the same fees as topping up by credit card, so be careful about relying on this method too much. You’d be better off gifting someone cash to top up their Sharesies account by bank deposit! Winner: Sharesies 3. Regular Investing Regular investment is a great way to gradually build up an investment portfolio over time. Both platforms allow you to automatically invest into the funds of your choice on a regular basis. InvestNow InvestNow’s regular investment plans allow you to invest a minimum of $50 per fund weekly, fortnightly, monthly, quarterly, or six-monthly. If you change your mind about the plan, you can edit or cancel it at any time. The $50 per fund minimum is low, but could still be restrictive for some people. For example, let’s say you want to make weekly investment of $100 into a portfolio consisting of 90% into a share fund and 10% into a bond fund. Well, you can’t invest in the bond fund because 10% of $100 is below the $50 minimum. Your options to workaround this might be to: Change your portfolio to 50% shares and 50% bondsIncrease your weekly investment to $500Reduce your investment frequency to something like $500 per month Sharesies Sharesies’ auto-invest allows you to invest $5 or more into a selection of funds either weekly, fortnightly, every four weeks, or monthly. You can choose to invest in a pre-made order, which contain a bunch of pre-selected funds and weightings, or you can create a DIY order, where you choose your funds and weightings on your own. Having the minimum auto-invest order at a very low $5 makes Sharesies significantly more flexible than InvestNow for regular investing. Winner: Sharesies 4. Fees You can’t avoid fees when investing! So what will you pay under each platform? InvestNow Account fees InvestNow does not charge an account fee. InvestNow makes money by charging fund managers to have their funds listed on the platform (I suspect this is through a commission). In return, fund managers increase the exposure and accessibility of their funds, hopefully resulting in more customers. InvestNow also offers funds that are distributed and owned by Implemented Investment Solutions (InvestNow’s parent business), such as the Russell, Legg Mason, and Hunter funds – therefore providing the aforementioned exposure and accessibility benefits to their parent. Fund Management Fees Even with zero account fees, you will still have to pay fund management fees – this is a fee paid to the manager of the fund you invest in, and is calculated as a percentage of the value of your investment. On InvestNow, this fee ranges from 0.20% per year for the Vanguard International Shares Select Exclusions Index Fund, up to 2.75% per year for the Fisher Funds Property & Infrastructure Fund. Sharesies Account fees Sharesies charges a subscription fee based on the value of your portfolio. This starts at zero for balances of $50 or under, then $1.50 per month for balances from $50 to $3,000, and over $3,000 it’s more cost effective to pay the annual fee of $30. The fee can be paid by credit card, or deducted from your account’s cash balance. I would advise caution in thinking that these fees are cheap – see tables below. Also remember that any money spent on fees cannot be used to invest in your portfolio and grow into more money. Here’s Sharesies’ subscription fee as a % of your portfolio value. It’s not cheap at all, particularly for smaller balances. Portfolio valueAnnualised FeeFee %$500$183.6%$1,000$181.8%$5,000$300.60%$10,000$300.30% Here’s the subscription fee as a % of your annual return, assuming an after-tax return of 7%. The major goal of investing is to generate investment returns, and this fee is definitely a big drag on that – If you invested $500, over half your potential annual return is eaten up by the subscription fee! Portfolio valuePotential ReturnFee %$500$3551.4%$1,000$7025.7%$5,000$3508.6%$10,000$7004.3% Fund Management Fees Like InvestNow, you will pay fund management fees which ranges from 0.30% per year for the Smartshares Global Aggregate Bond ETF, to 1.30% per year for the Pathfinder Global Water Fund. Unlike account fees, fund management fees are not deducted from your InvestNow or Sharesies account’s cash balance. Instead fund management fees are calculated daily and are deducted/reflected in the unit price of your fund. Winner: InvestNow 5. User Interface With InvestNow and Sharesies being fully online platforms, user interface is an important consideration. This consideration is quite subjective though, so the best judge of user friendliness is you! InvestNow Opinion on InvestNow’s user interface is somewhat mixed, with this type of comment being somewhat common on social media sites: I went to InvestNow but their website was confusing to navigate.Facebook comment On the other hand there are many comments, including their Facebook reviews, that are positive about the interface: Easy to use interface, minimal fees, wide selection of funds. What’s not to like?Facebook review I agree that the portal has room for improvement, but personally I think it’s perfectly adequate once you familiarise yourself with it. It does what you’d expect it to do well – in fact it takes only seven mouse clicks to go from logging in to placing an investment in a fund – the same number of clicks as Sharesies! I think the interface’s biggest weaknesses are the lack of a mobile friendly interface, and how it makes you download a fund’s Product Disclosure Statement every single time you place an investment order – very annoying! Sharesies Sharesies’ user interface is praised very often for being easy to use and free of jargon. If you dig around on social media sites, you’ll find heaps of positive comments from their happy users. I’m really enjoying Sharesies. Easy, quick to use. Instead of buying alcohol, gambling, or buying junk food, I invest. Win win. And fun.Twitter Tweet I like Sharesies. The psychological reinforcement that the app provides will benefit me more than the $30 per year. Reddit comment The platform is certainly much more colourful and inviting compared with InvestNow. It’s also mobile friendly – in fact they use the same responsive interface for both mobile, tablet, and desktop. There are still bad points about the interface, but I think they’re very minor. For example, I’ve never been a fan of them allowing you to sort funds and companies by ‘highest dividends’ and ‘highest returns’. Some people also think the interface is too simple: Surprised how big Sharesies has become, seems so very basic and dumbed down.Reddit comment Winner: Sharesies 6. Ownership of investments A very common concern when investing through these types of platforms is who actually owns the investment, and what happens if the platform goes out of business? Neither InvestNow or Sharesies allow you to hold your investment under your name. Instead they are held on your behalf by a custodian, which is not as ideal as owning the investment yourself, but there a couple of features that come with custodians to protect you: Segregation – your money and investments are held by a legally seperate entity to the InvestNow and Sharesies platform. This means your money can’t be mixed with the platform’s money, and won’t be affected in the case that the platform goes out of business.Auditing – custodians are legally required to be independently audited every year. The custodians here use reputable auditors such as PwC and KPMG. InvestNow The InvestNow platform’s legal entity is InvestNow Saving And Investment Service Limited. InvestNow’s custodian is Adminis Custodial Nominees Limited, run by a specialist Wellington based investment administration company, Adminis, so are completely independent from InvestNow. In addition, with InvestNow it’s usually possible to perform an off-market transfer to transfer ownership of an investment into your own name. The exception to this would be the Vanguard funds for example, where you need at least $500,000 AUD invested to own the funds under your own name – in this situation, an off-market transfer is probably not doable unless you have the required amount. Sharesies The Sharesies platform’s legal entity is Sharesies Limited. Cash deposits, and investments in non-listed funds are held by custodian Sharesies Nominees Limited, while investments in listed funds and shares are held by NZX owned New Zealand Depository Nominee Limited. You can read more about Sharesies’ custodial arrangements here. Sharesies’ custodial arrangements are not as robust as InvestNow: The custodian Sharesies Nominee Limited is not fully independent from the Sharesies platform, as it is 100% owned by Sharesies Limited, and both entities share the same directorsSharesies do not allow you to make off-market transfers from their custodians into your own name. This is probably partly due to their fractionalisation feature. I won’t go into any more detail as this topic probably deserves an article of its own. In the meantime, this Reddit post about what makes a good custodial arrangement (written by InvestNow’s founder, Anthony Edmonds) is well worth reading. Winner: InvestNow 7. Other Considerations Account ownership and access Sharesies only offers individual accounts, while InvestNow also allows you to create joint, trust, and company accounts. InvestNow also allows you to give other people access to your account. You can give someone (e.g. your partner) control of your account, or allow someone to view your account (e.g. your accountant or adviser). Tracking & reporting Both platforms do a good job of telling you how your investments are performing, at both the portfolio and individual fund level. Here is a very cool Sharesies feature which shows how much my portfolio value has changed over time: Here’s InvestNow which provides an awesome graph showing your profit or loss for each fund. With Sharesies you have to dig through a few screens to see the same information. Unfortunately InvestNow only updates the data on their Performance tab monthly. But overall I think InvestNow provides better reporting as their functionality for filtering transactions is a lot more complete (on the Activity tab). With both platforms you can also generate a detailed PDF report containing all of your holdings and transactions at any time. However, InvestNow’s report is a little more comprehensive with seperate sections for holdings, dividends, tax, deposits, and fund transactions. 2-Factor Authentication InvestNow requires 2-factor authentication (2FA) when you log in to the platform – in addition to entering your email and password, you also need to enter a six-digit code sent to you as an email or SMS. While this adds more security to your account, I wish there were more granular options to control when 2FA is required. For example, it would be awesome if I didn’t need 2FA to log in, and only needed 2FA to buy/sell funds and make withdrawals. Trade execution This is a very minor point as it hardly makes a difference to most people. If you invest in a Smartshares ETF on Sharesies, and the sharemarket is open (normally 10am-4:45pm on business days), your investment order will be processed immediately. With InvestNow, investment orders are only processed once per business day, and you need to place an order before the 12pm cut-off time if you want your order processed on the same day. Kids Both platforms allow you to create kids accounts. Sharesies offers half price account fees for under 18s, but InvestNow still wins with their zero account fees. Just one thing to be cautious about is that most funds on Sharesies are not tax friendly for kids, as the Smartshares ETFs are all taxed at 28%. InvestNow has more options for tax friendly funds for kids. See my article How to invest for kids in New Zealand for more info. Tax Your tax obligations should not differ between investing in InvestNow and Sharesies. The exception is if you’re investing in any of the Australian Unit Trusts on InvestNow – you may have to complete a tax return for these as they are overseas investments. See section 2C of my article about tax for more information. Withdrawing money Withdrawing your cash is painless with both platforms, and in my experience both had the money in my bank account within a business day. Conclusion Most of the time you are gonna be better off going with InvestNow (myself included). I would say that based on fees alone – why pay for something when you can get a free alternative that’s just as good? Their UI is not as daunting as it first appears to be, and their minimum investment amount is still fairly easy to work with. You also get a wider offering of funds, including the low fee Vanguard and AMP index funds. However, there are a few reasons you might want to consider Sharesies: Lower minimum investment – Sharesies allows you to invest amounts smaller than InvestNow’s $50 minimum. However, alternatively you could save up in a bank account until you reach the $50 needed for InvestNow.User friendliness – Sharesies has a better interface and is easier to use, but ask yourself whether this is worth paying the account fee for. InvestNow’s interface is pretty good once you familiarise yourself with it.You want to invest in individual companies via Sharesies, in which case you would be paying the account fee anyway. Should you be investing in individual companies? Check out my article Investing in individual companies vs funds – what’s better?Learning – Given its beginner friendly interface, you could use Sharesies to learn and become comfortable with investing. As long as you don’t go over $50 you won’t be charged an account fee, and you can switch over to InvestNow when you’re ready. 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! So that concludes my comparison between InvestNow and Sharesies. I didn’t expect to write almost 3,000 words on this topic, but it turned out there were more differences than I originally thought! Found this article helpful? Let’s be friends on Facebook, Twitter, or via email so you can keep up with the latest news and posts! More articles 9 ways to invest in New Zealand1 July 2019 The best bank accounts and credit cards for managing your everyday finances28 July 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...How to invest for kids in New ZealandAs a parent you want the best for your kids. This might involve saving and investing money for their future, in addition to making sure they eat their veggies, do their homework, and brush their teeth. While I can’t help with getting your child to eat broccoli, I can tell you about investing for kids. In this article I’ll cover the why and how for investing for kids in New Zealand, and a the pitfalls to watch out for – it is not always the same as investing for adults. Why should you invest for your kids? Their future Kids are pretty fortunate these days with heaps of support from the government, such as interest free student loans, and KiwiSaver HomeStart grants. But these don’t pay for everything, nor are these benefits guaranteed to be offered by future governments. Investing is all about growing money for the future, and investing for your child can better prepare them to tackle future financial commitments like expenses while studying, going on an exchange or OE, or putting together a house deposit. Time Kids usually have several years before they face any significant financial commitments. Take a 5 year old for example – you probably won’t be thinking about their retirement at such a young age, but still they have 13 years until they finish school, or maybe 20-30 years before they consider buying their first home. Investing requires time to grow your money, and kids have this time on their side. They can ride out any volatility you get from investing in riskier (but potentially higher return) asset classes, and they have time to take advantage of compounding returns year after year. The earlier in life they start investing, the better. Tax Tax, the government’s share of our investment returns can be up to 33% for those in the highest income bracket. Given kids usually don’t earn any significant income, they’ll probably be taxed at a much lower rate of 10.5%. Paying up to $22.50 less tax on every $100 they earn is a huge advantage, especially when you can reinvest this to compound your returns. This advantage alone should be enough reason to invest for your child, rather than combining their investments with your own account. They just need to have their own IRD number. However, it is not a good idea to invest your own money in your child’s account to lower your own tax bill, as this could be seen as tax evasion. Education Unfortunately financial education is pretty limited in schools, so it is up to parents to teach their kids about how money works and how to use it responsibly. Giving them ownership of money through their own accounts should hopefully make them more engaged and interested in learning. The more they know now, the less likely they are to fall into crippling debt and the hands of payday loan sharks in the future. What makes a good investment for kids? Kid friendly – An obvious requirement is that the investment service you use accepts under 18s, and allows you to hold the investment in your child’s name. Not all services (e.g. Hatch) allow accounts for under 18s. Low contributions – Most kids don’t have their own significant source of income, so rely on contributions or gifts from generous family members to invest. A good investment service needs to support this, by allowing you to make small contributions. Low fees – Low fees are important for adults as well, but are especially crucial for kids, given they are likely to have smaller balances (which means fewer dollars to offset any account fees). Control – Only a few super talented kids have the knowledge and maturity to make sound decisions on their investments, so a good investment service should allow their parents to control the account, while allowing you to transfer control to the child once they are old enough. 1. Bank accounts for kids Bank accounts are easy to understand for kids, keeps their money accessible, and earns them a little bit of interest. While the interest won’t make them rich, they’re still ideal as a short-term place to keep their money. For example, saving for a toy, gadget, or building up savings to make a larger investment elsewhere. Co-operative Bank Co-operative Bank’s Youth Accounts have an outstanding feature in that they pay 4% interest on balances up to $4,000! This is far higher than any other bank’s term deposit or savings interest rate, and definitely provides encouragement to save. In addition, their Youth Accounts are fee free, and they allow you to add EFTPOS and internet banking access when your child is ready for them. Other banks All other banks have kid friendly accounts, and they’re all pretty similar, being free of account and transaction fees. Some even chuck in some extras to help kids save and learn about money such as: ASB – Clever Kash – a digital money box which shows your child’s account balance and progress towards a savings goalWestpac – Fun pack – under 12s will get a ‘Fun pack’ containing a Westpac Rescue Helicopter money box, and a fun activity book It might be convenient to have your child’s account at the same bank as you, but unfortunately no other bank manages to come close to Co-op Bank’s 4% interest rate (most offer 1-2%). Access and control of accounts Different banks have different rules about who can access and control a kids’ account (e.g. to make withdrawals), and this usually depends on the child’s age. The three levels of control are generally: Only parents have control over the bank account (typically for young children)Parents have control over the bank account, but can choose to give their child access (typically for pre-teens and younger teenagers)The child has full control over their bank account (typically for older teenagers) Banks also have rules around giving a child access to an EFTPOS card, internet banking, and a Debit Card (depending on the child’s age and parent’s permission). Discuss with your preferred bank to ensure their access rules meet you and your child’s needs. How about term deposits? Term deposits used to be a solid, low risk way for locking up funds for the future. Unfortunately the returns are just too low these days, with most rates sitting below the 3% mark – this simply won’t be adequate to keep up with rising living, education, and housing costs. 2. Long term investing for kids Equity funds (funds that are invested in shares) are probably the best long-term investments for kids. Given the long investment timeframe when investing for kids, your child has enough time to ride out any volatility in the sharemarkets and take advantage of investing in one of the world’s best performing asset classes. For example, an investment in the NZX50 ten years ago, would be worth more than triple today! In addition, funds give you a well-diversified investment, are easy to access and manage, and require low contribution amounts. All it takes is a $50 per month investment to reach a portfolio size of $19,000 when your child turns 18 (assuming an average return of 6%). Best fund platforms/providers InvestNow InvestNow is a Fund Platform with minimum investments staring from $50, but most importantly, they don’t charge any account fees. InvestNow allows you to attach child accounts to your own account, so you can have full control over it, but can unlink the child account once your child is ready to be responsible for their own investments. One thing to watch out for on InvestNow is the Smartshares ETFs – these are listed PIEs, which are taxed at a fixed rate of 28% (but you may be able to claim the excess back through a tax return). If you prefer to simplify your child’s tax affairs then there are plenty other options on InvestNow – they have over 100 funds. It’s beneficial to invest in a multi-rate PIE as these are taxed at your child’s PIR (most likely 10.5%), and most funds on InvestNow are multi-rate PIEs – go to this link which filters out any funds that aren’t multi-rate PIEs. Which fund? These are the lowest fee, multi-rate PIE equity funds on InvestNow:– AMP Capital All Country Global Shares Index Fund– AMP Capital NZ Shares Index Fund– AMP Capital Australasian Property Index Fund The other type of fund that InvestNow offers are Australian Unit Trusts, such as the low fee Vanguard International Share Index Funds. These are considered overseas investments, so you need to be aware of the tax implications – a tax return is required if your child earns over $200 in dividends or interest from overseas, or holds over $50,000 in overseas investments. SuperLife SuperLife’s myFutureFund is a youth investment account where you can choose to invest into a selection of 44 funds. It is a way to get around the fixed 28% tax rate on Smartshares ETFs, given SuperLife’s funds largely mirror Smartshares’ ETFs, but are structured as multi-rate PIEs. The minimum investment amount is $1, and they allow relatives and friends to make contributions into the account (good for receiving gifts). You can hand over control of the account to your child at a nominated age between 18 and 25. SuperLife’s downsides are the $1 per month account fee, and their fund management fees are higher than many of the funds you can find on InvestNow. Other services These services are all kid friendly but I don’t think are as good as InvestNow and SuperLife, as their pitfalls can outweigh their strengths. Sharesies Sharesies is an amazing fund platform because they probably have the best user interface, and they allow you to invest as little as one cent. Sharesies’ kids accounts must be linked to and controlled by an adult account, but they can be unlinked after your child turns 18. Under 18s get a 50% discount on their account fee, however this still compares unfavourably to InvestNow who don’t charge an account fee at all. In addition, most funds on Sharesies are listed PIEs – Smartshares ETFs, where the tax rate for these are locked at 28%. Unlike InvestNow, there are few options on Sharesies when it comes to multi-rate PIEs (the AMP and Pathfinder funds being examples). Sharesies also offers investing in individual companies, which I’ll discuss below in section 4. 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! Simplicity Simplicity offers some excellent diversified investment funds (containing a mix of global and local shares and bonds all in one fund), at a low management fee of 0.31%. For example, their growth fund contains 78% shares, and 22% cash and bonds. Simplicity waives their $30 annual membership fee for under 18s, but their big downside is their minimum investment requirement of $5,000 – so it’s only suitable for kids who have a generous family member to kickstart their investment in these funds. Smartshares You can also invest in Smartshares ETFs directly from the issuer. I think it’s an inferior option though: The minimum initial investment is $500, with subsequent investments needing to be a $250 lump-sum, or at least $50 regularly per month. This is higher than other services.There is an initial entry fee of $30. And to exit the funds, you need to sell them via a broker, which will incur more fees and/or admin effort.You are investing into Listed PIEs which means a 28% tax rate applies, or even more admin effort if you want to claim the excess tax back.The processing times are slow, with contributions only being processed once per month. You are probably better off going for any of the other options mentioned above. Check out The Happy Saver’s blog post to hear about her experience in investing in Smartshares for her daughter. 3. KiwiSaver for kids? KiwiSaver is the New Zealand’s best saving scheme, allowing us to combine our money with employer and government contributions in order to invest it for retirement or buying a first home. But many people are gonna disagree with me on this one – my opinion is that it’s not a good idea for under 18s to be in KiwiSaver. Why? No benefits – The core benefits of KiwiSaver like Employer Contributions and Government Contributions don’t apply to under 18s – no 3% contribution match from their part-time job, and no annual $521 government contribution. The only benefit of KiwiSaver for under 18s was when the government used to give you a $1,000 kickstart for opening a KiwiSaver account. This incentive was discontinued in May 2015. No flexibility – Any money that goes into your child’s KiwiSaver stays in it until they buy their first home. And there is no guarantee that your child would want to become a homeowner when they’ve grown up – in which case the money would be locked in until they’re 65! The money cannot be used to further their education, start their own business, travel the world, or to pursue any ventures they might desire. Instead invest for your child using a non-KiwiSaver fund through the services described in section 2 above. Non-KiwiSaver funds give you the flexibility to withdraw the investment at anytime – for education, sports, buying a car, or whatever. If you still insist in having KiwiSaver for your child, JUNO and Simplicity are great options – JUNO has zero fees for under 18s, and Simplicity waives their $30 annual account fee (but not their 0.31% management fee). 4. Other investment options Shares in individual companies Shares in individual companies are a great long-term investment option. Imagine your child growing up alongside a increasingly successful company, like Auckland Airport which has increased in price from around $1 in 2000 to over $9 today (plus getting all the dividends they paid out). Investing in shares of individual companies can be more tangible too – wouldn’t it be cool to tell your kid that they own part of the airport they’re visiting, or part of the plane they’re flying on? The hard part is picking which companies to invest in – which companies are going to stick around and be successful over the next 10-20 years? For most people it’s way easier to just invest in funds, as they invest in many companies at once. But if you really want to invest in shares, then Sharesies is probably the way to go for kids. They have low brokerage fees, suitable for making small, regular investments. 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! Bonus Bonds Bonus Bonds are like the McDonald’s of the investing world, bringing in an element of excitement – every Bonus Bond you buy gives you a chance to win prizes of up to $1 million every month. They have a low $20 minimum investment amount, and there are no ongoing account fees. With over 3 billion Bonus Bonds in existence, chances are your child already owns some, or has received them as gifts from relatives. Unfortunately Bonus Bonds is a pretty terrible investment (could you even call it that?). The chances of winning prizes are pretty small (You are more likely to win 1st Division in Lotto than to win the $1 million prize in Bonus Bonds), and if you don’t win, you don’t earn anything. Make sure you check out my article Bonus Bonds – Is it investing or gambling? for more detail. Non-financial investments All the above investment options are aimed at growing your child’s money, but this is not the only way parents can set their kids up for a great future. You can invest directly in their education, sports, music, hobbies, or in family holidays to see the world together. Or maybe your child is an exceptional young rugby player requiring ongoing expenditure on expensive gear and sports trips. Perhaps sacrificing the opportunity to invest in shares or funds to pay for these things are worth it to support making their All Black/Black Fern dream come true. Conclusion Investing is one of the best things you can do to prepare for your child’s future. Kids have a long investment timeframe, allowing them to invest in risker (but higher returning) assets, pay less tax, and they can use their investments to learn about money. Whether the money is going to be used for education, travel, or a house, they are sure to be grateful to have an investment portfolio that’s grown together with them over the years. The main things to know about investing for kids are: Get an IRD number for your child, so they aren’t stuck paying the same rate of tax as you.Co-operative Bank offers the best kids’ bank account with their 4% interest rate. Otherwise all other banks offer fee free kids’ accounts.Equity funds are the way to go, given their high growth and the long investment timeframe that kids have. InvestNow and SuperLife are great options to access these funds.Watch out for Listed PIEs (e.g. Smartshares). They’re taxed at 28%, no matter what your child’s tax rate is.KiwiSaver isn’t the best option for under 18s. Invest in non-KiwiSaver funds instead for more flexibility.Avoid Bonus Bonds. You probably won’t win enough to outperform the sharemarket.Investing to achieve financial returns isn’t everything. Thank you to Vivian, Shawn, and Sarah for helping me put this article together. May their kids be wealthy and successful when they grow up. Found this article helpful? Let’s be friends on Facebook, Twitter, or via email so you can keep up with the latest news and posts! More articles What’s the difference between InvestNow, Sharesies, Simplicity, Hatch, and more?11 July 2019 What taxes do you need to pay on your investments in New Zealand?7 October 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...Simplicity vs JUNO vs BNZ – Battle of the low cost KiwiSaver fundsKiwiSaver 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. Update (3 October 2019) – Added information on Simplicity’s home loan product Update (7 October 2019) – Updated JUNO’s target asset allocations. Growth fund now targets 10% in bonds (previously 0%) 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, and they aren’t afraid to show off this fact on their sites. They aim to significantly undercut traditional providers like Milford, potentially saving an investor hundreds of thousand of dollars over a lifetime of investing. 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 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% (10%)0.00% (10%)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. Simplicity also invests in a couple of interesting assets: They invest up to 5% of their Growth fund into Icehouse Ventures, who invest in emerging, high-growth, non-listed NZ companies.They plan to lend some of the fund’s money out to first home buyers, as home loans. This should earn their investors a tiny bit more than having their money in bank deposits (similar to P2P lending), but the percentage of funds they will allocate to home loans is not yet known, and this is likely to increase risk. 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 bad 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% per 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 Members who have been part of Simplicity for over a year, can enter the ballot for a Simplicity first home loan. These home loans come at a fantastic floating interest rate (currently 2.95%), but there are a few conditions, such as requiring a 20% deposit, and the repayments must not exceed 30% of after-tax household income. I would be very cautious about switching to Simplicity solely based on this factor, given this feature appears to be more of a marketing gimmick.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 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. Plus I am not a fan of the dramas and marketing gimmicks they like to get involved in. 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. 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 started my KiwiSaver journey in Westpac’s scheme, later happily switched to Milford’s Growth fund, and have just joined JUNO! I really do like Simplicity’s funds and low fees, but I disagree with too many aspects of their scheme like their home loan offering. Found this article helpful? Let’s be friends on Facebook, Twitter, or via email so you can keep up with the latest news and posts! More articles Peer to Peer Lending review – Lending Crowd9 September 2019 Dealing with Dividends – 5 things to know about them3 September 2019 Shopping for ETFs – Sharesies vs Hatch16 September 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...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.No Sharesies, No worries! A guide to investment services in Australia21 October 2019Whether it be the ANZACs, the great sporting rivalries, or just fighting over who invested the lamington, New Zealand certainly has close ties with our neighbour, Australia. We are close enough that a massive number of brands and companies like Bunnings, Harvey Norman, Ryman Healthcare, and Xero have a strong Trans-Tasman presence. Unfortunately, this isn’t the case when it comes to investing services – you won’t find your favourite platforms like Sharesies, InvestNow, Hatch, or Simplicity across the ditch. Crikey! In this article Money King NZ will be taking a trip to Australia, providing an overview of some of the popular investing services from across the ditch. Whether you’re one of the 20,000 Kiwis moving there every year, one of the 650,000+ Kiwis already living there, a keen Aussie wanting to start investing, or just curious, this article is for you. No Sharesies, No worries! Many of the services mentioned in this article only accept customers who are residing in Australia. See my Investment Services page for New Zealand services. 1. Banking In addition to finding a place to live and getting a local SIM card, sorting out a bank account is probably near the top of your list when moving to Australia. This will allow you to make and receive payments, and send money to the investment services which I’ll be talking about in this article. A feature of Australia’s banking industry is that the Australian government guarantees bank deposits of up to $250,000 with Authorised Deposit-taking Institutions (ADIs). The Big 4 – NAB Given New Zealand’s banking sector is dominated by the big 4 Australian banks, you’re probably already familiar with them: NZ SubsidiaryAustralian ParentANZANZASBCommBankBNZNABWestpacWestpac Not surprisingly, the big 4 also dominate the Australian market. However, my favourite is NAB. Their transaction account has no account fees and provides a free debit card. The other banks typically require you to deposit $2,000 or so per month for them to waive their account fee. With these banks you can open an account from NZ through their migrant banking channels, and make deposits into the account straight away. Once you arrive in Australia, just turn up to a branch, show your ID and boarding pass, and they’ll fully activate the account for you, allowing you to make withdrawals. Smaller banks There are heaps of smaller banks, and also some foreign banks operating in Australia, such as Bendigo bank, Macquarie, Rabobank, and ING. But many of them like Bank of Melbourne are just subsidiaries of the big 4 banks. With these banks you may find more competitive fees and higher savings interest rates compared with the main banks. Examples are: U bankME bankUp bank But don’t expect any amazing with their rates – Aussie interest rates are also going down the toilet, and tend to be lower than NZ rates to begin with. Also be cautious of interest rates that are introductory only (e.g. apply for only 4 months), or those that require you to make a certain number of deposits or transactions before you earn the rate. TransferWise TransferWise is probably the best service to change your currency from NZD to AUD. Or AUD back to NZD. Or to/from any currency really. Their fees are some of the lowest (way cheaper than using a bank), and transfers between a NZ bank account and Australian bank account normally take just a few business hours. Special Offer: Sign up to TransferWise using this link and you’ll get a fee-free transfer of up to £500. 2. Micro-Investing apps Micro-investing apps allow you to invest little bits of money at a time – kinda like Sharesies (where you can invest cents at a time), and to a lesser extent InvestNow. They typically come with slick interfaces and a mobile app to make investing as accessible and easy as possible. Raiz Raiz allows you to invest from $5 into a selection of six funds. Fees are: $2.50 per month for balances under $10,000, or 0.275% per year for balances above $10,000A fee of between 0.224% and 0.428% per year, that’s incurred by the underlying ETFs that the funds invest in. All funds are made up of seven different ETFs, with their weightings varying depending on the fund, apart from Emerald which is a socially responsible fund investing in 4 different ETFs: FundSharesBondsCashFeeConservative22.5%53%24.5%0.228%Moderately conservative35.4%55%9.6%0.224%Moderate52.8%44.2%3%0.242%Moderately agressive72.2%24.3%3%0.265%Agressive90%7%3%0.287%Emerald72.7%21.3%6%0.428% Raiz also has a feature to round up the purchases you make on your bank account to automatically invest your change – a handy time saving feature, leaving Aussies more time to practise their underarm bowling, and cricket ball sanding! Spaceship Voyager Spaceship Voyager has no minimum investment amount and offers two different funds: Spaceship Index portfolio (0.05% for balances above $5,000) – Invests in 100 Australian + 100 international companies, for a total of 200 companiesSpaceship Universe portfolio (0.10% for balances above $5,000) – invests in a handpicked selection of 100 companies Their fees are dirt cheap, being totally free if you have under $5,000 invested, and a maximum of 0.10% for larger balances. This made me a bit sceptical especially given they are a relatively new service who are yet to build a solid track record, although I can’t find any concrete evidence of any dodginess. This review of Spaceship is worth reading if you’re interested in learning more. CommSec pocket CommSec Pocket is more of a hybrid between broker and micro-investing app. They allow you to invest $50 or more into seven different options, each corresponding to an Australian domiciled ETF. They charge a brokerage fee of $2 for trades up to $1,000, or 0.2% for trades above $1,000. Check out a review of CommSec Pocket here. The ETFs are: Investment optionETFFeeAussie Top 200IOZ – iShares ASX 2000.09%Aussie DividendsSYI – SPDR Aus High Dividend Yield0.35%Global 100IOO – iShares Global 1000.40%Emerging MarketsIEM – iShares Emerging Markets0.67%Health WiseIXJ – iShares Global Healthcare0.47%Tech SavvyNDQ – BetaShares NASDAQ 1000.48%Sustainability LeadersETHI – BetaShares Sustainability Leaders0.59% 3. Brokers Unfortunately the above micro-investing apps are pretty limited. Despite their low fees and low minimum investments, their fund offerings are nowhere near as comprehensive as New Zealand’s Sharesies and InvestNow platforms. Brokers (like NZ’s Direct Broking, ASB Securities, and Hatch) will open the door to more options. Unfortunately that means paying brokerage fees – but fortunately the fees aren’t as high as in NZ, and there is tons more choice in terms of the investments you can access. What you can buy through a broker Australian listed companies There are over 2,000 companies listed on the Australian sharemarket compared with only ~160 in New Zealand. You’ll be familiar with many of them such as Wesfarmers (owner of Kmart and Bunnings), Woolworths, Xero, and Dominos Pizza. Australian domiciled ETFs While NZ only has around 30 ETFs, Australia has around 170! Some major ETF issuers are: Vanguard – Popular ETFs include VDHG, VAS, and VTS. You can also invest in Vanguard products directly without a broker, but this requires a $5,000 investment, and comes with higher management fees.BlackRock – The world’s largest ETF issuer issues ETFs under the iShares brand. Popular ETFs include IOZ, and IOO.BetaShares – Issues the cheapest Australian shares ETF, A200, with a management fee of just 0.07%. Listed Investment Companies (LICs) LICs are essentially companies that invest your money into other companies (in other words, a managed fund structured as a company). Popular examples are Argo, AFIC, and Milton. There are heaps of resources comparing ETFs and LICs, like this one, but just Google if you want more. International assets Many brokers give you access to international companies and ETFs, such as the US markets. SelfWealth SelfWealth are probably Australia’s cheapest broker charging a flat fee of $9.50 per trade, no matter how big or small the trade is. They offer something called CHESS sponsorship, which is sadly just as unexciting as Chess, the board game. But the main implication of this is that you own your Australian shares under your own name, under your Holder Identification Number (HIN), as opposed to having them held under a custodian. Your HIN is associated with a broker, but you can easily transfer it to another broker. The Big 4 – nabtrade The big 4 banks have their own brokerage platforms, which makes signing up for them a breeze if you already have a bank account with one of those banks: CommSecnabtradeWestpacANZ CommSec is probably the most popular out of these, but not the cheapest ($19.95 for a $5,000 trade). I personally use nabtrade ($14.95 for a $5,000 trade). All of them also offer CHESS sponsorship. Stake Stake gives you access to the US sharemarket, just like New Zealand’s Hatch. In fact, both Stake and Hatch use the same backend broking platform, DriveWealth. The best feature about Stake is zero brokerage fees – you just have to pay foreign exchange fees when transferring your money between AUD and USD. 4. Superannuation Superannuation, or just ‘Super’ is Australia’s equivalent of KiwiSaver. They should have called it KangarooSaver or KoalaSaver in my opinion! It works by requiring your employer to contribute 9.5% of your ordinary income into your Super fund. You can also ‘salary sacrifice’ (contribute your own income) into your Super, which may have tax benefits, as contributions are taxed at 15% instead of your marginal tax rate. If you thought choosing a KiwiSaver fund was hard, think again – Super is a lot harder. There are hundreds of funds to choose from, and of lesser importance there are different types of Super funds – retail funds, industry funds, corporate funds, and SMSFs. And unlike KiwiSaver, you can have more than one Super fund. Most providers also sell some form of life insurance bundled as part of their funds. Being not 100% familiar with Super, I had to do a bit of research to write this, and I could have torn my hair out looking at some of the websites of Super providers! They don’t make information on fees and funds easy to find! Fortunately I did find a couple of funds worth mentioning: WA Super When moving permanently from NZ to Australia, it’s possible to transfer the money in your KiwiSaver into an Australian Super fund. There are some caveats to this: Very few Super providers accept KiwiSaver transfers. WA Super is one of them.You cannot transfer any money that originated from KiwiSaver, from your Super provider to another Super provider that doesn’t accept KiwiSaver transfers. The only way to release your KiwiSaver money is to reach the age of 65 or move back to NZ. WA Super’s fees are $1.40 per week + 0.08% of your balance per annum + fund management costs of between 0.18% to 1.20%, depending on which of their nine fund options you invest in. Hostplus Given the limitations of doing a KiwiSaver transfer, it might be easier to keep your KiwiSaver money in NZ and open a standalone Super account. If we go with a low-fee approach, the HostPlus Indexed Balanced Fund is a solid option. In fact this fund recommended by Scott Pape in his bestselling book, The Barefoot Investor. Fees are $1.50 per week + 0.05% per annum in fund management costs. Don’t be put off by the word ‘Balanced’ in the fund’s name. The fund’s target asset allocation is actually comparable to that of a KiwiSaver Growth fund, with 75% shares and 25% bonds and cash. Heaps more There are tons more Super providers, from banks and financial institutions, to creating your very own fund as a SMSF (Self-Managed Super Fund). Here are some other providers that popped up a few times when doing my research: SunsuperAustralianSuperRest Super 5. Other investments Peer to Peer Lending There is no Lending Crowd, or Squirrel in Australia. Harmoney operates in Australia, but they don’t take retail lenders over there. Enter RateSetter, a Peer to Peer Lending platform allowing you to invest from $10 in terms from 1 month to 7 years. The rates vary depending on demand for loans from borrowers and supply of investors’ money. At the time of writing, they are roughly: 1 month – 3.0%3 years – 4.5%5 years – 7.9%Clean Energy (loans of up to 7 years for people to buy clean energy products like solar panels) – 6.4% Equity Crowdfunding Equitise is a Trans-Tasman Equity Crowdfunding (ECF) platform. They give you the opportunity to invest in high-growth Australian companies that can’t be found on the public sharemarket.PledgeMe is another ECF platform – based in NZ, they’ve recently established an Australian branch. Cryptocurrency Crypto is a purely speculative investment, but Australians wanting to buy some can use Easy Crypto Australia, the Australian branch of the NZ based service.Another popular cryptocurrency exchange is Independent Reserve who accepts both Australian and New Zealand customers. Tax in Australia Tax rules change as often as Australia changes Prime Minister, so instead of writing about it, I’ll just leave some links to a few tax related topics. Applying for a Tax File Number (TFN), Australian equivalent of an IRD number.Income tax ratesMedicare LeviesLodging your tax return (it is compulsory for most people to lodge a return)Special tax rule for NZ Citizens living in Australia Useful Aussie investing websites There are heaps of websites and blogs about investing in Australia. Here’s just a few that I’m subscribed to: MoneySmart (Australian equivalent of Sorted.org.nz) Aussie Firebug (blog)Strong Money Australia (blog)A Family On Fire (blog)Aussie Wealth Creation (YouTube channel)Reddit – r/Ausfinance, r/fiAustralia Conclusion Thinking about Australian investing services made me realise that us New Zealanders have it good, despite being a significantly smaller market. Innovative services like Sharesies and InvestNow do a lot to make investing accessible and cheap to retail investors. But even without the likes of Sharesies, Australians and Kiwis moving to Australia still have lots of services to choose from – from emerging micro-investing apps, to a thriving ETF market. So where the bloody hell are you? Have I left out any great services? Contact me to let me know. Found this article helpful? Let’s be friends on Facebook, Twitter, or via email so you can keep up with the latest news and posts! More articles Term deposit rates suck! What you can do – with 5 term deposit tips26 August 2019 The best bank accounts and credit cards for managing your everyday finances28 July 2019 Bond Basics – 5 things to know about investing in bonds23 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...InvestNow vs Sharesies – Ultimate Fund Platform showdown and review14 October 2019Pak’nSave vs Countdown. Cadbury vs Whittakers. Air New Zealand vs Jetstar. There are heaps of great rivalries around NZ and the world, and InvestNow vs Sharesies is one of them when it comes to the NZ investing scene. Both platforms continue to cause confusion as many investors struggle to decide which to use – the choice as not as easy as deciding between Cadbury and Whittakers! They are both fund platforms providing investors easy and cheap access to a large range of funds, but digging deeper uncovers many differences. So here’s a comprehensive look at both platforms to help you decide which is best for you. Update (15 October 2019) – Added details about InvestNow’s Advanced Fund Selector 1. What’s on offer Both InvestNow and Sharesies are fund platforms. They allow you to invest in large range of funds in once place, and manage your investments through their online portals at anytime of the day or night. InvestNow Owned by Wellington based Implemented Investment Solutions, InvestNow launched in 2017 and now has over 13,000 users, with over $300 million invested through the platform. InvestNow allows you to invest in over 100 funds including: The very popular and cheap Vanguard International Shares Index fundsThe also popular and cheap AMP Index fundsA selection of Smartshares ETFsA large variety of actively managed funds from over 20 fund managers Offering over 100 funds gives investors a huge amount of choice – and they continue to add more! But this is not always a good thing! This can be overwhelming for new investors, and make choosing a fund a lot harder – however, I’ve boiled down the choices in my article How to choose which fund to invest in on InvestNow and Sharesies. To help you research and choose a fund, InvestNow has an ‘Advanced Fund Selector’. It allows you to search and filter funds, and contains handy information such as a fund’s management style, distribution payment frequency, price history chart, and links to a fund’s fact sheet and product disclosure statement. InvestNow also offers term deposits from four different banks, but this won’t be a focus of this article. Sharesies Launched in 2017, Sharesies has around 60,000 users and over $60 million invested. They’re also based in Wellington, and are owned by a variety of shareholders – the largest being Trade Me who own 15.64% of the platform. Sharesies allows you to invest in over 30 funds: 32 Smartshares’ ETFs – their main offeringTwo funds from AMP CapitalThree funds from Pathfinder Asset ManagementThe Salt Carbon Fund, which invests in carbon credits To help you decide which fund to invest in, Sharesies provides a brief overview of each fund, its risk indicator, dividend details, and price history chart. Sharesies also offers you the ability to invest in individual companies listed on the NZX, but this won’t be a focus of this article. See my article Sharesies vs ASB Securities and Direct Broking for more information on investing in individual companies. There is quite a bit of overlap between the funds you can find on InvestNow and Sharesies. The only Sharesies funds you can’t get on InvestNow are: Smartshares Asia Pacific ETFSmartshares Australian Dividend ETFSmartshares Australian Financials ETFSmartshares Australian Resources ETFSmartshares Global Bond ETF (not to be confused with the Global Aggregate Bond ETF)Smartshares NZ Bond ETFSmartshares NZ Cash ETFSmartshares US Large Value ETFSmartshares US Small Cap ETFAMP NZ Responsible FundSalt Carbon Fund But I don’t think any of these 11 funds are compelling enough to make you choose Sharesies purely based on wanting to invest in these funds. Winner: InvestNow 2. Getting started What does it take to get started on each platform? InvestNow InvestNow requires a minimum investment of $250 for a one-off investment into a single fund. This amount can be reduced to $50 per fund if you set up a regular investment plan (see section 3 below). This is low considering investing in funds directly through a fund manager can often require anything from $500 to $2,000, or even $500,000 AUD in the case of the Vanguard Funds. Depositing money into your InvestNow account is done via a bank deposit, and deposits are usually processed overnight. Sharesies Sharesies requires a minimum investment of just one cent! Although investNow already makes starting to invest accessible with a low $50 minimum, Sharesies makes it just a little bit easier to dip your toe in the water. This is partly thanks to fractionalisation – most other services require you to buy whole shares (i.e. at least 1 share at a time), but Sharesies allows you to buy tiny fractions of a share (so even if a share costs $1, you can buy 0.01 shares for 1 cent). You can top-up your Sharesies account through bank deposit or by credit card. The credit card method is instant as you don’t have to wait for bank processing to occur – but topping up by credit card incurs fees of $0.18 + 2.65% (unless it’s your first ever top-up of up to $100), so you really don’t want to rely on this method. 2.65% is really high and could be high enough to eat up all your dividends for the year! Sharesies also allows you to give and redeem gifts of between $5 and $2,000. I really like this idea, as it’s an elegant way of helping a friend or family member build their investment portfolio. However, gifts also incur the same fees as topping up by credit card, so be careful about relying on this method too much. You’d be better off gifting someone cash to top up their Sharesies account by bank deposit! Winner: Sharesies 3. Regular Investing Regular investment is a great way to gradually build up an investment portfolio over time. Both platforms allow you to automatically invest into the funds of your choice on a regular basis. InvestNow InvestNow’s regular investment plans allow you to invest a minimum of $50 per fund weekly, fortnightly, monthly, quarterly, or six-monthly. If you change your mind about the plan, you can edit or cancel it at any time. The $50 per fund minimum is low, but could still be restrictive for some people. For example, let’s say you want to make weekly investment of $100 into a portfolio consisting of 90% into a share fund and 10% into a bond fund. Well, you can’t invest in the bond fund because 10% of $100 is below the $50 minimum. Your options to workaround this might be to: Change your portfolio to 50% shares and 50% bondsIncrease your weekly investment to $500Reduce your investment frequency to something like $500 per month Sharesies Sharesies’ auto-invest allows you to invest $5 or more into a selection of funds either weekly, fortnightly, every four weeks, or monthly. You can choose to invest in a pre-made order, which contain a bunch of pre-selected funds and weightings, or you can create a DIY order, where you choose your funds and weightings on your own. Having the minimum auto-invest order at a very low $5 makes Sharesies significantly more flexible than InvestNow for regular investing. Winner: Sharesies 4. Fees You can’t avoid fees when investing! So what will you pay under each platform? InvestNow Account fees InvestNow does not charge an account fee. InvestNow makes money by charging fund managers to have their funds listed on the platform (I suspect this is through a commission). In return, fund managers increase the exposure and accessibility of their funds, hopefully resulting in more customers. InvestNow also offers funds that are distributed and owned by Implemented Investment Solutions (InvestNow’s parent business), such as the Russell, Legg Mason, and Hunter funds – therefore providing the aforementioned exposure and accessibility benefits to their parent. Fund Management Fees Even with zero account fees, you will still have to pay fund management fees – this is a fee paid to the manager of the fund you invest in, and is calculated as a percentage of the value of your investment. On InvestNow, this fee ranges from 0.20% per year for the Vanguard International Shares Select Exclusions Index Fund, up to 2.75% per year for the Fisher Funds Property & Infrastructure Fund. Sharesies Account fees Sharesies charges a subscription fee based on the value of your portfolio. This starts at zero for balances of $50 or under, then $1.50 per month for balances from $50 to $3,000, and over $3,000 it’s more cost effective to pay the annual fee of $30. The fee can be paid by credit card, or deducted from your account’s cash balance. I would advise caution in thinking that these fees are cheap – see tables below. Also remember that any money spent on fees cannot be used to invest in your portfolio and grow into more money. Here’s Sharesies’ subscription fee as a % of your portfolio value. It’s not cheap at all, particularly for smaller balances. Portfolio valueAnnualised FeeFee %$500$183.6%$1,000$181.8%$5,000$300.60%$10,000$300.30% Here’s the subscription fee as a % of your annual return, assuming an after-tax return of 7%. The major goal of investing is to generate investment returns, and this fee is definitely a big drag on that – If you invested $500, over half your potential annual return is eaten up by the subscription fee! Portfolio valuePotential ReturnFee %$500$3551.4%$1,000$7025.7%$5,000$3508.6%$10,000$7004.3% Fund Management Fees Like InvestNow, you will pay fund management fees which ranges from 0.30% per year for the Smartshares Global Aggregate Bond ETF, to 1.30% per year for the Pathfinder Global Water Fund. Unlike account fees, fund management fees are not deducted from your InvestNow or Sharesies account’s cash balance. Instead fund management fees are calculated daily and are deducted/reflected in the unit price of your fund. Winner: InvestNow 5. User Interface With InvestNow and Sharesies being fully online platforms, user interface is an important consideration. This consideration is quite subjective though, so the best judge of user friendliness is you! InvestNow Opinion on InvestNow’s user interface is somewhat mixed, with this type of comment being somewhat common on social media sites: I went to InvestNow but their website was confusing to navigate.Facebook comment On the other hand there are many comments, including their Facebook reviews, that are positive about the interface: Easy to use interface, minimal fees, wide selection of funds. What’s not to like?Facebook review I agree that the portal has room for improvement, but personally I think it’s perfectly adequate once you familiarise yourself with it. It does what you’d expect it to do well – in fact it takes only seven mouse clicks to go from logging in to placing an investment in a fund – the same number of clicks as Sharesies! I think the interface’s biggest weaknesses are the lack of a mobile friendly interface, and how it makes you download a fund’s Product Disclosure Statement every single time you place an investment order – very annoying! Sharesies Sharesies’ user interface is praised very often for being easy to use and free of jargon. If you dig around on social media sites, you’ll find heaps of positive comments from their happy users. I’m really enjoying Sharesies. Easy, quick to use. Instead of buying alcohol, gambling, or buying junk food, I invest. Win win. And fun.Twitter Tweet I like Sharesies. The psychological reinforcement that the app provides will benefit me more than the $30 per year. Reddit comment The platform is certainly much more colourful and inviting compared with InvestNow. It’s also mobile friendly – in fact they use the same responsive interface for both mobile, tablet, and desktop. There are still bad points about the interface, but I think they’re very minor. For example, I’ve never been a fan of them allowing you to sort funds and companies by ‘highest dividends’ and ‘highest returns’. Some people also think the interface is too simple: Surprised how big Sharesies has become, seems so very basic and dumbed down.Reddit comment Winner: Sharesies 6. Ownership of investments A very common concern when investing through these types of platforms is who actually owns the investment, and what happens if the platform goes out of business? Neither InvestNow or Sharesies allow you to hold your investment under your name. Instead they are held on your behalf by a custodian, which is not as ideal as owning the investment yourself, but there a couple of features that come with custodians to protect you: Segregation – your money and investments are held by a legally seperate entity to the InvestNow and Sharesies platform. This means your money can’t be mixed with the platform’s money, and won’t be affected in the case that the platform goes out of business.Auditing – custodians are legally required to be independently audited every year. The custodians here use reputable auditors such as PwC and KPMG. InvestNow The InvestNow platform’s legal entity is InvestNow Saving And Investment Service Limited. InvestNow’s custodian is Adminis Custodial Nominees Limited, run by a specialist Wellington based investment administration company, Adminis, so are completely independent from InvestNow. In addition, with InvestNow it’s usually possible to perform an off-market transfer to transfer ownership of an investment into your own name. The exception to this would be the Vanguard funds for example, where you need at least $500,000 AUD invested to own the funds under your own name – in this situation, an off-market transfer is probably not doable unless you have the required amount. Sharesies The Sharesies platform’s legal entity is Sharesies Limited. Cash deposits, and investments in non-listed funds are held by custodian Sharesies Nominees Limited, while investments in listed funds and shares are held by NZX owned New Zealand Depository Nominee Limited. You can read more about Sharesies’ custodial arrangements here. Sharesies’ custodial arrangements are not as robust as InvestNow: The custodian Sharesies Nominee Limited is not fully independent from the Sharesies platform, as it is 100% owned by Sharesies Limited, and both entities share the same directorsSharesies do not allow you to make off-market transfers from their custodians into your own name. This is probably partly due to their fractionalisation feature. I won’t go into any more detail as this topic probably deserves an article of its own. In the meantime, this Reddit post about what makes a good custodial arrangement (written by InvestNow’s founder, Anthony Edmonds) is well worth reading. Winner: InvestNow 7. Other Considerations Account ownership and access Sharesies only offers individual accounts, while InvestNow also allows you to create joint, trust, and company accounts. InvestNow also allows you to give other people access to your account. You can give someone (e.g. your partner) control of your account, or allow someone to view your account (e.g. your accountant or adviser). Tracking & reporting Both platforms do a good job of telling you how your investments are performing, at both the portfolio and individual fund level. Here is a very cool Sharesies feature which shows how much my portfolio value has changed over time: Here’s InvestNow which provides an awesome graph showing your profit or loss for each fund. With Sharesies you have to dig through a few screens to see the same information. Unfortunately InvestNow only updates the data on their Performance tab monthly. But overall I think InvestNow provides better reporting as their functionality for filtering transactions is a lot more complete (on the Activity tab). With both platforms you can also generate a detailed PDF report containing all of your holdings and transactions at any time. However, InvestNow’s report is a little more comprehensive with seperate sections for holdings, dividends, tax, deposits, and fund transactions. 2-Factor Authentication InvestNow requires 2-factor authentication (2FA) when you log in to the platform – in addition to entering your email and password, you also need to enter a six-digit code sent to you as an email or SMS. While this adds more security to your account, I wish there were more granular options to control when 2FA is required. For example, it would be awesome if I didn’t need 2FA to log in, and only needed 2FA to buy/sell funds and make withdrawals. Trade execution This is a very minor point as it hardly makes a difference to most people. If you invest in a Smartshares ETF on Sharesies, and the sharemarket is open (normally 10am-4:45pm on business days), your investment order will be processed immediately. With InvestNow, investment orders are only processed once per business day, and you need to place an order before the 12pm cut-off time if you want your order processed on the same day. Kids Both platforms allow you to create kids accounts. Sharesies offers half price account fees for under 18s, but InvestNow still wins with their zero account fees. Just one thing to be cautious about is that most funds on Sharesies are not tax friendly for kids, as the Smartshares ETFs are all taxed at 28%. InvestNow has more options for tax friendly funds for kids. See my article How to invest for kids in New Zealand for more info. Tax Your tax obligations should not differ between investing in InvestNow and Sharesies. The exception is if you’re investing in any of the Australian Unit Trusts on InvestNow – you may have to complete a tax return for these as they are overseas investments. See section 2C of my article about tax for more information. Withdrawing money Withdrawing your cash is painless with both platforms, and in my experience both had the money in my bank account within a business day. Conclusion Most of the time you are gonna be better off going with InvestNow (myself included). I would say that based on fees alone – why pay for something when you can get a free alternative that’s just as good? Their UI is not as daunting as it first appears to be, and their minimum investment amount is still fairly easy to work with. You also get a wider offering of funds, including the low fee Vanguard and AMP index funds. However, there are a few reasons you might want to consider Sharesies: Lower minimum investment – Sharesies allows you to invest amounts smaller than InvestNow’s $50 minimum. However, alternatively you could save up in a bank account until you reach the $50 needed for InvestNow.User friendliness – Sharesies has a better interface and is easier to use, but ask yourself whether this is worth paying the account fee for. InvestNow’s interface is pretty good once you familiarise yourself with it.You want to invest in individual companies via Sharesies, in which case you would be paying the account fee anyway. Should you be investing in individual companies? Check out my article Investing in individual companies vs funds – what’s better?Learning – Given its beginner friendly interface, you could use Sharesies to learn and become comfortable with investing. As long as you don’t go over $50 you won’t be charged an account fee, and you can switch over to InvestNow when you’re ready. 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! So that concludes my comparison between InvestNow and Sharesies. I didn’t expect to write almost 3,000 words on this topic, but it turned out there were more differences than I originally thought! Found this article helpful? Let’s be friends on Facebook, Twitter, or via email so you can keep up with the latest news and posts! More articles 3 tips to get the most out of KiwiSaver19 June 2019 InvestNow vs Sharesies – Ultimate Fund Platform showdown and review14 October 2019 Simplicity vs JUNO vs BNZ – Battle of the low cost KiwiSaver funds12 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...What I learnt – NZ Shareholders’ Association ‘Money 101’ seminar11 October 2019Last week was World Investor Week, and the Wellington branch of the New Zealand Shareholders’ Association put on a free investing seminar. The theme was use it or lose it – use your money wisely or you’ll end up frittering it away! The speaker was Baubre Murray, a Chartered Accountant, and experienced investor, who presented to a packed out room in the NZX offices on Wellington’s waterfront. I wasn’t planning to go to this event, but after I saw this advertised on my Facebook News Feed, I felt hungry for more free food and thirsty for more investing knowledge. And as a result you get a bonus Money King NZ article this week, in which I’ll be covering the key points of the seminar, so hopefully you learn something new! This article is not endorsed or sponsored by the NZSA or Baubre Murray, is my personal interpretation of the workshop’s content, and is not to be considered as investment advice. 1. Key takeaways from the seminar Attitudes towards money The first topic was to understand your own money personality, as this can influence what approach to money and investing will work for you. For example, if you’re a saver, then owning your own business might not work out the best for you. (I will admit that I found this section of the seminar a little confusing, and would have liked to hear more practical examples of how different personalities affected one’s investing decisions). Personality – What you do with your money Spender – Always buying stuffSaver – Always putting money asideManager – These people are balanced, both spending and savingLifestyler – These people don’t worry about money Risk profile – Your approach to risk Low – Some people are cautious and don’t like taking riskHigh – Some people are very happy to take on risk, and are gamblers in extreme casesBalanced – Most people would fall somewhere in between the two risk profiles Value/view – What money means to you Prosperity – They see money as a tool to live a luxury life and to look wealthySecurity – Money provides safetyMeans to an end – Money is used to keep you going in lifeFreedom – Money can be used to buy freedom and do whatever you want Approach to investing Do nothing – These people just spend and don’t even think about retirement, or even the next monthWhat needed – Just invest what’s needed to surviveWhat known – Just stick to what they know about (e.g. property)What wanted – Just get on with it and invest what they feel like investing in Find strategies that work with your personality. It’s important to also consider your partner – for example if you are a spender, and your partner is a saver, you may need strategies to deal with this e.g. having a budgeted amount of money that you can spend on whatever you like. Overall there is no right or wrong when it comes to your financial personality. The most important thing is to have a positive attitude towards money! It’s ok to want to improve your financial situation! KiwiSaver The most important takeaway of seminar is to be in the right type of KiwiSaver fund. Should you be in a Defensive, Conservative, Balanced, Growth, or Aggressive fund? Selecting the right fund could make hundreds of thousands of dollars of difference over a lifetime of being in KiwiSaver. Unfortunately many people leave their investment in a ‘default fund’, which are Defensive funds investing mostly in cash, resulting in low returns. Under 40s should be in a Growth or Aggressive fund which contain more shares. The speaker is over 40, but still in an Aggressive fund! Buying your first home There are many ways to put together a deposit. The speaker suggested setting your KiwiSaver contributions to 10% when you start working as this will help you get a deposit relatively quickly. A single person with a $60,000 income could realistically put together a deposit in 5 to 7 years, particularly as employer contributions, government contributions, and investment returns also help. It will be easier with two people though. If you don’t have a partner, then there are solutions like Miuwi, which is like Tinder for house buying (you match with someone to co-own a house with). You could also get flatmates or boarders (plus you don’t have to pay tax on boarder income of up to $270 a week) There are a couple of initiatives that can also help you (eligibility criteria apply): KiwiSaver HomeStart Grant (now called the First Home Grant) – a $3000 to $10,000 grant towards your homeWelcome Home Loan (now called the First Home Loan) – reduces your deposit requirement to 10% from the traditional 20% (now further reduced to 5%) Be positive – anyone can do it! Absolutely everyone can get on the property ladder very quickly! Mortgages Some tips for managing your mortgage: Make more frequent payments (fortnightly rather than monthly)Split up your mortgage to mitigate interest rate risks e.g. if you split it into 2 and 5 year terms, and if interest rates go up, then you get the benefit of locking in lower rates for longer with the 5 year termPut only a small amount in a variable mortgage e.g the rate for a variable account might be 5.5%, compared with 3.5% for a fixed term loan. On $100,000, this results in you having to pay $2,000 extra interest in one year – enough money to buy flights to Amsterdam! A common question is should you use any extra money to repay your mortgage or invest it? There is no right or wrong answer, but it’s more of a matter of maths. The answer depends on investment returns compared with mortgage interest rates. For example, if you can achieve 12% in investment returns, then investing makes more sense than paying off a mortgage charging 4% interest (though you should also factor in risk). If you choose to invest it, be cautious about dumping the money into KiwiSaver, as this money is locked up until 65. You couldn’t use that money to retire early! Retirement You don’t need $1 million for retirement! A more accurate figure is that a single person will need $598 per week for a basic no frills retirement. You might get $411 of that from the government (superannuation), leaving you needing to cover a $200 shortfall. That’s $10,000 a year, which equates to needing around $200,000 to $250,000 of savings to live to 85-90 (although you would need more if you wanted to live a fancy lifestyle). Contributing 3% to KiwiSaver will get you there if you’re starting under 30 (or you can use the handy tools on Sorted.org to perform your own retirement savings calculations). Owning your own home is also important for retirement, otherwise housing costs will make retirement a lot more expensive. The Investing Triangle So what are you going to do with your money? If you’re an employee or contractor, you get paid for your time. Unfortunately your hours in the day are limited so it’s hard to earn more money. The solution is to invest: Business – Businesses operate through leverage – getting other people work for you, machines to work for you, or borrowing the bank’s money to make income for you. Owning a business is not for everyone – make sure to stick to something you know and understand, and only do it if you’re comfortable with it. On the other hand it could be a great way to make money for those who don’t want to work for others. Property – This could be: Commercial property (retail, offices, industrial, and rural). You need a lot of capital to get into this, but there are solutions like investing in a syndicate.Residential property. Shares – interestingly the speaker used shares as an umbrella term for term deposits, bonds, and shares: Term deposits – Putting your money in the bank. You’ll only earn interest with no opportunity for capital gains, although it’s a safe investment.Bonds – Lending money to company or government. You get a fixed rate of interest but its value can go up and down depending on demand for the bond. You can also sell bonds before their maturity.Shares – Owning part of a company. You can benefit from dividends and capital gains. Don’t want to get your hands dirty in business or property? You can buy shares and this can give you exposure to businesses and/or property! Buying shares How would you get into shares? ETFs and index funds are a low cost way to get exposure to shares. Sharesies is a great platform to get access to these funds as you can invest cents at a timeUse DIY brokers like ASB Securities and Direct BrokingThe Craigs Investment Partners KiwiSaver scheme allows you to select your own shares to invest inYou could approach a financial adviser at a firm like Craigs or Forsyth Barr Things to consider/keep in mind: Be diversified across companies, industries, and countriesDollar Cost Average – drip feed your money in over time take advantage of changing prices e.g. so you don’t have to put all your money in when the market is high Teaching Children Some tips to teach your children about money: Use positive language. For example, ask “How can we afford this?” instead of “We can’t afford this”Pay them for chores – in real life you don’t get paid for nothingGive them allowances for things like transport and clothes. Let them spend the money on other things if they don’t use up all the allowanceBanqer is a financial education programme run in primary schools that teaches them about money Fundamentals of money To conclude, there were some generic tips about money: Spend less than you earnGet a jobContribute to KiwiSaverGet better qualifiedReduce debtReduce expensesIncrease incomeLook after your assets, especially yourselfHold appropriate insuranceLearn to manage with a partnerBeware of reverse mortgagesLearn to manage on minimal incomeUse reputable advisersHave a buffer (an emergency fund)Create a savings plan 2. Did they try to sell anything? The event was run by New Zealand Shareholders’ Association, so there was definitely a mention of what they do – essentially NZSA advocates for smaller retail investors so they have more of a voice, and offer a few events and educational initiatives (e.g. courses and a sharemarket game where you get $10k to invest in a virtual sharemarket). There were a few Sharesies representatives at the event, and the speaker frequently mentioned how great Sharesies was throughout her talk (not surprising, given she’s a shareholder of the Sharesies platform). In fact Sharesies set up a little stall at the seminar where their representatives were on hand to answer questions, or even sign you up on the spot. Personally I would have preferred it if people used my referral link to sign up! 3. Was there any free food? Sadly there was no free food at this event, apart from some Pineapple Lumps that Sharesies had at their stall 🙁 . While at the stall to collect my Pineapple Lump, I also took a couple of Sharesies postcards and a pen – which did nothing to satisfy my empty stomach, but I can’t be too greedy at these free events! 4. My thoughts on the seminar The seminar was definitely more suitable for beginners, or those wanting to refresh or reinforce their investing knowledge. For me, I am still learning all the time, but unfortunately there wasn’t really anything in this seminar to challenge my thinking about investing. I would have loved to hear more about money personalities and what implications these personalities had for someone’s investing strategy. However, there was one important thing I did take away from the workshop. I really admired how the speaker was super warm and encouraging. She believes that anyone can get ahead financially if they have a positive attitude, and a positive mindset is something I will definitely keep in mind when managing my own finances and investments. Happy investing! Found this article helpful? Let’s be friends on Facebook, Twitter, or via email so you can keep up with the latest news and posts! More articles Term deposit rates suck! What you can do – with 5 term deposit tips26 August 2019 The best bank accounts and credit cards for managing your everyday finances28 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...What taxes do you need to pay on your investments in New Zealand?7 October 2019Tax might be the biggest expense you’ll pay over your lifetime. And you wouldn’t be alone if you said that tax is the most confusing (and perhaps the most boring!) expense you pay, particularly when it comes to tax on your investments. I’ve gone down the rabbit hole and combined my knowledge of tax with research from various sources, and the result is this article, a general overview of how different types of investments are taxed in New Zealand. In many cases, it’s not as daunting as it appears to be! Before reading any further, it’s important to understand that the content of this article is very generic, and geared towards individuals who are New Zealand tax residents. Tax is really complicated, this article doesn’t cover every rule and scenario, and the information here may apply differently from person to person, depending on their personal circumstances. I am not a tax professional and this article is not to be used as tax advice! You should always do your own research and seek advice from a tax professional before applying the information in this article. 1. Tax Essentials A. IRD number As a Kiwi investor you’ll need a way for our tax department, the IRD, to identify you as a taxpayer. This is known as an IRD number, which is NZ’s equivalent of a Taxpayer Identification Number. Aussies call this a TFN – a Tax File Number. Further Reading:IRD – Apply for a personal IRD number B. Tax Rates You should be aware of two tax rates when it comes to your investments – your RWT rate and PIR. Which rate you’re taxed at depends on the type of investment you’re in. If you don’t provide your rate to your investment provider, you’re automatically taxed at the top tax rate. Resident Withholding Tax (RWT) Rate Your RWT rate depends on your overall taxable income for the tax year. For example, if your annual income is $30,000, the most appropriate RWT rate for you would be 17.5%. RWT is not a final tax, so if you choose the wrong rate you’ll receive a tax bill/refund at the end of the year to reflect any over or underpaid RWT. Taxable IncomeRWT rate$0 – $14,00010.5%$14,001 – $48,00017.5%$48,000 – $70,00030%$70,001 or more33% Further Reading:IRD – New Zealand tax residents with interest and dividends from New Zealand bank accounts and investmentsASB – What RWT rate should I use? Prescribed Investor Rate (PIR) The PIR applies to investments that are structured as Portfolio Investment Entities (PIEs). Your PIR works similarly to your RWT rate, with a couple of major differences in calculating your rate: You need to work out your rate based on the income from each of the past two tax years. You can then use the lowest PIR out of those years.PIE income is factored in, in addition to your taxable income. Taxable IncomeAndTaxable income + Net PIE incomePIR rate$14,000 or less$48,000 or less10.5%$48,000 or less$70,000 or less17.5%All other cases28% The way that your PIR is calculated means that tax treatment for PIE investments could be beneficial in a couple of circumstances: If you recently got a pay increase, as you can use a tax rate that’s based on a previous year’s income. For example, if I earned an income of $45,000 two years ago, and last year doubled my income to $90,000, I can still use a PIR of 17.5%If you’re on a 30% or 33% tax rate, as PIRs are capped at 28% Further Reading:IRD – Using prescribed investor ratesASB – What PIR should I use? Joint investments If the two holders of a joint account have different RWT rates or PIRs, the investment provider will usually tax the account at the higher rate. How you can apportion the income to each individual is a topic better discussed with a tax professional. Misconceptions In NZ we use marginal tax rates. It is a somewhat common misconception that if you earn over $70,000 for example, all the money you earn is taxed at 33%. This is incorrect – only the dollars you earn over $70,000 are taxed at 33%, with your first $14,000 you earn in the year being taxed at 10.5%, income between $14,001 and $48,000 being taxed at 17.5%, and so on. Another example, is someone who earns $68,000. Let’s say they made an investment that would produce $4000 of interest income. This $4,000 would push them into the highest tax bracket, but not all their income would be taxed at 33%: $2,000 of their interest income will be taxed at 30%The other $2,000 will be taxed at 33%. This person could elect to either have a RWT rate of 30% (and have extra tax to pay at the end of the year), or a RWT rate of 33% (and receive a tax refund at the end of the year). C. Paying tax In general, there are two methods in which you pay tax on your investments. In many cases, Resident Withholding Tax (RWT) or PIE tax is automatically deducted from you at a certain point in time, like when the income is paid – in the same way PAYE tax is deducted from your salary or wages. For other cases, a tax return is required. I will provide more specific info on each case below as you read along. 2. Tax on investments Let’s take a look at what tax applies to different types of investments. A. Bank deposits, Bonds, Peer to Peer Lending Bank deposits, bonds, and investments in P2P Lending all generate some form on interest. Standard Interest Tax on interest income from standard bank deposits, bonds, and Peer to Peer Lending, is automatically deducted when it’s paid to you, at your RWT rate. PIE Interest Most banks offer PIE equivalents of some savings accounts and term deposits (sometimes called Term PIEs). You will have tax deducted on the interest when it’s paid, as well as at the end of the tax year (31 March). These are taxed at your PIR, so are beneficial for those who have a PIR that’s lower than their RWT rate. The term deposits offered through InvestNow are not PIEs. Other considerations Capital gains on bonds are generally taxableFees you pay in relation to earning interest from P2P Lending (such as Harmoney’s service fee, or Lending Crowd’s Interest Flex) should be tax deductibleCapital losses on P2P Lending (such as write-offs), are generally not tax deductible Further Reading:Harmoney – Tax Returns on your Harmoney LendingDeloitte – Peering into tax: bad debts and P2P lending B. NZ Shares Do you own shares in a NZ company, or have invested in individual companies via Sharesies? If so, you may be taxed on your dividends and capital gains. Dividends Dividends automatically have RWT deducted at 33%, at the time the dividend is paid to you. However, many NZ dividend paying companies have imputation credits attached to their dividends, reducing the amount of tax you’re liable for. The amount of imputation credits attached to each dividend varies between companies and each payment. Given the fixed RWT rate of 33%, those on a lower tax rate may be able to file a tax return to claim back their excess tax paid. The purpose of imputation credits is to mitigate double taxation, given dividends are essentially a company’s profits, which they may have already paid company tax on. Australia has a similar concept known as franking credits. Capital gains Capital gains on shares are generally not taxable, that is unless the IRD considers you a “trader”. Unfortunately there’s no black and white rule to determine whether you meet the definition of a trader or not. Basically if you buy the shares with the intent of selling them for a profit (as opposed to buying and holding long-term to earn dividend income), or are in the business of trading shares, then you could be considered a trader. The IRD will look at things like your trading patterns and frequency to determine whether you’re a trader. For traders, their capital gains are considered taxable income. However, one advantage that traders have is that they can claim capital losses on shares to reduce their taxable income. Further Reading:Money King NZ – NZ Dividend Calculator (Google Sheets)Sharesight – Calculating taxable gains on share trading in New Zealand C. Funds Funds contain assets like shares and bonds, which generate taxable income (such as dividends, interest, foreign income) and tax credits. The fund’s tax liability is calculated by the fund manager, then attributed and passed onto the fund’s investors to pay. As an investor, the rate at which you are taxed at depends on what kind of fund it is. InvestNow Tip: Use the ‘Fund Type’ dropdown on InvestNow’s Fund Search page to filter funds by type. Multi-rate PIEs Multi-rate PIEs (MRPs) are the most common type of PIE fund and are taxed at your PIR. This tax is paid when you sell your investment in a fund, or at the end of the tax year (31 March), which is why you may receive a tax bill from platforms like InvestNow in April. It’s important to give your fund manager or fund platform your correct PIR, as you can’t claim back any overpaid tax with MRPs. Examples of MRPs are: Most funds on InvestNow. Filter by PIE on their Fund Search pageThe AMP and Pathfinder funds on SharesiesSimplicity‘s investment fundsSuperLife‘s fundsMost funds offered by local fund managers such as Milford and DevonMost investment funds offered by our banks Listed PIEs Listed PIEs are PIEs that are listed on the sharemarket. Their dividends are always taxed at 28%, but they often contain imputation credits to eliminate your tax on these dividends. You do not have to include listed PIE income on your tax return, but if your marginal tax rate is less than 28% you may want to do so to claim any excess imputation credits to reduce your other taxable income. Listed PIEs include: Smartshares ETFs – found on InvestNow, Sharesies, bought directly from Smartshares, or from the exchange.Listed property shares E.g. Kiwi Property Group, Vital Healthcare Property Dividends from listed PIEs may contain Excluded income. Do not include this in your tax return if you file one. Foreign Investment Funds These are not PIEs. Popular examples of Foreign Investment Funds (FIFs) are anything you buy through Hatch, or Australian Unit Trusts (AUTs) you can find on InvestNow. Information about tax on FIFs deserves a section of its own – see section D below Further Reading:InvestNow – PIEs and PIE tax – your questions answeredThe Smart and Lazy – Different Tax on Smartshares and SuperLife ETF D. Foreign Investment Funds New Zealanders must pay tax on their worldwide income to the IRD, including income from their investments in Foreign Investment Funds (FIFs). The main ways that Kiwi investors might come into possession of FIFs are: Owning Australian Unit Trusts (AUTs) on InvestNow (filter Fund Type by AUT on their Fund Search page). These are funds from Vanguard, Morphic, Platinum, Indian Avenue, and some Russell fundsBuying shares or ETFs through Hatch or StakeOwning certain Australian shares, like Xero I’ll focus on how the above FIFs are taxed. If you hold other kinds of overseas investments, the way they are taxed may differ. FIF tax rules (investing more than $50,000) You must apply FIF tax rules if you hold over $50,000 in FIF investments. This rule requires you to choose from one of two methods to calculate your taxable income on each FIF investment you own. I won’t get into detail into the calculations, but fortunately InvestNow and services like Sharesight can perform the calculations for you, or you can use IRD’s calculator. The two methods are (copied from InvestNow’s tax guide): Fair Dividend Rate (FDR) – 5% of the opening market value at the beginning of the income year, plus a quick sale adjustment if you bought and then subsequently sold units in the same fund during the year. Cumulative Value (CV) – Closing value plus gains, minus opening value plus costs. Gains include dividends, sale proceeds and tax credits. Costs include the cost of buying units, along with foreign income tax paid by you directly on income of the FIF Once you have selected a method, and calculated your taxable income, you will need to pay tax on that income at your marginal tax rate. You also must apply the same calculation method across all your FIF investments for the year E.g. you can’t use the FDR method on one fund, and CV on another fund. The FIF rules appear daunting compared to investing in PIE funds, but can actually work out in your favour. For example: Using the FDR method, your taxable income is capped at 5% of your investment’s value, even if you make a return of 10% for example.Using the FDR method, if you make additional contributions to your investment over the year, you are only taxed on the opening value of your investment as at 1 April.If you make a very low or negative return, it is advantageous to use the CV method, which could result in low or no tax to pay on your investment. De minimis exemption (investing less than $50,000) If you hold less than $50,000 in FIF investments, you are a de minimis investor. De minimis investors can apply the de minimis exemption and simply pay tax on the actual dividends from their FIF investments, rather than following the FIF tax rules. The dividends must be declared in a tax return, however, if you earn less than $200 in overseas dividends and interest, then you may not need to file a return for this income. Using the de minimis exemption is probably simpler than following the FIF rules. But one quirk of AUTs may mean that using the exemption could result in a tax disadvantage. AUTs are required to pay out any of their realised capital gains as dividends. Which means you could be taxed on capital gains that you wouldn’t usually be taxed for! You don’t have apply the de minimis exemption if you’re a de minimis investor. You can choose to apply the above FIF rules (particularly if they work out in your favour), but if you do so, you must use them for the next four years. ASX shares exemption If you invest in certain ASX listed Australian companies (typically those who pay franking credits with their dividends), the FIF tax rules do not apply to them. You will still need to pay tax on their dividends, but unlike imputation credits, New Zealanders cannot claim franking credits. Check here to see if the ASX listed company you own is exempt. Foreign tax Overseas dividends may already have some foreign tax deducted. E.g. Shares you buy on Hatch would have 15% US tax deducted from their dividends. You can keep your dividend statements, and claim this back via your tax return, as there are provisions to avoid double taxation between NZ and other countries. Currency conversion Tax on FIF investments need to be declared and paid in New Zealand Dollars. The most common method to convert foreign amounts to NZD is to use the actual exchange rate on the day of each transaction. There are other methods that the IRD accepts to convert currency, but the use depends on your circumstances (check with a tax professional for more info). Further Reading:KPMG – Tax on Offshore share investments (PDF)InvestNow – Going global – Tax tips and traps for local investorsInvestNow – InvestNow Tax Guide (PDF)IRD – Foreign investment fund calculatorIRD – Foreign investment fund rule exemptionsIRD – Foreign currency amounts – conversion to New Zealand dollars E. KiwiSaver KiwiSaver funds are all multi-rate PIEs, so are taxed at your PIR. Your KiwiSaver provider will handle all the taxes for you, so you don’t have to do anything apart from making sure they have your correct PIR. The use of incorrect PIRs has been in the news in recent months, as the IRD have been warning hundreds of thousands of taxpayers to correct their PIRs. Those using a PIR too low have been hit with a tax bill, while those using a PIR too high are not entitled to a refund of their overpaid tax. Further Reading:RNZ – KiwiSaver tax rate errors: Up to 450,000 New Zealanders overtaxed F. Residential Property Tax on residential property is a step up in terms of complexity, so this is just an extremely basic and simplified overview – there are heaps of rules and caveats I won’t cover here. There are two ways you can make money from property – rental income and capital gains. Rental income Rental income from renting out a room or a home (including through Airbnb like services) is taxed. You can deduct expenses that relate to the rental from your income, such as insurance, rates, maintenance, and property management fees. There some exceptions where you do not have to declare any rental income. But if you choose not to declare the rental income, then you cannot deduct expenses from your income. Holiday home – If your holiday home falls under the mixed-use asset rules, you do not have to declare the rental income under certain circumstances such as earning less than $4,000 in rental income during the year. Boarders – you do not have to pay tax on boarding income of up to $270 a week for up to two boarders, and $222 for a 3rd and 4th boarder (this amount is adjusted every year). Income tax applies when you exceed these thresholds. To declare your rental income, you must complete an IR3R form for each rental property, as part of your tax return, and keep any records of income and expenses for 7 years. Further Reading:IRD – Rental income and paying taxIRD – IR264 – Rental Income Guide (PDF)IRD – IR3R – Rental Income Schedule (PDF) Capital gains Similar to shares, capital gains on residential property are generally not taxed. But there are a few cases where capital gains are taxable: You bought the property with the intention to resell it for a profitYou have a history of buying and selling property which could see you considered a property dealerYou are in or associated with the building industryThe ‘Bright-Line test’ – You sell within 5 years of purchase. Your family home is usually excluded from the Bright-Line test Like capital gains on shares, capital gains on property is taxed at your marginal tax rate. Further Reading:IRD – Selling PropertyIRD – IRD313 – Buying an selling residential property (PDF) G. Cryptocurrency Being a relatively new asset class, the taxation rules on cryptocurrency is relatively undeveloped. Cryptocurrency is treated as property for tax purposes, and whether it’s taxable, depends on the purpose you acquire them for: Where you acquire cryptocurrency for the purpose of disposal (selling or exchanging it) the proceeds you make from selling it are taxable. Bitcoin and similar cryptocurrencies generally don’t produce an income stream or provide any benefits, except when they’re sold or exchanged. This strongly suggests that cryptocurrencies are generally acquired with the purpose to sell or exchange them. So based on that statement, IRD are likely to view any gains on cryptocurrency as taxable. In addition, tax doesn’t just apply when you cash out to NZD, but when you make a disposal that results in a realised gain or loss – such as trading one crypto for another, or a crypto to another fiat currency like USD. Further Reading:IRD – Questions & answers: Cryptocurrency and tax 3. Tax Logistics A. Tax Year For taxation purposes, a year runs from 1 April to 31 March of the following calendar year. For example, the 2020 tax year runs from 1 April 2019 to 31 March 2020. B. Income Tax Assessment Within a few months of the end of the tax year, the IRD may automatically issue you an income tax assessment. The assessment is based on your income that the IRD already knows about. This income could be (copied from the IRD): salary or wagesschedular paymentsincome-tested benefitsinterest or dividendstaxable Maori authority distributionsbenefits under an employee share scheme. The Income Tax Assessment determines whether you have a tax bill or tax refund for the year, correcting any under or over payment of tax (e.g. PAYE and RWT) you may have made during the year. If you receive a tax bill, this usually must be paid by the 7th of February of the following year. Further Reading:IRD – Income tax assessments C. Tax returns Most salary and wage earners do not have to complete a tax return, as all of their taxable income will be covered by the above Income Tax Assessment. However, a tax return is required if you need to declare some source of income that the IRD isn’t aware of yet. This could be income from (copied from the IRD): self-employmentoverseasrental property including Airbnb and Bookabach‘under the table’ cash jobsan estate, trust or partnership. There are other reasons you may need to complete a tax return, such as leaving or arriving in New Zealand part-way through the tax year. The tax return form is known its the IR3, which you can also complete online. You need to file it by the 7th of July following the end of a tax year, and after filing, the IRD will come back to you with a tax bill or refund. If you don’t need to file a tax return, there are some cases where it may be beneficial for you to still do so. For example, to claim back excess tax from listed PIEs and dividends. Inclusions and Exclusions Unfortunately, if you need to complete a tax return, you need to declare all your taxable income in the return, even if your tax liability for this income has already been covered by an Income Tax Assessment. PIE income can usually be excluded, unless you wish to claim back any excess tax paid on listed PIEs. Further Reading:IRD – Individual tax return (IR3)IRD – IR3G – Individual income tax return guide (PDF)IRD – IR3 – Individual tax return (PDF) Have I scared you off? It’s understandable if you read the above and have been put off by the complexity of tax on investments. This is not tax advice, but if you’re an employee, and stick to the following investments, then chances are all your tax will be paid automatically and you won’t have to file a tax return: Bank deposits, bonds, peer to peer lendingSharesListed PIEsMulti-rate PIEsKiwiSaver You would only have to file a tax return if you invest in the following (or if you are required to file a tax return for some other reason, like being self-employed): Things that would make you liable for capital gains such as cryptocurrency, or trading shares and propertyOverseas and FIF investmentsRenting out property But I still would not be put off too much – it is very achievable to complete the return yourself, and if you need professional help to file your return, the fees you pay can be deducted as an expense. Conclusion Phew, that was a mission to write up, and I am just scratching the surface of tax in this article. If you got this far hopefully your brain is still intact, and that this article has given you an idea of what to expect regarding your tax implications when investing. I’d say the most important things to know are: Know your RWT rate and PIR, and make sure your investment provider has your correct ratesKnow which tax rate applies for each type of investment, so you can choose one that better fits your personal circumstancesKnow when you need to file a tax return, and when you don’tSeek professional advice – there may be rules and caveats unique to your personal circumstancesDespite its complexity, don’t let tax put you off investing. In many cases tax is simple Found this article helpful? Let’s be friends on Facebook, Twitter, or via email so you can keep up with the latest news and posts! More articles Investing in individual companies vs funds – what’s better?26 June 2019 Shopping for ETFs – Sharesies vs Hatch16 September 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...What I’ve been investing in – September 201930 September 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. In September 2019, Japan upset Ireland in the Rugby World Cup, climate strikes were held in NZ and around the world, and local government elections are now underway – so make sure you vote for the mayor of your city or district! As usual I’m continuing to develop my investment portfolio, and this month the low OCR continues to be a major theme. 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 Metlifecare Bonds Metlifecare, a retirement village operator, issued $100 million worth of bonds this month at a rate of 3%, for a term of seven years. I decided to buy $5,000 worth of bonds (the minimum amount), following the maturity of one of my term deposits. The 3% rate isn’t great, but this is a defensive move for my portfolio. I’m not comfortable investing all my money into shares, and the OCR and term deposit rates are projected to go even lower, so these bonds allow me to lock in this rate for several years. Bonds also give me the flexibility to sell the investment at anytime, and given most NZ corporate bonds are trading at yields well under 3%, these Metlifecare bonds should be popular on the secondary market. InvestNow I try to add some money to my InvestNow portfolio every month, and the funds I chose to invest in this month were: AMP Capital Australasian Property Index FundSmartshares Healthcare Innovation ETFSmartshares Global Aggregate Bond ETF None of these are core holdings in my portfolio, but just supplement my main fund, the AMP Capital All Country Global Shares Index Fund. In addition, late last month I sold my holding in the Smartshares NZ Top 50 ETF. I put $250 in this fund two years ago, and don’t need it in my portfolio since I already have enough NZ exposure through holdings in individual companies. It’s done well for me though, returning $16 in dividends and $56 in capital gains. Squirrel Money If you’re a regular reader of my What I’ve been investing in series, last month you might remember me talking about slowing down my investment into Squirrel. But a lot can change within a month, and my investment into the platform is still going strong! Steady demand for loans on the platform, and falling bank deposit rates have driven me to continue investing here. Dividends reinvested Heaps of NZ companies pay dividends in September, following the end of their financial year on 30 June. Most pay out dividends in cash (which I then spend or put towards other investments), but three of my companies have dividend reinvestment plans which allow me to automatically reinvest my dividends into more shares (at a discount and free of brokerage!). These are Heartland Bank, Vital Healthcare Property, and Summerset Holdings. Investing news Further OCR cuts? Following on from August’s big 0.50% OCR cut, ANZ’s chief economist Sharon Zollner, has come out with a bold prediction that the OCR will be cut further to 0.25% by May 2020! The cuts will be driven by the deteriorating outlook for the local and global economy, and inflation remaining low. You can read the full report here. We have changed our OCR call and now expect 25bp cuts in not only November, but also February and May, taking the OCR to 0.25%, around the limit of its usefulness. https://t.co/YR9ct44spb pic.twitter.com/lNrw8UIXOg— Sharon Zollner (@sharon_zollner) September 5, 2019 Regarding shorter term predictions, economists are picking the Reserve Bank of New Zealand to cut the OCR to 0.75% in November. The commentary from bank economists (ANZ, ASB, Kiwibank) is well worth a look if you’re interested in reading more. It seems inevitable that our interest rates will be staying lower for longer. Booster lists Private Land and Property Fund The New Zealand sharemarket got a new listing this month in the form of a managed fund – the Private Land and Property Fund managed by Booster. The fund primarily invests in agricultural and horticultural land in NZ, targeting annual returns of 8% from rental income and capital gains. The Booster Private Land and Property Fund is available as a company to invest in on Sharesies The fund is not new, having been open for two years already, and the reasons for Booster to list the fund on the NZX are: Exposure – to make more people aware of the fundLiquidity – to allow investors to buy and sell units of the fund at anytime (previously withdrawals were only processed once per month, and any withdrawals over $50,000 incurred a fee) Video on the reasons why Booster chose to list the fund on the NZX There appears to be a fair amount of interest in the fund so far, with plenty of buyers lined up, but no one wanting to sell! Bids (buyers) and Asks (sellers) for the PLP fund Savings interest rate cuts A few interest rates I mentioned in my article The best bank accounts and credit cards for managing your everyday finances have been further reduced this month. The changes are: – Heartland YouChoose: 2.00% > 1.70%– Heartland Direct Call: 1.90% > 1.60%– Rabobank 60 day Notice Saver: 2.75% > 2.60% Is Peer to Peer Lending viable in NZ? Last week Gareth Vaughan from interest.co.nz reported that Harmoney’s founder Neil Roberts says ‘he can’t see a viable P2P lending model in New Zealand‘. This explains why Harmoney have been lending a lot of their own money to borrowers, as opposed making more loans available for retail investors to invest in. It certainly appears that Harmoney desires to transition away from Peer to Peer Lending in the medium-long term. Vaughan released a follow-up article the next day, sharing competitors Squirrel and Lending Crowd’s stance on the issue. Squirrel CEO John Bolton tended to agree with Harmoney’s Roberts (with P2P being a low margin business), while Lending Crowd’s Managing Director, Wayne Croad thinks P2P Lending is alive and well. I disagree with both Roberts and Bolton. I believe the main purpose of P2P Lending is to disrupt the banking industry – not by lending their own money, but by providing a high-tech platform to connect borrowers directly to lenders, to cut out the middleman. It is the same concept as Airbnb not owning any accommodation themselves, but instead providing a platform to connect travellers with property owners. Māori Language Week Both Māori Language Week and Money Week were celebrated between the 9th and 15th of this month. Here’s some te reo Māori investment related vocabulary that you can use: Money King NZ news Money King NZ has been live for over three months now, and here are some quick stats: 28 articlesOver 15,000 page viewsOver 300 subscribers/followers across Facebook, Twitter and Email Thanks for all your support! Most popular article this month: How to invest for kids in New Zealand Found this article helpful? Let’s be friends on Facebook, Twitter, or via email so you can 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 learnt – Craigs Investment Partners Investing Workshop27 September 2019Investment firms regularly run free investing workshops and seminars to share their knowledge to the public (and they usually have free food!). This month I’ve been seeing ads for complimentary investing workshops run by Craigs Investment Partners plastered all over my Facebook News Feed. I almost never click on Facebook ads, but this time I made a rare exception. Craigs are one of the big players in the NZ investment scene, so the chance to hear what they had to say was one I couldn’t miss. Fortunately there was a workshop coming up in Wellington, so I promptly registered. In this article I’ll be covering what I learnt, and sharing my thoughts on the workshop. Today’s article is a little different to what I usually write, so make sure you let me know your thoughts! This article is not endorsed or sponsored by Craigs Investment Partners, is my personal interpretation of the workshop’s content, and is not to be considered as investment advice. 1. Key takeaways from the workshop A. Building an Investment Portfolio The ‘entrée’ of the workshop was a brief talk on putting together an investment portfolio: Portfolio assets There are two major asset classes you can have in an investment portfolio: Shares (growth assets) – units of ownership in a companyBonds (income assets) – a loan from an investor to a company The mix of shares and bonds you should have in your portfolio varies – an example of a conservative portfolio would contain 70% bonds, and 30% shares. The mix you should have depends on your financial position, age, goals, income requirements, and risk tolerance. Diversification Diversification is the only free lunch in investingHarry Markowitz Diversification is highly important in an investment portfolio. It’s incredibly hard to predict how an asset will perform in a given year – if you knew the secret to predicting this, then you wouldn’t have to work another day in your life! So it’s best to invest a little bit in many different assets. There are three aspects of an investment portfolio that you can diversify: Asset class – having both shares and bonds. This lowers risk and volatility.Sector – investing in different industries. A couple of sectors they favour are aged care and IT.Geography – being invested in diffrent regions. Craigs invest 1/3 of clients’ money offshore. I thought this was pretty low, but their clients are often nervous about investing in less familiar markets. I also read that Craigs favours investing locally as they can better research the more familiar Australasian market, and take advantage of NZ imputation credits. B. Market Insights The ‘main course’ of the workshop was Craigs sharing their market insights – what themes do they currently see in the financial markets? US & China You have probably heard of the issues between the two in the news. These are the main players in global economy, and a worsening of trade tensions between these countries could really dent global growth. This would cause a flight to safe haven assets like the USD (being the world’s reserve currency), and result in a fall in the NZ and Australian dollars. New Zealand’s economy would definitely be affected by trade tensions as China is our largest export market (21.7% of our exports in mainly dairy, meat, logs, tourism), and USA is our 3rd largest export market (10.7% of exports in mainly meat, dairy, wine, tourism). Australian market This has been a tough market! The Australian sharemarket is still 6.2% below its 2007 peak (excluding dividends). This is really poor when you compare with New Zealand (up 84.6%) and United States (up 49.7%) during the same period. The reason for this is that the Australian market is heavily weighted towards banking and resources sectors, and this is evident by looking at the top 10 companies in the Australian sharemarket (which I’ve put below). These sectors have performed poorly over the last decade (and you couldn’t say other big Aussie companies like Woolworths and Wesfarmers have done well either!) Source: Smartshares OZY Top 10 Holdings However, it’s not completely bad for investors – when you factor in dividends, the Australian market is up 58% since 2007. That’s still poor compared to New Zealand which is up 160% since 2007 when you include dividends. New Zealand market New Zealand’s economy has been chugging along well, supported by these factors: NZ’s main export markets are doing well economicallyUnemployment is at a 10 year lowRegional confidence is positive – the housing market has been strong which leads to positive sentiment. Auckland is less positive, as their house prices are down However, there are some headwinds to look out for: House price growth is slowing Net migration is slowingHousehold debt is highBusiness confidence has been low with the Labour government in power Low Interest Rates Interest rates locally and around the world are expected to remain low. This is awesome for borrowers, but bad for savers. As an example, from 2007 to 2019, the 2 year mortgage rate has fallen from 9% to 4.25%. Meanwhile the term deposit rate has fallen from 8.42% to 2.90%, resulting in 66% less income. Back in 2007 you needed $475,000 to generate a $40,000 annual income from term deposits. Now you need $1,379,000 in term deposits to generate the same income! This has seen people seek higher yielding, but higher risk investments. Here are the yields from other asset classes: Auckland rental yield (before costs) – 3%NZ Fixed Interest – 3%NZX 50 – 4%NZ Listed Property – 5.5%NZ Utilities sector – 6% Bonds Bonds are still an important part in portfolio even when yields are low. Bonds act as a safety net in your portfolio and could help you sleep better at night in times of volatility (NZ corporate bonds went up 14.4% in 2008 during the Global Financial Crisis). They’re relatively low risk, with very few bond defaults in New Zealand over last two decades. Fixed income is important for diversification, capital preservation, and as a shock absorber during periods of volatility Examples of recent bond issues are Kiwibank 5-year bonds paying 2.155%, and Metlifecare 7-year bonds paying 3%. Demand for these bonds have been very high despite their low rates, especially as money from maturing term deposits look for a new home. Given inflation is currently low, the real returns of bonds are still acceptable. Share Prices Share prices are currently in line with long-term averages, although some countries are more expensive than others: NZ, Australia, and emerging markets are more expensiveUS, UK, Europe, and Japan are less expensive There are a few things to be cautious about, that could have a negative impact on the markets: US corporate earnings growth has softened. The effect of Trump’s corporate tax cuts on earnings have been one-off.Trade tensions between US and China, as mentioned aboveThe yield curve inversion, where the US 10-year Treasury yield is now lower than the 3-month yield. This indicator has preceded past recessions. However, we are now in different operating environment. Reserve banks are now more proactive in trying to stimulate economies and stave off recession, for example, by lowering interest rates. C. In summary I thought this slide summed up the key topics discussed in the workshop nicely: I should have taken more photos of slides, but there was a lot of information to absorb, and I was furiously scribbling down notes! 2. Did they try to sell anything? There is usually a catch with attending free workshops – otherwise why would they make it free? Usually the workshop’s organiser uses the workshop to sell their product or build awareness of their service. This workshop started with introduction about Craigs, and a couple of their key products. But overall the workshop was genuinely informative, and they did not push these products onto us. For those curious: About Craigs Craigs Investment Partners are one of NZ’s largest investment advisory firms, with over 500 people in offices from Kerikeri to Invercargill. They have $19 billion of clients’ funds under management and also own QuayStreet Asset Management. Their services include sharebroking, portfolio management, and investment banking. KiwiSaver Craigs offer two types of KiwiSaver schemes: QuayStreet – a traditionally managed KiwiSaver scheme, with a selection of ten funds for investors to choose fromCraigs – a scheme for more sophisticated investors. Investors get to choose exactly what shares and funds to invest in from over 160 options mySTART mySTART is a savings scheme which compliments their KiwiSaver scheme – it provides more flexibility as your money is not locked in. It requires $100 per month in regular contributions. Fees are a $30 annual fee + up to 1.25% brokerage + a 1.00% management fee. 3. Was there any free food? Now for the real reason I attended the workshop 😛 ! There was some cheese and cracker platters, nibbles, along with wine and beer on offer following the workshop. 4. My thoughts on the workshop I spent an hour at the event and thought it was well worth attending. I got the most value out of their market insights – it’s always good to get a professional perspective on what’s going on in the economy and financial markets, and see how it aligns with my own thinking. They did not share a lot of information on how to invest and build an investment portfolio, but I guess they don’t want to give too much of this away – if we knew too much about investing, Craigs’ financial advisers would be out of a job! Want to attend their Investing Workshops yourself? Keep an eye on their Investor Education page for upcoming workshops in your area. Lastly, I picked up their August 2019 News & Views magazine which discussed a couple of their themes in more detail, and made for some great reading 🙂 Found this article helpful? Let’s be friends on Facebook, Twitter, or via email so you can keep up with the latest news and posts! More articles 9 ways to invest in New Zealand1 July 2019 How to invest for kids in New Zealand23 September 2019 Which NZ bank savings product is right for you?21 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 invest for kids in New Zealand23 September 2019As a parent you want the best for your kids. This might involve saving and investing money for their future, in addition to making sure they eat their veggies, do their homework, and brush their teeth. While I can’t help with getting your child to eat broccoli, I can tell you about investing for kids. In this article I’ll cover the why and how for investing for kids in New Zealand, and a the pitfalls to watch out for – it is not always the same as investing for adults. Why should you invest for your kids? Their future Kids are pretty fortunate these days with heaps of support from the government, such as interest free student loans, and KiwiSaver HomeStart grants. But these don’t pay for everything, nor are these benefits guaranteed to be offered by future governments. Investing is all about growing money for the future, and investing for your child can better prepare them to tackle future financial commitments like expenses while studying, going on an exchange or OE, or putting together a house deposit. Time Kids usually have several years before they face any significant financial commitments. Take a 5 year old for example – you probably won’t be thinking about their retirement at such a young age, but still they have 13 years until they finish school, or maybe 20-30 years before they consider buying their first home. Investing requires time to grow your money, and kids have this time on their side. They can ride out any volatility you get from investing in riskier (but potentially higher return) asset classes, and they have time to take advantage of compounding returns year after year. The earlier in life they start investing, the better. Tax Tax, the government’s share of our investment returns can be up to 33% for those in the highest income bracket. Given kids usually don’t earn any significant income, they’ll probably be taxed at a much lower rate of 10.5%. Paying up to $22.50 less tax on every $100 they earn is a huge advantage, especially when you can reinvest this to compound your returns. This advantage alone should be enough reason to invest for your child, rather than combining their investments with your own account. They just need to have their own IRD number. However, it is not a good idea to invest your own money in your child’s account to lower your own tax bill, as this could be seen as tax evasion. Education Unfortunately financial education is pretty limited in schools, so it is up to parents to teach their kids about how money works and how to use it responsibly. Giving them ownership of money through their own accounts should hopefully make them more engaged and interested in learning. The more they know now, the less likely they are to fall into crippling debt and the hands of payday loan sharks in the future. What makes a good investment for kids? Kid friendly – An obvious requirement is that the investment service you use accepts under 18s, and allows you to hold the investment in your child’s name. Not all services (e.g. Hatch) allow accounts for under 18s. Low contributions – Most kids don’t have their own significant source of income, so rely on contributions or gifts from generous family members to invest. A good investment service needs to support this, by allowing you to make small contributions. Low fees – Low fees are important for adults as well, but are especially crucial for kids, given they are likely to have smaller balances (which means fewer dollars to offset any account fees). Control – Only a few super talented kids have the knowledge and maturity to make sound decisions on their investments, so a good investment service should allow their parents to control the account, while allowing you to transfer control to the child once they are old enough. 1. Bank accounts for kids Bank accounts are easy to understand for kids, keeps their money accessible, and earns them a little bit of interest. While the interest won’t make them rich, they’re still ideal as a short-term place to keep their money. For example, saving for a toy, gadget, or building up savings to make a larger investment elsewhere. Co-operative Bank Co-operative Bank’s Youth Accounts have an outstanding feature in that they pay 4% interest on balances up to $4,000! This is far higher than any other bank’s term deposit or savings interest rate, and definitely provides encouragement to save. In addition, their Youth Accounts are fee free, and they allow you to add EFTPOS and internet banking access when your child is ready for them. Other banks All other banks have kid friendly accounts, and they’re all pretty similar, being free of account and transaction fees. Some even chuck in some extras to help kids save and learn about money such as: ASB – Clever Kash – a digital money box which shows your child’s account balance and progress towards a savings goalWestpac – Fun pack – under 12s will get a ‘Fun pack’ containing a Westpac Rescue Helicopter money box, and a fun activity book It might be convenient to have your child’s account at the same bank as you, but unfortunately no other bank manages to come close to Co-op Bank’s 4% interest rate (most offer 1-2%). Access and control of accounts Different banks have different rules about who can access and control a kids’ account (e.g. to make withdrawals), and this usually depends on the child’s age. The three levels of control are generally: Only parents have control over the bank account (typically for young children)Parents have control over the bank account, but can choose to give their child access (typically for pre-teens and younger teenagers)The child has full control over their bank account (typically for older teenagers) Banks also have rules around giving a child access to an EFTPOS card, internet banking, and a Debit Card (depending on the child’s age and parent’s permission). Discuss with your preferred bank to ensure their access rules meet you and your child’s needs. How about term deposits? Term deposits used to be a solid, low risk way for locking up funds for the future. Unfortunately the returns are just too low these days, with most rates sitting below the 3% mark – this simply won’t be adequate to keep up with rising living, education, and housing costs. 2. Long term investing for kids Equity funds (funds that are invested in shares) are probably the best long-term investments for kids. Given the long investment timeframe when investing for kids, your child has enough time to ride out any volatility in the sharemarkets and take advantage of investing in one of the world’s best performing asset classes. For example, an investment in the NZX50 ten years ago, would be worth more than triple today! In addition, funds give you a well-diversified investment, are easy to access and manage, and require low contribution amounts. All it takes is a $50 per month investment to reach a portfolio size of $19,000 when your child turns 18 (assuming an average return of 6%). Best fund platforms/providers InvestNow InvestNow is a Fund Platform with minimum investments staring from $50, but most importantly, they don’t charge any account fees. InvestNow allows you to attach child accounts to your own account, so you can have full control over it, but can unlink the child account once your child is ready to be responsible for their own investments. One thing to watch out for on InvestNow is the Smartshares ETFs – these are listed PIEs, which are taxed at a fixed rate of 28% (but you may be able to claim the excess back through a tax return). If you prefer to simplify your child’s tax affairs then there are plenty other options on InvestNow – they have over 100 funds. It’s beneficial to invest in a multi-rate PIE as these are taxed at your child’s PIR (most likely 10.5%), and most funds on InvestNow are multi-rate PIEs – go to this link which filters out any funds that aren’t multi-rate PIEs. Which fund? These are the lowest fee, multi-rate PIE equity funds on InvestNow:– AMP Capital All Country Global Shares Index Fund– AMP Capital NZ Shares Index Fund– AMP Capital Australasian Property Index Fund The other type of fund that InvestNow offers are Australian Unit Trusts, such as the low fee Vanguard International Share Index Funds. These are considered overseas investments, so you need to be aware of the tax implications – a tax return is required if your child earns over $200 in dividends or interest from overseas, or holds over $50,000 in overseas investments. SuperLife SuperLife’s myFutureFund is a youth investment account where you can choose to invest into a selection of 44 funds. It is a way to get around the fixed 28% tax rate on Smartshares ETFs, given SuperLife’s funds largely mirror Smartshares’ ETFs, but are structured as multi-rate PIEs. The minimum investment amount is $1, and they allow relatives and friends to make contributions into the account (good for receiving gifts). You can hand over control of the account to your child at a nominated age between 18 and 25. SuperLife’s downsides are the $1 per month account fee, and their fund management fees are higher than many of the funds you can find on InvestNow. Other services These services are all kid friendly but I don’t think are as good as InvestNow and SuperLife, as their pitfalls can outweigh their strengths. Sharesies Sharesies is an amazing fund platform because they probably have the best user interface, and they allow you to invest as little as one cent. Sharesies’ kids accounts must be linked to and controlled by an adult account, but they can be unlinked after your child turns 18. Under 18s get a 50% discount on their account fee, however this still compares unfavourably to InvestNow who don’t charge an account fee at all. In addition, most funds on Sharesies are listed PIEs – Smartshares ETFs, where the tax rate for these are locked at 28%. Unlike InvestNow, there are few options on Sharesies when it comes to multi-rate PIEs (the AMP and Pathfinder funds being examples). Sharesies also offers investing in individual companies, which I’ll discuss below in section 4. 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! Simplicity Simplicity offers some excellent diversified investment funds (containing a mix of global and local shares and bonds all in one fund), at a low management fee of 0.31%. For example, their growth fund contains 78% shares, and 22% cash and bonds. Simplicity waives their $30 annual membership fee for under 18s, but their big downside is their minimum investment requirement of $5,000 – so it’s only suitable for kids who have a generous family member to kickstart their investment in these funds. Smartshares You can also invest in Smartshares ETFs directly from the issuer. I think it’s an inferior option though: The minimum initial investment is $500, with subsequent investments needing to be a $250 lump-sum, or at least $50 regularly per month. This is higher than other services.There is an initial entry fee of $30. And to exit the funds, you need to sell them via a broker, which will incur more fees and/or admin effort.You are investing into Listed PIEs which means a 28% tax rate applies, or even more admin effort if you want to claim the excess tax back.The processing times are slow, with contributions only being processed once per month. You are probably better off going for any of the other options mentioned above. Check out The Happy Saver’s blog post to hear about her experience in investing in Smartshares for her daughter. 3. KiwiSaver for kids? KiwiSaver is the New Zealand’s best saving scheme, allowing us to combine our money with employer and government contributions in order to invest it for retirement or buying a first home. But many people are gonna disagree with me on this one – my opinion is that it’s not a good idea for under 18s to be in KiwiSaver. Why? No benefits – The core benefits of KiwiSaver like Employer Contributions and Government Contributions don’t apply to under 18s – no 3% contribution match from their part-time job, and no annual $521 government contribution. The only benefit of KiwiSaver for under 18s was when the government used to give you a $1,000 kickstart for opening a KiwiSaver account. This incentive was discontinued in May 2015. No flexibility – Any money that goes into your child’s KiwiSaver stays in it until they buy their first home. And there is no guarantee that your child would want to become a homeowner when they’ve grown up – in which case the money would be locked in until they’re 65! The money cannot be used to further their education, start their own business, travel the world, or to pursue any ventures they might desire. Instead invest for your child using a non-KiwiSaver fund through the services described in section 2 above. Non-KiwiSaver funds give you the flexibility to withdraw the investment at anytime – for education, sports, buying a car, or whatever. If you still insist in having KiwiSaver for your child, JUNO and Simplicity are great options – JUNO has zero fees for under 18s, and Simplicity waives their $30 annual account fee (but not their 0.31% management fee). 4. Other investment options Shares in individual companies Shares in individual companies are a great long-term investment option. Imagine your child growing up alongside a increasingly successful company, like Auckland Airport which has increased in price from around $1 in 2000 to over $9 today (plus getting all the dividends they paid out). Investing in shares of individual companies can be more tangible too – wouldn’t it be cool to tell your kid that they own part of the airport they’re visiting, or part of the plane they’re flying on? The hard part is picking which companies to invest in – which companies are going to stick around and be successful over the next 10-20 years? For most people it’s way easier to just invest in funds, as they invest in many companies at once. But if you really want to invest in shares, then Sharesies is probably the way to go for kids. They have low brokerage fees, suitable for making small, regular investments. 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! Bonus Bonds Bonus Bonds are like the McDonald’s of the investing world, bringing in an element of excitement – every Bonus Bond you buy gives you a chance to win prizes of up to $1 million every month. They have a low $20 minimum investment amount, and there are no ongoing account fees. With over 3 billion Bonus Bonds in existence, chances are your child already owns some, or has received them as gifts from relatives. Unfortunately Bonus Bonds is a pretty terrible investment (could you even call it that?). The chances of winning prizes are pretty small (You are more likely to win 1st Division in Lotto than to win the $1 million prize in Bonus Bonds), and if you don’t win, you don’t earn anything. Make sure you check out my article Bonus Bonds – Is it investing or gambling? for more detail. Non-financial investments All the above investment options are aimed at growing your child’s money, but this is not the only way parents can set their kids up for a great future. You can invest directly in their education, sports, music, hobbies, or in family holidays to see the world together. Or maybe your child is an exceptional young rugby player requiring ongoing expenditure on expensive gear and sports trips. Perhaps sacrificing the opportunity to invest in shares or funds to pay for these things are worth it to support making their All Black/Black Fern dream come true. Conclusion Investing is one of the best things you can do to prepare for your child’s future. Kids have a long investment timeframe, allowing them to invest in risker (but higher returning) assets, pay less tax, and they can use their investments to learn about money. Whether the money is going to be used for education, travel, or a house, they are sure to be grateful to have an investment portfolio that’s grown together with them over the years. The main things to know about investing for kids are: Get an IRD number for your child, so they aren’t stuck paying the same rate of tax as you.Co-operative Bank offers the best kids’ bank account with their 4% interest rate. Otherwise all other banks offer fee free kids’ accounts.Equity funds are the way to go, given their high growth and the long investment timeframe that kids have. InvestNow and SuperLife are great options to access these funds.Watch out for Listed PIEs (e.g. Smartshares). They’re taxed at 28%, no matter what your child’s tax rate is.KiwiSaver isn’t the best option for under 18s. Invest in non-KiwiSaver funds instead for more flexibility.Avoid Bonus Bonds. You probably won’t win enough to outperform the sharemarket.Investing to achieve financial returns isn’t everything. Thank you to Vivian, Shawn, and Sarah for helping me put this article together. May their kids be wealthy and successful when they grow up. Found this article helpful? Let’s be friends on Facebook, Twitter, or via email so you can keep up with the latest news and posts! More articles What happened to Property Crowdfunding in New Zealand?18 July 2019 Which NZ bank savings product is right for you?21 June 2019 Dealing with Dividends – 5 things to know about them3 September 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...Shopping for ETFs – Sharesies vs Hatch16 September 2019Sharesies and Hatch are New Zealand’s friendly faces of investing, and are both fantastic services that have brought ETF investing much closer to everyday Kiwis. ETFs (Exchange Traded Funds) are incredibly popular options to have in your investment portfolio, giving investors instant diversification in a wide rage of companies, with low fees, and ease of buying and selling. As a quick overview: Sharesies is a service that allows you to buy ETFs listed on the New Zealand market.Hatch is a service that allows you to buy ETFs listed on the United States markets. In this article, I want to uncover the pros and cons of creating an ETF portfolio with each service. Is it better to buy local ETFs with Sharesies or go shopping for overseas ETFs with Hatch? Update (8 October 2019) – Hatch no longer charges an account inactivity fee 1. What’s on offer? Sharesies Sharesies is a Wellington based, pineapple loving company, with around 60,000 investors. They offer 32 ETFs on their platform, all of which are issued by Smartshares and include: Australasian share ETFs – e.g. NZ Top 50, Australian Top 20, NZ DividendInternational share ETFs – e.g. US 500, Emerging Markets, EuropeSector specific ETFs – e.g. Australian Resources, Automation & RoboticsCash and fixed interest ETFs – e.g. NZ Bond, NZ Cash, Global Bond All ETFs on Sharesies are NZ domiciled – i.e. based in NZ, listed on the NZ sharemarket, and traded using NZ Dollars. Sharesies also offers the ability to buy and sell individual companies listed on the NZX, as well as some funds offered by managers such as AMP and Pathfinder. However, these products won’t be covered in this article. Hatch Hatch is another Wellington based service owned by KiwiWealth, and they’ve recently reached over 10,000 investors. Hatch gives Kiwis easy access to the United States sharemarket, and with this access comes the opportunity to invest in 754 different US domiciled ETFs!!! Some of the ETF issuers are (click each one to go to their websites): iShares – Issued by BlackRock, they are the world’s largest ETF issuer, with over 200 of their ETFs available on HatchVanguard – The world’s 2nd largest ETF issuer, but perhaps the most famous, Vanguard offer over 60 ETFs on HatchSPDR – Issued by State Street Global Advisors, they are the 3rd largest issuer of ETFS, with over 50 available on HatchGlobal X – They are not a big ETF issuer, but they offer more niche, thematic ETFs such as those investing in Robotics and AI, and Internet of Things Not all US ETFs are available on Hatch. In total there are over 1,500 ETFs trading in the US, so if you’re after a smaller ETF you might be out of luck. Although 754 ETFs is already plenty of choice, and you are bound to find something on Hatch that meets your investment needs. Hatch also allows you to invest in individual companies on the US sharemarket, but this won’t be covered in this article. Minimum investment One of Sharesies’ best features is that there’s no minimum investment amount – you could make an investment of one cent if you wanted to! Hatch also has no minimum investment amount, but given their brokerage fees start from $3 USD, you probably wouldn’t want to make an investment of one cent… Both services are able to achieve such a low minimum investment amount by offering fractional shares. This means even if you only have $50 to invest, but a share in the ETF you want to buy costs $100, you can still buy 0.5 shares of that ETF. 2. Building an ETF portfolio Before we compare fees, I want to build an example ETF portfolio on both Sharesies and Hatch, so that you can see what a portfolio on each platform might look like. I’ll be basing this example portfolio off the 3-Fund Portfolio concept I first introduced in the article Building an investment portfolio – Simplicity vs InvestNow. The concept is about building a very simple, but still diversified investment portfolio that typically contains three asset classes: International sharesBondsDomestic shares Sharesies Our Sharesies 3-Fund ETF portfolio will be made up of three Smartshares ETFs, with exposure to global shares, global bonds, and local NZ shares: ETFWeightingSmartshares Total World ETF60%Smartshares Global Aggregate Bond ETF20%Smartshares NZ Top 50 ETF20% Hatch Two Vanguard ETFs will make up 80% of our Hatch 3-Fund ETF portfolio – The Total World Stock ETF, and Total World Bond ETF. Interestingly Total World Stock is the ETF that Smartshares invests in to make up 100% of their Total World ETF! The iShares MSCI NZ ETF will make up the remaining 20% of our Hatch portfolio. It is a bit strange to buy a New Zealand ETF from a foreign market (it would be like going to the States to by a Kiwi steak and cheese pie), but we’ll roll with it for the sake of this comparison. ETFWeightingVanguard Total World Stock ETF60%Vanguard Total World Bond ETF20%iShares MSCI New Zealand ETF20% We will be using our Sharesies 3-Fund ETF portfolio, and our Hatch 3-Fund ETF portfolio as a basis for our fee comparison below. 3. Fees Sharesies and Hatch have very different fee structures: Sharesies Account fee – Sharesies charges an ongoing account fee based on the value of your portfolio, starting from $1.50 per month when you have a balance of over $50: This is a little expensive in my opinion, particularly for smaller balances. For example, a $1,000 portfolio would attract account fees of $18 per year, which equates to 1.8%! Fund management fees – Smartshares ETFs charge a fund management fee of between 0.30% and 0.75%. For the ETFs in our Sharesies 3-Fund portfolio, their management fees are: Smartshares Total World ETF – 0.56%Smartshares Global Aggregate Bond ETF – 0.30%Smartshares NZ Top 50 ETF – 0.50% This gives us a weighted average fee for our Sharesies 3-Fund ETF portfolio of 0.50%. Full details on Sharesies’ fees can be found on their Help Centre. Hatch Foreign exchange (FX) fees – To invest using Hatch, you must first deposit New Zealand dollars and convert it to US dollars. A 50 basis points (bps) fee is applied to this conversion which is calculated with the equation: Exchange Rate – (Exchange Rate * 0.005) For example, if the NZD-USD exchange rate is 0.638, Hatch will change your NZD to USD at a rate of 0.6348. Brokerage – Hatch charges brokerage fees each time you buy or sell an ETF on their platform: $3 USD to buy/sell a fraction of one share$0.02 USD per share to buy/sell one or more full shares, with a minimum charge of $8 USD The implication of this is that you need to invest large amounts at a time (ideally several hundred dollars) to make the brokerage worthwhile. Fund management fees – The management fees for the ETFs in our Hatch 3-Fund portfolio are: Vanguard Total World Stock ETF – 0.09% (so cheap!)Vanguard Total World Bond ETF – 0.09% (so cheap!)iShares MSCI New Zealand ETF – 0.47% The US domiciled Vanguard ETFs are incredibly cheap compared to the Smartshares equivalents! Not so much for the iShares NZ ETF, given this is a more niche fund. However, the weighted average fee for our Hatch 3-Fund ETF portfolio is still a very low 0.17%. Tax related fees – When you make your first deposit, Hatch charges a one-off $1.50 USD fee to complete your US tax forms. They subsequently charge $0.50 USD each year to complete your US tax return. Account fees – There is no ongoing account fee for Hatch. Their account inactivity fee (a one-off $12 USD fee, and $1 USD fee per month of inactivity) if you don’t make any trades for 12 months, has recently been removed. Full details on Hatch’s fees can be found on their site. What’s up with the big difference in management fees? Do you ever feel that shopping in New Zealand is expensive compared with shopping overseas? It’s a downside of living in NZ – with high shipping costs, tax, and low volumes making locally sold goods more expensive. We can alternatively look to buy things from overseas sources, but once you factor in shipping costs, currency conversion, and shipping times, it might not be much better than buying locally. Sadly it’s the same story for our locally domiciled ETFs. Their higher fees reflect the cost of “importing” the ETF, such as brokerage and FX. Lower volume also plays a part – more money invested is better as a fund’s costs can be split among more investors. Again, we can look at buying cheaper overseas domiciled ETFs as an alternative, but have to factor in the additional fees. 4. Fee Comparison So how would the fees of Sharesies and Hatch apply to our 3-Fund ETF portfolios we created in section 2 of this article? Which one is cheaper? Unfortunately it’s hard to say, as it depends on a lot of variables such as how many years you’ll be investing, how many regular contributions you make, and the amount of money you invest. Fortunately I’ve built a spreadsheet to calculate the fees based on these variables. It takes into account any account fees, fund management fees, brokerage, tax fees, and foreign exchange fees. It can also factor in regular contributions to your portfolio. It’s a VERY rough calculation (in particular it doesn’t factor in any capital growth or dividends), but should give you a ballpark idea of the level of fees you can expect with each service, under different scenarios. Let’s run through some scenarios and see which service comes out cheaper for each one: A. Alice from Auckland Alice has $10,000 to invest for 5 years in our 3-fund ETF portfolios. She plans on adding $1,000 to her portfolio once every year. Here’s the fees she’d pay with each service: Sharesies – $460Hatch – $517 Sharesies is a little cheaper for Alice. Given her short investment timeframe of 5 years, the brokerage and FX costs of Hatch have negated the cheaper fund management fees that come with the US ETFs. B. Bruce from Blenheim Bruce is identical to Alice, but has an investment timeframe of 10 years instead of 5. His fees are: Sharesies – $1,044Hatch – $900 Now Hatch is cheaper, as Bruce has more time for the lower fund management fees of the US ETFs to offset Hatch’s brokerage and FX costs. C. Cathy from Christchurch Cathy is like Bruce and wants to invest in the same 3-Fund portfolio for 10 years, starting with $10,000. However, she’s a much more diligent saver and wants to add a regular $1000 a month to her portfolio. Her fees are: Sharesies – $3,772Hatch – $6,994 Sharesies is much cheaper for Cathy! With Hatch, the brokerage fees incurred from making regular contributions would really hurt her. D. Dorothy from Dunedin Dorothy is identical to Cathy, however, she invests $3,000 every three months (instead of $1,000 every month). Her fees are: Sharesies – $3,772Hatch – $4,023 Hatch’s fees are lower for Dorothy than for Cathy, thanks to her less frequent contributions lowering brokerage costs. However, Sharesies is still cheaper for her. E. Elizabeth from Edgecumbe Elizabeth is relatively well-off and contributes $6,000 every three months into our 3-Fund ETF portfolio over 10 years. Her fees are: Sharesies – $6,748Hatch – $6,231 Now Hatch is cheaper for for Elizabeth. Given she’s investing a larger amount, the cheaper management fees really start to kick in and offset Hatch’s brokerage costs. Want to do your own fee comparison between Sharesies and Hatch? You can take a copy of the spreadsheet I used to do the calculations here (must have a Google account to copy it) 5. Other considerations Fees aren’t the only thing that matters. There are many other pros and cons to consider when deciding between Sharesies and Hatch. Sharesies User Experience – Both platforms are easy to use and have great mobile friendly interfaces. However, I’d say Hatch requires a lot more effort to use – you’re dealing directly with the US market so have to convert your currency to USD, perform trades in USD, and track everything in USD. With Sharesies you only have to deal with NZD. Once you’ve logged in and made a deposit into the platform, it takes just 7 mouse clicks and 2 keyboard inputs to go from your investor dashboard to having an ETF bought and in your portfolio. It certainly takes a lot less thinking and effort. Automated investing – If 7 clicks to make an investment is still too much for you, you can automate your investing on Sharesies by setting up Auto-invest. This allows you to automatically invest $5 or more into the funds you want on a regular basis. Automated investing is coming to Hatch soon. Tax – Generally you don’t have to do anything regarding tax when investing in Smartshares ETFs on Sharesies (check Sharesies’ tax documentation here). But with Hatch, your investment is considered as an overseas investment – you will need to pay tax on any dividends earned, and if you have over $50,000 invested overseas you need to apply the FIF tax rules (check Hatch’s tax article here). It is not that hard to fulfil these tax requirements, but obviously not as convenient as going down the Sharesies + Smartshares route. Hatch More choice – Hatch offers over 750 ETFs versus Sharesies’ 32 ETFs. It’s like being a kid in a candy shop – the choices and possibilities for building your investment portfolio seem endless. Here’s a few examples of some cool and interesting ETFs on Hatch: ThemeETFsTech specificInvesco Solar Energy ETFGlobal X Lithium & Battery Tech ETFSector specificiShares US Insurance ETFGuggenheim China Technology ETFValues relatedSPDR Gender Diversity Index ETFImpact Shares Minority Empowerment ETFPrecious metalsiShares Gold Trust iShares Silver Trust ETFCountry specificiShares Taiwan ETFiShares Italy ETF You can get behind gender diversity by investing in the SPDR Gender Diversity ETF But is more choice better? It’s often harder to make a decision when you have overwhelming choice, compared to when options are scarce. Plus do you really need the niche ETFs that you can get on Hatch, when something like the Smartshares Total World ETF (investing in over 8,000 companies) provides sufficient diversification for most people? Eeny, meeny, miny, moe, which ETF should I choose to invest in gold??? Competing services Sharesies and Hatch are the most popular, but are not the only services to offer ETFs to Kiwis. So I want to round out the article by giving a couple of competing services a quick mention. InvestNow InvestNow is pretty similar to Sharesies, being a platform that lets you invest in a selection of Smartshares ETFs, and heaps more funds from other providers. It’s my platform of choice, as they don’t charge any account fees, but their downside is the higher minimum investment amount of $50, and inferior user interface. Stake Stake is the Australian equivalent of Hatch, also allowing you to buy shares and ETFs on the US market. Their major advantage is that they charge zero brokerage fees! The downside is that Kiwi investors face an onerous process to deposit and withdraw funds with Stake (unless you have an Aussie bank account): To deposit money – you must make a manual international money transfer from NZD to Stake’s USD account using a service like TransferWise. Stake charges a $20 USD fee for each deposit made this way.To withdraw money – you must first use Stake to exchange your USD to Australian Dollars (incurring Stake’s FX fee). Then you need to get Stake to arrange an international money transfer to have that AUD converted to NZD and paid to your NZ bank account. Conclusion Sharesies and Hatch have dramatically lowered the barriers to investing in ETFs. So when creating an investment portfolio with ETFs, should you shop locally with Sharesies, or go look overseas with Hatch? Sharesies gives you ultimate flexibility in being able to invest whatever amount of money, however often you want, without being hurt by brokerage fees. You could make an investment of ten cents everyday if you wanted to. I would say Sharesies better suits a wider audience – it’s perfect for beginners or people wanting to gradually build up a portfolio by regularly investing their spare change. Hatch’s HUGE selection of ETFs and their low management fees make you think “WOW”. But to make the most of this you need to invest a lot of money, less frequently, and for a long period of time – in order to offset the brokerage and FX costs. I feel like Hatch would be better for more experienced investors who have larger amounts to invest, and who would embrace the extra choice rather than be overwhelmed by it. I personally don’t use either, but my choice between the two would be Sharesies – it’s simple and offers sufficient ETFs for my investment needs. I have tried investing in the US market before, but found myself disliking the effort required to convert currency, and track everything in USD. However, I would still consider using Hatch if I wanted to invest in individual US companies. 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? Let’s be friends on Facebook, Twitter, or via email so you can keep up with the latest news and posts! More articles Simplicity vs JUNO vs BNZ – Battle of the low cost KiwiSaver funds12 August 2019 3 tips to get the most out of KiwiSaver19 June 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...Peer to Peer Lending review – Lending Crowd9 September 2019Lending Crowd lives in the shadow of bigger, more well known Peer to Peer Lending platforms like Harmoney, but do they deserve more attention? Lending Crowd is a simple platform that promises to connect investors to a crowd of high-quality, creditworthy borrowers, without involvement of the big banks. With that comes the opportunity for investors to earn returns far higher than what the banks are offering with savings accounts and term deposits. Based in Newmarket, Lending Crowd launched in late 2015, and is owned by finance company Finance Direct. I’ve been an investor on the platform since May 2017, and in this article I’ll be reviewing the Lending Crowd platform and its returns, risks, fees, and features. Is it better than investing in Harmoney? This is the second article in my Peer to Peer Lending review series:Article 1 – Harmoney reviewArticle 2 – Lending Crowd review (this article)Article 3 – Squirrel review (coming soon) 1. Getting Started As an investor on the Lending Crowd platform, you can choose to lend your money in either 3 or 5 year loan terms across four different risk grades (A1, A2, B1, B2), and to both Personal and Business borrowers. This is very interesting because it’s uncommon for everyday people to be able to invest in business lending! Lending Crowd’s minimum investment amount is $50, which happens to be the size of a single loan note on the platform (each loan is split up into $50 notes for investors to invest in). Lending Crowd allows borrowers to borrow between $2,000 and $200,000. The process for investing in loans is similar to Harmoney’s. You start by logging in to the platform where you’ll be presented with a list of loans available to invest in, along with each loan’s term, interest rate, risk grade, fee, and whether it’s a business or personal loan. You can view the details of each loan to see details like a borrower’s income, age, employment, and residential status. If you want to invest in that loan, you then buy notes in that loan until all the notes are sold out. The minimum investment in a loan is one note ($50), but you can buy multiple notes in a loan if you wish. My experience – What did I invest in? My strategy was to invest in loans with risk grades between A2 – B2. I felt that A1 grade loans offered an interest rate that was too low (see below for the rates), as you can get a similar interest rate on the Squirrel P2P Lending platform at a lower risk. I actively invested in Lending Crowd between June 2017 and May 2019. Currently I’m not actively investing on the platform for a variety of reasons, which I’ll cover below. 2. Potential Returns Interest Lending Crowd gives investors the opportunity to earn interest at rates between 6.69% and 18.45%. This is lower than Harmoney (6.99% – 29.99%), but higher than Squirrel (6% – 8.5%). With Lending Crowd you’re rewarded with a higher interest rate for investing in the longer 5 year term, unlike Harmoney which pays the same rate for both 3 and 5 year terms. Lending Crowd interest rates The above are Lending Crowd’s new rates that just came into effect on 2 September – if you’re interested, I’ve put a comparison between the old and new rates at the bottom of this article. Lending Crowd are the first lenders to drop their personal loan interest rates following the big OCR cut in August 2019. While the rate cut means lower returns for investors, it’s hoped that lower rates will make Lending Crowd more attractive to borrowers. It is certainly a challenge for P2P Lending platforms to balance out the interests of investors and borrowers, and I’d say Lending Crowd’s rates are still very attractive to investors. Lending Crowd uses a statistic called Net Average Return (NAR) to measure an investor’s overall pre-tax returns on the platform, taking into account interest earned, fees, and any loan write-offs. The platform’s average NAR as at June 2018 was 11.95%, but they have not provided an average NAR since then. I’ve asked Lending Crowd for up-to-date figures and will update this article once I get a response. My experience – What returns did I get? My current NAR on Lending Crowd is 12.68% which I’m really happy with. It’s not as much as I could have earned with Harmoney, but I feel I am exposed to less risk with Lending Crowd – read on for more detail. 3. Risk Overdue payments The first risk you face when investing in P2P Lending is overdue payments, where borrowers don’t make their loan repayments on time. They are annoying because you get paid late, and overdue payments are at risk of turning into write offs. On Ledning Crowd a loan can be overdue for up to 90 days, before the loan gets placed “In Collection”: In the unfortunate circumstance that a loan exceeds 90 days overdue the loan will be placed ‘in collection’ and the borrower will be informed that the full balance on the loan is due immediately. Security repossession and sale procedures will also commence. Write offs The main risk of Peer to Peer Lending is that the borrower doesn’t pay you back at all. On Lending Crowd, loans that have been “In Collection” for 180 days (or after collection procedures, such as repossession and sale of the loan’s security, are complete) get written off. A loan can stay ‘in collection’ up to 180 days, and at some point during or at the end of that period, when collection procedures are deemed complete or exhausted, the loan will be ‘written off’. When a loan is written of, you may lose the money you invested in that loan. Lending Crowd uses fractionalisation as the primary strategy to mitigate the impact of loan write offs, as each loan is split into $50 notes. This means that investors only need to expose $50 of their money to each loan, and can diversify their lending portfolio across a large number of loans. Lending Crowd has a couple of other strategies to mitigate risk, that in my opinion makes them safer than Harmoney: High Quality borrowers – Lending Crowd only accepts high-quality A and B grade borrowers, and do not lend to the likes of Harmoney’s risky E and F grades. They only approve around 17% of borrower applications they receive.Secured loans – All loans on the Lending Crowd platform are secured by the borrower’s vehicle, property or both. This gives more protection to the lender – for example, a car used as security on a loan can be repossessed and sold to recover money still owing on a written off loan. The security used on Lending Crowd’s loans So how do these features translate into results? The real test will be how the loan book performs over the long-term and through a recession, but below are the platform’s write off rates so far – they are very low, with no write offs at all in the A1 and A2 grades! Lending Crowd platform write off rates Early Repayments Early loan repayments can also be troublesome. Although investors are not penalised when a borrower pays back their loan early, it results in rework in having to reinvest your money into new loans. My experience – Did the risk occur for me? Overdue payments – Out of 274 loans I’m currently invested in, only four are overdue by 10 days or more. My overdue payments have always been low, and I’m not sure if that’s because the quality of borrowers is high, or because Lending Crowd are great at chasing up late payments. Either way, I am very very impressed. Write offs – Loan write offs have been uncommon for me. I’ve had 5 so far, with another two loans currently “In Collection”. Fortunately Lending Crowd has managed to recover some of the outstanding money from my written off loans, so the overall impact of write offs on my portfolio is very tolerable. If a write off occurs to your loan you get an email informing you of the details, such as how much was written off, and how much was recovered (minus any “collection costs” involved in recovering the money). Write off notification email Early repayments – There is no easy way to measure early repayments, but I can say they are pretty high. I get a steady stream of borrowers paying back their loans early, which I have to reinvest or withdraw from the platform. 4. Platform Fees Lending Crowd takes a cut of the interest you earn with a fee they call Interest Flex. The amount of Interest Flex you pay depends on the origin of the loan. 10% of interest earned for non-referred loans e.g. loans that people applied for directly through the Lending Crowd website.25% of interest earned for referred loans e.g. loans that were referred to Lending Crowd through their partners such as a car dealer. Referred loans were introduced late in 2018 as a way for Lending Crowd to acquire more borrowers. This has been successful so far, resulting in a 45% increase in loan listings. The fee for referred loans are higher as Lending Crowd pays commission to the referring partner. Each loan listing shows a “Flex adjusted rate” which shows the impact of the Interest Flex fee on the loan’s interest rate: My experience – Fees I thought Harmoney’s 20% fee was expensive enough! I think Lending Crowd’s 25% fee for referred loans is way too much – referred loans give no extra benefit or return to investors (apart from having more loans available to invest in) over non-referred loans that charge a lower 10% fee. I think the 10% fee for non-referred loans is VERY good though. As a result I avoided referred loans and only invested in the non-referred ones. Given about half of Lending Crowd’s loans are referred, this really limited the number of loans I was willing to invest in. 5. Platform Features Lending Crowd is the most basic out of the Peer to Peer Lending platforms I’ve used: Auto-lend: Lending Crowd has no auto-lend functionality – all loan investments must be placed manually instead. Developing an auto-lend feature doesn’t seem to be a priority for them either: We understand investors thinking: “Why doesn’t Lending Crowd develop software to offer automated investing or create rules around maximum investments?”. The reality is, investing lots of money by developing these services will not solve the real problem – that we simply need more quality, secured loans on the platform to meet the insatiable investor demand. Lending Crowd Investor Update, November 2018 Loan Notifications – Lending Crowd’s workaround for the lack of auto-loan is to send out email notifications whenever a new loan becomes available for investment. Investors can then log in to buy notes in that loan if they wish. You have to be fast to get in before all the loan notes are sold out – first in, first served! Loan notification email There are a couple of limitations to these notifications: No filters – You get email notifications for ALL loans listed on the platform. There is no way to filter out notifications for types of loans you’re not interested in, such as referred loans or particular risk grades.Email notifications are “shuffled” – The notifications are sent out to investors in random order. Sometimes you will get the notification immediately after a loan is listed, other times you will receive it 10 minutes or more after the listing. This is intended to make it more fair for investors (as not everyone can respond to the notifications immediately), but just means your ability to invest in a loan before it’s sold out comes down to luck. Getting your money out early – Like Harmoney there is no secondary market where you can sell your loan investments to get your money out early. You have to wait for borrowers to make repayments over the term of their loan. Reporting – The reporting provided on the platform is a basic list of the loans you’ve invested in. My experience – Platform features Lending Crowd may seem light on features, but I think this is actually a strength of the platform. What’s there works well – the site is simple, snappy, free of bloat, and is both mobile and desktop friendly. In regards to the lack of auto-invest, in the past I didn’t mind it as I was able to quickly respond to email notifications most of the time. But right now I’d prefer a more passive investment and not to have notifications disrupting me throughout the day. This makes me hesitant in recommending Lending Crowd to others, as not everyone has the time or opportunity to quickly respond to new loan listings. I did have major issues with the “shuffling” of loan notifications though. It was frustrating to receive a loan notification email and log in to the platform, only to see no loan to invest in, as the loan had already been sold out by the time I received the email! For me this is a poor user experience, and I also don’t like how this made your ability to invest in loans come down to luck. 6. Other Talking Points Loan availability Low loan availability is a common issue among New Zealand P2P Lending platforms and Lending Crowd is no exception. You can expect a steady trickle of loans to be listed, but will still take some time to build up a diversified lending portfolio. Together with the fact that I avoided referred loans meant that I had barely any choice of loans to invest in, and is the main reason I stopped investing in the platform. Institutional Investors Unlike Harmoney where ~80% of loans are funded by institutional investors, Lending Crowd’s loans are 92% funded by retail investors. This is great as it doesn’t mean the likes of banks and finance companies taking the already low amount of loans on offer. Lending Crowd seem to genuinely care about the interests of retail investors, and this is what P2P Lending should be about – providing a platform that benefits everyday people, instead of just banks and finance companies. Platform reliability I’ve found the Lending Crowd platform to be very reliable so far, and haven’t come across any glitches at all. The only issue is that they sometimes perform maintenance on the site during business hours. I think it’s quite unusual to perform maintenance during the day – time is money and I hope they don’t put off prospective customers by having the site down during business hours. Future Expansion At present Lending Crowd only offers secured lending, but has indicated that they’re looking to expand into the unsecured loans space, with the backing of a new institutional lender: Moving forward, we feel the obvious next step is to explore expansion into the unsecured lending space. This may mean that we’re willing to start conversations with another cornerstone financial institution to participate in these loans.Lending Crowd Press Release, September 2019 I’m not sure I’d like this, as one of Lending Crowd’s strongest selling points for investors is that all their loans are secured – which provides a lot more assurance (to me at least) compared to the unsecured loans of Harmoney. But I will reserve any further judgement until the final product is released. Conclusion I really like the Lending Crowd platform and think it does deserve a little more recognition. It’s simple, the borrowers are high-quality, overdue payments and write offs have been low so far. Is it better than Harmoney? It absolutely is in my opinion – and I would say that based purely on the fact that Lending Crowd has better quality borrowers, and only does secured loans. Most importantly this has resulted in my returns being great so far, with a 12.68% NAR. There are a few things that hold the platform back. The low loan volume, the high 25% fee for referred loans, and annoying loan listing email notifications are all reasons that led me to stop investing. But it mainly comes down to time – there are other more passive, and less time-consuming investment opportunities for me to pursue right now. If circumstances change, I would definitely consider investing in Lending Crowd again (and that just might happen with the OCR heading down towards 0%). So who do I think Lending Crowd is right for? If you want the potentially high returns from P2P Lending with more security than Harmoney, and are prepared to put in a bit of time and effort, then Lending Crowd is the way to go. If you want a more “set and forget” type of investment, then I would look at other options. Pros All loans are secured and borrowers are high-quality. Feels a lot safer than HarmoneyVery low fee (10%) for non-referred loansOutstanding management of loans resulting in low number of overdue payments and write-offs, and great overall returnsPlatform is reliable and free of bloat despite a lack of features Cons Very high fee (25%) for referred loansLow loan availabilityNo auto-lend functionality, requiring time, effort, and dealing with loan notification emails to get your money invested into loansNo secondary market to get your money out early Not quite ready to become an investor, and need a personal loan to consolidate your debts? Apply for a Lending Crowd loan though this link and you’ll get a bonus $50 to invest in the Lending Crowd platform when you drawdown your loan. Old vs new rates For those interested, here are Lending Crowd’s old interest rates compared to their new rates that came into effect on 2 September 2019: Found this article helpful? Let’s be friends on Facebook, Twitter, or via email so you can 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...Dealing with Dividends – 5 things to know about them3 September 2019Dividends – everyone loves them, and they are a crucial aspect of investing as they are one of the two ways you can make money from shares (the other being capital gains). They give investors a regular return on their investment, and have recently become even more important as an alternative income source to declining term deposit returns. However, dividends are often misunderstood and misused, particularly by beginner investors. In this article, I’ll be covering the specifics of dividends, such as when they’re paid, how much money you could make from them, and lastly, I’ll be looking at New Zealand’s biggest dividend trap, Sky TV. 1. What are dividends? Dividends are a way for companies to regularly pay a share of their profits out to shareholders. Paying dividends can make companies more attractive to investors, as it allows shareholders to receive a regular passive income stream (who doesn’t like receiving a payment into their bank or Sharesies account!?), and can also demonstrate that a company is profitable and financially strong. A higher dividend doesn’t necessarily make a company better – when a company pays out dividends, this results in less money left in the company to invest in further growth. A company with relatively low growth opportunities (like Contact Energy) might pay most of their profits out to shareholders in dividends, as they have less need to retain that money in the business. While a company with more growth opportunities might pay a small dividend, and retain most of their profits in the company in order to fund that growth. No dividends? Many companies (e.g. A2 Milk, Amazon, Facebook) don’t pay a dividend at all – These are often high-growth companies, where you’ll hopefully benefit from higher share price appreciation to make money from investing in these companies. Although, such companies may also become dividend paying companies in the future. Another reason a company might not be paying dividends is not a good one. A company’s profits might be declining to the point that they no longer have the capacity to continue paying dividends. Special dividends From time to time companies can pay a special dividend. These are often used to distribute excess capital to shareholders (e.g. surplus cash that isn’t needed by the company to fund further growth). Special dividends are usually one-off in nature, and shouldn’t be factored in when assessing a company’s level of dividend payments. 2. When do I get paid dividends? Most dividend paying companies in NZ pay a dividend twice a year, in the form of an “interim” and a “final” dividend. They are not always paid in equal instalments – for example, the final dividend is often bigger than the interim dividend. A small number of companies pay them quarterly. Quarterly dividends won’t necessarily give you more money than six-monthly dividends, because quarterly dividend payment amounts are smaller – it’s like slicing a sandwich into four pieces instead of two. Below are the critical dates that shareholders need to know for each dividend payment: Cum-Dividend (CD) – A company will declare they are making a dividend payment (and the amount of the dividend), typically as part of the announcement of their financial results. When a dividend is declared, the share becomes Cum-Dividend (has a dividend attached to it). Investors holding or buying the shares when it’s CD will receive the upcoming dividend payment, as long as they hold them until the Ex-Dividend date.Ex-Dividend (XD) date – This acts as a cut-off date where the shares no longer have any dividends attached to it. Investors buying shares on or after this date won’t receive the upcoming dividend payment, as they won’t make it onto the company’s share register on time for the Record Date (as it takes 2 days for trades to settle). Investors who sell their shares on this date will still receive the upcoming dividend, as they’ll still be on the share register on the Record Date. On the XD date, the share price of the company immediately goes down by the dividend amount to reflect the fact that the shares are no longer entitled to the upcoming dividend payment.Record Date – Immediately following the Ex-Dividend date is the Record Date. The upcoming dividend will be paid to all the shareholders that are on a company’s share register on the Record Date.Payment Date – This is the day dividends are paid out to those who held the shares on the Record Date. Woo! Hope that makes sense. If it’s a bit confusing, the basic rules you need to know are: If you bought shares before its Ex-Dividend date: You’ll receive the upcoming dividend on the Payment DateIf you bought shares on or after its Ex-Dividend date: No dividend. You’ll have to wait for the next dividend payment You can find key dividend dates for each company on the NZX website. As an example, this is Air New Zelaland’s upcoming September dividend payment: If you bought your shares through Sharesies, you’ll get an email notification on a share’s Ex-Dividend date, as well as on the dividend Payment Date. Sharesies email notification on a share’s Ex-Dividend date 3. How much money will I earn from dividends? Dividend Yield A company’s dividend yield is an estimate of the amount of dividends you might earn from owning shares in that company – For example, a share that’s at a price of $10, with a dividend yield of 5%, means you might get a dividend of 50 cents per share each year. A company’s dividend yield can be found on the NZX’s website. Dividend yield on the NZX website Dividend yields provide a quick way to assess a company’s dividend payments, but are often very misleading: They are “backwards looking” (calculated based on dividends that the company paid in the past year). There is no guarantee that a company will continue to pay the same level of dividends into the future. Companies can just as easily reduce or cancel their dividend, as they can increase it.Dividend yields on the NZX website (and most other sources) also factor in special dividends (which are usually just paid as a one-off).Dividend yields ignore tax treatment of the dividends. Things like tax rate, residency, and “imputation credits” attached to the dividend have a big effect on the final amount of dividend you’ll get. Calculating a dividend payment on your own Because dividend yields can often be unreliable, you can do your own calculations to estimate the amount of dividends you could potentially get. Don’t want to do the math yourself? Copy this Google Sheet, or use a portfolio tracking tool like Sharesight to automatically do the calculations for you, and skip to the next section. You’ll need a few numbers: Number of shares you ownDividend Amount – the number of cents being paid per shareImputation – this is a tax credit that many companies attach used to their dividends to reduce the tax you have to pay on them (to mitigate double taxation). The level of imputation can vary greatly from one dividend payment to another. Dividend Amount and Imputation for each NZX company is available at the following URL. Replace <ticker code> with the company’s ticker code e.g. AIR for Air New Zealand. Or search the NZX website to find the company you’re looking for.https://www.nzx.com/instruments/<ticker symbol>/dividends Let’s perform some calculations using Air New Zealand’s (AIR) September 2019 final dividend payment as an example (pictured below). Let’s assume we have 1000 shares in AIR. Calculate the Gross Dividend: Multiply the Number of shares with Amount. Example: 1000 x $0.11 = $110Calculate Imputation Credit: Number of shares x Imputation. Example: 1000 x $0.04278 = $42.78Calculate Tax (Dividends always have tax deducted at 33%): (Gross Dividend + Imputation Credit) x 33%. Example: ($110 + $42.78) x 33% = $50.42Calculate Net dividend (the amount you’ll be paid): Gross Dividend + Imputation Credit – Tax. Example: $152.78 – $50.42 = $102.36 With our 1,000 Air New Zealand shares, we will receive $102.36 in the September 2019 final dividend payment. Given their March 2019 interim dividend was the same amount, the annual dividend we get from AIR is $204.72. If we had bought the 1,000 AIR shares at $2.85, that would give us a net dividend yield of 7.18% (assuming Air NZ maintained the same level of dividends into the future). Your individual tax circumstances such as tax rate and tax residency may alter the amount of dividends you’ll be paid, and the amount of tax you are liable for. Check with a tax professional for guidance on your specific circumstances. Fortunately you don’t have to perform all these calculations yourself – you can make a copy of this Google spreadsheet which will do all the math for you. Alternatively you can use an investment tracking tool like Sharesight, which automatically calculates and tracks dividends for you. Listed PIEs Some companies in New Zealand are structured as PIEs. Some examples of PIEs are many of the Real Estate Investment Trusts (REITs) such as Kiwi Property Group, and Precinct Properties, as well as the Smartshares ETFs. Dividends from PIEs are taxed at a rate of 28%. Usually the tax is covered by imputation credits so all you need to do is multiply the number of shares you own by the dividend amount. Below is the upcoming dividend payment for Precinct Properties (PCT): Assuming we had 1,000 shares in PCT, we’d get $15 (1,000 x $0.015) in the upcoming dividend payment. Your individual tax circumstances such as tax rate and tax residency may alter the amount of dividends you’ll be paid, and the amount of tax you are liable for. Check with a tax professional for guidance on your specific circumstances. 4. What is a Dividend Reinvestment Plan? Dividend Reinvestment Plans (commonly known as DRPs or DRIPs) are where a company offers shareholders the opportunity to reinvest their dividend payments into buying more shares in the company, as opposed to receiving a cash payment. Only some companies offer DRPs – current examples being Heartland Bank, Summerset, and Vital Healthcare Property. Companies that offer DRPs aim to create a win-win situation for the shareholder and company: Shareholders get the chance to accumulate more shares in the company without paying brokerage costs. This allows investors to take advantage of compounding returns. In addition, shares bought through a DRP are often discounted (for example, a 2% discount for the most recent Heartland Bank dividend). Companies get to keep capital inside the business, while at the same time keeping shareholders who want cash dividend payments happy. How to join a DRP DRPs are not yet available for investors buying shares through Sharesies. Shareholders who want to participate in the DRP must opt-in via the company’s share registry. In New Zealand, this will either be Computershare or Link Market Services – they’ll send new shareholders a letter with instructions on how to do so. DRP documents I received in the mail after buying Summerset shares There are two levels of participation in DRPs. You can opt for Full Participation where all of your dividends are reinvested, or Partial Participation where only a certain percentage of your dividends (specified by you) are reinvested, with the balance being paid in cash. 5. What is a dividend trap? Dividend traps are companies that lure in investors by having a very high dividend yield, but the dividend payments are unsustainable. These companies typically have declining profitability, resulting in the person who invested for the high yield facing declining share prices and a reduction or cancellation of their dividend payments. New Zealand’s biggest dividend trap A local example of a big dividend trap right now is Sky TV. At the time of writing, the NZX website is showing Sky as having a HUGE 18% dividend yield. And if you’re a Sharesies user, when you sort companies by “Highest Annual Dividends” you’ll get Sky sitting at the top of the list – dangerously tempting for novice investors. However, this 18% yield is totally misleading – Sky have suspended their most recent dividend payment! So in reality, the company is currently yielding is 0% – they aren’t paying any dividends at all right now! Sky is on the top of the list when you sort companies by highest annual dividends on Sharesies How can this happen? Sky TV has been constantly losing subscribers over the last few years for many reasons, including the emergence of streaming services like Netflix. Remember, dividend yields are backwards looking, so they are calculated on past dividends when the company was more profitable and had a higher share price. Given Sky’s falling subscriber numbers and profitability, their past dividends cannot be sustained – anyone who bought Sky shares based on dividend yield alone have been trapped with further share price declines and dividend cuts. Sky’s declining share price over the last 5 years What to look for in addition to dividend yields As we have seen with Sky, looking at the dividend yield alone when choosing a company to invest in is not a great idea. Instead, these are a few factors that can help you assess whether a company’s dividend might be sustainable into the future: Price History – Have the company’s profits and share price taken a sharp dive recently? This could be a strong indicator of a dividend trap.Dividend History – Does the company have a solid track record of steadily increasing dividend payments over the years?Dividend Payout Ratio – What percentage of the company’s profits are being paid out as dividends? A lower payout ratio gives the company capacity to increase dividends, while a high payout ratio might not be sustainable.Future prospects – Is there anything happening to the company in the future which could suggest an increase to dividends? e.g. increasing profitability and lower need for capital expenditure. Or is there anything that could happen to force it to cut their dividend?Other factors – Look at a company’s debt levels and dividend yield compared to other companies in the same industry. Found this article helpful? Let’s be friends on Facebook, Twitter, or via email so you can keep up with the latest news and posts! More articles 4 things to know about investing in Equity Crowdfunding8 July 2019 Peer to Peer Lending review – Harmoney4 August 2019 Which NZ bank savings product is right for you?21 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 I’ve been investing in – August 201930 August 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. In August 2019 New Zealand secured the Bledisloe Cup for the 17th year straight, massive protests continued in Hong Kong, and trade wars and OCR cuts have dominated the economic news. It has been a relatively quiet one for me in terms of my own investment portfolio, but I have a lot of news below that’s well worth reading about! 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 Heartland Bank I first bought shares in Heartland Bank late last year. They’ve been growing steadily (particularly in the reverse mortgages space) and have even just announced an increased dividend, so I decided to buy more shares in the bank. Probably not the worst idea considering declining interest rates – as some have said, it’s better to own the bank, than to lend money to the bank. Squirrel Money I’m continuing to increase my Peer to Peer Lending portfolio with Squirrel. I don’t think I will be adding much more money from now on, as loan demand has dried up a little, while investor supply has increased following the OCR cut. InvestNow Global sharemarkets have been volatile this month largely thanks to trade wars, Trump Tweets, and recession fears. I saw this as an opportunity to invest more while index funds are “on sale”, and have done so by contributing to my core holding on InvestNow, the AMP All Country Global Shares Index Fund. Punakaiki Fund Punakaiki Fund is a company I bought in an Equity Crowdfunding campaign on Snowball Effect back in late 2016. Punakaiki invests in a portfolio of relatively young, high-growth companies, mainly in the software space – I like this as there are not many opportunities to invest in tech in NZ! Punakaiki holds share trading windows every 3 months, in which existing shareholders can trade Punakaiki shares with each other. The shares usually trade at a discount during these trading windows, so I bought a small amount at a discounted price of $19 per share (compared to their valuation of around $22.42). Angel Food I invested a small amount of money in another Equity Crowdfunding campaign this month, Angel Food. They are a fast growing producer of vegan cheese, and supply well known outlets like Hell Pizza and Z (for their vegan pepper mushroom pie). Given veganism and demand for meat and dairy alternatives is rapidly on the rise, I’m confident that Angel Food will continue to grow. Fortunately I don’t have to give up meat to become an investor in this rising trend! Investing news Reserve Bank slashes the OCR On Wednesday 7 August, The Reserve Bank of NZ slashed the Official Cash Rate (OCR) from 1.5% down to a record low of 1%. It was widely expected to be reduced by 0.25% to 1.25%, but no one saw such a big cut coming. This was immediately followed by a spike in NZ share prices, and a sharp fall in the NZD. Bank deposit rates have dropped as a consequence of the rate cut. Here’s a selection of bank savings products and their rate changes from 6 to 12 August: 6 August12 AugustChangeHeartland Direct Call account2.15%1.90%-0.25%Westpac 32 day Notice Saver2.40%2.00%-0.40%Kiwibank 90 day Notice Saver3.10%2.70%-0.40%ANZ 1 year Term deposit3.00%2.85%-0.15% Check out my most recent article for my insights on what you can do about declining term deposit interest rates. Kernel Kernel is a new fund manager that launched this month, with an initial offering of three low cost index funds investing in the NZ sharemarket: NZ 20 – Invests in the 20 largest companies on the NZXNZ Level 9 – Invests in 37 mid-small size companies listed on the NZXNZ Commercial Property – Invests in the 8 Real Estate Investment Trusts (REITs) listed on the NZX Kernel’s fund management fees are 0.39% + a $3 per month account fee (but you can get a 0.10% fee rebate when investing over $25,000). My first impressions are that there are cheaper options available (like Simplicity and InvestNow), and that their three initial funds don’t really offer anything unique over what’s already out there. I will be keeping an eye on this new fund manager, and you can expect to see a review/comparison article soon! Napier Port IPO Napier Port is the latest company to be listed on the NZ sharemarket! They raised $234m in an IPO by issuing new shares at a price of $2.60 a piece. Being a key piece of infrastructure for Hawkes Bay, they plan to use the money to repay debt, and to be able to fund the construction of a new wharf. The shares have been in high demand, immediately shooting up 12% to $2.91 on the commencement of trading, and have since risen further to over $3.10. Money King NZ news I’ve added a couple of very interesting initiatives to the site this month: Shielded Site Shielded Site is an initiative from Women’s Refuge NZ that allows victims of abuse to seek help, without it appearing in their browsing history. I’ve added the Shielded button to the bottom of all pages on Money King NZ. Anyone can add the Shielded button to their site, and several major New Zealand websites like Trade Me, The Warehouse, and Countdown have already done so – find out more at shielded.co.nz Brave Verified Creator Brave is an increasingly popular web browser that automatically blocks ads and trackers. But if you want, you can opt-in to see ads and be rewarded with cryptocurrency tokens, which you can then use to tip your favourite websites or withdraw. This month I’ve become a Brave Verified Creator, which allows users of Brave to reward this site with tips. Download Brave through this link and you’ll also be supporting Money King NZ. Give it a go – I think you’ll be surprised at the insane amount of ads and trackers that are out there on the web. I’ve blocked over 112,000 ads during just a few months of use. Most popular article this month: Simplicity vs JUNO vs BNZ – Battle of the low cost KiwiSaver funds Thanks for all your support! Found this article helpful? Let’s be friends on Facebook, Twitter, or via email so you can 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...Term deposit rates suck! What you can do – with 5 term deposit tips26 August 2019Late last year I opened a 9 month term deposit with an interest rate of 3.50%. Time has flown by, and now as that term deposit is approaching maturity, I’m facing the prospect of having to reinvest it at a drastically lower rate of around 2.80%. These low rates suck! Interest rates are plummeting everywhere, and with them, the incomes of term deposit holders. Given New Zealanders collectively have $170 billion invested in term deposits, the effect of this will be widely felt. In this article, I’ll briefly look at why rates are falling, alternative investment options, as well as some tips for squeezing extra dollars out of term deposits. Why are rates dropping? The Reserve Bank of NZ has been reducing New Zealand’s Official Cash Rate (OCR). The OCR is essentially a lever that can be used to help push the economy in a certain direction: Reduce the OCR to help boost the economyRaise the OCR to cool down the economy (to prevent severe inflation) The Reserve Bank has been cutting rates over their concern about slowing economic growth both domestically, and globally. Five years ago, the OCR was at 3.50%, and it has been on a downward slope since then. There was a big rate cut this month (August 2019) from 1.50% to 1.00% and the downward slope isn’t over yet, with short-term forecasts suggesting a further OCR cut may be on the cards later this year. You can see a full history of the rate here. The OCR influences the economy by influencing interest rates. Rate cuts hope to stimulate the economy by encouraging people to spend and invest more by decreasing cost of lending (like mortgage interest rates, to give homeowners more spending money), and decrease bank deposit and savings rates (making spending and investing more attractive). I won’t get into too much detail about how this works – you can watch the video below to learn more: Lower rates hurt My current $10,000 9-month term deposit at 3.50% gives me an after-tax income of $189. At today’s rate of 2.80%, I’d only get $151.20. Looking back 5 years, rates of well over 4% were common. At 4.20%, my $10,000 deposit would have earned me $226.80. Incomes from term deposits are quickly approaching half of what they used to be a few years ago. Considering $170 billion is in term deposits, and many people like retirees are using them for their income, rate cuts definitely hurt a lot of people, and will make much of the country rethink the use of term deposits in their investment or savings portfolios. So what can you do about the shrinking interest rates? Fun fact: term deposit rates in early 2008 were over 8%! You can see some data on historical interest rates back to 1964 here Option 1 – Invest in riskier assets Bank Deposits are among the least risky places to put your money. The first option to deal with low interest rates is to invest in riskier assets that have potential to deliver higher returns. 1. Bonds and Peer to Peer Lending Two types of investments that pay regular interest, just like term deposits, are Bonds and Peer to Peer Lending. At the time of writing, Infratil are offering 7 year bonds at a rate of 3.35% – not too much higher than ANZ’s 5 year deposit rate of 3.10%, but you do get the benefit of being able to sell/cash-up your investment at any time. Rates from Peer to Peer Lending start at 6%, but can easily reach 10%. Of course, both bonds and Peer to Peer Lending expose you to a lot more risk – mainly to default risk, where the borrower/bond issuer may get into financial trouble and is unable to pay back your money. 2. Shares Dividends from high dividend yielding shares can be used to replace interest income from term deposits. These are examples (not recommendations) of New Zealand companies that pay a regular, high dividend, and at the time I wrote this (20 August) their gross dividend yields are: Genesis Energy – 6.87%Heartland Bank – 7.62%Air New Zealand – 11.11%Spark NZ – 7.99%Argosy Property – 5.37% However, shares carry even more risk than bonds and peer to peer lending. Companies can lower or cancel their dividend payments, and/or their share prices can fall. The following two are examples of companies that paid decent dividends three years ago, but are now in a sorry state: Sky TV – share price was $4.86, now $1.22. Dividend currently suspended.Fletcher Building – share price was $10, now $4.87. Dividend was completely suspended during 2018. 3. Other There’s many other investment options, and a few examples are: Funds that invest in high dividend paying companies, for example, the Smartshares New Zealand Dividend ETF. This fund currently has a gross yield of 4.90% and is available on InvestNow or Sharesies.Funds that don’t have a dividend focus, but still have a decent dividend yield, for example, the Smartshares NZ Top 50 ETF. This currently has a gross yield of 3.72%.Property – mortgage rates have also gone down thanks to the OCR cut. If you already have a mortgage, you could use your term deposit money to pay it off, offset it, or stick in a revolving credit account (but this may come with its own unique risks). Limitations Investing in riskier assets is definitely not for everyone. Not everyone can afford to or wants to take on more risk. Those investing for the short-term (like those about to buy a house), are best to stick with bank deposits, unless they don’t mind having their house deposit exposed to potential drops of the share or bond markets. Then there are those who are risk adverse. My parents are good examples of this – they got hurt by the 1987 market crash and won’t go anywhere near shares these days. They have left a lot of money on the table by not investing in shares, but at least they sleep better at night, knowing their money isn’t at (high) risk. Also as interest rates fall, buying assets like bonds and shares for their higher yields becomes less effective. Since demand for these assets increase when interest rates fall, their prices increase, reducing their yields. For example, 3.5 years ago the yield on BNZ090 bonds were 5.25%, and has since gone down to 2.50%. Same with Goodman Property Trust – 2.5 years ago it had a dividend yield of 5.6%, now it’s down to 3.7%. Finding quality, high-income producing assets becomes harder and harder as interest rates fall. Option 2 – Stick with term deposits Some people have no choice but to take this option – as mentioned above, many are not in a position to take on more risk. Unfortunately they’ll have to suck it up and accept the lower rates. However, there are a few things you can make sure you’re doing to get the most out of term deposits. Let’s start with an initial term deposit and see how each tip affects the amount of interest we could earn: Initial term deposit – Our initial term deposit will be $10,000 invested for 1 year at 2.75% with ASB. We have a tax rate of 33%. This gives us an after-tax interest income of $184.25 at the end of the 1 year term. 1. Make it a PIE Most banks offer a PIE version of their term deposits (often known as a Term PIE). Term PIEs work the same as term deposits, but have different tax treatment where your interest income is taxed at your Prescribed Investor Rate (PIR). PIRs are capped at 28%, meaning those on 30% or 33% tax rates will benefit from investing in a PIE. Term deposit 1 – With a Term PIE, our deposit will be taxed at 28% instead of 33%. This increases our after-tax interest income to $198, which is $13.75 more than the initial term deposit, and is equivalent to having an interest rate of 2.96%. 2. Compound your interest By default, banks pay you any interest you earn from a term deposit at maturity (at the end of the term). But these days it’s common for banks to offer options to have your interest paid out more frequently (e.g. every 3 months). Further to this, they often offer the option for you to compound (re-invest) the interest into the same term deposit, so that you can earn interest on your interest. Term deposit 2 – By compounding our interest quarterly, our interest income increases to $199.42, which is $1.42 higher than Term Deposit 1. We have now increased our interest income by $15.17 over our initial term deposit. An extra $1.42! I know this tip is hardly worth it – the compounding effect is stronger with higher interest rates. But at least it’s better than letting the bank keep that money. 3. Shop around for better rates Special rates aren’t as common as they used to be, but still worth looking out for. For example, ASB are offering a 7 month term at 3.00% – their highest term deposit rate on offer. However, this comes at a risk as you are forced to reinvest your money earlier (at 7 months vs 1 year), at potentially a much lower rate. It’s also worth looking for better rates at other banks. For your convenience, here’s the links to the term deposit rate pages of our major banks, as well as to interest.co.nz, which has a rate comparison page: ANZ | ASB | BNZ | Kiwibank | Westpac | Interest.co.nz Term deposit 3 – The highest 1 year rate out of the major banks is ANZ at 2.85% (compared to ASB’s 2.75%). This would give us an after-tax return of $206.79, which is $7.37 more than Term Deposit 2 with ASB. We’ve now increased our interest income by $22.54 over our initial term deposit. If you can’t be bothered signing up to a new bank to get the better rate, then asking your existing bank to match the rate is worth a shot. 4. Invest in a riskier bank Smaller banks like Heartland Bank often offer higher interest rates than the main banks. However, these banks have lower credit ratings, so come with higher risk. From Liz Koh’s opinion piece on Stuff.co.nz: Our main banks – ANZ, ASB, BNZ and Westpac have an AA- rating. That’s a probability of default of around one in 300 over five years. By comparison, Co-operative Bank, Heartland Bank and SBS Bank have a rating of BBB which reflects a one in 30 chance of default in five years. In addition, if you’ve had a look at Interest.co.nz‘s rate comparison page you may have also seen credit unions and finance companies on the list. Risk increases exponentially as you get to lower credit ratings, and a finance company with a BB rating has a 1 in 10 chance of default! Given the track record of finance companies in NZ (67 collapses between 2006 and 2012), I’d personally avoid these finance companies. Term deposit 4 – With Heartland Bank we can get an interest rate of 3.05% for a 1 year term deposit. This would give us an after tax return of $221.41, which is $14.62 more than Term Deposit 3 with ANZ. With all the tips combined, we have increased our interest income by $37.16 over our initial term deposit. 5. Stagger maturity dates This tip is a little different so I won’t compare it to the above examples. Its purpose is to address the one of the big downsides of term deposits, which is having your money locked up for a period of time. You can always invest in deposits for shorter terms, or in a saving account, but these come with lower rates – for example, the 3 month rate at Heartland is 2.6%, while their 1 year rate is 3.05% (however, this is less of an issue these days, as the gap between shorter term and longer term rates has fallen dramatically). A potential solution for this is to stagger your maturity dates. For example, Instead of investing $100,000 in one term deposit, you could create four $25,000 term deposits: A deposit maturing in 3 months time (at 2.60%), then reinvested for one year (at 3.05%) A deposit maturing in 6 months (at 3.00%), then reinvested for one yearA deposit maturing in 9 months (at 3.00%), then reinvested for one yearA deposit maturing in 1 year (at 3.05%). This allows you to invest in longer term (and hopefully higher rate) deposits, while having the ability to access $25,000 of your money every 3 months. Longer terms also allow you to lock in your rate for longer, which is ideal in an environment where rates are predicted to fall even further! By staggering the maturity dates like we have above, after one year we’d earn interest income of $2,173.88. In comparison, investing the whole $100,000 into rolling 3 month term deposits, would only earn $1,753.41 in interest. Limitations Unfortunately, these tips won’t dramatically increase your returns. Everyone is in the same low interest rate boat, and there just isn’t any easy way to hack yourself out of this boat. At least New Zealand’s term deposit rates are higher than in many other countries. The below is a comparison of rates for a $10,000 1 year term deposit between the big 4 New Zealand and Australian banks (as at 22 August): New ZealandRateRateAustraliaANZ2.85%1.70%ANZASB2.75%1.50%CBABNZ2.80%1.75%NABWestpac2.75%1.55%WestpacNZ Average2.79%1.63%AU Average Conclusion Falling term deposit rates present a challenge for many savers and investors. Term deposit holders are forced to take on more risk to maintain former levels of income, and those that can’t afford the extra risk are stuck in a difficult position. There are tips you can follow to squeeze more dollars out of term deposits, but they won’t fix the fundamental issue of low rates. However, I also see this situation as an opportunity to learn, gain more investing skills and knowledge, and get out of our comfort zones – declining term deposit rates was what motivated me to invest in assets like shares, bonds, and peer to peer lending in the first place. As for my 9 month 3.50% term deposit, I’m not planning to reinvest it for another term. I’m fortunate to be in a position where I can take on more risk and have been doing so, as you may have seen in my What I’ve been investing in series. Found this article helpful? Let’s be friends on Facebook, Twitter, or via email so you can keep up with the latest news and posts! More articles Investing in individual companies vs funds – what’s better?26 June 2019 What’s the difference between InvestNow, Sharesies, Simplicity, Hatch, and more?11 July 2019 5 things to know about investing in Peer to Peer Lending24 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...More Articles… Investing ArticlesArticles about the various ways to investResourcesUseful services, websites, spreadsheetsAboutAbout Money King NZ
