Popular Articles Looks like you have JavaScript disabled. Use this link to access the no JavaScript friendly site.What happens to your money if InvestNow or Sharesies go bust?When thinking about investing your hard earned money, it is understandable (and a good thing!) to question whether the investment provider you want to use such as InvestNow and Sharesies is safe. Common concerns include: What happens if the service I use goes out of business?Is this service safe and trustworthy?Could this service run away with my money? Thankfully local investment providers have measures that help keep your money safe, many of which are required by strict New Zealand regulations. This article will provide an overview of how New Zealand investment providers look after your money, looking at a few scenarios including what happens if a Fund Platform or Fund Manager goes bust, and how you would get access to your money if the worst was to occur. 1. What happens if a Fund Platform goes out of business? Fund platforms like InvestNow and Sharesies provide a service through which you can buy a large selection of funds (and in Sharesies’ case shares in individual companies). Let’s take a look at who owns the investments that you buy through these platforms, and what happens if the platform goes out of business. Who owns your investments? The investments you buy through these platforms are not held in your name, nor are they owned by the platform. Instead they are held in the name of a Custodian, but on your behalf, with you as the beneficial owner of the investment. So what are the custodial arrangements that InvestNow and Sharesies use? 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 Limited 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. Example Steve Hansen bought 100 units in the Smartshares NZ Top 50 ETF through InvestNow. The share registry (record of who holds the shares, and how much they hold), would show the Custodian (Adminis) as the owner of the shares: The Custodian keeps a record of who the beneficial owner of their holdings are: How does a Custodian protect your money? Your money doesn’t touch the platform When you deposit money with the Fund Platform, the money goes straight from you to the Custodian. For example, when making a deposit with InvestNow, the money goes to the Custodian’s (Adminis’) bank account: Subsequently, when you invest into a fund, your money goes straight from the Custodian to the Fund Manager. Investors’ money is never touched by the Fund Platform. Segregation from the platform Investors’ money is held in a seperate legal entity from the Fund Platform, with investors being the beneficial owners of that money. Therefore this money can’t be used by the platform to run their business. For example, Sharesies Limited cannot use investors’ money held in Sharesies Nominee Limited to pay their employees’ salaries. In addition, money held by the Custodian can’t be touched by creditors. For example, if InvestNow went out of business while owing tax to the IRD, the IRD can’t touch the funds held by Adminis Custodial Nominees Limited to claim back InvestNow’s unpaid tax. Also in InvestNow’s case, the Custodian (Adminis) is totally independent and unrelated to the Fund Platform. Sharesies’ custodial arrangements are less robust in this aspect, as their custodian Sharesies Nominees Limited is related to the platform, being fully owned and sharing the same directors as Sharesies Limited. Auditing and reconciliation Custodians are required to be independently audited annually, and must send the auditor’s report to the Financial Markets Authority (FMA). The audit includes assessing whether the custodians have the right procedures and controls in place to accurately process transactions, keep records, and safeguard investors’ money. Adminis uses PwC, and Sharesies uses KPMG to perform their audits. Custodians are also required to reconcile records of investors’ money daily. Off-market transfer InvestNow’s Custodian allows you to transfer ownership of an investment into your own name (this is subject to the Fund Manager accepting you onto their share registry). Sharesies do not allow off-market transfers out of their custody. demonstrates that you can ultimately get ownership and take control of your own assets and investments. If the custodian cannot transfer your assets to you, then this should be an alarm bell.Anthony Edmonds, Director, InvestNow So what is the role of the fund platform?With the custodian handling all the money, what does the fund platform actually do? They act as an investor-facing facilitator, collecting buy/sell orders from investors, then passing these onto the custodian to execute. In addition, they carry out activities such as marketing the platform, onboarding new customers, supporting customers, and maintaining the platform. What happens if a fund platform shuts down? Your money is safe, as it is held separately by the Custodian. The platform cannot run away with your money or use it to pay their creditors, nor is the value of your funds or shares affected – after all, it is not the Fund Platform that determines the value of your funds and shares. The problem now is how you are going to get access to your investments if the Fund Platform isn’t around. An administrator (for example, Custodian Adminis, or the liquidator of Sharesies) would likely work to achieve the best outcome for investors. Here are the likely outcomes: A. The investments are transferred into your name An off-market transfer could be performed to transfer your investments out of the Custodian’s name and into your own name (and into your CSN in the case of shares). This relies on the manager of your fund willing to accept you onto their share registry – For example, the Vanguard funds on InvestNow require a minimum investment of $500,000 AUD, so Vanguard are unlikely to accept smaller investors. B. Your investments are liquidated Your investments could be sold, and the proceeds returned to you as cash. This would be the probable scenario if you hold the Vanguard funds on InvestNow, given most investors won’t meet the $500,000 AUD requirement to hold this fund in their own name. C. New platform takes over Another business could take over the InvestNow or Sharesies platform and the relationships with their customers. This would result in the platform continuing in operation as usual, apart from the platform having new owners. 2. What happens if a fund manager goes out of business? Fund Managers/ETF issuers are the organisations responsible for managing the funds and ETFs you invest in. Examples are Smartshares, AMP Capital, Simplicity, and JUNO. How does a fund manager protect your money? Custodian Reputable fund managers use a custodian to hold investors’ money independently from the fund manager’s business. Here are the custodians for a few different New Zealand fund managers: Smartshares – BNP Paribas Fund Services Australasia Pty Ltd, JBWere (NZ) Nominees LimitedAMP Capital – BNP Paribas Fund Services Australasia Pty LtdPathfinder – Public TrustSuperLife – BNP Paribas Fund Services Australasia Pty Ltd and Public Trust Simplicity – Public TrustJUNO KiwiSaver – MMC LtdKernel – AdminisKiwi Wealth – Public Trust ANZ Investments’ Custodian Like with Fund Platforms, the custodial arrangements mean that the Fund Manager doesn’t handle your money, nor do they own the underlying assets (e.g. shares and bonds) of their funds. When you invest in a fund, your money goes straight to the Fund Manager’s Custodian. The Fund Manager then tells the Custodian what to do with the money, for example, which shares and bonds to buy or sell in order to make up the assets of the fund. Other roles Licensed New Zealand Fund Managers all have an independent Supervisor. Their role is essentially to ensure that the Fund Manager is acting in the interests of investors, is in good financial shape, and acts in accordance with regulations. MMC Ltd provides custodial and fund administration services to a number of Fund Managers Funds are also independently audited. Many Fund Managers also outsource administrative functions such as fund accounting, pricing, and the fund’s registry to other providers. What happens if a Fund Manager shuts down? Your money is also safe in this scenario, given the separation between the Fund Manager and investor’s money. The underlying assets (e.g. shares and bonds) of a fund are also unaffected as they are held by the Custodian. To get access to your money in the case that the Fund Manager shuts down, the fund’s Supervisor would most likely facilitate the liquidation of the fund’s assets, with the proceeds returned to investors as cash. In the case of a KiwiSaver fund shutting down, your money would be transferred to another KiwiSaver provider. 3. What happens if the Custodian goes out of business? We have established that Custodians hold your money in the case of both Fund Platforms and Fund Managers. What if the Custodian itself were to go out of business? How does a Custodian hold your funds? Custodians hold investors’ money in a dedicated entity that’s seperate from the actual business of the Custodian. For example, InvestNow’s Custodian Adminis Limited holds investors’ money in Adminis Custodial Nominees Limited. What happens if a Custodian shuts down? Again your funds are safe in this scenario because of the separation between the Custodian’s business and investors’ money. To get access to your money, your Fund Platform or Fund Manager would switch their custodial services to a new Custodian, after which business would carry on as usual. If the custodian went out of business (which in our case is Adminis) it would not impact on our clients’ assets. This reflects that the custodial account they hold assets through (Adminis Custodial Nominees Limited) is a completely separate entity to their actual business. Accordingly we would transfer the custodial services to a new custodian. From a transactional perspective this would be no different than if we simply decided to change the custodian at some point in the future.Anthony Edmonds, Director, InvestNow 4. What happens if a company I’m invested in goes out of business? In the scenario that you’ve invested in the shares of an individual company, and that company goes bust, you will unfortunately lose money – It’s the company itself that gives that company’s shares value. As a shareholder of a failed company, chances are you will be left with nothing but valueless shares, after the leftover money and assets of the company are used up to pay outstanding wages, taxes and other creditors. Recent examples of listed companies going bust in NZ are Pumpkin Patch, Wynyard Group, and CBL Insurance. Custodians won’t protect you from losses arising from poor investment choices or your company going bust, nor will holding the shares in your own name make a difference. Therefore it’s important to diversify your investment portfolio, so your whole portfolio isn’t wiped out if your company goes down the toilet. If you’re investing in individual companies, that means you should buy multiple companies from different industries and different countries. Or you could just invest in a fund to achieve instant diversification (as funds can potentially contain hundreds or thousands of companies) – InvestNow and Sharesies have plenty of them! What happened to Halifax? Halifax Investment Services was an investment provider that allowed people to trade shares on a variety of platforms. Halifax got into financial trouble, and collapsed in late 2018 having lost almost $20 million in investors’ money. Right now investors’ funds are locked up as liquidation procedures are carried out, with investors facing a 7-15% loss in their investment. How was Halifax unsafe? While there were a number of questionable things that Halifax did, one major issue was that they directly handled clients’ money, rather than having it go to an independent custodian. It appears that leading up to the collapse, Halifax were struggling to pay their bills, and were able to access clients’ money, subsequently using the funds to cover their own operating expenses. Essentially it is a case of a platform going bust, and pulling their customers down with them. While custodians are not a bulletproof solution, It demonstrates the importance of choosing a platform that does not handle your money and uses an independent custodian. Tips for finding a safe investment provider Here’s some things you can do to see whether an investment provider is legitimate: In the case of Fund Platforms, read their terms and conditions, and relevant help articles to determine what their custodial arrangements are (Sharesies help article, InvestNow help article).For Fund Managers, read their funds’ Product Disclosure Statement (PDS). Section 7 of each PDS should show who the fund’s custodian, supervisor, and auditor are. Extract from Pathfinder’s PDS Learn from other people. Read reviews of the service in the news, on blogs, or on social mediaCheck the provider’s social media accounts. Are they posting actively, and do the likes and comments on their page appear to be genuine? Do the provider’s management have experience in the financial services industry (check their LinkedIn profiles)?If the provider is offering something too good to be true, it probably is. Ask friends, colleagues, or an independent financial adviser for a second opinion.Check if the provider is a registered Financial Services ProviderSearch for the provider on FMA’s website. They may be on FMA’s suspected scam list. FMA’s site contains a list of suspected scams Conclusion Reputable platforms and fund managers have robust controls and measures in place to keep your money safe. This includes using custodial arrangements to keep investors’ money segregated from their own business, and having auditors and supervisors assure they are acting in the interests of their investors. Such measures are not a 100% guarantee that your money is protected against fraudulent activity. No matter where you put your money, whether it be at the bank, in shares, under your mattress, or in the casino, there is always going to be at least a little bit of risk – and no way to fully eliminate the risk. So don’t let this risk put you off from investing with a reputable provider. Finally, I have just scratched the surface of what the players in our financial markets have to do to comply with regulations, and keep your money safe. I also haven’t covered how international investment providers like Vanguard or Hatch handle investors’ money. But these are topics I hope to write more about in a future article. 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 Building an investment portfolio – Simplicity vs InvestNow19 August 2019 3 tips to get the most out of KiwiSaver19 June 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 an authorised financial adviser before making any investment decisions.... Read more...Buying shares on the NZX – Sharesies vs ASB Securities and Direct BrokingThere’s a new kid on the block. Previously ASB Securities and Direct Broking were the cheapest brokers to buy and sell shares on the New Zealand sharemarket (NZX). We now have Sharesies, a popular Fund Platform with over 60,000 users, offering this service. How does it stack up against the traditional share brokers? This article is a comparison between Sharesies, ASB Securities, and Direct Broking across criteria such as fees, user experience, ownership of shares, and other features. Because the Sharesies share trading feature is in beta, aspects of this comparison are likely to change as their functionality is gradually improved. 1. Minimum investment Sharesies The minimum investment amount with Sharesies remains at a super-low $0.01. Sharesies offers fractional share investing, so even if a share costs more than the amount of money you want to invest, you can still buy a fraction of that share. Investing $1 in Spark got me 0.2522 shares in the company ASB Securities and Direct Broking Investors using ASB Securities or Direct Broking must buy enough shares to meet NZX minimum holding requirements. This requirement is currently $1,000. Winner: Sharesies 2. Brokerage Fees Brokers charge brokerage fees on every trade i.e. whenever you buy or sell shares. The brokerage fees for each service are: Sharesies0.5% for trades up to $3,000Plus 0.1% for amounts above $3,000 ASB Securities$15 for trades up to $1,000$30 for trades between $1,000 and $10,0000.3% for trades over $10,000Direct Broking$29.90 for trades up to $15,000Plus 0.2% for amounts above $15,000 The table below shows the brokerage fee that would apply to different dollar amounts invested (ASB Securities and Direct Broking show n/a for $100 invested because this falls below the minimum investment amount). The result is that Sharesies is significantly cheaper, especially for smaller investment amounts. The only thing to watch out for when brokerage is so cheap, is that it could facilitate “taking a punt” or “dabbling” in various companies, while high brokerage fees encourages investors to thoroughly evaluate a company before investing. Winner: Sharesies 3. Total cost of ownership With Sharesies, brokerage is not the only fee you’ll pay. Sharesies will charge you a monthly/annual account fee, while ASB Securities and Direct Broking don’t. Sharesies account fee Therefore we need to factor the account fee into the total cost of owning your shares. The total cost of owning your shares includes: Brokerage fees to buy the sharesAccount fees to hold the sharesBrokerage fees to sell the shares The table below compares the total cost of ownership over 10 years (given shares are a long-term investment), of shares bought through each broker, for various portfolio sizes, and various number of companies in the portfolio: Most of the time buying shares through ASB Securities or Direct Broking will give you the lowest cost of ownership (e.g. a $10,000 portfolio spread evenly across 3 different shares has a total cost of ownership of $396 on Sharesies and $180 on Direct Broking). Direct Broking is like buying a more expensive car upfront, and never having to pay anything to maintain it, while Sharesies is like buying a cheap car, but having to pay for maintenance regularly. However, Sharesies does work out cheaper overall when you’re investing in smaller parcels of shares. Just be careful that with small investment amounts, their account fee makes up a horribly large percentage of your portfolio. Winner: ASB Securities and Direct Broking 4. User experience Sharesies In typical Sharesies fashion, they have provided a fantastic user experience for buying shares. The user interface is uncluttered, easy to navigate, and works great on mobile. There is still room for improvement though, and I would say the following are the current weak points of the interface: You can sort the companies list by “Highest annual dividends” and “Highest annual returns”. This is very concerning – given Sharesies’ target market is beginner investors, this feature could encourage investing based simply on the biggest dividends and biggest returns. This is absolutely NOT a good investment strategy. Past performance is not an indicator of future performance, and the very highest paying dividend companies are almost always “Dividend Traps“.Sharesies displays each company’s gross dividend yield, but their data for this is often totally inaccurate.You can’t see fundamental company statistics such as market capitalisation, P/E ratio, and Net Tangible Assets, nor can you see any important company announcements. However this data is publicly available on the NZX website.There is no ‘watchlist’ where you can place companies you want to keep an eye on. This feature is standard in other brokers. It’s not the best idea to offer beginner investors the ability to sort by highest returns and dividends ASB Securities and Direct Broking These interfaces are dated, cluttered, and unfriendly compared to Sharesies. They don’t offer a mobile friendly view either. I’ll let the screenshots do the talking. Direct Broking’s interface. Not too bad, but not the best. ASB Securities’ interface. Needs improvement. Winner: Sharesies 5. Ownership of shares Sharesies When you buy shares through Sharesies, you do not get direct ownership of them. Instead they are owned by a “Sharesies Nominee” which is a custodian holding the shares on your behalf. This has a number of implications: You can only sell your shares via Sharesies, so you’re locked into using their platform and paying their account fees.You can’t participate in Dividend Reinvestment Plans (DRPs). DRPs are where some companies allow you to reinvest your dividends into buying more shares, with no brokerage costs, and usually at a discounted price. DRPs are a great way to grow and compound your investment. With Sharesies, your dividends are always paid into your wallet.It is unclear how Sharesies will handle “corporate actions” on your shares. There is no guarantee you’ll get the full benefits of being a shareholder like being able to vote on important company issues, or participating in rights offers. “You acknowledge that we don’t have to forward to you, or take any action on, reports, notices, proxy forms, or other communications we receive about Investments in your Portfolio.” Sharesies Terms and Conditions Further Reading:– What happens to your money if InvestNow or Sharesies go bust? ASB Securities and Direct Broking Shares bought through ASB Securities and Direct Broking are held under your CSN (Common Shareholder Number). This allows you to buy and sell your shares through any share broker. This also means that your shares are held directly in your name on a company’s share registry. Having direct ownership gives you the full benefits of being able to participate in DRPs, corporate actions, and Annual General Meetings for the shares that you own. Winner: ASB Securities and Direct Broking 6. Trading features Sharesies’ basic, but elegant interface becomes a disadvantage here as it is missing features you’d expect to find with a traditional broker. These features are: Live market prices and depth The share prices are shown on Sharesies are delayed by at least 20 minutes. Because share prices can be volatile, the delay can be problematic as the price of a share could surge, but not be reflected in the price you see on Sharesies. Meanwhile, ASB Securities and Direct Broking show live prices (as long as you have traded with them in the last 90 days), as well as market depth which is a list of buy and sell orders for a particular share. Limit orders When you buy shares through Sharesies, you place a market order, which means the price you buy your shares at depends on the current selling price. Using the above Spark depth chart as an example, a market order will get you shares at a price of $3.95 per share. This is a slight premium over the current $3.925 share price. ASB Securities and Direct Broking allow you to place limit orders. This allows you to specify a maximum price you’re willing to pay for the shares, providing you with more control and certainty. Placing a limit order for Spark at $3.93 per share Advanced Features Sharesies also do not offer: Trigger orders – an instruction to place an order to buy or sell a share if it reaches a certain priceMargin lending – the ability to borrow money to trade shares in order to leverage your investment (similar to a mortgage) Winner: ASB Securities and Direct Broking Conclusion If you are serious about investing in shares for the long-term, and have a decent amount of money to do so, stick with a traditional broker. Although the upfront brokerage costs will be more expensive, the total cost of ownership will be lower. You will directly own the shares under your name, won’t be locked in to Sharesies for holding and selling the shares, and can fully participate in any DRPs, rights issues, and voting. Don’t write off Sharesies as an option for investing in shares though. They offer low-cost brokerage and ultra-low minimum investment amounts, meaning it’s perfect if you want to invest small amounts to learn and/or slowly build up a portfolio (particularly if you are already paying for a Sharesies account to invest in their Funds). However, those with small portfolios may want to consider sticking to investing in funds, due to their convenience and instant diversification benefits. See my comparison between investing in funds vs individual companies to help you decide. If you’re keen to start building your investment portfolio with Sharesies, you can sign up with this link, and I’ll get $5 in my own Sharesies account. A great way to show your support for this site! Found this article helpful? Let’s be friends on Facebook, Twitter, or via email so you can keep up with the latest news and posts! More articles The best bank accounts and credit cards for managing your everyday finances28 July 2019 Shopping for ETFs – Sharesies vs Hatch16 September 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 an authorised financial adviser before making any investment decisions.... Read more...What’s the difference between InvestNow, Sharesies, Simplicity, Hatch, and more?InvestNow, Sharesies, Simplicty, Vanguard, SuperLife, Smartshares, and Hatch. Whether you’ve been investing for a while, or you’re new, you’ve probably heard of these popular New Zealand investment services. They are all fantastic options for Kiwis wanting to invest, but it is often difficult and confusing for investors to decide which one to sign up for and use. On the surface, they all have one thing in common – they all provide you with access to funds to invest in. But if you dig deeper, they are actually all quite different things, offering unique services and working in different ways: InvestNow and Sharesies are what I call Fund PlatformsSimplicity, Vanguard, and SuperLife are Fund ManagersSmartshares is an Exchange Traded Fund (ETF) issuer. Vanguard also issues ETFs, but sadly not in the NZ marketHatch is what I call a Brokers (or Broker-like service). Sharesies is also a broker Below I’ll be explaining what each of these services do and offer, as well as giving a brief mention of the fees, minimum investment amount, and who they’re suitable for. Update (15 July 2019) – Sharesies is now included in the brokers section, as they have released the ability to buy and sell shares listed on the NZX. 1. Fund Platforms Fund Platforms are services that offer you access to a variety of different funds to invest in, sometimes described as a “Fund Supermarket”. They do not manage your funds – instead they act as a “middleman” between investors and Fund Managers. Fund Platforms are a good option for everyone – both beginners and experts – as they allow you to invest in lots of different funds in one place. They have low minimum investment amounts, making investing very accessible to ordinary people. Fund Platforms also provide investors with good online portals, allowing you to buy, sell, and view your investments at anytime and anywhere. InvestNow Minimum investment$50Fees$0 InvestNow offers over 100 funds on its platform, from 20 fund managers/issuers including AMP, Smartshares, and Vanguard. They don’t charge any fees, making it a frequently recommended choice for investors (they make money by charging Fund Managers to list their funds on the platform). However, InvestNow’s interface isn’t the most user-friendly – while that should be fine for knowledgable investors, beginners might find it overwhelming. Sharesies Minimum investment$1FeesBased on the size of your portfolio:$0 for under $50$1.5/month between $50 and $3,000$3/month for over $3,000OR $30 per year The trendy Sharesies platform offers around 30 funds – comprising mainly of Smartshares ETFs and a few socially responsible funds. Their ultra low minimum investment amount opens up the opportunity to start investing for almost anyone. Sharesies is known for having a simple, beginner-friendly user interface, however, this nice online portal doesn’t become cheap – they charge investors a monthly account fee if your account value is over $50. If you’re keen to start building your investment portfolio with Sharesies, you can sign up with this link, and I’ll get $5 in my own Sharesies account. A great way to show your support for this site! Further Reading:– InvestNow vs Sharesies – Ultimate Fund Platform showdown and review– What happens to your money if InvestNow or Sharesies go bust? 2. Fund Managers Fund Managers are the people who actually provide and manage the funds you invest in, taking your money and putting it into assets like shares and bonds. For doing so, they charge investors a management fee which is a small percentage of the amount you have invested. Some Fund Managers also charge a fixed monthly or yearly administration fee. There are heaps of Fund Managers out there, and they tend to require a few thousand dollars as a minimum investment if you invest in a fund directly through them. However, a lot of managers offer their funds on platforms like InvestNow and Sharesies, where the minimum investment amount is lower. Most New Zealand Fund Managers also offer KiwiSaver funds, but I won’t cover these here. Simplicity Minimum investment$5,000Fees0.1% – 0.31%Plus $30 per year Simplicity is an attractive choice among investors because of their super low fees. Simplicity has five different fund options (Conservative, Balanced, Growth, NZ Share, NZ Bond). However, the minimum investment is high at $5,000, and their funds aren’t available on InvestNow or Sharesies, making Simplicity a much less accessible investment option. Also be careful of their $30 annual fee – with $5,000 invested, that $30 fee equates to 0.6% which is quite high compared to other investment options. Vanguard Minimum investment$500,000 directly via Vanguardor $50 via InvestNowFees0.20% unhedged0.26% NZD hedged Vanguard currently has two global share funds (Vanguard International Shares Select Exclusions Index Fund – NZD Hedged/Unhedged) accessible in the New Zealand market, and they are investor favourites, again due to their very low management fee. Don’t be scared off by the $500,000 minimum investment amount because thanks to InvestNow, you can invest with only $50. Just be aware that these are Australian domiciled funds, so are considered Foreign Investment Funds. This may introduce additional tax implications to you. Overseas, Vanguard has a much more comprehensive offering, with over $5 trillion under management across a huge range of funds and ETFs. SuperLife Minimum investment$1Fees0.44% – 0.63%Plus $12 per year SuperLife offers 44 funds, investing almost entirely into Smartshares ETFs (e.g. the NZ Top 50 Fund invests exclusively in the Smartshares NZ Top 50 ETF). Even more confusing, is that sometimes SuperLife’s fund management fee differs from its Smartshares ETF equivalent e.g: The SuperLife Australian Mid Cap Fund has a management fee of 0.49%, while the Smartshares Australian Mid Cap ETF charges 0.75%The SuperLife US 500 Fund charges 0.44%, while the Smartshares US 500 ETF charges only 0.34%. Because SuperLife’s online portal is relatively poor, and their offering mirrors Smartshares so closely, it is probably easier to stick with buying the equivalent Smartshares ETF from InvestNow or Sharesies. That is unless: The fund offered on SuperLife has cheaper management fees than the Smartshares ETF equivalent AND you are investing enough money to make the management fee savings cover the $12 annual fee e.g. you need to invest over $4,616 in the SuperLife Aussie Mid Cap Fund for it to work out cheaper than investing in the Smartshares ETF equivalent.The Smartshares ETF you want is not offered on InvestNow or Sharesies e.g. the US Small Cap ETF. Other fund managers Your bank – New Zealand’s big banks all offer their own funds, but they tend to charge high management fees.AMP – Offer popular, low-fee index funds (Global Shares Index, Global Fixed Interest Index, NZ Shares Index, Australasian Property Index) accessible through InvestNow.Kernel – A new fund manager offering three funds that invest in the New Zealand sharemarket. Kernel‘s fees are competitive but a little more expensive than alternatives like Simplicity and AMP.Heaps more – Devon, PIE Funds, Milford, and Pathfinder are examples of Fund Managers offering funds on InvestNow. Further Reading:– Building an investment portfolio – Simplicity vs InvestNow 3. ETF Issuers ETF Issuers are pretty similar to Fund Managers. ETF stands for Exchange Traded Fund, and they work the same as normal funds, apart from the key difference being that ETFs are listed and tradable on an exchange (i.e. a sharemarket). This difference less important these days, because with Fund Platforms like InvestNow and Sharesies, you no longer have to go through the sharemarket to access ETFs. However, buying and selling ETFs on the sharemarket is much more prevalent in countries like Australia where brokerage fees are cheaper, and the ETF selection is much greater. Smartshares Minimum investment$500FeesBetween 0.3% – 0.75% management fee$30 one-off fee, if buying directly from Smartshares Smartshares is the dominant ETF issuer in NZ with over 30 ETFs, and are owned by the operator of NZ’s sharemarket, NZX. Interestingly, their non-Australasian ETFs simply invest in Vanguard and Blackrock ETFs, so they are really ETFs within an ETF! You can buy Smartshares ETFs from the NZ sharemarket through a broker, or directly from Smartshares (note – ETFs bought directly from Smartshares must be sold via a broker). In addition, a large collection of Smartshares ETFs can be found on InvestNow and Sharesies – which is probably the easier way to invest in these ETFs due to their lower fees and superior online portals. Other ETF Issuers Unfortunately these ETF issuers don’t offer anything in the New Zealand market. But that’s where brokers come in (see below section). Blackrock – the world’s largest ETF issuer under the iShares brandVanguard – the world’s 2nd largest ETF issuerBetashares – an Australian ETF issuer 4. Brokers Brokers allow you to buy and sell shares in individual companies on the sharemarket. Because ETFs are listed on the sharemarket, you can also buy and sell ETFs through brokers. They charge brokerage fees whenever you make a trade (buy or sell something). Brokers are probably more suited to more experienced investors, as the large number of share and ETF offerings might be overwhelming for beginners, particularly if investing in the United States market. Plus investing in individual companies requires research to ensure you’re getting into a sound investment. Hatch Minimum investment$1Fees50bps on NZD-USD currency exchange$3 per trade of fractional shares$8+ per trade of whole sharesFull details on Hatch fees here Hatch is a service that allows you to buy and sell shares and ETFs from the United States sharemarkets. This gives you access to the dirt cheap Vanguard and Blackrock ETFs, as well as individual companies like Apple, Facebook, Netflix, and Tesla. However, you must change your NZD to USD before buying anything through Hatch, and to do this they’ll charge you a 50bps fee on the exchange rate. When withdrawing your investment you’ll need to change the USD back to NZD, costing you another 50bps on the exchange rate. Another thing to be aware of is that Hatch is not a true broker, as they do not allow you to trade directly on the sharemarket. Instead, trades are done through DriveWealth, a platform which holds your shares and ETFs on your behalf. Sharesies Minimum investment$1FeesAccount fee based on the size of your portfolio:$0 for under $50$1.5/month between $50 and $3,000$3/month for over $3,000OR $30 per yearPlus a brokerage fee of:0.5% for orders up to $3,000+0.1% for amounts above $3,000 It’s Sharesies again. In addition to being a Fund Platform, they provide a brokerage service for shares listed on the NZX, New Zealand’s sharemarket. Brokerage is cheap (compared to other NZX options), and they offer fractional shares, which means you can invest with any amount (compared to a minimum of ~$1,000 through other channels). However, unlike traditional brokers, any shares bought off Sharesies are not held directly in your name – instead they are held by a custodian on your behalf. If you’re keen to start building your investment portfolio with Sharesies, you can sign up with this link, and I’ll get $5 in my own Sharesies account. A great way to show your support for this site! Other Brokers Direct Broking, ASB Securities – Brokers for shares and ETFs on the NZ and Aussie sharemarket.Stake – Identical service to Hatch, for Australians. Stake is planning to launch in New Zealand soon. Further Reading:– Shopping for ETFs – Sharesies vs Hatch– Buying shares on the NZX – Sharesies vs ASB Securities and Direct Broking Conclusion New Zealanders are spoilt for choice these days when it comes to investing options. So what kind of service should you use? Fund Platforms: Suitable for everyone, as they provide easy online access to many funds at a low minimum investment amount. A great way to build a “set and forget” investment portfolio.Fund Managers: Suitable if you have a large amount to invest and want to invest in a specific fund.ETF Issuers: Suitable for everyone, but it’s often easier to buy ETFs from a Fund Platform, as they offer better user interfaces and lower fees.Brokers: Suitable for intermediate or expert investors who want to invest in a specific company, or an ETF from overseas. Fantastic for hands-on investors. The complex world of investment services Found this article helpful? 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 taxes do you need to pay on your investments in New Zealand?7 October 2019 What’s the difference between InvestNow, Sharesies, Simplicity, Hatch, and more?11 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 an authorised financial adviser 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.Smartshares vs Simplicity vs AMP vs Kernel – NZ Share Index Fund shootout11 November 2019Index funds that invest in New Zealand shares are a fantastic investment to choose when beginning to invest, or for existing investors to use in their portfolios. They are easy to access and provide instant diversification in our familiar home market, with reasonable fees, and potentially come with tax advantages. The hard part is deciding which NZ Share Index Fund to invest in – for example, What’s the difference between the Smartshares NZ Top 50 ETF, and NZ Mid Cap ETF?? To make things even harder, there are sometimes multiple ways to buy the same fund – for example, the Smartshares NZ Top 50 ETF can be bought from Smartshares directly, as well as InvestNow, Sharesies, ASB Securities, and SuperLife. This article will take a look at the various NZ Share Index fund options, the different channels you can buy these funds through, their fees, and other considerations. Which one should you invest in? A NZ share Index Fund should only make up part of your investment portfolio. Consider diversifying your portfolio by also investing in international share funds. 1. What’s on offer? Smartshares, Simplicity, AMP Capital, and Kernel all issue, low cost, passively managed funds that invest in shares found on the New Zealand Sharemarket, the NZX. Let’s take a look at the options from each issuer, and the differences between all of them: A. Smartshares Smartshares is the biggest and most established player here. They’re an ETF Issuer owned by NZX, and offer five NZ Share Index Funds: NZ Top 10 ETF – Invests in the 10 largest companies on the NZXNZ Top 50 ETF – Invests in the 50 largest companies on the NZX, with each company only allowed to make up a maximum of ~5% of the fund’s valueNZ Mid Cap ETF – Invests in the 10th to 50th largest companies on the NZX, excluding Westpac and ANZ BanksNZ Dividend ETF – Invests in the 25 highest paying dividend companies out of the NZ Top 50NZ Property ETF – Invests in the 8 Real Estate Investment Trusts (REITs) listed on the NZX B. Simplicity Popular KiwiSaver provider Simplicity comes to the party with a non-KiwiSaver NZ Share Fund: NZ Share Fund – Invests in the 50 largest companies on the NZX, excluding SkyCity C. AMP Capital Big investment fund manager AMP Capital offers two NZ index funds: NZ Shares Index Fund – Invests in the 50 largest companies on the NZXAustralasian Property Index Fund – Invests in REITs listed on the NZX and ASX (Australia sharemarket) D. Kernel Kernel Wealth is a new player, having just launched about 2 months ago. They offer three different funds: NZ 20 – Invests in the 20 largest companies on the NZXNZ Level 9 – Invests in 23 of the smallest companies out of the NZX Top 50, plus 16 even smaller companies outside of the Top 50. Designed to complement the NZ 20 Fund, as together they give you exposure to most of the NZ sharemarket.NZ Commercial Property – Invests in the 8 REITs listed on the NZX What are the specific companies that each fund invests in?For more information on the specific holdings their weightings of each fund, check out this spreadsheet (opens in Google Sheets). Funds by category I have categorised these 11 funds into four categories, based on what they’re invested in. There are still differences between the funds in the same category, but all give you roughly the same type of investment exposure. NZ Large Cap The funds invest in the largest companies in the NZ market, and are what most people should invest in due to their broad market coverage and diversification (the funds below in bold cover the ‘Top 50’ companies in NZ). However, I’m not sure the Smartshares Top 10 ETF is worth investing in, as the coverage is way too narrow, investing in only 10 companies. Smartshares NZ Top 10 ETFSmartshares NZ Top 50 ETFSimplicity NZ Share FundAMP NZ Shares Index FundKernel NZ 20 NZ Mid Cap Mid Cap funds don’t invest in the market’s largest companies, giving you more exposure to the smaller companies on the market, than you would get by investing in a Large Cap fund. Kernel’s Level 9 Fund even invests in 16 companies outside of the NZ Top 50, such as Hallenstein Glassons, Napier Port, and Serko. Smartshares NZ Mid Cap ETFKernel NZ Level 9 NZ Dividend Dividend funds invest in the market’s highest dividend paying companies, so are good if you’re investing to generate income. For example, the current yield of the NZ Dividend ETF is 5%, compared to 3.66% for the NZ Top 50 ETF. There is only one option in this category. Smartshares NZ Dividend ETF NZ Property Property funds only invest in Real Estate Investment Trusts (REITs). REITs are companies that invest in commercial property (e.g. offices, shopping malls, and industrial buildings). Property funds are not an essential part of an investment portfolio (unless you want increased exposure to commercial property), as you already get exposure to REITs in the Large Cap, Mid Cap, and Dividend funds. Smartshares NZ Property ETFAMP Capital Australasian Property Index FundKernel NZ Commercial Property 2. Through which channels can you invest in these funds? There are multiple ways you can invest in the NZ Share Index Funds – the main ones being direct from the manager/issuer of the fund, through a fund platform, or through a broker. Let’s take a look at the options for each fund issuer: A. Smartshares Smartshares’ funds are the most widely available, being offered through four different channels: Direct You can buy Smartshares’ funds directly from Smartshares. They require a minimum initial investment of $500, and subsequent investments require $250 for one-off investments, or $50 for regular monthly investments. Apply to invest directly through Smartshares A limitation of investing direct through Smartshares is that they don’t provide any facility to sell/withdraw your investment. You would need to use a broker like ASB Securities or Direct Broking to sell your investment – this will be covered in more detail in section 5 of this article. Another limitation is that investments made direct through Smartshares are only processed only once a month. When you make an investment order, your money is direct debited from your bank account on the 20th of the month, and the units of your investment are allocated to you on the 3rd of the following month. This process is a bit old school, especially as all other channels process your investment orders within a couple of days, rather than on a set day every month. Fund Platforms Fund Platform Sharesies gives you access to Smartshares’ NZ Share Index funds with a low minimum investment of just 1 cent! Unlike investing directly through Smartshares, Sharesies does allow you to sell your investment through their platform. The InvestNow platform also offers buying and selling of Smartshares funds, starting at $50 if you invest through a Regular Investment Plan, or $250 for one-off investments. The NZ Top 10 ETF is not available on InvestNow. Brokers Smartshares’ funds are Exchange Traded Funds (ETFs). This means the funds are listed and traded on the sharemarket, just like shares of an ordinary company. You can use a broker like ASB Securities or Direct Broking to buy and sell these ETFs through the NZ sharemarket. This requires you to buy a minimum of 100 units for an initial investment into a fund – currently about $300 for the NZ Top 50 ETF. NZ Top 50 ETF on Direct Broking SuperLife SuperLife doesn’t offer the actual Smartshares funds, instead offering funds that invest exclusively into Smartshares’ funds (which you can invest in with as little as $1). For example, the SuperLife NZ Top 50 Fund invests exclusively into the Smartshares NZ Top 50 ETF. It’s a fund within a fund! There are a couple of major implications to having this ‘fund within a fund’ structure. Firstly, SuperLife charges different fees to Smartshares (see section 3). Secondly, SuperLife structures their funds as Multi-Rate PIEs, rather than Listed PIEs which has some tax implications (see section 5). B. Simplicity Direct Investing direct with Simplicity is the only channel you can invest in their NZ Share Fund. The minimum initial investment is quite high at $5,000, but there is no minimum amount for subsequent contributions. C. AMP Capital Direct AMP Capital offers direct investment into their funds, with a minimum of $50 for both initial and subsequent investments. Fund Platforms InvestNow also offers the AMP NZ Index Funds, also starting at $50 if you invest through a Regular Investment Plan, or $250 for one-off investments. D. Kernel Direct Kernel’s funds can only be bought direct from Kernel themselves, through their own online platform. The minimum initial investment is $100, with subsequent contributions requiring a minimum of $10. Kernel has its own online platform 3. What are the fees? There are two types of fees you’ll pay when investing in these NZ Share Index Funds: Fund Management Fee – A fee charged as a percentage of the amount you have invested in a fundChannel Fee – A fee depending on what channel you use to invest in these funds such as an account fee, or brokerage fee A. Smartshares Fund Management Fees Smartshares’ Fund Management Fees range from 0.50% to 0.60% per year, except when investing through SuperLife where the fees are all 0.49% per year. FundRegular FeeSuperLife FeeNZ Top 100.60%0.49%NZ Top 500.50%0.49%NZ Mid Cap0.60%0.49%NZ Dividend0.54%0.49%NZ Property0.54%0.49% Channel Fees Direct through Smartshares – A $30 Establishment fee applies if you’re investing directly through Smartshares for the first time.Sharesies – A subscription fee, ranging from $1.50 per month to $30 per year applies to balances above $50.InvestNow – No other fees apply, apart from the above Fund Management Fees.Brokers – Brokers charge brokerage fees every time you buy and sell shares. This fee can be quite expensive, starting at $15, so investing in Smartshares funds through brokers is probably not an ideal strategy for retail investors.SuperLife – An account fee of $12 per year applies. ASB Securities’ brokerage rates In addition, spreads are charged whenever you buy or sell units in Smartshares’ funds. This is a small fee to cover the transaction costs of the fund, and for Smartshares, the spread depends on market conditions. Buy or sell spreads are intended to cover the transaction costs of buying or selling the underlying assets of a fund, so that these costs are not borne by other investors in the fundInvestNow – Buy/Sell Spreads B. Simplicity Fund Management Fees Simplicity charges a very low 0.10% p.a. management fee for their NZ Share Fund. FundFeeNZ Share Fund0.10% Channel Fees Simplicity charges a membership fee of $2.50 per month ($30 per year). This fee also gives you access to Simplicity’s other investment funds like their Growth Fund and NZ Bond Fund. C. AMP Capital Fund Management Fees AMP’s funds have lower Management Fees than their Smartshares equivalents: FundFeeNZ Shares Index Fund0.33%Australasian Property Index Fund0.42% Channel Fees AMP Capital charges a 0.10% spread when buying or selling units in their funds. Otherwise no other account fees apply. D. Kernel Fund Management Fees Kernel’s fund management fees are all a reasonable 0.39%. If your entire portfolio with Kernel is worth $25,000 or more, they give you a cash rebate of 0.10% (paid to you monthly), reducing the effective management fee to 0.29% p.a. FundFeeNZ 200.39%NZ Level 90.39%NZ Commercial Property0.39% Channel Fees Kernel charges a membership fee of $3 per month ($36 per year). This makes it a bit expensive for investors with small balances. Kernel’s fees 4. Fee comparison What is the cheapest fund and channel combination for each category of fund? In general: Sharesies is the cheapest and only option for investing less than $50. Above $50, they are always the most expensive, as their subscription fee kicks in.After $50, investing through InvestNow (particularly in AMP’s funds) is cheapest, mainly because the InvestNow channel does not attract any additional account fees.The options that offer the cheapest Management Fees (Simplicity, SuperLife, Kernel) only become the cheapest option at higher balances, as they charge account fees. NZ Large Cap Even with its low 0.10% management fee, Simplicity isn’t the cheapest until you have a balance of $13,044 or more (because of the $30 account fee). For smaller balances, AMP’s NZ Shares Index Fund is the best. Amount investedCheapest fund$1 – $49Smartshares NZ Top 50 ETF (via Sharesies)$50 – $13,043AMP NZ Shares Index Fund (direct/InvestNow)$13,044 and aboveSimplicity NZ Share Fund (direct) NZ Mid Cap Kernel’s Level 9 fund is a good deal for balances over $24,000. Amount investedCheapest fund$1 – $49Smartshares NZ Mid Cap ETF (via Sharesies)$50 – $10,909Smartshares NZ Mid Cap ETF (via InvestNow)$10,909 – $23,999Smartshares NZ Mid Cap ETF (via SuperLife)$24,000 and aboveKernel NZ Level 9 (direct) NZ Dividend There is only one fund in the NZ Dividend category, and the cheapest channel to get it through depends on how much you’re investing. Amount investedCheapest fund$1 – $49Smartshares NZ Dividend ETF (via Sharesies)$50 – $23,999Smartshares NZ Dividend ETF (via InvestNow)$24,000 and aboveSmartshares NZ Dividend ETF (via SuperLife) NZ Property AMP’s property fund is the way to go, unless you are investing large amounts. Amount investedCheapest fund$1 – $49Smartshares NZ property ETF (via Sharesies)$50 – $27,692AMP Aust. Property Index Fund (direct/InvestNow)$27,693 and aboveKernel NZ Commercial Property (direct) Do your own fee comparisonUse this spreadsheet to calculate your annual fees for different options, depending on your balance. Requires you to be signed in to a Google account. 5. Other considerations There are many other pros and cons to consider when deciding which NZ Share Index Fund to invest in, and which channel to buy it through: Index Performance Index Funds track (invest in) an index. An index is a collection of companies (and their weightings), along with a set of rules to decide which companies are in the index. With these rules, index funds are passively managed (and have lower fees!), as opposed to actively managed funds who have fund managers picking which shares to invest in. So what indexes do our NZ Share Index Funds follow, and what has their performance been like (as at 10 November 2019)? See table below: A few interesting points: The NZX 50 Portfolio Index outperformed the NZX 50 Index by 0.37% per year over 10 years, thanks to only allowing each company to make up a maximum of 5% of the index.Kernel worked with S&P to design totally new indexes for their funds. For example, one reason the NZX 20 Index was created was because the top 20 consistently outperformed the top 50 over the last 10 years, by 1.48% per year.The new Emerging Opportunities Index, tracked by Kernel’s Level 9 Fund has underperformed in recent years, but does provide a unique diversification into 16 companies outside the Top 50, which no other index fund invests in.The NZX MidCap Index, has been the best performer over the last 10 years, outperforming the Top 50 by 2.02% per year. Going forward each fund should follow the performance of their respective indexes closely (minus fees and tax), but remember this is past performance data, and is not a guarantee of how future performance will be. Distributions (dividends) The NZ Share Index Funds intend to pay distributions at the following frequency: Smartshares – Half yearly, except SuperLife – No distributionsAMP Capital – Half yearlyKernel – QuarterlySimplicity – No distributions. Any dividends the fund receives are reflected in the fund’s unit price. All distributions can be automatically reinvested into the fund (except when using Sharesies), or taken as a cash payment. Tax All Smartshares ETFs are Listed PIEs so are taxed at a fixed rate of 28%. All other funds (including SuperLife) are Multi-Rate PIEs (MRPs), so are taxed at your Prescribed Investor Rate (PIR). MRPs might be more suitable for those with a PIR lower than 28%. Ownership of your investment Investing direct through a fund provider/issuer (Smartshares, Simplicity, AMP, amd Kernel), or through a broker, means your investment will be held under your own name. In the case of Smartshares, your investment will be held under your CSN (Common Shareholder Number). If investing through InvestNow or Sharesies, your investment will be held in the name of a Custodian. If using SuperLife, your investment in the underlying Smartshares ETFs are held in SuperLife’s name. See my article What happens to your money if InvestNow or Sharesies go bust? for more info. Ethical investing Simplicity excludes SkyCity Entertainment from its NZ Share Fund for their involvement with gambling. Selling Smartshares If you’ve bought some funds direct from Smartshares, they don’t offer a facility to sell your investment – so what are your options for getting your money out? Use a broker like ASB Securities or Direct Broking to sell your shares. There is more detail in this The Smart and Lazy blog post or this Happy Saver blog post. The Smart and Lazy suggests opening a brokerage account ASAP (it’s free to do so), so that you’re ready to sell your investment at anytime.Make an off-market transfer of your shares to InvestNow. Then sell your shares via InvestNow. This involves more work than going through a broker, but you won’t need to pay brokerage costs using this method. You cannot do this with the NZ Top 10 ETF as this fund is not available on InvestNow. Conclusion It is pretty hard to choose which NZ Share Index Fund to invest in given there is so much choice. My opinion is that a NZ Large Cap fund, specifically a ‘Top 50’ fund, is the way to go as these funds provide the broadest coverage of NZ market. Simplicity’s NZ Share Fund with an ultra low 0.10% fee is hard to beat if you are investing over $13,000. Otherwise, the InvestNow channel is a great all round option, especially for investing smaller amounts. They offer both Smartshares and AMP funds, as well as international funds, making it easier to build a diversified portfolio under one roof. The AMP NZ Shares Index Fund is probably the best option here. New provider Kernel is promising. They are not the cheapest, particularly for smaller investments, but I like how they’re providing something new by investing in companies outside the NZ Top 50. I enjoyed the NZ Everyday Investor Podcast episode featuring Kernel’s founder, Dean Anderson, where they discussed plans to expand their offerings – I eagerly await what they have to offer next. Lastly, do you need to invest in a Mid Cap, Dividend, or Property fund if you’ve already invested in a ‘Top 50’ fund? Probably not, as they don’t provide much further diversification, given the ‘Top 50’ funds contain the same companies – there is a lot of overlap between the funds. It is probably better to buy international funds to diversify your portfolio geographically – a comparison between the different International Share Index Funds will be coming soon! 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 Which NZ bank savings product is right for you?21 June 2019 Building an investment portfolio – Simplicity vs InvestNow19 August 2019 No Sharesies, No worries! A guide to investment services in Australia21 October 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 an authorised financial adviser before making any investment decisions.... Read more...What happens to your money if InvestNow or Sharesies go bust?4 November 2019When thinking about investing your hard earned money, it is understandable (and a good thing!) to question whether the investment provider you want to use such as InvestNow and Sharesies is safe. Common concerns include: What happens if the service I use goes out of business?Is this service safe and trustworthy?Could this service run away with my money? Thankfully local investment providers have measures that help keep your money safe, many of which are required by strict New Zealand regulations. This article will provide an overview of how New Zealand investment providers look after your money, looking at a few scenarios including what happens if a Fund Platform or Fund Manager goes bust, and how you would get access to your money if the worst was to occur. 1. What happens if a Fund Platform goes out of business? Fund platforms like InvestNow and Sharesies provide a service through which you can buy a large selection of funds (and in Sharesies’ case shares in individual companies). Let’s take a look at who owns the investments that you buy through these platforms, and what happens if the platform goes out of business. Who owns your investments? The investments you buy through these platforms are not held in your name, nor are they owned by the platform. Instead they are held in the name of a Custodian, but on your behalf, with you as the beneficial owner of the investment. So what are the custodial arrangements that InvestNow and Sharesies use? 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 Limited 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. Example Steve Hansen bought 100 units in the Smartshares NZ Top 50 ETF through InvestNow. The share registry (record of who holds the shares, and how much they hold), would show the Custodian (Adminis) as the owner of the shares: The Custodian keeps a record of who the beneficial owner of their holdings are: How does a Custodian protect your money? Your money doesn’t touch the platform When you deposit money with the Fund Platform, the money goes straight from you to the Custodian. For example, when making a deposit with InvestNow, the money goes to the Custodian’s (Adminis’) bank account: Subsequently, when you invest into a fund, your money goes straight from the Custodian to the Fund Manager. Investors’ money is never touched by the Fund Platform. Segregation from the platform Investors’ money is held in a seperate legal entity from the Fund Platform, with investors being the beneficial owners of that money. Therefore this money can’t be used by the platform to run their business. For example, Sharesies Limited cannot use investors’ money held in Sharesies Nominee Limited to pay their employees’ salaries. In addition, money held by the Custodian can’t be touched by creditors. For example, if InvestNow went out of business while owing tax to the IRD, the IRD can’t touch the funds held by Adminis Custodial Nominees Limited to claim back InvestNow’s unpaid tax. Also in InvestNow’s case, the Custodian (Adminis) is totally independent and unrelated to the Fund Platform. Sharesies’ custodial arrangements are less robust in this aspect, as their custodian Sharesies Nominees Limited is related to the platform, being fully owned and sharing the same directors as Sharesies Limited. Auditing and reconciliation Custodians are required to be independently audited annually, and must send the auditor’s report to the Financial Markets Authority (FMA). The audit includes assessing whether the custodians have the right procedures and controls in place to accurately process transactions, keep records, and safeguard investors’ money. Adminis uses PwC, and Sharesies uses KPMG to perform their audits. Custodians are also required to reconcile records of investors’ money daily. Off-market transfer InvestNow’s Custodian allows you to transfer ownership of an investment into your own name (this is subject to the Fund Manager accepting you onto their share registry). Sharesies do not allow off-market transfers out of their custody. demonstrates that you can ultimately get ownership and take control of your own assets and investments. If the custodian cannot transfer your assets to you, then this should be an alarm bell.Anthony Edmonds, Director, InvestNow So what is the role of the fund platform?With the custodian handling all the money, what does the fund platform actually do? They act as an investor-facing facilitator, collecting buy/sell orders from investors, then passing these onto the custodian to execute. In addition, they carry out activities such as marketing the platform, onboarding new customers, supporting customers, and maintaining the platform. What happens if a fund platform shuts down? Your money is safe, as it is held separately by the Custodian. The platform cannot run away with your money or use it to pay their creditors, nor is the value of your funds or shares affected – after all, it is not the Fund Platform that determines the value of your funds and shares. The problem now is how you are going to get access to your investments if the Fund Platform isn’t around. An administrator (for example, Custodian Adminis, or the liquidator of Sharesies) would likely work to achieve the best outcome for investors. Here are the likely outcomes: A. The investments are transferred into your name An off-market transfer could be performed to transfer your investments out of the Custodian’s name and into your own name (and into your CSN in the case of shares). This relies on the manager of your fund willing to accept you onto their share registry – For example, the Vanguard funds on InvestNow require a minimum investment of $500,000 AUD, so Vanguard are unlikely to accept smaller investors. B. Your investments are liquidated Your investments could be sold, and the proceeds returned to you as cash. This would be the probable scenario if you hold the Vanguard funds on InvestNow, given most investors won’t meet the $500,000 AUD requirement to hold this fund in their own name. C. New platform takes over Another business could take over the InvestNow or Sharesies platform and the relationships with their customers. This would result in the platform continuing in operation as usual, apart from the platform having new owners. 2. What happens if a fund manager goes out of business? Fund Managers/ETF issuers are the organisations responsible for managing the funds and ETFs you invest in. Examples are Smartshares, AMP Capital, Simplicity, and JUNO. How does a fund manager protect your money? Custodian Reputable fund managers use a custodian to hold investors’ money independently from the fund manager’s business. Here are the custodians for a few different New Zealand fund managers: Smartshares – BNP Paribas Fund Services Australasia Pty Ltd, JBWere (NZ) Nominees LimitedAMP Capital – BNP Paribas Fund Services Australasia Pty LtdPathfinder – Public TrustSuperLife – BNP Paribas Fund Services Australasia Pty Ltd and Public Trust Simplicity – Public TrustJUNO KiwiSaver – MMC LtdKernel – AdminisKiwi Wealth – Public Trust ANZ Investments’ Custodian Like with Fund Platforms, the custodial arrangements mean that the Fund Manager doesn’t handle your money, nor do they own the underlying assets (e.g. shares and bonds) of their funds. When you invest in a fund, your money goes straight to the Fund Manager’s Custodian. The Fund Manager then tells the Custodian what to do with the money, for example, which shares and bonds to buy or sell in order to make up the assets of the fund. Other roles Licensed New Zealand Fund Managers all have an independent Supervisor. Their role is essentially to ensure that the Fund Manager is acting in the interests of investors, is in good financial shape, and acts in accordance with regulations. MMC Ltd provides custodial and fund administration services to a number of Fund Managers Funds are also independently audited. Many Fund Managers also outsource administrative functions such as fund accounting, pricing, and the fund’s registry to other providers. What happens if a Fund Manager shuts down? Your money is also safe in this scenario, given the separation between the Fund Manager and investor’s money. The underlying assets (e.g. shares and bonds) of a fund are also unaffected as they are held by the Custodian. To get access to your money in the case that the Fund Manager shuts down, the fund’s Supervisor would most likely facilitate the liquidation of the fund’s assets, with the proceeds returned to investors as cash. In the case of a KiwiSaver fund shutting down, your money would be transferred to another KiwiSaver provider. 3. What happens if the Custodian goes out of business? We have established that Custodians hold your money in the case of both Fund Platforms and Fund Managers. What if the Custodian itself were to go out of business? How does a Custodian hold your funds? Custodians hold investors’ money in a dedicated entity that’s seperate from the actual business of the Custodian. For example, InvestNow’s Custodian Adminis Limited holds investors’ money in Adminis Custodial Nominees Limited. What happens if a Custodian shuts down? Again your funds are safe in this scenario because of the separation between the Custodian’s business and investors’ money. To get access to your money, your Fund Platform or Fund Manager would switch their custodial services to a new Custodian, after which business would carry on as usual. If the custodian went out of business (which in our case is Adminis) it would not impact on our clients’ assets. This reflects that the custodial account they hold assets through (Adminis Custodial Nominees Limited) is a completely separate entity to their actual business. Accordingly we would transfer the custodial services to a new custodian. From a transactional perspective this would be no different than if we simply decided to change the custodian at some point in the future.Anthony Edmonds, Director, InvestNow 4. What happens if a company I’m invested in goes out of business? In the scenario that you’ve invested in the shares of an individual company, and that company goes bust, you will unfortunately lose money – It’s the company itself that gives that company’s shares value. As a shareholder of a failed company, chances are you will be left with nothing but valueless shares, after the leftover money and assets of the company are used up to pay outstanding wages, taxes and other creditors. Recent examples of listed companies going bust in NZ are Pumpkin Patch, Wynyard Group, and CBL Insurance. Custodians won’t protect you from losses arising from poor investment choices or your company going bust, nor will holding the shares in your own name make a difference. Therefore it’s important to diversify your investment portfolio, so your whole portfolio isn’t wiped out if your company goes down the toilet. If you’re investing in individual companies, that means you should buy multiple companies from different industries and different countries. Or you could just invest in a fund to achieve instant diversification (as funds can potentially contain hundreds or thousands of companies) – InvestNow and Sharesies have plenty of them! What happened to Halifax? Halifax Investment Services was an investment provider that allowed people to trade shares on a variety of platforms. Halifax got into financial trouble, and collapsed in late 2018 having lost almost $20 million in investors’ money. Right now investors’ funds are locked up as liquidation procedures are carried out, with investors facing a 7-15% loss in their investment. How was Halifax unsafe? While there were a number of questionable things that Halifax did, one major issue was that they directly handled clients’ money, rather than having it go to an independent custodian. It appears that leading up to the collapse, Halifax were struggling to pay their bills, and were able to access clients’ money, subsequently using the funds to cover their own operating expenses. Essentially it is a case of a platform going bust, and pulling their customers down with them. While custodians are not a bulletproof solution, It demonstrates the importance of choosing a platform that does not handle your money and uses an independent custodian. Tips for finding a safe investment provider Here’s some things you can do to see whether an investment provider is legitimate: In the case of Fund Platforms, read their terms and conditions, and relevant help articles to determine what their custodial arrangements are (Sharesies help article, InvestNow help article).For Fund Managers, read their funds’ Product Disclosure Statement (PDS). Section 7 of each PDS should show who the fund’s custodian, supervisor, and auditor are. Extract from Pathfinder’s PDS Learn from other people. Read reviews of the service in the news, on blogs, or on social mediaCheck the provider’s social media accounts. Are they posting actively, and do the likes and comments on their page appear to be genuine? Do the provider’s management have experience in the financial services industry (check their LinkedIn profiles)?If the provider is offering something too good to be true, it probably is. Ask friends, colleagues, or an independent financial adviser for a second opinion.Check if the provider is a registered Financial Services ProviderSearch for the provider on FMA’s website. They may be on FMA’s suspected scam list. FMA’s site contains a list of suspected scams Conclusion Reputable platforms and fund managers have robust controls and measures in place to keep your money safe. This includes using custodial arrangements to keep investors’ money segregated from their own business, and having auditors and supervisors assure they are acting in the interests of their investors. Such measures are not a 100% guarantee that your money is protected against fraudulent activity. No matter where you put your money, whether it be at the bank, in shares, under your mattress, or in the casino, there is always going to be at least a little bit of risk – and no way to fully eliminate the risk. So don’t let this risk put you off from investing with a reputable provider. Finally, I have just scratched the surface of what the players in our financial markets have to do to comply with regulations, and keep your money safe. I also haven’t covered how international investment providers like Vanguard or Hatch handle investors’ money. But these are topics I hope to write more about in a future article. 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 Smartshares vs Simplicity vs AMP vs Kernel – NZ Share Index Fund shootout11 November 2019 Bonus Bonds – Is it investing or gambling?6 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 an authorised financial adviser before making any investment decisions.... Read more...What I’ve been investing in – October 201931 October 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 October 2019, Extinction Rebellion protestors blocked the streets of Wellington’s CBD, fire ripped through the SkyCity Convention Centre, and Diwali was celebrated on the 27th. In terms of investments, this month seems to have a bit of a KiwiSaver 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 Goodbye Milford, Hello JUNO! After writing my comparison article between NZ’s low cost KiwiSaver funds, I decided that I should put my money where my mouth is, and personally make the switch to a low cost KiwiSaver provider. It had come down to a choice between Simplicity and JUNO – but although I really liked Simplicity’s funds, I found myself disagreeing with too many aspects of their scheme, such as their gimmicky home loan offering (more on that in the news section below). So I finally decided to make the jump to JUNO KiwiSaver Scheme (into their Growth fund). They are backed by reputable fund manager Pie Funds, and I am going halve my fees compared to my old provider, Milford. I also came across a JUNO promo code which got me a bonus $100! In case you’re wondering how switching KiwiSaver provider works, Rohan from Passive Income NZ has a good article on the switching process here. It is really easy to do so, and here’s my own experience: Step 1 – Sign up with JUNO. On 7 October, I signed up with JUNO which took me two minutes. JUNO then handled everything else in the background, coordinating with the IRD and Milford to have everything transferred over seamlessly. On 9 October, JUNO emailed me with my login details to their online portal. Step 2 – Goodbye Milford. After a bit of waiting, on 23 October I received an email from Milford saying that my request to switch KiwiSaver provider has been actioned. Goodbye Milford, and thanks for the great investment returns! Step 3 – Hello JUNO! On 30 October I got an email from JUNO saying that they have received my funds from Milford, and I could finally see my funds in JUNO’s online portal. Done! Argosy ‘Green’ Bonds I invested in another set of bonds this month with money from a maturing term deposit. This time the bond issuer was Argosy Property, owner of a diversified portfolio of commercial property across NZ. This month they raised $100 million from issuing ‘green’ bonds with an interest rate of 2.90% for a term of 7 years. They are labelled ‘green’ bonds because the money raised from these bonds can only be used on their buildings that have a least a 4 star ‘Green Star‘ rating This is another defensive move for my portfolio, similar to last month’s purchase of Metlifecare bonds. I really shouldn’t be so conservative with my portfolio, so hopefully I’ll come across some attractive opportunities to buy shares in the next few months. Goodman Property Trust Goodman Property Trust owns a portfolio of industrial property in Auckland. I first bought shares in Goodman in 2017, and this month they raised $25m in capital from their existing retail shareholders. They offered us the chance to apply to buy new shares at a price of $2.10 per share. I decided to put in an application for 1,000 shares. Demand for the offer well outstripped supply, with a whopping $60 million in applications received. Therefore applications were scaled down, and I ended up only being able to purchase 318 out of the 1,000 shares I applied for. InvestNow I try and add a little bit into my InvestNow portfolio every month, and the funds I invested in this month were: AMP Capital All Country Global Shares Index FundSmartshares Global Aggregate Bond ETFSmartshares Emerging Markets Equities ESG ETF Smaller investments Added to my Squirrel Peer to Peer Lending portfolioAdded to my Ratesetter Australia Peer to Peer Lending portfolioHad my Genesis Energy dividend reinvested as part of their dividend reinvestment planFor my speculative investment of the month, bought a tiny bit of Bitcoin when the price fell to under $7,500 USD Investing news Simplicity announces home loan offering This month KiwiSaver and managed fund provider Simplicity announced that they were entering the home loan market with an eye-catching interest rate of 2.95%! Here’s a rundown on what this new offering means for borrowers and investors: The offering certainly grabbed everyone’s attention. But my opinion is that this offering is just a marketing gimmick: For borrowers: Availability of loans is low (you have to get lucky and win a ballot), and the criteria for qualifying for the loans is very strict – only those who are more well-off will be eligible.For investors: Having Simplicity’s investors fund the loans increases the risk of their investment, with very little additional return. It also deviates away from Simplicity’s passive, low cost investment strategy. Nick from Your Money Blueprint wrote an excellent article, digging deeper into Simplicity’s home loan offering and reinforcing my above views. Highly recommended reading. KiwiSaver fees propoganda? Another attention grabbing piece of news this month was in relation to KiwiSaver fees, which allegedly increased by a shocking 13.5% over the last year. This news came in response to the FMA’s annual KiwiSaver report which revealed that KiwiSaver fund managers earned $60 million more in fees this year. Here’s the real facts: KiwiSaver providers have NOT increased their fees! Fees are typically charged as a percentage of a member’s balance, and balances have increased by 17% over the last year. But providers have only collected 13.5% more in fees (suggesting the fees they charge have actually gone down). In other words, the $60 million extra in fees that providers collected is purely a result of increasing KiwiSaver balances. This is misleadingYes KiwiSaver members paid 13% more in management fees last yrBut what the article fails to clarify is that this was because their balances went up 17%So as a portion of funds under management fees actually went down, albeit by not enough in the FMA's view https://t.co/heFLGgiEd0— Jenée Tibshraeny (@JeneeTibshraeny) October 10, 2019 An unfortunate consequence of these misleading headlines and commentary from Sam Stubbs, is that they can discourage people from investing, and ultimately miss out on the government contributions and long-term investment returns you can get from KiwiSaver: However, I absolutely don’t dispute the opinion that more KiwiSaver providers should reduce their fees as they scale up and their Funds Under Management increase. So what can you do if you’re a disgruntled member? Don’t let this news put you off KiwiSaver. Vote with your money and consider switching to a low cost provider. You can read my comparison between the lowest fee KiwiSaver providers here. Kōura KiwiSaver launches Kōura, a new KiwiSaver provider launched this month. Their research found that more than half of Kiwis are in the wrong type of KiwiSaver fund, and this is partly due to lack of advice – financial advisers are seen as too expensive, and most people simply prefer to so their own financial research online. I can totally relate to this as I completely avoided KiwiSaver when I first started working, just because I didn’t understand it and didn’t have anyone to talk to about it. To address this, Kōura has built a ‘Digital Advice Platform’ (which is really a robo-adviser) alongside their new KiwiSaver scheme. The advice platform can suggest which out of Kōura’s six passively managed funds you should invest in based on your circumstances, but you can ignore the robo-adviser and create a ‘DIY’ KiwiSaver portfolio. Fees are relatively low at $30 + 0.63% per year, but not as low as Simplicity, JUNO, or BNZ‘s offering. Although I have no interest in switching to Kōura myself, I still admire their mission of getting New Zealanders into the KiwiSaver fund best suited for their investment objectives. As a side note, I liked this table in Kōura’s Product Disclosure Statement which shows when (and what) you can withdraw from your KiwiSaver fund: InvestNow has been busy this month In addition to improving their online portal with an ‘advanced fund selector‘, InvestNow have added eight new funds to their platform, bringing their total number of funds to 118: APN Property Group – AREIT PIE Fund, Asian REIT FundQuayStreet – NZ Equity Fund, Income FundMilford – Australian Active Growth Fund, Balanced Fund, Conservative FundSalt Funds Management – Long Short Fund While none of the funds tempt me, I am impressed by how they are making their offering even more comprehensive. Keeping in line with this month’s KiwiSaver theme, I have also heard that InvestNow are working on a KiwiSaver offering! Money King NZ news This month has been an expensive one for me – I’ve finally replaced my dinosaur of a laptop, which I bought back in 2010! The credit card bill will hit me hard next month, but at least the new laptop will make it easier for me to produce content such as this article. One thing I haven’t given any attention to in the past is the Podcast app on my phone. But this month I discovered a few NZ investment related podcasts, which I’ve begun listening to. Make sure you check out my fresh Blogs, Podcasts, YouTube page to see what other investment related content I’m subscribed to. Lastly, I’ve been taking advantage of the longer daylight hours to do some running in the evenings after work. I registered for the Powerade Challenge where you run a 7.5-9km course in Auckland, Wellington, or Christchurch, and get a free Powerade afterwards. Can you beat my time of 39:23 on the Wellington course? Most popular article this month: InvestNow vs Sharesies – Ultimate Fund Platform showdown and review 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 an authorised financial adviser before making any investment decisions.... Read more...What I learnt – Foxplan ‘Grow Your Wealth’ Investment Workshop25 October 2019I first heard about Wellington based financial planning firm FoxPlan a few years ago when a couple of their advisers tried to add me on LinkedIn. I ignored them, like with most strangers trying to add me, but fast forward to this year I came across a FoxPlan workshop on event website Eventbrite. I decided to register to see what FoxPlan were all about, and for this event I brought four of my friends along with me – not the most conventional place for a social gathering! It was going to be a long evening, with the workshop running from 5pm to 8pm in their Courtenay Place office. It was hosted by FoxPlan founders John and Sally Killick, along with Financial Adviser Dieter. In this article I’ll cover what I learnt in this workshop along with my thoughts. This article is not endorsed or sponsored by FoxPlan or their advisers, is my personal interpretation of the workshop’s content, and is not to be considered as investment advice. 1. Key takeaways from the workshop An ABC of Financial Literacy Before the workshop I was emailed a soft copy of a handy book ‘An ABC of Financial Literacy’, written by John Killick. It’s a very nice guide covering 26 different concepts relating to finance and investment. Check out the book here (PDF) if you’re keen to have a look. A. The power of planning The first theme discussed in the workshop was planning. The first step of planning is to talk about your goals (and not about products). Set measurable goals such as “I want to fund my children’s education” or “I want to create multi-generational wealth”. Only then can you talk about which specific products (i.e. banking, investments, insurance) can help you reach those goals. A common goal is to retire with enough money to sustain your current (or better) lifestyle. The speaker blasted through some spreadsheets and calculations used to determine how much money you need to save per month to reach your retirement goal. The process they used roughly looked like: Calculate expenses – Take your age, your projected expenses in retirement, and factor in inflation, to work out how much money you need per year of retirementNZ Super – Subtract the income you’ll get from NZ Superannuation, to work out how much capital you need (given NZ Super won’t cover all expenses)Existing investments – Subtract the capital you might be able to drawdown from your KiwiSaver and other existing investments Shortfall/surplus – The result is your shortfall/surplus. If you have a shortfall you’ll need to contribute more money towards retirement in order to meet your goal. If you have a surplus, you’re already saving more than enough. The single biggest regret of most clients is “I wish I had started saving earlier”. Here are some example calculations of how much someone needs to save per month to reach $1,000,000 by retirement. It certainly demonstrates that starting saving sooner makes it easier. At age 30 – $500 per monthAge 35 – $790 per monthAge 40 – $1,050 per monthAge 45 – $1,690 per monthAge 50 – $2,880 per month When you reach retirement, you will likely go through different phases – the GoGo phase (65-75), SlowGo phase (75-85), and the NoGo phase (85-95). Your spending is likely to slow as you move through these phases, therefore you don’t have to factor in inflation in your retirement years. And if you do run short of money, you can “eat your house”, by using a reverse mortgage to drawdown equity from your house. B. The magic of equities The second theme discussed in the workshop was equities (shares). There are four main asset classes (equities, property, bonds, cash). Here are their average returns per year from 1971-2018, and how much money you’d have in 2019, if you had invested $10,000 in each asset class in 1971: AssetAvg. Return$10,000 investedWorld Equities10.7%$1,319,638Property8.8%$579,486World bonds8.5%$500,453Cash8.4%$473,003 Equities are the best performing asset class (and NZ equities are even better at a 12.2% average return), while property really needs leverage for it to outperform. Therefore, you should not be afraid to put as much of your portfolio as you can into equities. The thick blue line is New Zealand equities Unfortunately equities are perceived as high risk and most people still stick to bonds and cash. To manage the risk, shouldn’t we increase our exposure to bonds as we grow older (e.g. have <your age>% of your portfolio in bonds)? No! the speaker is 70 and is still mostly invested in equities! There are some strategies you can use to manage the risk: Bucket approach – Keep some money (e.g. 2-3 years of living expenses) outside of equities in separate ‘buckets’, so you can cover your upcoming living costs without having to sell your shares during a downturn. Diversify – Diversification can reduce volatility and risk. Remember to invest in multiple companies, in international and emerging markets (as NZ makes up less than 0.5% of global markets), and both large and small cap companies. Understand Volatility – Sharemarkets are volatile. Volatility is just a market reaction, not a loss. Always stay the course and never sell your shares during volatile times. Instead take the opportunity to buy more shares while they’re ‘on sale’. Have Faith – During bear markets (the market falling for a sustained period of time), the world does not end, but just appears to be. The media adds fuel to the fire by spreading news of doom and gloom because bad news sells (or gets more clicks). Have faith – of the 13 bear markets since 1946, the average length was just 15 months (with an average decline of 32%). The below statement is a nice way to put it: The advance is permanent; the declines are temporary 2. Did they try to sell anything? Given FoxPlan are a financial planning firm, they heavily promoted the value of having a financial adviser – they call your relationship with their advisers a 30 year partnership. It is similar to how the best in the world, such as elite athletes, all pay for a coach. They savaged DIY investors, saying they always underperform and always make bad decisions (Ouch. As a DIYer myself, that hurts to hear). An adviser is there to stop you from being too conservative, give you a positive perspective when markets are tumbling, and maximise your good decisions. They perhaps tried a little too hard on their sales pitch though, as it often felt like they were rambling on about things, rather than providing concrete information on a particular point. It was quite distracting, and made it hard to follow the workshop and pick up any substantial learning points. I understand it’s a free workshop, but there needs to be a good balance between promoting your business, and giving valuable insights to the audience (like with the Craigs workshop I attended last month). Lastly, they asked us to fill in a Feedback Questionnaire at the end, in which we could opt in to have a free initial consultation with either John, Sally, or Dieter. None of my friends opted in (but I believe the couple sitting beside me were keen to meet Sally). 3. Was there any free food? Halfway through the workshop we all paused for a break. Pizza from Tommy Millions was served! I picked up a slice of their pepperoni and a slice of their margherita pizza, and it was the best pizza I’ve had in a long time! Both slices had light, crispy bases, and perfectly flavoured toppings. There were a couple of awesome giveaways during the workshop. One of my friends won the aforementioned ‘ABC of Financial Literacy‘ book as a hard copy. Another friend won a $200 New World voucher at end – I believe she is going to share the love by buying lollies for us, but I am still waiting for these! She also won the following document, which she’s since offloaded to me, and we both have no idea what to do with it. It’s a data collection booklet to complete with one of their advisers, in order to develop a personalised financial plan. But neither of us want to, or need to use a financial adviser… Lastly at the conclusion of the event, beers, ginger beers, wines, and nibbles were provided. We were well looked after 🙂 4. My thoughts on the workshop I struggled to pick out the key points of this workshop. The presentation lacked cohesion – moving quickly through some topics, rambling on too much about others, and there was way too much jumping back and forth between different unrelated points. My friends say they’re waiting for this blog post as they also struggled to understand the content! However, their aggressive approach to investing in equities was somewhat refreshing. Finally, people who have the balls to encourage sticking most of your portfolio in equities, even when you’re 70! Out the window goes the traditional rule of sticking <your age>% of your portfolio into bonds! To me this was a great reminder that shares are the best performing asset class, and we should really be less fearful and conservative in our portfolios. Foxplan are running one more ‘Grow Your Wealth’ workshop in 2019 on the 20th of November. Register here if you would like to attend. Lastly, do you need a financial adviser? It is up to you to decide. I myself am going to remain a stubborn DIY investor. I enjoy managing my own finances and investments, and services like InvestNow and Sharesies have made the NZ investing scene so much easier for DIYers. But there is no doubt that advisers provide value, giving you advice tailored to your unique personal circumstances, or coaching you through your financial life (including telling you not to panic sell your equities when the markets crash). If you’re looking for an adviser, FoxPlan is not the only option. I’d suggest checking out Mary Holm’s page about financial advisers, where she has a list of fee-only advisers (as opposed to commission based advisers who get paid when they sell a particular product to their client). My fellow bloggers Nick Carr and Sonnie Bailey are advisers on this list, so check them out! My overall rating of the event: 2.5/5 stars 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 5 things to know about investing in Peer to Peer Lending24 June 2019 Term deposit rates suck! What you can do – with 5 term deposit tips26 August 2019 Investing in individual companies vs funds – what’s better?26 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 an authorised financial adviser before making any investment decisions.... Read more...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 5 things to know about investing in Peer to Peer Lending24 June 2019 Shopping for ETFs – Sharesies vs Hatch16 September 2019 Bonus Bonds – Is it investing or gambling?6 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 an authorised financial adviser 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 110 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 Top 10Smartshares 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 12 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. For more detail on this topic check out my article What happens to your money if InvestNow or Sharesies go bust? Also 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 How to invest for kids in New Zealand23 September 2019 Bond Basics – 5 things to know about investing in bonds23 July 2019 Buying shares on the NZX – Sharesies vs ASB Securities and Direct Broking16 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 an authorised financial adviser 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 seminar’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! My overall rating of the event: 3.5/5 stars 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 No Sharesies, No worries! A guide to investment services in Australia21 October 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 an authorised financial adviser 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 Shopping for ETFs – Sharesies vs Hatch16 September 2019 Buying shares on the NZX – Sharesies vs ASB Securities and Direct Broking16 July 2019 What taxes do you need to pay on your investments in New Zealand?7 October 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 an authorised financial adviser 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 Most popular article this month: How to invest for kids in New Zealand 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 an authorised financial adviser 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 🙂 My overall rating of the event: 5/5 stars 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 happens to your money if InvestNow or Sharesies go bust?4 November 2019 How to choose which fund to invest in on InvestNow and Sharesies17 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 an authorised financial adviser 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. They don’t allow for regular contributions either. 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 Sara 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 taxes do you need to pay on your investments in New Zealand?7 October 2019 Bond Basics – 5 things to know about investing in bonds23 July 2019 What happens to your money if InvestNow or Sharesies go bust?4 November 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 an authorised financial adviser 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 Investing in individual companies vs funds – what’s better?26 June 2019 3 tips to get the most out of KiwiSaver19 June 2019 Term deposit rates suck! What you can do – with 5 term deposit tips26 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. 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