Social Media Extras

Here’s some of the extra content we’ve posted on our social media channels.

Exchange rate volatility

Posted 1 May 2022

When investing in overseas assets, the value of your investments will be impacted by exchange rate movements. Like the volatility in the sharemarket, these exchange rate fluctuations are normal and generally aren’t anything to worry about if you’re investing for the long-term.

S&P 500 index funds

Posted 28 Apr 2022

There’s several ways for New Zealanders to invest in the S&P 500 – an index comprising the 500 largest companies listed in the US. Let’s take a look at the key differences between three of the options:

Firstly we have fund type. The major implication of this is how you get taxed. Smartshares USF is a Listed PIE meaning you’ll get taxed at a flat rate of 28%. Kernel’s fund is a Multi-Rate PIE so you’ll be taxed at your Prescribed Investor Rate (PIR). Vanguard VOO is a Foreign Investment Fund (FIF) which means you’ll have to apply the FIF tax rules.

Secondly we have currency hedging. Both Smartshares and Vanguard funds are unhedged, which means the value of the fund will be impacted by exchange rate fluctuations between the NZD and USD. Kernel’s fund is hedged which greatly reduces this exchange rate volatility. Hedging may work in or against your favour depending on how the exchange rates move.

Lastly we have fees. Smartshares USF charges a 0.34% management fee, and you’ll have to pay brokerage fees if you buy the fund through a broker like Sharesies. Kernel’s fund charges 0.25%, plus a membership fee of $5 per month if you invest $25k or more through their platform. Vanguard has the cheapest management fee, but keep in mind you’ll have to add on brokerage plus foreign exchange fees.

Like all things in investing, there’s no definitive best option. So which one would you pick?

Investing probably won’t make you rich

Posted 21 Apr 2022

You might have seen posts from other content creators that make it seem like investing is an easy way to get rich. They’ll say something along the lines of “invest $1,000 a month into an index fund, and you’ll retire as a millionaire”.

Theoretically investing can indeed be that easy. But in reality it’s a lot more difficult. There’s many traps that could derail an investor’s journey to meaningful wealth. For example:
– Volatility can lead to panic selling or trying to time the market, when investors are almost always better off riding out the crashes and corrections.
– Boredom can lead to constant tweaking of your portfolio and/or gambling your money away on the hottest stock, fund, or coin – Taking on more risk and incurring extra brokerage fees, when it’s usually best to simply buy and hold.
– People often see investing as a means to earn extra income and fund their lifestyles. They don’t reinvest their profits, so don’t benefit from compounding returns. Capital gains and dividends alone won’t make you rich, but rather it’s the compounding of your returns over several years and decades that really helps your wealth take off.

We’re not trying to scare people off or gate-keep investing. But we’re trying to paint a more realistic picture of it – there’s a lot more to investing than just dropping money into an index fund every payday. Can you avoid these traps?

Aggressive KiwiSaver funds

Posted 13 Apr 2022

Most KiwiSaver funds contain bonds. They reduce your fund’s volatility but may be a drag on your potential returns. The solution is “aggressive” funds which cut out the bonds and invest almost entirely into shares, increasing your potential returns.

Aggressive funds aren’t for everyone. You have to be willing to tolerate the extra volatility, plus ideally have a long-term investment timeframe to give you adequate time to recover from any market downturns.

Here we’ve listed a few examples of the aggressive KiwiSaver options available to investors.

Types of savings accounts

Posted 7 Apr 2022

Savings accounts and term deposits always get a bad rap for their low returns. But they’re still an important tool for keeping money you need in the short-term, to protect it from the volatility of the markets.

Real Estate Investment Trusts

Posted 3 Apr 2022

Are you investing in any REITs? 

Currency Hedging

Posted 29 Mar 2022

Did you know that many fund managers use currency hedging in their overseas funds? Hedging is used to reduce the impact of exchange rate fluctuations on a fund.

Examples of hedged funds are the:
– Smartshares Total World (NZD Hedged) ETF
– Vanguard International Shares Select Exclusions (NZD hedged) Index Fund
– AMP/Macquarie All Country Global Shares Index Fund (partially hedged)
– Simplicity Growth Fund (partially hedged)

And many funds aren’t currency hedged, such as the:
– Smartshares Total World ETF
– Vanguard International Shares Select Exclusions Index Fund
– Kernel Global 100 Fund
– Smartshares US 500 ETF

So is it important to pick a currency hedged fund? There’s pros and cons to either approach and there’s no right or wrong answer, especially for shares where the benefits of hedging are debatable. The approach you should choose comes down to personal preference. What would you pick?

Volatility isn’t a bad thing

Posted 23 Mar 2022

The markets have been volatile in recent months, and this is usually seen as a negative thing. But we like to think differently and view volatility as a very normal part of investing, rather than a bad or unfortunate event that happens to your investments.

So while volatility is scary, accept and embrace it (and if you don’t have the time horizon and risk tolerance to do so, maybe invest in more conservative assets). Because volatility is unavoidable, and there’s always more ups and downs to come around the corner.

If not now, when?

Posted 16 Mar 2022

Don’t be that person who says they want to start investing, but always makes excuses to stay out of the market 😂

If you’re looking for the perfect time to get into the markets, you’ll probably never find it. That’s why we like the approach of just starting now, picking assets that match your goals and risk appetite, and dollar cost averaging to drip feed your money in.

Index fund vs ETF

Posted 12 Mar 2022

Index funds passively invest in an index, while actively managed funds have fund managers researching and picking companies to invest in. Imagine the sharemarket being a crate of apples – actively managed funds try to pick the best apples, while index funds just buy the entire crate! Examples of index funds are Kernel funds and most Smartshares funds. Examples of actively managed funds are Milford’s and Juno’s funds.

The main difference between ETFs and unlisted funds is where you can buy them – ETFs are funds that are listed on a sharemarket like the NZX or NYSE, while unlisted funds aren’t listed on a sharemarket. Most ETFs are index funds (for example, the Smartshares US 500 ETF is an index fund which is listed on the NZ sharemarket), but many ETFs are actively managed (for example, the ARK Innovation ETF). Unlisted funds can also be index funds or actively managed funds – for example, Kernel’s index funds are unlisted, while Milford’s actively managed funds are also unlisted.

So index funds and ETFs aren’t mutually exclusive – a lot of funds are index funds AND ETFs at the same time.

International share index funds

Posted 9 Mar 2022

There’s a number of index funds you can use to invest in international shares, but they’re all slightly different in how they’re built. Some only invest in US shares, some have exposure to emerging markets (e.g. China, India, Brazil), and some just stick to developed markets (e.g. Canada, UK, Japan).

But don’t worry if you’re fretting over which fund to choose. There’s no definitive best option, and you’ll probably be better off just selecting one rather than letting analysis paralysis stop you from investing in the first place.

Staying the course

Posted 1 Mar 2022

When the markets get a bit turbulent it can be tempting to switch to a less volatile Conservative fund.

While this will reduce the potential for your investment to go down further, you’ll lock in your losses and might end up missing out on the gains when the markets recover. Take Matt for example whose investment remains in the red almost 2 years after switching to a Conservative fund.

Some people will argue that they can just switch back to a Growth fund when things settle down. But timing the market is easier said than done – no one has a crystal ball to tell when the market has hit the bottom and when’s the perfect time to switch back.

So assuming a Growth fund is the right fund for your investing timeframe and risk tolerance, and your investment goals haven’t changed, then you probably shouldn’t change your fund either.

There’s no free lunch in investing

Posted 26 Feb 2022

There’s no free lunch in investing:
You have to pay for taking on less risk by accepting lower returns.
You have to pay for higher returns by taking on more risk and volatility.

But fortunately there are ways you can manage the risks of investing in more volatile assets like shares and crypto:
– Having an emergency fund, so you aren’t forced to sell off your investments at a loss.
– Being diversified, so that your money is spread across multiple industries and countries.
– Having a long-term investment horizon, so you have time for your investments to recover from any downturns.
– Not taking on more risk than you can handle, so you can stay calm when a downturn inevitably hits.
– Drip feeding money into your investments regularly, to smooth the impact any volatility has on your portfolio.

Thematic index funds

Posted 19 Feb 2022

Investing in index funds can be more exciting than you think! Thematic Index funds are a way to invest in a innovative or disruptive trend without putting all your eggs in an individual company

For example if you like the idea of investing in electric vehicles, Kernel’s EV Innovation Fund gives you exposure to 50 companies involved in the electric vehicle ecosystem – a handy alternative to going all in on Tesla for your EV investing needs 🚗⚡️

However thematic funds are not for everyone, nor are a necessary part of your portfolio. They’re higher risk than broad market funds like an NZ 20 or Total World Fund, making them best suited as a small satellite portion of your portfolio.

There’s 5 NZ domiciled thematic index funds – are you invested in any of them?

Our approach to investing

Posted 12 Feb 2022

Our approach to investing has gradually changed over the years. We’ve learnt that:
– It’s hard to pick companies even if you know how to analyse annual reports and financial ratios
– Chasing dividends often leads to picking bad companies
– Trading is hard and isn’t sustainable over the long-term

So these days we take a more relaxing approach of investing into a simple but diversified portfolio of low-cost funds, and let our wealth grow steadily over time.

Neither approach to investing is right or wrong, nor will our current approach suit everyone. But it goes to show that investing can be simple and doesn’t require expensive courses, analysing P/E ratios, or knowing the ex-dividend dates of your companies 😉

More funds = Less diversification?

Posted 9 Feb 2022

Investing in lots of funds doesn’t necessarily make your portfolio well diversified. You’ll often find that multiple different funds can all invest in a similar set of companies.

All your portfolio needs is a small number of well thought out funds to have good exposure across several companies, countries, and industry sectors.

*the funds mentioned in this post are examples only, and not recommendations for what to invest in.

Property vs Shares

Posted 3 Feb 2022

Investing in property is a powerful way to build your wealth, but we think shares (and funds that invest in shares) are a little underappreciated

New investors

Posted 29 Jan 2022

If you’re totally new to investing, don’t be afraid to jump in with a small amount of money.

Even if you lose it all the things you’ll learn from the experience will be worth it – Whether it be the start of a habit of investing regularly, learning from the mistakes you make, or simply figuring out how it all works 📈

NZ investment platforms

Posted 25 Jan 2022

Comparing investing platforms can sometimes be like comparing apples to oranges – they don’t all offer the same products.

Here’s a high level overview of what investments are available through some of the popular investing platforms in NZ.

KiwiSaver for kids

Posted 20 Jan 2022

For most under 18s, we don’t think KiwiSaver is a worthwhile investment.

It locks your money up for very specifc circumstances without providing any benefit over non-KiwSaver investments.

Yet many parents and grandparents beg to differ, and actively contribute to KiwiSaver for their kids and grandkids.

So what are your thoughts? Is KiwiSaver worth it for under 18s?

NZX poor performance in 2021

Posted 9 Jan 2022

There’s been a lot of talk recently suggesting NZX shares are a waste of time because of their poor returns over the past year, especially when compared to the S&P 500.

However, it’s inappropriate to write-off a long-term investment vehicle based on short-term performance. 2021’s results aren’t indicative of how these markets will perform in 2022 and beyond. Plus over the longer-term, the NZX 50 has performed quite well compared to the S&P 500.

This isn’t a perfect comparison – the NZX 50 is a gross index (inclusive of dividends), while the S&P 500 is a capital index (doesn’t reflect any dividends). But there are lots of other factors to consider (like tax, FX, fees) when comparing NZ and US shares.

Index funds

Posted 12 Dec 2021

Looking to invest in shares but don’t know where to start or what companies to pick? Index funds may be the way to go, providing investment into a diversified range of companies, with low fees.

There’s no need to get into the complexities of analysing companies or financial statements to get started! Here’s a few examples of index funds to invest in both NZ and international shares.

New KiwiSaver default funds

Posted 01 Dec 2021

These are the 6 new KiwiSaver funds launching today as part of the default fund changes. More info in our article KiwiSaver fund check in – How do the new default funds affect you?

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