Ask Money King NZ (Winter 2024) – Is the market going bullish in the next year?

What’s the best resource to understand taxation on investments as a beginner? Is Bitcoin a good investment? What are the pros and cons of hedged and unhedged funds? These were some of the questions we answered in our 10th Ask Money King NZ Q&A held with our Instagram followers.

The answers in this article have been provided without any knowledge or consideration of the personal circumstances of the person who asked the question. This content should not be taken as financial advice.

In case you missed it – Our previous Q&A article:
Ask Money King NZ (Autumn 2024) – Is the NZX 50 worth investing in?

1. What’s the best resource/place to understand taxation on investments as a beginner?

We have a few tax articles on our website. The one below is a good place to start:

Further Reading:
What taxes do you need to pay on your investments in New Zealand?

In summary, your “income” from your investments is taxed at one of two rates:

  • At your personal income tax rate (i.e. the same tax rates that get applied to your income from your job). These rates are either 10.5%, 17.5%, 30%, 33%, or 39%.
  • At your Prescribed Investor Rate (PIR), which applies to investments that are structured as PIEs (like KiwiSaver funds). PIRs are either 10.5%, 17.5%, or 28%.

The tricker part is defining what is “income”. In general:

  • The likes of savings accounts, term deposits, and bonds provide you with a return in the form of interest. This interest is considered income, so you must pay tax on it at the above rates.
  • On New Zealand and most Australian shares you may earn dividends. Dividends are also considered income so you must pay tax on it.
  • Capital gains (where you sell an asset at a higher price than what you paid for it) generally isn’t considered to be income. The exceptions are where you’re considered to be a trader (someone actively buying and selling shares to make a profit), or for assets like precious metals or cryptocurrency. In these cases, capital gains are usually considered to be income.

Some unique rules apply for calculating your taxable income on foreign investments These fall under the Foreign Investment Fund (FIF) rules which we cover in more detail in the below article:

Further Reading:
Tax on foreign investments – How do FIF and Estate Taxes work?

Lastly, the below article busts some of the most common tax misconceptions out there:

Further Reading:
12 tax myths and misconceptions busted

2. What’s the impact of FDR tax on long-term returns? What reforms could/should occur?

FDR (Fair Dividend Rate) is one of a few methods for calculating taxable income on FIFs (i.e. most foreign shares and ETFs). At a high level it assumes that the taxable income on your foreign shares is calculated as 5% of the market value of those shares.

If the value of your foreign shares was $100,000 NZD, using the FDR method, the taxable income on that would be $5,000 (calculated as $100,000 x 5%). That doesn’t mean you pay $5,000 in tax, but rather that amount is taxed at your personal income tax rate. At a tax rate of 33%, you would need to pay $1,650 in taxes on your $100,000 investment.

At a tax rate of 33%, that’s an impact of 1.65% on your portfolio each year. If you’re investing via a PIE fund (with a PIR of 28%), your tax impact would be 1.40% every year. So tax (not necessarily just FDR) definitely does need to be factored into your long-term returns! Many people assume they can get a 10% return from the sharemarket each year, but in reality this is closer to 7 or 8% once you factor in the impact of taxes and fees.

Further Reading:
You probably won’t make a 10% p.a. return on your shares

A lot of people don’t like the FDR rule because it applies even if you make a loss during the year, and generally results in at least part of your capital gains to be taxed (while for NZ shares, capital gains aren’t usually taxed). While we’d like to see the rules reviewed, the answer may not be as simple as reducing or removing FDR altogether. If FDR is reduced or eliminated, there’s at least a couple of issues to consider:

  • Changes in the FDR method or FIF tax regime could result in less tax revenue for the government. So what services should they cut, or what taxes should they increase or introduce to make up for the shortfall? Would people prefer a capital gains tax, in which case you’d probably get taxed more than under FDR?
  • How can we ensure overseas shares are fairly taxed relative to NZ shares? NZ companies tend to be high dividend payers, while overseas shares on average pay lower dividends but offer higher potential capital gains. If FIF/FDR was eliminated and only dividends were taxed, how can we collect adequate tax from overseas shares and provide an incentive to invest in domestic businesses?

3. Do you offer scholarships?

No we don’t. MoneyHub is the place to go for info on the various scholarships available for those looking to enter into tertiary studies:

Further Reading:
The Complete New Zealand Scholarship Directory (MoneyHub)

4. There are too many mortgage advisers claiming they are NZ’s top adviser. How do you decide between them?

We’d look at a few factors:

  • We’d set up a time to have an initial meeting or call with a few advisers, then see whether you like them. Do they seem to understand your situation and goals? Do you feel like their communication is clear?
  • You can ask which lenders they work with (more is generally better), and what fees they charge (usually they get paid a commission by the lender so you don’t need to pay anything, but some may add on additional charges). Though these factors tend to be more or less the same between advisers – You probably aren’t going to get substantially better mortgage rates by going for one adviser over another.
  • Checking reviews online or asking for recommendations from friends/family may also be helpful.
  • Once they’ve recommended a mortgage product to you, they should be able to clearly explain why they’ve recommended that specific product. And hopefully it’s because the product is the best one for your needs, rather than the one that pays them the highest commission.

5. Can you do a how to sell funds on InvestNow? Like the process of selling?

Fortunately InvestNow has a handy FAQ page on how to sell funds through their platform. The steps they describe are as follows:

  • Go to the “Sell” page
  • Identify the fund(s) you wish to sell and click the green “Sell” button
  • You can choose to sell:
    1. a set dollar amount or
    2. a specific number of units for a managed fund you hold or
    3. all the units you hold in a managed fund
  • Enter the dollar amount or number of units
  • Click the “Sell” button

As to what happens after you click “sell”:

  • Your orders start to be processed at 12pm on business days. Any orders you place after 12pm or on non-business days are processed at 12pm on the next business day.
  • You don’t get the cash straight away after your order is processed, but instead you need to wait for your orders to settle. Settlement time is 2 business days for most fund managers, but longer for others (full list of settlement times here). This provides time for the fund manager of the fund you’re selling to get the cash, perhaps by selling some of the underlying assets of your fund.
  • At the same time any taxes (tax on PIEs is realised whenever you sell any units), or transaction fees (for their Foundation Series funds) are deducted from the proceeds of your sales.
  • Once your sell order is settled, the cash proceeds from selling your funds will appear in your InvestNow account. This money can then be reinvested into another fund or term deposit, or withdrawn to your bank account.

6. Is the market going bullish in the next year?

Maybe, maybe not. Of course you can consider factors like inflation, interest rates, geopolitical issues, and so on to form your own opinion as to whether the market is going to go up or down in the coming year. But at the end of the day no one knows with 100% certainty what the market is going to do in the next 12 months. And nor should you care if you’re a long-term investor, as it’s the returns over 10+ years you should be concerned about. You’re more likely to be a successful investor simply by buying and holding assets for a long period of time, rather than trying to analyse and predict short-term market movements.

If you are worried about what’s going to happen in the next 12 months, perhaps one of the following situations apply to you:

  • If you’re a short-term investor – For example, if you’re investing for 1-2 years. In this case, perhaps you’re better off investing in a savings account/cash fund/term deposit. These will protect your money from market volatility so you don’t have to worry about whether they’re going to go up or down.
  • If you’re concerned about investing at the wrong time – For example, you’re concerned you’ll invest your money only to see the markets drop shortly after. If this situation applies to you, Dollar Cost Averaging could be the solution. This involves spreading your investment purchases over a period of time instead of trying to time the market or investing an entire lump sum at once.
  • If you’re simply worried about your investments going down – In this case the solution may be to adjust what assets you’re investing in to better suit your risk tolerance. For example, someone who’s risk adverse may consider adding bonds to their portfolio or selecting a balanced fund. This would reduce the volatility of your portfolio compared to investing 100% in shares or in an Aggressive or Growth fund.

Further Reading:
Does timing the market = better returns?

7. Is Bitcoin a good investment?

We don’t have a crystal ball to say how Bitcoin is going to perform into the future and whether it will work out as a “good” investment. But the answer really depends on your personal situation and what you’re investing for. Being a (very) volatile investment, the usual rules of thumb apply:

If you need the money in the next couple of years (say for a holiday or house deposit), then Bitcoin might not be a good investment. It’s too unpredictable and it wouldn’t be unreasonable to see Bitcoin drop by 50%+ in a short amount of time. By putting your money into Bitcoin you’d be taking on the risk of having to push our your holiday or house purchase for years.

If you’re investing for the long-term, its suitability as an investment is still debatable. Arguably it’s not a good investment because it’s an unproven, speculative asset class, with questionable use cases. On the other hand you could argue that its scarcity and ability to act as a store of value could make it worthwhile having in your portfolio. It definitely pays to do your own research and form your own opinion on the cryptocurrency. So depending on your risk tolerance and how you personally feel about the value of Bitcoin, you may consider allocating some money towards it. Most people take the approach of putting a small amount of money (that they can afford to lose) towards it, though some have the appetite to invest larger sums (at their own risk).

Further Reading:
Digital Gold? 5 things to know about Bitcoin

8. Hedged vs unhedged funds? What are the pros and cons of each?

When you invest in overseas assets, the performance of those investments isn’t only affected by the price of those assets, but also by the exchange rate movements between the NZ Dollar and overseas currencies. Currency hedged funds aim to remove the impact of exchange rate movements on the performance of these investments. Currency hedged funds don’t necessarily improve performance – exchange rate movements are sometimes beneficial and sometimes detrimental to the performance of your investments. So what currency hedged funds are essentially doing is removing a layer of potential volatility from your fund.

Some pros of currency hedged funds:

  • Currency movements could undermine the defensive nature of certain assets like bonds. For example, many people invest in bonds to reduce the volatility of their portfolios, and without currency hedging, the volatility of exchange rate movements may defeat the purpose of having those bonds. That’s why most overseas bond funds are hedged to the NZ Dollar.
  • Hedging can reduce confusion. For example, if you invested in a hedged S&P 500 fund and the S&P 500 index went up 2%, your fund would also go up approximately 2%. On the other hand, an unhedged fund would likely have different performance to the index as it’s influenced by currency movements.

Some cons of currency hedged funds:

  • For long-term investments like shares, hedging is arguably less important as the impact of exchange rates tend to even out over time. The long-term performance of shares should well outstrip any negative currency movements.
  • It can be beneficial from a diversification perspective to have exposure to foreign currencies.
  • Being unhedged can reduce volatility. Often (but not always) a downturn in the markets is accompanied by a downturn in the NZ dollar. This currency movement offsets the drop in your shares.
  • In some cases, hedged funds can have higher management fees compared to their unhedged counterparts.

Overall the answer to whether you should invest in a hedged or unhedged fund depends on what you’re investing in. For bonds the answer is straightforward. For shares there’s no definitive answer (it also comes down to personal preference), but perhaps you can take some inspiration from the many diversified funds which do a bit of each by partially hedging their funds.

Further Reading:
Hedged vs Unhedged funds – What’s better?

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The content of this article is based on Money King NZ’s 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.


  1. Hi Money King, again a very nice article 🙂

    Got a question unrelated to the article.

    Im nearly at the $25K point in investing in Kernel (Global ESG hedged unhedged, NZ50 and global infra) split between.
    I invest about $150 split among the 4 per week. Should I think about moving to another fund? like investnow maybe in TWF or Vanguard? to avoid the $5 fees?

    Whats your suggestion?


    1. Hi, it depends on why you chose to invest with Kernel in the first place. For example, if you chose Kernel purely based on low fees, the $5 monthly fee that kicks in may mean that your original reason for investing with Kernel no longer applies (because of the increase in fees). In that case, it may be a good reason to look at another provider. But maybe you chose Kernel for another reason, such as the funds they have, ethical reasons, and so on. Those reasons for selecting Kernel may still be valid despite the effective fee increase, so may be reasons to stay with your current funds. Overall you’ll probably need to look at a combination of the above factors to decide whether or not it’s worth switching to another fund.

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