Sugar Wallet is a brand new app which aims to make investing “weirdly simple” with their set and forget investment options. They’ve had a fair bit of early interest after being featured on the 6pm news, and reaching the top 10 in the App Store charts at one point. So is Sugar Wallet worth using? Or are they just clipping the ticket on existing investment products?
Update (18 Nov 2022) – Sugar Wallet now offers investment into gold.
1. What’s on offer
The 3 fund options Sugar Wallet offers are all provided by Simplicity:
- Growth = Simplicity Growth Fund
- Balanced = Simplicity Balanced Fund
- Conservative = Simplicity Conservative Fund
if you’re not familiar with Simplicity’s funds, they invest in a mix of local and international shares and bonds, with the Growth Fund having a higher proportion invested in shares, and the Conservative Fund having a higher proportion invested in bonds. Below are the target asset allocations for the three funds:
|Total income assets||22%||44%||78%|
|Unlisted NZ Property||3%||2%||0%|
|Total growth assets||78%||56%||22%|
So Sugar Wallet currently doesn’t bring anything new to the market in terms of funds, as they’re essentially just providing another method for people to invest in Simplicity’s funds. It’s interesting that Sugar Wallet are allowed to offer Simplicity’s funds in the first place, as in the past Simplicity got grumpy when InvestNow tried to offer their funds.
Otherwise Simplicity’s funds are solid investment options. They provide excellent diversification across companies, industries, geographies, and asset classes. Their Growth is a good option for long-term investors, while the Conservative fund provides an option for shorter-term investors. However, a limitation is that they don’t offer an aggressive fund (a fund investing almost entirely into shares), nor a cash fund (for capital preservation). You can check out our article below for more info on Simplicity’s funds:
– InvestNow Foundation Series vs Simplicity funds – Tax leakage an issue?
Sugar Wallet also offers investment into gold, which is purchased and stored on your behalf by BullionStar. See our article below for more info in investing in gold.
– Gold and Silver – Is it investing or gambling?
Sugar Wallet charges an account fee of $3 per month ($36 per year), but this is waived if you’re investing less than $250.
This is a fee that investors need to be careful with. $36 may not seem like much, but the fee makes up a huge proportion of smaller investment balances as you can see in the table below:
|Portfolio value||Account fee as a percentage|
This can be a terrible deal for smaller investors – For example, someone investing $500 in the Growth Fund and earning an 8% annual return will have almost all of their gains wiped out by the account fee! The fee can be even more disastrous for Conservative or even Balanced investors, as the returns from those funds will likely be lower. The impact of the account fee gets smaller at higher balances, but can still be quite hefty compared to other investment products.
Fund specific fees
If you invest into any of Sugar Wallet’s funds, a management fee of 0.31% p.a. applies, and is charged by Simplicity who manage the underlying funds. This fee is reflected in a tiny deduction in your fund’s unit price every day.
Gold specific fees
If you invest into gold, the following fees apply:
- Transaction fee – 1%. A one-off fee charged every time you buy or sell gold.
- Storage fee – 1% p.a. An ongoing fee charged based on the amount of gold you hold.
And while Sugar Wallet haven’t explicitly stated it, spreads will also likely apply when buying and selling gold. When you buy and sell physical gold, it is rarely bought and sold at the spot price. For example, if the gold price was currently $2,900, you would have to buy it at a premium price of say $3,000, and you would have to sell it at a discounted price of say $2,800.
3. Other considerations
The minimum investment into Sugar Wallet is $1.
Currently investors on Sugar Wallet are limited to investing in one product at a time. For example, you cannot hold both a Simplicity fund and gold at the same time. In this case someone holding a Simplicity fund and wanting to invest in gold would have to sell all the units in their fund before investing in gold.
Depositing funds & auto-invest
Sugar Wallet encourages set and forget investing, and facilitates this by connecting to your bank account. Once you’ve connected your account to the app you can then select your fund and investment amount, after which the app will automatically debit your account and invest your money at your selected frequency (weekly, fortnightly, monthly). Any changes to your investment amount and frequency can be adjusted entirely within the Sugar Wallet app, saving you from having to adjusting these manually via your online banking platform.
Connectivity to your bank account is facilitated through their banking feed partner Akahu, which has a limitation of not being able to connect to BNZ accounts.
Custody of investments
When you invest through platforms like Sugar Wallet, your investments are held by a custodian, rather than directly in your own name. Therefore it’s important to check whether your platform has appropriate custody arrangements, to ensure your investments are kept safe and separate from the platform in case it shuts down or goes bust.
In Sugar Wallet’s case they hold your cash and investments through a custodian Sugar Nominees Limited and sub-custodian Adminis, ensuring segregation from the platform. Here’s what they tell us about how the process works:
When the user deposits money via the app, that cash enters a New Zealand-registered bank account in the name of Sugar Nominees Limited. Purchase instructions and the deposits themselves are then passed on to our sub-custodian, Adminis, who makes the purchases on our customer’s behalf. Each customer is individually registered on Adminis, and Adminis holds the units on each customer’s behalf.Sugar Wallet
– What happens to your money if InvestNow or Sharesies go bust?
Withdrawing your money
Your investments can be sold and taken out at anytime, unlike KiwiSaver which has restrictions on withdrawals.
Being a brand new platform we’re sure Sugar Wallet will have a lot more features added to the app in the coming months. They’ve told us that they plan to add more funds and perhaps some non-investment related financial products down the line.
4. Sugar Wallet vs competing services
Here’s a brief overview of how Sugar Wallet compares to competing services.
Following Sugar Wallet’s launch there are now two main ways to invest in Simplicity’s funds:
- Direct via Simplicity
- Via Sugar Wallet
So how do the two methods compare?
|Direct via Simplicity||Sugar Wallet|
No account fees
$36 p.a. account fee
|User interface||Responsive web app||Native mobile app|
|Depositing money||Via online banking||App linked to your bank account|
It’s cheaper to invest directly via Simplicity as this saves you from paying any account fees. However, the key advantage of Sugar Wallet is their lower minimum investment, bringing Simplicity’s $1,000 minimum down to just $1. This is great for those wanting to invest small amounts, but we think there may be better options for this such as InvestNow and Kernel – both of which don’t clip the ticket with an expensive account fee.
Sugar Wallet also claim to be more user friendly with a native mobile app and connectivity with your bank account (making setting up and adjusting regular deposits easier). But we feel these are relatively small benefits – web apps are sufficient for an investment platform (as there’s no need for a long-term investor to constantly access and tinker with their portfolio), and bank account connectivity provides relatively minor benefits over creating/adjusting recurring payments via your online banking platform.
InvestNow is a close competitor to Sugar Wallet/Simplicity with their Foundation Series Growth and Balanced funds, which have comparable asset mixes to the equivalent Simplicity funds, and similarly low management fees at 0.37%. The Foundation Series funds are also built in a tax efficient manner, compared to Simplicity’s funds which suffer from a tax leakage issue.
The InvestNow platform itself has no account fees, a low minimum investment starting from $50, and good auto-invest functionality. Outside of the Foundation Series funds, InvestNow offers over 150 other funds from a huge variety of fund managers such as Smartshares, Macquarie, Milford, and Fisher Funds. This gives you greater control over how you can build your investment portfolio, as you can mix and match funds from different managers, investing in different asset classes like international shares, NZ shares, bonds, cash, and even Bitcoin.
So overall InvestNow is a strong alternative, but has a downside of being less user friendly. Their platform is clunky for 2022 standards and isn’t mobile friendly. But this is a minor issue in our view as not having a flashy app to access your investments won’t make them perform any worse.
Kernel offers a range of 13 index funds, and they’re a great alternative to Sugar Wallet due to how accessible they are – their minimum investment is just $1 per fund. All of Kernel’s funds invest in shares (including NZ, global, sector, and thematic funds), and come with good features such as low fees (starting from 0.25%), auto-invest, and are built with tax efficiency in mind.
Kernel’s main limitation is that they don’t have any balanced/conservative funds for shorter-term or less risk tolerant investors. They also charge a $5 per month account fee which kicks in if you invest $25,000 or more with them, making their fees more expensive than Sugar Wallet if you’re investing between $25k and $40k.
– Kernel review – High quality index funds
Sharesies, Hatch, Stake
Comparing Sugar Wallet to these three platforms is like comparing apples with oranges. While Sugar Wallet is a Fund Platform offering three funds (which would suit a hands-off approach to investing), Sharesies, Hatch, and Stake are brokers offering access to the US sharemarkets (plus the NZ and Australian markets in Sharesies’ case). They provide access to thousands of individual companies and ETFs, so would suit those wanting more control over what specific assets to invest in. Their fee structures are also different, charging you brokerage fees every time you buy and sell an investment, and foreign exchange fees for swapping your money to and from US or Australian Dollars.
Other gold products
There are a number of ways to invest in gold, with the major ones being:
- Physical gold (self-custody) – Buying gold coins or bars and storing them yourself e.g. in a safe at home.
- Physical gold (held in custody) – Buying gold coins or bars and storing them with a custodian e.g. in the vaults of a gold dealer.
- Gold ETFs – Buying funds that invest in gold through a broker like Sharesies or Hatch.
Sugar Wallet competes with the 2nd method, partnering with gold dealer BullionStar who provide the custodial services. There are pros and cons relating to each method (which we discuss in the article below), but in any of the cases it’s likely that Sugar Wallet will work out to be more expensive given the clip the ticket through transaction fees and their account fee.
– Gold and Silver – Is it investing or gambling?
In its current form Sugar Wallet is just another channel to invest in Simplicity’s funds or gold. So is it worth the $36 per year premium to use it over investing direct via Simplicity or other methods of gold investment? Probably not. You could argue that Sugar Wallet make Simplicity’s funds and gold more accessible by bringing the minimum investment amounts down. But we think other platforms like Kernel, Sharesies, and InvestNow already do a fantastic job of serving those with smaller amounts to invest, and in our opinion they have better funds than Simplicity’s offering.
In summary we feel that if you want to invest in Simplicity’s funds and can afford the $1,000 minimum, then it’s best to invest directly through the fund manager itself. And if you want to invest smaller amounts, Sugar Wallet isn’t a viable solution with the account fee easily eroding away any gains you make. Instead the likes of Kernel, InvestNow, or even Sharesies (if you want to invest in individual companies or gold ETFs) are more cost-effective platforms which are just as accessible.
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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.