In May 2024’s What’s been happening in the markets article we cover what’s happened to First Home Grants, introduce the new Housies platform, and look at what’s coming next for Hatch, Foundation Series, and Sharesies.
This article covers:
1. Product updates
2. Market Movements
3. What we’ve been up to
1. Product updates
First home grants become history
Things may have become a little harder for first home buyers as the government announced that as at 22 May, they would no longer be offering First Home Grants. The scheme was administered by Kainga Ora and gave first home buyers a monetary contribution towards their property purchase. This was up to $5,000 per person for an existing home and $10,000 for person for new builds, subject to a number of eligibility criteria (including time contributing to KiwiSaver, income, and house price).
Note, this change does not affect KiwiSaver first home withdrawals. You can still withdraw your KiwiSaver to contribute towards your first home.
The First Home Loan scheme, which allows you to buy a home with a deposit of as little as 5%, is also unaffected by this change.
The sudden removal of the scheme has left many first home buyers angry, and even feeling like there’s no longer hope for getting on the property ladder. While we do feel disappointed for first home buyers, it is unwise to rely on government policies or handouts to reach your financial goals. Regardless of which party is in power, the government is never going to hold the keys for solving your financial issues. Their initiatives may help, but it is ultimately up to you to take action to reach your home ownership dreams.
So don’t give up! The First Home Grant was just one small component of your home ownership journey. Without it you should still have most of your deposit saved up through KiwiSaver and other means – a foundation you can work off to reach your goal through your own efforts. Plus there are other schemes that might help you get across the line (such as borrowing your deposit or shared ownership schemes), which we explain the the article below (though none of them are silver bullets).
Further Reading:
– Can’t afford a house? 5 ways to help you get on the ladder
Housies has a stab at property crowdfunding
Even before the removal of the first home grant, residential property has been a relatively inaccessible investment, requiring at least tens of thousands of dollars for a deposit, plus a mortgage on top of that. Property crowdfunding is a concept that aims to change that, allowing people to invest in property without lot of capital or having to take on a mortgage.
It works by essentially splitting a house up into lots of shares, then allowing people to buy those shares. For example, a $500,000 house could be split up into 5,000 shares, resulting in each share being worth $100 – therefore investing $100 gives you 1 share and a 0.02% ownership stake in the house. The house is typically rented out, giving you the potential to make money from its capital gains and rental income.
At least four companies have tried and failed to offer property crowdfunding in New Zealand including The Ownery, The Property Crowd, Opoly, and Realties, who largely struggled to attract enough investor funds to get their crowdfunding deals across the line. Now Housies is the latest company to give property crowdfunding a crack in the NZ market, and plan to launch in September 2024.
Seeing so many platforms fail makes us sceptical of Housies, however, they offer a unique feature that no other platform in NZ has offered so far. Housies introduces the concept of a guardian investor, where an investor who owns at least 2% of a house’s shares can apply to live in the house (all other property crowdfunding platforms rent out the house to another party). For example, you could buy a 2% share of a $500,000 house for $10,000, then as a guardian investor, live in it with no mortgage – Potentially making them another option for first home buyers? Alternatively an existing homeowner could sell a portion of their home (say 40%) to Housies’ investors to reduce or eliminate their mortgage, or a retiree could sell a portion of their house to fund their living costs, while retaining the ability to live there.
There are a couple of catches to being a guardian investor though. You would still have to pay “rent” on the portion of the house you don’t own. This fee is set at 4% and is distributed to the other shareholders in your house. For example, say you own $10,000 of a $500,000 house (with $490,000 of the house owned by others). You would need to pay $19,600 per year in rent ($490,000 x 4%) or $377 per week, which is then paid out to your fellow shareholders as a dividend. You would also be responsible for the everyday maintenance of the house. Despite these limitations, perhaps the guardian investor concept will be the key ingredient in getting property crowdfunding to work in NZ, as the ability to occupy the house could very well attract more investor interest.
It’s too early to provide a full assessment of Housies at this stage (they haven’t even launched yet), but if there’s interest we can certainly publish a more comprehensive review of the platform closer to their launch.
Further Reading:
– What happened to Property Crowdfunding in New Zealand?
Hatch 2.0 is coming soon
Hatch went through a change of ownership in late 2021 (being acquired by FNZ), then later partnered with the Jarden Direct broking platform in 2022. Despite these changes, there hasn’t been much visible progress in adding new features or markets to the platform since then.
This month we’ve seen a glimpse of progress, with the platforms announcing that Jarden Direct will soon be closing and that the service would be rolled up into the Hatch platform. This suggests Hatch will gain access to markets that Jarden Direct currently offers, including NZ, Australia, and the UK, and perhaps even bonds. Currently hatch only offers US shares.
Goalsgetter KiwiSaver expands their fund offering
GoalsGetter is a small KiwiSaver scheme that originally only offered funds from Nikko AM, a fund manager most well known for their ARK Disruptive Innovation Fund. They’ve now greatly expanded their offering by adding new funds to their scheme from multiple fund managers including Generate, Milford, Harbour, Salt, and Pathfinder. Altogether you can choose from 18 funds across 6 fund managers, and you can even split your KiwiSaver portfolio across multiple fund managers if you wanted.
Sound familiar? That’s because there are already KiwiSaver schemes that allow you to spread your money across more than one provider, such as InvestNow, who are an arguably better option as their fund selection is more comprehensive (40+ funds from 15 different fund managers, including passively managed options).
Foundation Series considers new funds
Foundation Series has a few ultra low cost funds which act as a wrapper for Vanguard ETFs. For example, their Total World funds invest entirely in the US domiciled Vanguard Total World ETF, and their US 500 funds invest entirely in the Vanguard S&P 500 ETF, but conveniently wrap these ETFs into a PIE fund (providing potential currency and tax benefits). They’re now looking to expand their ultra low cost range in the next few months and the types of funds they’re considering include gold, bonds, an ASX index fund, US small caps, as well as a Nasdaq index fund.
Further Reading:
– InvestNow Foundation Series review – What’s the catch with their 0.03% fee?
Sharesies is jumping into the insurance industry
Most people associate Sharesies with being an investment platform, though more recently they’ve been branching out into providing more tools like a savings product and a KiwiSaver scheme. Sharesies’ next step in their evolution to become a comprehensive wealth management platform is to start offering insurance. They’ll be starting by providing car insurance, though they haven’t indicated when this will launch. It’s likely Sharesies will be partnering with an insurance company to offer the product under the Sharesies brand (just like how Trade Me partners with Tower to offer Trade Me Insurance), rather than becoming an insurance company themselves.
Further Reading:
– A beginner’s guide to insurance in New Zealand – Is it gambling?
2. Market Movements
Here’s how the markets have performed in May 2024 (as at 30 May), in both their local currencies and in NZ dollar terms:
| Local currency | NZD | |
| NZ shares (S&P/NZX 50) | -3.35% | -3.35% |
| Australia shares (S&P/ASX 200) | -0.47% | -1.99% |
| US shares (S&P 500) | 3.97% | -0.02% |
| Japan shares (Nikkei 225) | -0.92% | -4.17% |
| UK shares (FTSE 100) | 1.07% | -0.92% |
| Bitcoin | 12.91% | 8.57% |
Most markets were slightly down in May as central banks signal that interest rates won’t be going down as soon as initially expected. Below are the year-to-date results:
| Local currency | NZD | |
| NZ shares (S&P/NZX 50) | -1.81% | -1.81% |
| Australia shares (S&P/ASX 200) | 0.49% | 1.11% |
| US shares (S&P 500) | 9.76% | 13.44% |
| Japan shares (Nikkei 225) | 13.72% | 5.86% |
| UK shares (FTSE 100) | 6.44% | 10.00% |
| Bitcoin | 61.86% | 67.28% |
Meme stocks are back again…
Just when we thought the meme stock craze was well and truly over, shares in companies like GameStop and AMC made a huge comeback this month, all because someone posted the following image on social media:
We are too dumb to know how such an image suddenly makes GameStop and AMC stock soar in value. Usually it is factors like strong financial performance or positive future prospects of a company that makes its shares more valuable. Fortunately it seems like investors have quickly come to their senses – While the likes of GameStop and AME are still up strongly for the month, their share prices have cooled down substantially from their recent peaks.
Our thoughts on meme stocks remain the same as always. If you really must jump on the bandwagon, only gamble with money you can afford to lose. And don’t be counting on them as genuine long-term investments.
3. What we’ve been up to
Medium-term investment changes
We’ve made a few changes to our medium-term investment portfolio, which is intended to be used for financial goals we want to achieve in few years’ time (such as buying a new car, making home upgrades, and travelling overseas), and was primarily invested in Kernel’s Balanced Fund. This month we sold our units in the Balanced Fund and moved the money to Kernel’s new bond funds (splitting the money 50/50 between the NZ Bond Fund and US Bond Fund). This means that our medium-term portfolio is now almost exclusively invested in bonds (whereas the Balanced Fund was ~40% bonds and ~60% shares).
By removing shares we reduce the volatility of our medium-term portfolio. That means there’s less likelihood of us locking in loss when it comes to withdrawing the money. We’re keen on another overseas trip in the next few years (or maybe sooner), and we wouldn’t want a market downturn to derail our travel plans. In addition, we already have plenty of exposure to shares in our long-term investment portfolio. So this change reduces the overlap between our investments and provides a greater level exposure to an asset class we don’t have much invested in.
Further Reading:
– What’s inside Money King NZ’s investment portfolio (2024)
Trialling Kernel Smart Saver
For our short-term/everyday savings, we’ve primarily been using Squirrel which currently pays 5.25% interest, and is super fast when it comes to depositing and withdrawing money. But a challenge with Squirrel is that they don’t offer joint accounts, so requires a bit of juggling to make it work with our finances. Competing product Booster Savvy (which pays 5% interest under a PIE structure) also lacks joint accounts.
That’s led us to try out Kernel’s new Smart Saver account. The 4.80% interest rate on offer isn’t the best, but we already have a joint account with Kernel so we thought why not try it – perhaps it could streamline our finances. Unfortunately we found the product to be a little clunky. First we need to deposit money into our Kernel wallet. Then we need to manually transfer the money from our wallet into the Save product, which requires 6-7 clicks through the Kernel UI. Altogether it can take 1-2 business days to get your money in/out of Kernel Smart Saver, which is slightly faster than their Cash Plus Fund, but is way slower than Squirrel which takes 2 hours and automatically deposits your money into their on-call account (no manual transfers needed). While it’s a useful addition to the Kernel platform (and overall on-call savings market), hopefully we see some improvements in the near future.
Money King NZ content
You may have noticed that we haven’t put out a lot of content recently. That’s mainly because we’ve already covered a lot investment topics over the years, and right now there’s not much else we feel excited about writing about. So we’re spending more time doing other things like playing video games, taking photos, cooking, watching rugby, and doing gardening, rather than forcing ourselves to write articles.
We’re also continuing to try out different eateries around Auckland. Food highlights for this month include Knead on Benson (Remuera), Jungle 8 (Auckland CBD), and Luna Bakehouse (Newmarket).
Thanks for reading and your ongoing support!
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Disclaimer
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.
I’m curious why you opted for the Kernel bonds vs putting that travel money on there cash fund? The cash fund currently has a higher Yield then either bond fund.
Yields don’t tell the full story here. The Cash Plus fund is made up of short-term cash/bond investments (i.e. maturing in the next few months), while the bond funds are made up of longer term bond investments (on average maturing in the next several years).
If interest rates fall in the next 1-2 years as expected, the yield of the Cash Plus Fund should quickly fall as its investments mature and get reinvested into lower yielding securities (given interest rates are now lower). Meanwhile with the bond fund, the yield shouldn’t decrease as much (if at all) given its investments haven’t matured yet and are still paying the yield we got when we first bought the fund. We might even get a capital gain from the bond fund as the underlying bonds become more attractive in a decreasing interest rate environment.
So while the Cash Fund may be superior in the short-term, the bond funds should hopefully work better in the medium-term.
Hmm, interesting. Something I’ll need to think about. Thank you for explaining it so well.
If you’re not feeling like writing because you have covered most of it before, how about linking a few articles you thinks may be relevant now or want to update? You do have many to choose from!
What factors make you buy US vs NZ bonds?
We just copied the bond allocation that Kernel has in their Balanced Fund, which is roughly 50% NZ and 50% international. The NZ bonds has a higher yield and should be slightly tax friendlier over the medium to long-term, while the US bonds provide diversification (the NZ bond market is tiny in comparison).