Also I’ve jotted down a few thoughts on investing in the sharemarket in New Zealand. We are a little unlucky in that there are not many quality passive options, and those we do have are over-priced. These are just off the top of my head, so correct me if I've made a mistake.Smartshares (NZX owned):
Pros: Offers passive exposure to a range of NZ and Australian stocks. Can set up a drip-feed savings plan and avoid paying brokerage, units are also tradeable on the market.
Cons: Management fees are “expensive”- approaching the lower end of what you’d pay for an actively managed fund. Not a good range of international or sectoral options.Superlife:
Pros: Cheaper than Smartshares with many of the same advantages, such as drip-feeding savings plans. Now also owned by the NZX which adds a certain layer of credibility.
Has a much broader range of investment options which you can customise at will, including domestic and international bonds, property, shares etc.
Cons: Somewhat confusing application process. Still essentially acts as a middleman for Vanguard etc, and thus clips the ticket along the way.Vanguard/iShares/other passive overseas managers:
Pros: Much, much cheaper- sometimes 10 basis points management fees, which is about five times cheaper than most NZ options.
Cons: Application process can be confusing, opens up foreign exchange risk, and has important tax implications. You will come under the FIF rules: www.ird.govt.nz/forms-guides/number/forms-400-499/ir461-guide-fif-fair-dividend-rate.html
Unlike NZ equities, there are no imputation credits attached to stocks which basically mean you pay tax twice (at the company level and personal income tax).Direct investment:
Pros: Brokerage at a DIY trading platform is about 0.3 to 1 per cent per trade, depending on the size of the parcel. However, if you buy and hold forever, this is negligible (say 0.05% a year over 20 years).
Requires expertise and emotional control, and most people who dabble will almost certainly underperform the market. Difficult to achieve diversification unless you have a bit of money to invest (Martin Hawes reckons a bare minimum of $5000 across 10 different stocks).
So which approach do I choose… the stupidest one, of course!
I buy stocks directly, in $5000 parcels, with the idea being achieving diversification over time.
I’m well aware I would do better simply by funneling $$$ straight into a passive fund, but enjoy picking stocks and reckon it keeps me motivated.
Brokerage with ANZ securities (a bare-bones online broker) works out to a one-off 0.6 per cent.
I try to make purchases using some basic value investing strategies. So far I have had some terrific clangers and some good successes.
In future I’ll almost certainly divert half my savings into passive allocation so that I can stop sabotaging my FI journey for the sake of a bit of fun.
For now it’s such small amounts of money that it’s not a huge issue.
As always, DYOR!
If anyone’s really new to the market, here’s a super basic article that might help:http://www.stuff.co.nz/business/money/8670931/Dummies-guide-to-the-sharemarket
And here’s why I reckon passive investment is the way to go for most people:http://www.stuff.co.nz/business/money/9338268/Every-win-balanced-by-a-loss