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Learning, Sharing, and Teaching => Investor Alley => Topic started by: Mike666 on March 10, 2015, 06:43:03 AM

Title: Funding the lifestyle in NZ with an income fund ?
Post by: Mike666 on March 10, 2015, 06:43:03 AM
Hi all

Following on from these posts that are now old - I have a question please regarding which if any index funds in NZ or offshore (eg UK, Australia or HK based) could help fund a semi retirement lifestyle and that meet sensible investment criteria for liquidity, capital gains protection, regular income generation and tax benefits (eg no mutual funds blah blah blah, debt backed securities bolleaux) ?

The hardest thing to find is investment advice from someone who is not an FSI sales person hence asking on this forum please.

The background to the question:

- Male and female both 48. He with UK and Australian passports and she a NZ passport holder (gave up US citizenship to become a Kiwi - FATCA accept so no US tax liability). Both of us have Hong Kong and Singapore Permanent Residency.

- Both are long time expats working in IT in Asia Pacific and intending to escape the rat race in 2 two years or less to become permaculture hippies on our NZ property. We are the end of our IT 'careers' and want out.

- We own a 5 acre property with small house and barn on the outskirts of a little town in Sth Island NZ and very removed from the hitech madness of Asia/India in which we work and are burning out.

We have a nest egg of approx NZ$500-700K (approx US$360-500K) to fund living.

So with no debt, owned dwelling and some opportunity to build a small income stream where do I stash this nest egg to generate income for insurances, medical expenses and groceries other than the stuff we grow? A 3-4% return would easily cover these costs if such a return on this amount is achievable.

Thank you for your interest and I look forward to your replies.


Title: Re: Funding the lifestyle in NZ with an income fund ?
Post by: nz on March 10, 2015, 05:11:45 PM
If I was you I would look at a basket of NZ shares. ( assuming you want to spend the proceeds in NZ)

3-4% return should be very achievable and relatively safe in the long term. NZ companies traditionally pay healthy dividends.
Title: Re: Funding the lifestyle in NZ with an income fund ?
Post by: Mike666 on March 11, 2015, 07:34:37 AM
Thx I appreciate the advice.
Yes proceeds to be spent in NZ.

Are you aware of any Vanguard style index trackers ?
I'm starting out trying to understand the NZ equity markets so it's all new.
Other than equities - gold could reduce inflation risk and as I understand is CGT free. Of course you have to store the stuff in a shoe box somewhere safe !
Title: Re: Funding the lifestyle in NZ with an income fund ?
Post by: kiwigirls on March 11, 2015, 08:48:51 AM
Hi given you are only wanting 3-4% return you will get that in NZ at the moment via Term Deposit or via NZ shares.  There are a lot of NZ shares which pay good dividends and also the REITS (Real Estate Investment Trusts).  IMO that given you still have decades to live on your money you will want a decent exposure to international shares to hedge against inflation.   Maybe a classic 60% share exposure & 40% bonds & TD's will suit you.  Use an online calculator to decide your level of risk & asset allocation percentages -

IN NZ just buy your shares direct - maybe 15 top companies for diversity.  Yes you will pay $30 per trade but that will only be for year 1 and its about equivalent to what you have to pay each year for an Index fund offered by Smart Shares.  For International shares there is no simple answer like mustachians in the US have. Check out Superlife, they have passive index investments & will take care of tax/dividend issues for you.  The only limitation is that you have to invest in your names.  If you want to use a trust or a company I think you will need to invest directly - look at investing in Vanguard ETF via ASX.  There are hassles with dividends, US withholding tax & FIF but IMO you are still better off than paying a big fee to a mutual fund manager each year.

I don't know where your money is now but given the state of the markets now (high and some say overvalued) it might pay to drip feed into the market over the next 12/24 months (dollar cost averaging) and it will avoid the risk of buying at the top of the market.

Oh and when you return home don't forget to sign up to Kiwisaver and put in $1020 per year each to get your $520 from the government each.  ASB do an index fund and you only have to put in $100 per month. 

NZ finance writers to check out online are Mary Holm & Martin Hawes.

Good luck and congrats on being almost ready to FIRE. 
Title: Re: Funding the lifestyle in NZ with an income fund ?
Post by: Mike666 on March 12, 2015, 06:53:58 AM
kiwigirls - I'm very grateful for your comments and lots of specifics eg Kiwisaver, and Vanguard ETF (can you buy ASX funds in NZ?) for me to follow up. Thank you.

Mutual funds are not for me. I suspect that REITs are similar but I'd be very intrerested in your thoughts on this. Cost loaded complexity and limited liquidity?

Not sure I agree that 15 or so companies is diversifying risk - it's all the same asset class and the NZ economy doesn't appear to be that diversified. Please let me know if you disagree with this as it is made honestly but not based on NZ market experience.

Hedging against inflation though I'm rather interested in gold (physical not paper) as an asset class.

Funds at the moment are held offshore in HK, Singapore and UK. We are in the process of consolidating these and eventually they'll be transferred to NZ when the FOREX is optimum assuming the banks don't go bust and 'buy-ins' are enacted........
Title: Re: Funding the lifestyle in NZ with an income fund ?
Post by: kiwigirls on March 12, 2015, 02:27:08 PM
Yes you can buy ASX shares directly in NZ - use a low cost online broker like ANZ or ASB.  I buy in large tranches to minimise brokerage ie 7k at a time.   

I like REITs because they pay a good income stream.  Also I wanted an exposure to the NZ real estate market but didn't want to buy property directly.  I buy the listed REITs so the have good liquidity, ie Kiwi Property Group, Precinct Property & Argosy.  Yes the fees are higher than buying an index fund but it is still better for me than the illiquidity/hassle/expense of buying property directly.

I am comfortable with a 15 share allocation in NZ because my NZ shares are only a small percentage of the overall portfolio.  The bulk of my shares are listed funds offshore so really I am much more diversified overall. I quite like taking the time to invest directly in NZ so its a bit of a hobby.  If that is not for you buy one of the Smartshare funds

IMO Best hedge against inflation is to be invested in shares & property which should return in excess of inflation.   Gold can be a good counterweight to a portfolio giving you a non-correlated investment when markets fall.  Of course it doesn't return any income and you need somewhere to store it so it actually costs you to hold it but I suspect it is comforting in times of market falls to know it is there increasing in value.

Timing the NZ exchange rate is hard.  Especially as we are at historic highs - I can understand you holding off hoping for the NZD to drop back down.  But it is impossible to know when or if our dollar will drop - moving your money across in 6 or 8 tranches over the next 24 months may be a less risky strategy.  You will even out the exchange rate risk & whilst some money will move high and some low you can take comfort in the fact that you took the least risky approach and got an average exchange rate over the period.  I have friends who bought property in the UK 25 years ago when the exchange rate was at 0.33.  They have returned to NZ and been wanting to sell their property but been waiting until  the NZ/GBP exchange rate returns to 0.33 and they have been waiting and waiting and waiting.  They have lost the opportunity to invest in NZ over that time.

FWIW - I have found the whole business of investing money so much more difficult than I thought it would be.  Paying off the mortgage and saving cash is comparatively easy.  When it comes to having to invest it there is a lot of information to wade through and no one strategy suits everyone.  It really is a matter of deciding what assets you are comfortable with, what level of risk you are prepared to take and then invest accordingly.  There is a lot of opinion out there and its good to read a lot & discuss a lot so you can formulate your own investment strategy.  Assuming you have average tolerance for risk & because you like gold maybe look at -

60% equities (say 8% NZ, 12% Australia 40% international shares). 
Use index funds to keep it simple Smartshares here, Vanguard on ASX for everything else
35% in term deposits and bonds.  Our term deposit rates are good, have a look at Rabodirect who are an online bank and tend to have the best rates.  Look into laddering - ie splitting your TD's over different time periods.  Buy a bond fund for the bond portion.
5% gold

Obviously I am not a financial advisor and this is just the opinion of a stranger on a forum on the world wide web so all the usual disclaimers apply....

Title: Re: Funding the lifestyle in NZ with an income fund ?
Post by: Mike666 on March 12, 2015, 08:41:20 PM
kiwigirls - thank you for your time in writing your reply caveats accepted.

I am very grateful and share your comments re the complexity of this.
I'll let you know how we get on.

Employment volatility over the last 15yrs in Asia, "Rich Dad, Poor Dad", and MMM, coupled with other lifestyle choices have influenced us greatly and especially regarding frugal lifestyles and permaculture activities.  MMM is a bresth of fresh air and reflects closely the upbringing in the UK and the US from our respective parents (both sets were immigrants).

We can't wait to get down to NZ and start our next chapter.

Title: Re: Funding the lifestyle in NZ with an income fund ?
Post by: lukeNZ on March 14, 2015, 10:44:05 PM
my current thinking is
50% shares (70% hedged international (MSCI ex AU) and 30% NZX50)
30% property (1 rental later on))
20% cash/bonds (with term deposits so high I'm not sure bond funds are worth the cost?)

not sure if you've looked into superlife? I've decided I don't have the time to research individual companies so index funds for me.

For NZ shares smartsharesFONZ looks good. Management fee 0.75%. You can get the same fund through superlife for 0.4% plus $33/year member fee (this is cheaper once you have a bit in there and avoids brokerage with FNZ)

For international shares I'm tossing up between VGS on ASX (not sure how tax on dividends is dealt with? and it's in AU$) and superlife's international shares pool (repackaged State Street index fund). Allowing for 4 trades per year ($30 each for <10k through asb securities) over twenty years (based on 5k per year going in) there is very little in it (FIF tax kicks in over 50k on VGS unless it is ok to buy in the names of all members of your household - not sure of legality of having them in your kids names?), except with superlife you can choose hedged or unhedged (NZ superfund is 100% hedged and they are a long term investor and I'm inclinded to think they pay people much smarter than I to determine these things). I think superlife has more flexibility for a similar level of fees.
Title: Re: Funding the lifestyle in NZ with an income fund ?
Post by: Mike666 on March 21, 2015, 02:51:31 AM
Thx LukeNZ

How's the cash liquidity on those options that you state?

Safest return on $750K seems to be physical gold and a term deposit.
Stocks go down hence the risk.

Of course the flat currency's could collapse and banks with Govt backing go into 'buy-in' mode at the tax payers expense......thoughts?
Title: Re: Funding the lifestyle in NZ with an income fund ?
Post by: Runningtuff on March 24, 2015, 01:38:00 AM
Also, for a safe/boring option, ANZ serious saver do 4.5% interest.
Title: Re: Funding the lifestyle in NZ with an income fund ?
Post by: Mike666 on March 26, 2015, 07:27:00 AM
Yep thats the kind of investmemt risk for the nest egg that I'm looking for while we build up other income streams using our skills. Of course there's still risk with the banks themselves in the current world situation.

I'm very grateful for the response all. Thank you.