The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: kiwichick on December 15, 2012, 08:49:22 PM
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Not sure if there are many NZers on MMM, but figured I'd ask anyway...
Considering the lack of index funds in New Zealand, and the low-liquidity of many of our stocks, what would you consider to be the best option for a beginning investor, saving ~$200 - $400 a month:
1. Invest in managed funds. These come with high fees, with the only passively managed funds I can find being Superlife and ASB Easyfunds. Benefit of dollar cost averaging. Unsure how easy it is to keep an eye on the investment with these companies.
2. Invest directly in individual stocks, focusing on those with high liquidity. Due to the relatively small amount of stocks on the NZX and low initial investment amounts, it may be difficult to diversify adequately - though you could invest in the ASX as well. Brokerage would eat into profits (0.3%, min. $30).
... or option 3. put everything onto the mortgage and don't invest until it's paid off. Given our high interest rates, I'm leaning towards this one, but it does mean putting all your eggs in one basket until it's paid off.
I looked into investing in the ETFs listed on the ASX, however they appear to have very low liquidity. Ditto SmartShares.
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As a fellow kiwi and having a few more years under my belt, my advice would be to definitely pay down the mortgage.
Life gets a whole lot easier once that monkey is off your back!
Shelter is one of life's few necessities and if you get that sorted at a young age then you can look at investing elsewhere safe in the knowledge that you'll sleep well each and every night for the rest of your life.
I have a niece who is 24 and is currently making good money in Australia. She's just bought her first house with a $60k deposit and aims to be freehold by the time she is 30. Then there'll be time for kids etc. without the pressure to pay the man!
Sounds like you've got your head screwed on right kiwichick...pay off that mortgage asap and then we can talk again about the share market, property investments etc.
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In your case I'd pay down the mortgage. Guaranteed 5.25% return on your money vs a qualified PIE investment with a tax rate of 28% which means they'd need to be offering a return of 7.2% and no one is guarenteeing this.
On top of this make sure both of you are contributing to kiwisaver to get the maximum employer match (3% next financial year).
My wife and I successfully choose option 3, and are now in the process of having to find somewhere else to invest so i'll follow this thread closely. You can read more on our experience here:
https://forum.mrmoneymustache.com/journals/doing-it-slow-and-stead-journey/
Where are you getting the idea NZ stocks, smartshares (index funds) etc are low liquidity? (In comparison to any other sharemarket investment).
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http://www.interest.co.nz/
Keeps track of term deposits, along with bonds etc.
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http://www.smartshares.co.nz/
What mostly puts me off smartshares is the fees. 0.60 to 0.75% for an index fund. WTF???
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Thanks for the replies. I would likely end up repaying the mortgage as fast as possible anyway, but it's nice to have the idea reinforced. If I lived in the USA or UK with their low interest rates, it might be a different story.
NZ - that's pretty damn awesome of your niece. Mortgage free in 6 years would be a dream!
Perhaps I'm wrong about the Smartshares liquidity, but they never seem to have much turnover when I look at FONZ etc on ASB's sharetrading site. Am I right in thinking you look at the days volume and net turnover to get an idea of liquidity? Maybe I have it all wrong! And from their website it seems they only cash out large sums directly - $200,000 parcels from memory but I can't seem to find that info now. And yeah, their fees are stupid high.
Oh, and currently enrolled in my employer's superann scheme, which is much more generous than Kiwisaver and gets paid out when I leave - I count this as my secondary emergency fund in case of redundancy :-). Though I intend to pay in $1043 into Kiwisaver each year too to get the tax credits.
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Perhaps I'm wrong about the Smartshares liquidity, but they never seem to have much turnover when I look at FONZ etc on ASB's sharetrading site. Am I right in thinking you look at the days volume and net turnover to get an idea of liquidity? Maybe I have it all wrong! And from their website it seems they only cash out large sums directly - $200,000 parcels from memory but I can't seem to find that info now. And yeah, their fees are stupid high.
They state: buy and sell units when you wish
http://www.smartshares.nzx.com/resources/fact_sheets/tenz_fact_October.pdf
But might be worth giving them a call before you commit.
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Thanks for the replies. I would likely end up repaying the mortgage as fast as possible anyway, but it's nice to have the idea reinforced. If I lived in the USA or UK with their low interest rates, it might be a different story.
NZ - that's pretty damn awesome of your niece. Mortgage free in 6 years would be a dream!
You can achieve that dream too. What helped us achieve it in 5.5 years was to up our monthly repayments ASAP. This way it removes the temptation to spend your spare money and your reducing extra principal every month. This also makes it easier to get around the $10,000 minimum for bulk repayment that some banks adhere too.
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I agree. I'm currently paying $750 a fortnight when the minimum is $500. And now that I have a boarder I'll be increasing that amount.
However I'm single, so no spousal income to help get it any higher (I currently spend $500 per fortnight for all expenses. Everything else goes on the mortgage). I'm currently aiming to have the mortgage paid off in 9 years - hoping for 8 or earlier.
I think when they say sell smartshares when you wish they're talking about selling on the NZX, which would require buyers interested (currently ASB is showing 3 buyers, 1 seller). But you're right, I should contact them to find out for sure.
Edit: just sent an email to find out their cash-out options :-)
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Just had the response from Smartshares:
"Thanks for your interest. To withdraw from smartshares, you have to go through a broker to do that. Unfortunately, there is no option for regular withdrawals."
That's a shame.
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Hello fellow Kiwis!
I've signed up to a broker for my investing - it's just how I've always rolled. We recently moved to New Zealand so I had to investigate everything from scratch, and we still have some money we need to bring over sometime....
We looked at DirectBroking, but they charge a monthly fee based on your entire portolio, which I think sucks, but maybe they have a good service - http://www.directbroking.co.nz (http://www.directbroking.co.nz).
In the end we decided to go with ASB Securities - https://www.asbsecurities.co.nz/ (https://www.asbsecurities.co.nz/), since they only charge a trading fee.
Through them, I've purchased NZ index Smartshares FONZ, the iShares ASX 200 index, and more recently discovered the Vanguard ETFs that's available through the ASX. You could also buy any US or UK stock if you wanted to. NZ and some Australian stock can be traded online, others requires a phone call.
By they way, purchasing Australian shares with a broker is as easy as a phone call and then your options expand a lot, Vanguard ETFs are 0.06% for US (yes, you read that right...), 0.15% for Australia index - https://www.vanguardinvestments.com.au/retail/ret/investments/etfdetailVASIFE.jsp (https://www.vanguardinvestments.com.au/retail/ret/investments/etfdetailVASIFE.jsp)
And I checked - Vanguard Australia supports New Zealand as well. Just ask for the stock code in the website above, on the ASX.
So far we've been very happy with ASB - their service over the phone is perfect, and I had no hassles purchasing shares. Their website needs some improvement though - looking for certain shares for quotes (Like Vanguard) is non-existent for some reason. Certain pages "logs you out" of the system, which means I log back in about 5 times with every session.... But it's usable for the basics, I just use other websites for quotes/tracking.
We also have a cash stash in ANZ's Serious Saver - it's a money market investment account that guarantees 4.5% interest, as long as you pay in something monthly (Can be as low as $100), and don't withdraw any money (In which case it switches to 1.5% for the month). If that rate ever goes down, we'll switch to long term fixed deposit/bonds. ** Values are from memory and might be slightly less/more :P
I would say the best advise for New Zealand investing, is to diversify into Australia and also overseas. I've noticed the New Zealand top 50 is very property heavy, and if that ever tanks over here I can see the stock market taking a dive. On the upside, great dividends!
Gooki - Yes, Smartshares fees is horrendous. I cried.... Too bad there's no Vanguard New Zealand index...
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Thanks marz. I was about to open a directbroking account based on their lower trade fees. But with them creaming another 0.25% per annum of the top I'll pass.
One gets the impression share market investors in NZ are getting nickled and dimed, for very little service. No wonder so many people invest in property.
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One gets the impression share market investors in NZ are getting nickled and dimed, for very little service.
Yep, won't change until there's higher interest in share investing and NZers move away from 100% property.
Sounds like there are more options when you deal directly through an ASB broker rather than DIY online. Marz, have you actually invested in the Vanguard funds yet or are you still researching/saving? Would be interested to hear how you get on and your experiences when you wish to sell.
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Yep, won't change until there's higher interest in share investing and NZers move away from 100% property.
Sounds like there are more options when you deal directly through an ASB broker rather than DIY online. Marz, have you actually invested in the Vanguard funds yet or are you still researching/saving? Would be interested to hear how you get on and your experiences when you wish to sell.
Have invested in Vanguard US - the ETF not the fund - (code VTS on the ASX), not a huge amount but since it's an ETF you can buy as much as you want, with the only downside being broker fees. We're planning on saving up and purchasing every few months. The ETF by the way doesn't have any minimum amounts.
The only hitch so far that I've seen, is that Vanguard doesn't pay out using cheques, so I'm going to phone my broker this week and find out exactly how I'm going to get the dividends paid out! The only other alternative to a cheque is direct credit to an Australian bank account... So I'll let you know how that pans out! Unfortunately no dividend re-investment plan on this one.
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Thanks marz. I was about to open a directbroking account based on their lower trade fees. But with them creaming another 0.25% per annum of the top I'll pass.
One gets the impression share market investors in NZ are getting nickled and dimed, for very little service. No wonder so many people invest in property.
Glad to have helped :)
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Just saying g'day from another kiwi - yes being mortgage free is a great first investment goal.
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Must say, I'm quite envious of you guys with your mortgage free homes :D Rent is just ridiculously expensive compared to where we came from.
We used to live 5 minutes away from work, in a gorgeous little 2 bed garden cottage that cost us less than 14% of our combined salary (and that was basically starter salaries in IT, so not a lot). I miss being so close to work!! It was the equivalent of NZ$180 a week, for a really good quality small house. Now we're paying $415 a week, for a 30 min commute ouch! We're limited by needing a cat-friendly rental, and the DH is more picky than me about houses!
So not sure about the future - if we'll eventually use some investments for a big deposit on a mortgage, or continue renting. Any advise about owning houses vs renting in New Zealand?
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Depends on where you live whether buying is better than renting. Personally, I wouldn't even think about buying in Auckland - house prices there are insane. Wellington seems high as well. Even Christchurch is now getting ridiculous.
Though of course, being a Mustachian, you wouldn't fall into the trap of most first-time home buyers and think an average salary = an average home. You have to start at the bottom of the housing market and work your way up.
I agree that it's difficult finding a rental nowadays that accepts pets. The decision to buy a home isn't usually purely a financial one. If I were you, I would run the numbers. Work out what buying a home would cost in your area vs continuing to rent - don't forget to factor in rates, insurance, maintenance etc. It could possibly work out cheaper to buy than rent (it did for me), but that's not often the case.
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Thanks marz. I was about to open a directbroking account based on their lower trade fees. But with them creaming another 0.25% per annum of the top I'll pass.
One gets the impression share market investors in NZ are getting nickled and dimed, for very little service. No wonder so many people invest in property.
I have had a directbroking account for some time. I have only used it a few times. Thanks for alerting me to the possible per annum charge. I was not aware of it and will have to check into it.
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Re: local shares (inc. smartshares) and overseas shares; how much are imputation credits an issue for you? I've pretty much discounted buying shares from Auz etc. just because I don't like the idea of tax with my dividends.
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The only hitch so far that I've seen, is that Vanguard doesn't pay out using cheques, so I'm going to phone my broker this week and find out exactly how I'm going to get the dividends paid out! The only other alternative to a cheque is direct credit to an Australian bank account... So I'll let you know how that pans out! Unfortunately no dividend re-investment plan on this one.
What was the result on getting Vanguard payouts? Looking for places to invest - the NZ sharemarket seems pretty overvalued at the moment...
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Hi,
I'm a Brit who has settled permanently in NZ and has been here over 6 years now. The lack of investment options in this country is one of the few things that really annoys me about NZ - the rest is great!
At present, I put about 80% of my savings into my mortgage, and the remaining 20% into Smartshares (in turn split 50/50 between NZ and AU Smartshares). For me, this seems like a sensible way to get a decent share of both worlds (i.e the guaranteed return from debt repayment plus the expectation of a higher overall return from equities).
The high fees on Smartshares do really annoy me, but at least I'm using the regular investment programme directly from the NZX, so there's no fees involved in buying. Selling is just a broker fee, but I haven't had to sell anything yet (and have no intention to).
I am very tempted by the Vanguard ETFs on the ASX. The big thing to remember here though is this country's insane tax rules for FIF (i.e. non NZ or AU) investments. Basically, you will pay tax on up to 5% of your investment every year - effectively a wealth tax. For a highest rate tax payer, that's almost 2% every year. If the overseas investments return last than 5% on paper (so that's dividends plus notional gains), you pay tax on that. If your investments make a loss on paper, you pay no tax but get no credit. This seems to me to be essentially punitive for investing overseas. I would have no problem with a genuine CGT based on actual gains (assuming it's well implemented - the UK's system seems very sensible), but taxing paper gains with no relief for losses seems completely unjust.
I'd be interested to hear dissenting views, but to me this means that there is no good option for index tracking as an NZ resident. NZ trackers are expensive and track a tiny market, but at least are relatively lightly taxed. AU trackers are potentially a bit cheaper, are also lightly taxed (relatively) and track a much bigger market, but the AU market is mining and banking dominated so doesn't seem like good diversification. Foreign trackers such as the Vanguard options on the ASX are much cheaper (0.06% as mentioned before for the US tracker), but are heavily taxed.
Even worse, most accountants don't seem to understand the FIF rules, which are incredibly complex and poorly defined. I've had two accountants in the last few years, and not once have they got my investment taxation calculations right first time. So the compliance cost is high.
I'm a just a few years away from being mortgage free, all going well, so I'm fairly happy putting a relatively small amount into Smartshares for now so that I have some equity exposure. I'm hoping that in those next few years the investment landscape here will change and there will be some decent options available for the cash that previously was going into the mortgage.
Keen to hear other opinions on this...
cheers
Mark
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And from their [Smartshares'] website it seems they only cash out large sums directly - $200,000 parcels from memory but I can't seem to find that info now.
That's a technical thing for how Smartshares are created / destroyed - it's the mechanism that all ETFs use to keep the ETF price in line with the underlying asset via arbitrage. It has no relevance to retail customers like you or me.
If you buy 20 shares in one of the Smartshares ETFs, you can just sell those 20 shares via a broker like any other listed stock.
cheers
Mark
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We looked at DirectBroking, but they charge a monthly fee based on your entire portolio, which I think sucks, but maybe they have a good service - http://www.directbroking.co.nz (http://www.directbroking.co.nz).
I'm pretty sure that's not the case for NZX/ASX listed shares. The custodial fees that I think you're talking about are for when you buy US/UK shares through them and use their custodial services to manage that shareholding. That won't be the case if you're just buying Telecom or BHP or whatever shares.
That's not to say that Direct Broking's rates are particularly good - while they and ASB seem to be the only games in town for "cheap" broking, they're vastly higher that I'm used to from the UK! (Not a customer of either, yet, but I will sign up with one or the other in due course.)
Please correct me if I'm wrong or if I've misunderstood what you're saying.
cheers
Mark
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From here.
http://www.directbroking.co.nz/directtrade/static/ourrates.aspx
Custodial Administration Fees
Custody fees, charged on aggregate holdings.
Value calculated daily and charged following the end of each month 0.25% per annum
(total holding)
Fee Minimum
A minimum administration fee of NZ$5.00 is charged each calendar month on aggregate holdings. NZ$5.00 per month
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Exactly, that's the fee for using the custody service. But if you hold NZX or ASX holdings only, you're not using the custody service. The custody service is for markets such as London or New York.
Or am I missing something?
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You may well be right. Hmm I should contact them and confirm.
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So directbroking has no custodial fees for holding NZ or AUS shares. My bad.
Their email response.
"No, there are no annual/monthly fees for holding NZ or AUS shares."
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I'm a Brit who has settled permanently in NZ and has been here over 6 years now. The lack of investment options in this country is one of the few things that really annoys me about NZ - the rest is great!
Hi Mark,
I wish I had met you last year when I arrived in New Zealand, and spent several nights re-reading the NZ tax laws regarding FIF! I think I'm only now starting to understand how they work!
I was the one who started the mistake regarding DirectBroking's custodial fees - since I was used to this setup from my previous country, when I saw that I just thought "oh dear, not again...". Woops!
I can now heartily recommend DirectBroking! Trading fee is NZ$29.90 for New Zealand shares for up to $15k and 0.2% for anything above that, and AU$29 for AUS shares up to $30k.
Compare to ASB Securities : 0.3% with a minimum of NZ$30.00 per trade, that's $45 for $15k shares, $30 for $10k.
So if you're regularly investing between $10k and $15k, Direct Broking is better, under that and they're pretty much the same.
So you recommend the NZX regular investment program? We are regularly investing, but hitting the broker fee is basically wiping out dividend "payouts" at the moment (We are signed up for DRIP though).
I also despair at the high Smartshares fees - crazy high compared to Vanguard!
We've invested in some Aus Vanguard and US Vanguard ETFs, via the ASX market, and encountered yet another problem - to have dividends paid out, you need an Aus bank account. The US Vanguard ETF doesn't have DRIP options, not sure about the Aus index. IShares sends a cheque - fantastic, except that to bank that Australian cheque can cost up to $15! Together with FIF it's a lose-lose proposition.
We're in our 4 years of FIF exemption - http://www.ird.govt.nz/yoursituation-nonres/move-nz/temp-tax-empt-foreign-inc.html (http://www.ird.govt.nz/yoursituation-nonres/move-nz/temp-tax-empt-foreign-inc.html), so fortunately don't need to worry about FIF right now, but I cringe thinking about paying that much tax.
Apparently it's because the government came up with some kooky theory about all those "darn US stocks" not paying out dividends and instead growing in value, means it's some kind of tax haven for New Zealanders. Give me capital gains tax any day! At least I don't keep paying and paying for it every year.
The worst is not getting any credit if your investment drops in one year, and then gains in the next. Even if you haven't made up what you've lost in the down years, you still pay tax!
Thanks for your comments :)
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I'd be interested to hear dissenting views, but to me this means that there is no good option for index tracking as an NZ resident. NZ trackers are expensive and track a tiny market, but at least are relatively lightly taxed. AU trackers are potentially a bit cheaper, are also lightly taxed (relatively) and track a much bigger market, but the AU market is mining and banking dominated so doesn't seem like good diversification. Foreign trackers such as the Vanguard options on the ASX are much cheaper (0.06% as mentioned before for the US tracker), but are heavily taxed.
Thought I'd comment on Smartshares separately. What do you think about the index tracking error on the NZ shares?
I've noticed in FONZ (TENZ doesn't have an index to compare to on Bloomberg unfortunately), which would normally be my go-to option, that the tracking is really bad. I don't know if it's due to the capping of weight of individual companies, and the big 10 doing really well, that is skewing the return, but it concerns me. I just looked at the history for all top 10 companies, and other than one or two that has increased by 1% since 2009, I can't account for the ETF being in negative territory since 2009, and the index being at 22% total growth....
To work this out, this is what I did (Maybe I did something wrong here. EDIT - I did, comparing apples to oranges! See note below) :
1) go to the Bloomberg website for the NZ 50 index :
http://www.bloomberg.com/quote/NZSE50FG:IND/chart (http://www.bloomberg.com/quote/NZSE50FG:IND/chart)
2) Add to the chart, the stock option "FNZ:NZ"- it's the textbox just under the "Overlay" link.
3) Change length of time to 5 years
4) Subtract starting price of each from the final price, divided by the starting price, to get total % growth, and compare - the NZ 50 index has far outperformed the ETF that should be tracking it. Index is around 21%, ETF is around -3% Of course this doesn't include dividend payouts, but I'd expect the capital growth to follow better than that.
Possibly the Smartshares ETF is underpriced at the moment for some reason - small pool of investors driving prices down and not being savvy enough to realise the worth of the shares? Bargain shares paying out excellent dividend yields?
Your comments/thoughts would be very welcome, I am very new to New Zealand investing options :)
EDIT : Answered my own question :) Looked through some of the annual reports from SmartShares, and in the 2010 report they explained that (after making some changes to how dividends are being paid out) they don't follow the *gross* 50 index, as that assumes dividends are re-invested. I'm comparing to the wrong index, and unfortunately looks like most websites display the gross index, so don't think I'll be able to compare properly.
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Hi,
You want the NZ50 Capital index, not the gross index. That's NZ50C.
This graph is interesting - it compares the gross index, the capital index, and FNZ.
http://www.google.co.uk/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=maximized&chdeh=0&chfdeh=0&chdet=1368849625974&chddm=508343&chls=IntervalBasedLine&cmpto=NZE:FNZ;NZE:NZ50G&cmptdms=0;0&q=NZE:NZ50C&ntsp=0&ei=0PyWUZDLAYjdiQLTuAE
No surprise that the gross index is comfortably ahead, as it of course includes dividends. It's the closeness of the capital index and FNZ that's more interesting. There is a reasonable amount of tracking error in there, although it seems that FNZ is generally a little ahead of its index (which I guess is the better option of the two!) That depends on your start date though, of course.
cheers
Mark
PS - anyone buy any Mighty River? I dipped in for a few k.
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So you recommend the NZX regular investment program? We are regularly investing, but hitting the broker fee is basically wiping out dividend "payouts" at the moment (We are signed up for DRIP though).
The plan works nicely for me. If you're regularly investing into Smartshares, it makes far more sense than taking the $30 hit every time. They re-invest the dividends for you too, if you so desire.
They take the money on the 20th of the month and only invest around the 10th, which works in their favour a bit. That could cost you more than $30 if the amount you're investing every month is over a certain value, but a quick calculation suggests to me that you'd need to be investing over $10k a month for that to become anything close to being an issue.
That's very interesting about dividends from the ASX ETFs! Are you buying them through Direct Broking? I'm surprised they don't have a solution to that problem for you.
I'm about to open an account with Direct Broking. Clicked the "send me the forms" button on their website yesterday, and an envelope arrived today. Pleasingly efficient.
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Hi
I was really pleased to spot this thread as I've been trying to figure out whether it is possible to invest in the Vanguard-type funds from NZ after reading about them in the blog posts. I'd also discovered that it's possible to buy ETFs that are listed on the ASX directly through my ASB share trading account. The ASB online broking service seems reasonable although I find the share info often doesn't include dividend yield and P/E type information.
Some questions - if anyone can help with any of these I'd really appreciate it!
I thought that the FIF rules were that dividends are taxed at your marginal tax rate. Gains on portfolios of less than $50,000 aren't subject to the FIF 5% tax - is this right?
For Australian ETF shares do you get imputation credits that mean you pay less tax in NZ or do you get taxed twice still?
For a US share ETF for example- do the dividends get taxed at source and then do you need to calculate your own NZ tax at the end of the tax year (I'm just starting out in investing and so we're talking small sums and therefore not worth using a tax accountant!).
I think iShares have a reinvestment option for Australian shares. Do any of the European/US ETFs on the ASX have an option for DRIP?
Did anyone figure a way to overcome the dividend payout issue from the likes of iShares/Vanguard?
Thanks
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FIF rules are that you pay tax on 5% of your entire portfolio. How much you actually receive in dividends is irrelevant. Basically, they just behave as if you received dividends of 5%, whatever the outcome (hence Fair Dividend Rate). Like you say, portfolios under $50k are exempt. So if you have $60k invested at the start of the year, and it goes up to $70k, you'll pay tax on $3,500 (at whatever your marginal rate is).
However, if your portfolio goes up by less than 5%, you can instead elect to pay tax on the actual gain (including dividends). So say your $60k investment only goes up to $61k, and you receive another $1,000 in dividends, you'll pay tax on that $2,000.
If your portfolio goes down, then you don't pay any tax, but you also can't deduct the loss, or carry it forward. So if your $60k at the start of year 1 goes down to $50k over a year, and then back up to $60k the following year, you'll pay tax on that $10,000 "gain", even though you've gone nowhere. To me, that's the most unfair thing about this. But the flipside is that in years when you the value goes up by more than 5%, the amount of tax is capped.
For anything you buy and/or sell during the year, you likewise get taxed on 5% of that amount. I'm a bit hazy on the exact calculation for this, but it should be easy enough to look up.
Re imputation credits from Australian shares, I'm pretty sure that you can't claim that tax at all in NZ. So yes, you get taxed twice there. I'm pretty sure that the same applies to US shares. Whatever dollar amount you receive is the dollar amount that counts for tax.
I'm going to drop Direct Broking an email to ask about dividends from Australian shares. I'll post the response here.
EDIT: just for the record, all of the above is my general understanding, and it without doubt incomplete and flawed in some way. Don't rely on it in any way. It's just this amateur's general understanding of the fiendishly difficult FIF rules. My accountant does the hard work for me in real life...
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Hi
thanks very much for your response, that's really helpful and it would be great to hear how you get on with the dividend payouts!
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As an investment newbie I have been learning about the various fees charged for managing investments. In particular if you go through a financial advisor there are the management fund fees, the advisor fees and the custodial fees. With Bradley Nuttall, who seem to be among the cheaper of these advisors in NZ, the total is around 1.2% of the portfolio per year.
This seems expensive but I know next to nothing about investment or the stock market and wonder if I should be using an advisor.
As has been pointed out on this thread there is no straightforward Vanguard like option here.
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I found this on Direct Broking's website, about the Online Multi Currency Account:
https://www.directbroking.co.nz/DirectTrade/static/OMCAFaqs.aspx
Can I pay my AU, US or UK dividends to the OMCA?
Australian dividends paid to you by Australian Dollar cheque can be posted to Direct Broking and deposited into your OMCA AUD account. Please note that an 8 day clearance period applies for Australian Dollar cheques. The OMCA cannot accept Australian Dollar direct credit payments for Australian dividends.
So, it's really not looking good for ASX shares.
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With the high dollar why keep your currency in NZ?
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Wow! Thanks for starting this thread. As a long time expat kiwi, this new foreign tax is interesting!
It seems directed at all the recent influx of immigrants, and to stop offshore tax avoidance. Very complicated. The flow chart they show is absolutely classic!
I can understand their logic. They say, look, you've got lots of money offshore. Cool. You must be getting a return. Must. So we'll assume 5%, and tax you on that. If it's a loss, tell us, and there's no tax. If it's more than a 5 % return, well done and we won't tax that.
It's really quite generous, when you think about it, but if you are not used to being taxed on unrealised capital gains, it hurts, I agree. And it looks like you need an accountant to ensure compliance and minimize exposure. (With lots of money wrt FIRE stashes, is it better to form a company?)
And it stops the whole offshore tax avoidance thing, relatively simply, I hope. Ie So those 1% kiwi mitt Romney types at least pay something? If so, then fair enough, I say.
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Check out the loophole for if you own an active company outside nz or Aussie, a CFC or controlled foreign company. Dividend income from an overseas company is ... wait for it... tax free in nz for a nz resident taxpayer!
http://www.ird.govt.nz/toii/cfc/how-cfc-taxed.html
Wow.
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A lot of countries do that to attract currency. Singapore and Hong Kong are the same AFAIK
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That's pretty attractive for some high net worth American s I'd say! Become a new Zealander, establish tax residency, and no Cayman island problem. More honest than Apple! :D
Edit. Forgot to remind everyone of the free health care and general civilisation Colorado-esque lifestyle.
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Very good news for NZers interested in ETFs not based on NZ or AUS.
http://smartshares.co.nz/types-of-funds
Some Vanguard funds available through Smartshares and also through ASB Securities.
Note that around NZD66 + per share they are not cheap.
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Jumped in straight away. Though only with the minimum investment right now and $50 monthly. Plan to ramp this up next year. Stoked that we finally have decent US/World ETF options with the ability to drip-feed it.
Shame the fees are high (0.3-0.45% ON TOP of the Vanguard fee!).
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I printed off my application forms today, thanks to your heads up on the other thread.
Painful having to go and get certified ID documents though :/
I've selected large U.S. and global funds. $100 a month. ANZ Investment fund fees are 1.5%, I'm fingers crossed that the Vanguard fees plus the 0.4% will still be less than 1.5.
Feels like a bit of a risk with no NZ fund history or returns to view. But how can all these MMM people be wrong lol?
Also steeled myself and bought more shares with my cash EF, and completed a low fee credit card application to function as my EF. Recently my low limit day to day card was useless and I ended up taking $7k in cash out for a family member. So I decided one with a big limit would be useful, and then I could also put my cash to work.
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Seems like a waste to use smartshares for vanguard etfs unless they are hedged ( didn't appear to be on my quick reading). I'm from nz and use interactive brokers to invest in vanguard etfs directly. That way I only have to pay the vanguard fee of 0.05 percent
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Please share how, and the cost.
I haven't sent my application in yet....
I am just selling AMP hedged global funds, they have gained about 4% while at the same time the unhedged fund is around 22%. So, not keen on the returns of hedged funds in my (extremely limited) experience.
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Apply online there are a few forms to bill out etc but it's not too bad. IB have an account with Citibank in Auckland so it costs nothing to xfer money to them. Commission is around 2 dollars to convert currency and buy an etf - it's very cheap nothing like the few hundred you'd end up paying from asb to convert currency and buy a us etf. IB charges a flat fee for currency conversion and passes on the exchange rates it gets to it's customers so there's no crazy 3 percent spread. There's a monthly activity fee of 10 a month if u don't trade at least 10 dollars worth. This is waived for accounts with over 100k and is cheaper for those under 25. Best thing about IB is the margin rates (like 1.5%) or less depending on amount borrowed (less than one percent for large amounts). Also once u have over 100k you can get a portfolio margin account which has far less maintenance margin reqs than reg t margin - so risk of margin call is far less. You can also leverage far beyond x2 if that's what you're in to.
In regards to currency fluctuations, I think the should broadly even out over time if you are a regular contributor. Although I must say I've made heaps recently when the nzd dropped lots against the usd.
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Thanks zb3 :0)
Just one question..... IB is what? International brokerage?
So; open a bank account with Citibank in Auckland, open an 'IB' account - wait- is this like opening an ASB account to use ASB Securities to buy shares?
Thanks for the info on margin calls. I'm old (not obsolete) so won't be risking that. Well, until I get more informed anyway. And probably not even then :0).
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I don't see the appeal of currency hedging for the long term, only for short term investments where you can't afford a large movement in the exchange rate devaluing your investment (in which case, shares aren't a good option anyway). I read somewhere recently that hedged funds have performed poorly over the long term compared to unhedged funds, but I can't recall where now.
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@ nzbubble IB=interactive brokers. You just open an account with them just like signing up to asb just a few more forms because it's based in America. You don't need to open an account with Citibank Auckland don't even think you could it's only for big players. All I'm saying is that because ib have an account wht them when you xfer them money it's considered to be a domestic xfer and therefore no fees.
@kiwichick I agree over the long term hedging is unlikely to do much provided you controvute regularly
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Ok, thanks for that info.
How are you planning to manage the whole tax issue with offshore shares/funds. I know tax is capped at 5% but it's taxed on capital gains not payouts, is my understanding?
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Tax is on an accrual basis so it's capped at 5 percent regardless of whether you realise your gains or not. Dividends aren't taxed per se although te 5% was intended to approximate nz div yeild rather than a capital gains tax. However in reality it operates like a cap gains tax since dividends are close to fully imputed in nz. Your will have to pay foreign tax on dividends from overseas shares of 15 percent (normally depends on whether we have a double tax agreement with that country) but you can claim a foreign tax credit for that. So provided you do that tax will be capped at 5 percent, or if your investment returns less than 5 percent you'll be taxed on that amount but get no relief for losses.
It's not ideal given shares in nz are basically tax free (unless you're a trader), but it only equates to 1.65 percent of your return (.05 x.33 if you're on the top marginal rate).
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Also the FIF regime only kicks in for investment above 50k ( in which case entire amount subject to fif regime - first 50k not exempt). It's calculated on the cost when you purchase te shares not their value at the end of the tax year. Ie if you bought 50k worth at the bottom of the recession you'd still be exempt from the fif regime despite the fact your shares would be worth around 200k
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Interesting opinion piece from Brent Sheather in the NZ Herald today, comparing hedged and unhedged funds:
http://www.nzherald.co.nz/personal-finance/news/article.cfm?c_id=12&objectid=11488731
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Very interesting article
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I've learned to really hate fees and I can't see how SmartShares can justify 0.3% for buying somebody else's fund. That said I'm wondering whether I should be more concerned about 5% FIF vs. zero capital gains & imputation credits on NZ shares. Does anybody know where I can find capital, dividend & imputation history for the NZ50 over a decent period (say 10 years) so I can work it out?
For NZ shares I'm tempted to move towards having 50% in NZ10 shares directly 50% in MDZ - giving me 0.43% fees on average. Has anybody found good ways to reduce fees on their NZ holdings?
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Would FIF apply to the Smartshares international funds?
I can't answer your question about stats sorry; there's nothing on the NZX site?
I am a completely random investor and I have tended to have a look at the monthly offers from Rabo that often come with a 'no entry fee' offer. I judge more about their return than their fees. I think half of my managed funds are about 1.25% fees, but some of them have increased in value by as much as 20% in 8 months so I don't much care. Probably the worst possible strategy but....<shrugs>.
It's my version of a lotto ticket 😁
My question back is, I see reference to splitting your portfolio 70/20/10, I would have thought for us perhaps the split should be different as the global markets seem to make more than NZ shares, and are perhaps less risky with a bigger spread?
Thoughts?
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"Would FIF apply to the Smartshares international funds?"
SmartShares would have to pay any taxes due, before passing on returns to investors. I'm assuming FIF would apply equally well to companies and trusts, so I think the answer is yes - although you'd only see it as a reduced return.
"I am a completely random investor and I have tended to have a look at the monthly offers from Rabo that often come with a 'no entry fee' offer. I judge more about their return than their fees. I think half of my managed funds are about 1.25% fees, but some of them have increased in value by as much as 20% in 8 months so I don't much care. Probably the worst possible strategy but....<shrugs>.
It's my version of a lotto ticket"
Sounds much more likely to make you a million than a lotto ticket :)
We've had a good bull run in recent years and some great returns, but if I look at the S&P500 over the last 10 years (taking in the GFC) it's more like 7.5%. Something like 6% seems like a reasonable long term expectation, take tax off at 28% you've got 4.32, fees of 1.25 you're down to 3.07%, then subtract inflation... That's why I don't like fees, they seem small - but so are my after tax returns over the long haul.
"My question back is, I see reference to splitting your portfolio 70/20/10, I would have thought for us perhaps the split should be different as the global markets seem to make more than NZ shares, and are perhaps less risky with a bigger spread?"
I was only talking about my NZ share holdings. You're right - I wouldn't want to hold everything in NZ shares for risk reasons. For the same reason TWF (VT) would seem lower risk than USF (VOO). Returns wise I was pleasantly surprised when I looked back to find that although the S&P500 got about 7.5% over the last 10 years, the NZ50 achieved more like 10.6% if my figures are right. Go NZ!
Personally I hold more than the 15 to 20% in NZ shares that I've seen in most funds. I figure my future is tied to the country in which I live and I like the idea of backing other Kiwis.
I just checked the imputation credits on my shares last year, and it's running at 20% of gross dividends. So for what I already own I'm paying almost no tax there.
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@GrowaMo That's such a lot of info there for me to think about, thanks.
I see your point about fees. I wish I didn't. I'm going to cling to the idea that the funds I've picked are all going to earn more than the average fund.
Because I'd rather pay 1.25% on a 20% increase in value than 0.4 on 7%. I wonder if I could make millions selling this idea lol? Wait, I think I may have heard it somewhere else first.
I have halted my plan to send off my application for Smartshares. I think I should have a look at the returns on each fund but there's nothing on the Smartshares website.
Should I just look on the Vanguard site for the relevant fund?
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Smartshares funds are PIEs (portfolio investment entities) and are subject to the FIF regime but the tax is taken care of by the fund.
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I have halted my plan to send off my application for Smartshares. I think I should have a look at the returns on each fund but there's nothing on the Smartshares website.
Should I just look on the Vanguard site for the relevant fund?
Yep, there won't be any history on the Vanguard backed SmartShares ETFs as they're brand new. I found them here:
https://www.google.com/finance?q=VT
https://www.google.com/finance?q=VOO
I can complain about the fees, but SmartShares are still the cheapest I know of in NZ - unless you want to go direct as @zb3 did (respect!), and they'll make drip feeding easy. Don't let me put you off!
And hey - I figured out how to make the quoting work!
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Do many people here invest directly in US stocks? If so, who do you use? Interactive Brokers look best for active traders, not infrequent buy-and-hold investors due to the US$10 monthly account fee.
Is it too much to ask for cheap brokerage, no account fees, and a way to transfer funds without high Wire charges?? In a perfect world, brokers would take deposits via Visa debit, but I haven't seen any who do - maybe something to do with anti-money laundering laws.
Does anyone use TD Ameritrade or E*Trade?
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I do so through Optionsxpress as I used to trade options, but just hold a few shares now.
There a lot of comparison sites that show the different brokerage options (google top 10 share brokers or similar), which is good to compare all the different fees and commissions. There are some really cheap ones out there.
The money transfer has always been a pain, and one of the reasons why I haven't put any funds into my account in years.
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I do so through Optionsxpress as I used to trade options, but just hold a few shares now.
There a lot of comparison sites that show the different brokerage options (google top 10 share brokers or similar), which is good to compare all the different fees and commissions. There are some really cheap ones out there.
The money transfer has always been a pain, and one of the reasons why I haven't put any funds into my account in years.
Their website doesn't appear to be too detailed. I'm guessing the "no platform fees" means no monthly account fee, is that right? Their wire-out charge is high at US$30. Can't see a mention of fees to accept funds or FX info. Do you wire money directly from an NZ bank account, or do you use a middle-man like NZForex? - sorry for the 101 questions! :-)
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Yeah some sites are a bit hard to find out the fee information. I don't pay any month fee there, just trade commissions which are a bit on the high side also at $9.95 I believe.
I don't believe they charge anything to accept funds. Previously I've used a bank, but they give terrible rates, so would use a Forex broker. I've used a company called Collinsonfx for quite a few years for business currency transactions and have found them great to deal with. Good rates and just a $10 fee.
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Just a quick update if anyone else is interested in direct investing in US shares. After a bit of research, TD Ameritrade kept topping lists of online brokers, but I understood from various forum posts that they weren't accepting NZ clients. So I emailed them to to see if that's still the case and it turns out they are now accepting new clients from New Zealand. They'll also accept wire transfers through third parties (such as NZForex which looks much, much cheaper to use than the banks), but only after the initial deposit comes from a bank account in your name. Here's the full text:
Thank you for contacting us and I can help. We can take new clients from New Zealand. The initial funding must come from a bank account in your name. We can after that, accept bank wires from third parties. However, the acceptance of the wire is going to go through a process where the wire comes in, we contact you to ask - who is the 3rd party to you, why did they send funds to us, instead of you and what are you plans for the wired funds. At that time our Wire Department decides if they can accept the 3rd party wire. In my experience once a pattern is established (same 3rd party sending the funds), our Wire Department becomes much easier to work with. As you might expect, we have many governmental regulations that we have to be mindful of with international funds transfers.
OptionsXpress also looks very good as suggested by NZSurfer, though if you only trade a few times per year then they charge US$14.95 a trade. That's for the Australian branch - the US branch is cheaper at US$8.95 though I haven't contacted them yet to see if they take NZ customers or if you need to go through Aussie.
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Hi there,
Could someone please clarify the pros and cons of buying Smartshare ETFs on the NZX versus Vanguard ETFs on the ASX?
I have an ASB sharetrading account, currently with only an NZD account.
I see that the management fees for the ASX Vanguard ETFs are comparatively very low, but are there any extra fees involved in cashing dividend cheques or reinvesting dividends on the ASX if those ETFs are all in AUD?
Some advice would be much appreciated.
Cheers
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hi
I am also with ASB and am trialling both options currently. Cashing the dividend cheques is very easy - they should set you up with a foreign currency AUD account so you can buy on ASX and the dividend cheques go into that. No fee, or at least nothing big, but the exchange rate won't be that good. Note also that VGS, VAS and probably some others allow dividend reinvestment. Cons are the tax - Smartshares ETFs are set up as PIEs, Vanguard ones obviously aren't and over $50K you get into the Foreign Investment Fund tax fun.
smartshares are good from a customer services point of view, however as noted on the kiwi mustachian facebook site recently, liquidity is pretty low in the smartshares funds, particularly the new ones so you might have trouble selling. Superlife and now part of the NZX with Smartshares, they have higher fees but easier to sell and they do all the tax side of things. cheers.
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Hi guys, New to the forum and relatively new to investing.
Kiwichick, I was just wondering, have you begun investing through TD Ameritrade yet and are they accepting NZForex wire transfers?
I contacted TD Ameritrade to confirm what you had been told. I was told that opening an account is no problem, however bank wires from NZForex might be a problem: "If the service is similar to Western Union or some other money transfer service, we do not accept those transfers".
Cheers, Lee
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hi
I am also with ASB and am trialling both options currently. Cashing the dividend cheques is very easy - they should set you up with a foreign currency AUD account so you can buy on ASX and the dividend cheques go into that. No fee, or at least nothing big, but the exchange rate won't be that good. Note also that VGS, VAS and probably some others allow dividend reinvestment. Cons are the tax - Smartshares ETFs are set up as PIEs, Vanguard ones obviously aren't and over $50K you get into the Foreign Investment Fund tax fun.
smartshares are good from a customer services point of view, however as noted on the kiwi mustachian facebook site recently, liquidity is pretty low in the smartshares funds, particularly the new ones so you might have trouble selling. Superlife and now part of the NZX with Smartshares, they have higher fees but easier to sell and they do all the tax side of things. cheers.
This advice isn't fully correct. PIE funds are subject to the FIF regime as well - its just that the PIE fund takes care of the tax. Aside from the fees, a huge disadvantage of using smartshares ETFs to invest in a vanguard fund is that PIE funds cannot use the comparative value method under the FIF regime. I will give an example to illustrate the impact of this:
If I invested 100k in a vanguard ETF directly and it was worth only say 95k at the end of the year, I would pay no tax as I could use the comparative value method (basically under this method I pay tax on the gain, or if I make nothing or make a loss I pay no tax (note that companies cannot use this method so its better to invest via a family trust for foreign shares)).
If invested that 100k through a PIE fund, and the the shares were worth 95k at the end of the year, the PIE fund would still have to pay tax on 5% of the portfolio value.
This is a huge disadvantage of smartshares funds (also the fees). However, if you are not overly sophisticated and are not able to do your taxes yourself, you may save money by using a PIE fund depending on the amount invested as you would not need to pay an accountant to do your tax return.
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Hi there,
Could someone please clarify the pros and cons of buying Smartshare ETFs on the NZX versus Vanguard ETFs on the ASX?
I have an ASB sharetrading account, currently with only an NZD account.
I see that the management fees for the ASX Vanguard ETFs are comparatively very low, but are there any extra fees involved in cashing dividend cheques or reinvesting dividends on the ASX if those ETFs are all in AUD?
Some advice would be much appreciated.
Cheers
If you want to reinvest your dividends with ASB you will have to pay the brokerage fee, if you want to get the money you have to pay their forex fees. The best thing you can do is have them pay AUD into your foreign currency account.
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Hi guys, New to the forum and relatively new to investing.
Kiwichick, I was just wondering, have you begun investing through TD Ameritrade yet and are they accepting NZForex wire transfers?
I contacted TD Ameritrade to confirm what you had been told. I was told that opening an account is no problem, however bank wires from NZForex might be a problem: "If the service is similar to Western Union or some other money transfer service, we do not accept those transfers".
Cheers, Lee
Hi Lee,
Sorry for the late reply - I've only just seen your question. No I haven't opened an account yet. If I do, it won't be until July next year when I'm expecting a lump sum to be paid out. I'm still on the fence about investing directly in US shares vs putting more into Smartshares. The email I received from TD Ameritrade said that the initial deposit had to come from a bank account in my name and then they could assess any further deposits through 3rd parties. But it all sounded a bit risky - I wouldn't want to send a lump sum over to them and have it returned (and probably still have fees charged).
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I've recently come across the realm of FI bloggers and have been hooked on the content and the method for saving and investing for potential early retirement. After looking into the practicalities of doing this from NZ, its obvious its really expensive with fees and FIF tax which has put a huge dampener on my early enthusiasm.
I have an optionsxpress account and have been in touch with smart shares about investing through them but am still tossing up the best way to approach this.
Just wondering if any kiwis have been following the MMM, JM Collins, Mad Fientist etc blueprint for a few years now and are on the way to financial independence, even in light of the harsh fees and FIF tax we encounter which US based investors dont have to worry about.
Every post I've come across about doing this from NZ has been really negative (rightfully so) due to options we have of doing global index fund investing from here.
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I think it really depends on how much money you have to invest. I'm still keen to send some capital over to a US stock broking account, but right now I don't feel I have enough saved to do so (though I could be swayed into it if the dollar goes back up over US$0.80, though I don't see that happening). You also need to be prepared to leave that money invested for years, otherwise you'll lose out to exchange fees etc (although if you could get an ATM card attached to the account, you could potentially use those funds as travel money :-) ).
Edited to add - the smartshares global etfs also have FIF tax applied; it's just hidden in the overall return. So the difference between investing in smartshares vs directly though a US account may not be as extreme as you think.
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Hi all, my wife and I are likely to settle in NZ (her home country) after we FIRE and slow travel for a bit. I'm from the US so all of my investments will be considered foreign for the purposes of FIF. I was initially concerned that the tax would throw a wrench in my FIRE plans, but after doing a bit more research and thinking about it, it's probably not too much different than what I would pay in taxes in the US post-FIRE, especially factoring in NZ's universal health care. If any kiwis out there are interested in rekindling this discussion, I have a couple of questions about the topics in this thread:
1) Any updates on investing in NZ? Is Smartshares still the cheapest of the easy options? I obviously have a US-based brokerage and bank account, so I'm guessing I'll just stick with that after moving (assuming I can), but it's good to know that NZ-based options have been slowly improving.
2) My understanding of FIF is the following: say my portfolio is worth $1.1m and the market is up 10% that year (assume no withdrawals for simplicity). I would pay taxes on $50k (5% of the starting value of $1m), which works out to about $8k based on NZ's current marginal tax rates assuming I earn no income outside of this portfolio. I would pay less or nothing if the market returns are less or negative. Did I miss anything about the FIF tax? If not, that seems like a reasonable and manageable tax burden to me. I'll have to factor it into my expenses so as not to mess up the SWR, but otherwise it shouldn't affect my FIRE plans unless I'm missing something.
3) How should I make the most of the 4-year new resident tax exemption? I'm guessing we can use that time to consider a house purchase, which would bring a large chunk of our portfolio on-shore. But I don't have the same affinity for owning real estate that many kiwis appear to have. I noticed that renting in the Auckland area is much, much cheaper than homeownership (almost half the weekly expense in some instances) and wouldn't want to buy into that type of situation. Since our settling in NZ is probably 4 years off and we'll have that 4-year tax exemption, maybe the market will normalize a bit in the meantime. If not, we'll probably remain renters. Any other considerations during the exemption?
4) More generally, anything else to consider from an investment standpoint? I'm really excited about our long-term plans to live in NZ, but want to make sure I've thought through the boring logistics of the transition to make it as smooth as possible.
Thanks!
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Hey does anyone know if the FIF applies to US retirement accounts such as 401k or Roth IRA? It wasn't super obvious to me from a Google search. Curious to hear from people who have FIRED to NZ from the USA and how they structured/optimized their finances and taxes.
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Hey does anyone know if the FIF applies to US retirement accounts such as 401k or Roth IRA? It wasn't super obvious to me from a Google search. Curious to hear from people who have FIRED to NZ from the USA and how they structured/optimized their finances and taxes.
Good question and one that I'll need a definitive answer to as well. It appears that as of April 2014, foreign superannuation schemes are no longer taxed under FIF. To my mind, that should mean 401k is excluded from FIF, but not sure if it also includes Roth IRA. Seems like something really important to sort out before I start my Roth conversion ladder.
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We're an American family considering living in New Zealand, with the potential of permanently settling there, but also keeping our options open and may return to the US after a few years of working and living there. I still have 7-10 working years left.
The whole FIF treatment has me quite unsettled and has me re-considering the move.
Consider this example. Suppose that you had $100k and left it untouched for 10 years at 7.5%. The balance becomes $206,103. However, if you have to pay 33% tax on 5% of the balance every year, it only grows to $172,096 (assuming you pay for the taxes out of the fund). That's a huge difference! I feel bad for kiwi investors. This would result in about 20% less income if you start taking distributions after 10 years. And 30% less income if you leave it for 15 years.
It's too bad NZ wouldn't let me choose to forgo the tax now and pay capital gains later...
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...
2) My understanding of FIF is the following: say my portfolio is worth $1.1m and the market is up 10% that year (assume no withdrawals for simplicity). I would pay taxes on $50k (5% of the starting value of $1m), which works out to about $8k based on NZ's current marginal tax rates assuming I earn no income outside of this portfolio. I would pay less or nothing if the market returns are less or negative. Did I miss anything about the FIF tax? If not, that seems like a reasonable and manageable tax burden to me. I'll have to factor it into my expenses so as not to mess up the SWR, but otherwise it shouldn't affect my FIRE plans unless I'm missing something.
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That's my understanding too. But, you have to be careful of the double taxation! When you sell shares, you will be taxed again by uncle sam at the capital gains rate.
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2) My understanding of FIF is the following: say my portfolio is worth $1.1m and the market is up 10% that year (assume no withdrawals for simplicity). I would pay taxes on $50k (5% of the starting value of $1m), which works out to about $8k based on NZ's current marginal tax rates assuming I earn no income outside of this portfolio. I would pay less or nothing if the market returns are less or negative. Did I miss anything about the FIF tax? If not, that seems like a reasonable and manageable tax burden to me. I'll have to factor it into my expenses so as not to mess up the SWR, but otherwise it shouldn't affect my FIRE plans unless I'm missing something.
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That's my understanding too. But, you have to be careful of the double taxation! When you sell shares, you will be taxed again by uncle sam at the capital gains rate.
Thanks for the reply! Would that be addressed by the tax treaty? So no double taxation as long as I file my taxes with the US and apply whatever NZ taxes I've paid as a foreign tax credit against the capital gains I owe Uncle Sam. If it's less than the 8k I pay to NZ, then it would be nothing, no?
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2) My understanding of FIF is the following: say my portfolio is worth $1.1m and the market is up 10% that year (assume no withdrawals for simplicity). I would pay taxes on $50k (5% of the starting value of $1m), which works out to about $8k based on NZ's current marginal tax rates assuming I earn no income outside of this portfolio. I would pay less or nothing if the market returns are less or negative. Did I miss anything about the FIF tax? If not, that seems like a reasonable and manageable tax burden to me. I'll have to factor it into my expenses so as not to mess up the SWR, but otherwise it shouldn't affect my FIRE plans unless I'm missing something.
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That's my understanding too. But, you have to be careful of the double taxation! When you sell shares, you will be taxed again by uncle sam at the capital gains rate.
Thanks for the reply! Would that be addressed by the tax treaty? So no double taxation as long as I file my taxes with the US and apply whatever NZ taxes I've paid as a foreign tax credit against the capital gains I owe Uncle Sam. If it's less than the 8k I pay to NZ, then it would be nothing, no?
Good question! I'm not sure...
- If Uncle Sams considers FIF tax an "income tax", then yes you will get a foreign tax credit. If not, then you won't get one. I'd have to ask a tax expert to straighten this out.
- It's a non-refundable tax credit, which means if you don't have any taxes in the US then you can't use it
- It can only be carried forward for up to 10 years. So you'd have to sell your shares within that time frame in order to use that credit to offset the capital gains tax
Perhaps the following strategy would work (I'd have to check with a tax expert to be sure):
Sell your portfolio every 9 years and immediately repurchase it. This would essentially reset your cost basis every 9 years and let you apply the accrued foreign tax credits before they expire. Of course if your portfolio was worth a lot then it would put you in a higher tax bracket and you may owe Uncle Sam more than the NZ FIF taxes. In that case you could break the selling/buying up over several years. Just don't do it every year or else it won't be considered long term capital gains and Uncle Sam would tax it as normal income.
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Hi all
Glad I found an NZ thread because I'm interested to hear where others are currently investing. I'm using Simplicity's Growth fund which has fees of about 0.31%pa which was the best I could find. So far I've been really pleased.
What are others doing?
Cheers