Was listening to this today https://www.nzherald.co.nz/business/cooking-the-books-podcast-the-truth-behind-building-passive-income-through-the-sharemarket/OJWXXGDXNRDUJOY5DPEXUQNBNY/ and the guy made an interesting point I would love to get feedback on from here.
He is from Kernel Wealth (http://"https://kernelwealth.co.nz/") so obviously biased towards funds, but was saying that instead of owning a dividend stock where your capital might go more or less nowhere (thinking of something like SPK here), and you get your 5% or so yield each year fairly safely, why not invest in a PIE managed fund and (this next part is the key for me that I hadn't considered) withdraw 5% of that every year as your dividend.
That way, your "pseudo dividends" are untaxed (as capital gains) and also any dividends that get paid into the fund will be 28%.
Of course, the big thing is that your fund needs to return 5% or more each year, however that seems reasonably achievable, on average of course.
Anyway, it got me thinking, especially with reference to the likes of SPK, GNE, etc... you may get your 5-7% yield pretty comfortably, but your capital is going nowhere, and you're paying tax.
Instead, if you can invest in a PIE fund that returns at least 5% each year (on average) then you should be able to outperform a dividend stock very easily on the tax savings alone (no tax on capital gains) by withdrawing 5% out of the fund every year.
Or, you could also invest in something like IFT, instead of a PIE fund, and do the same thing very easily.
I guess, for me personally, looking at how retirement might look, I was only really considering dividend shares where I can get my safe 5% dividend payout each year. The above kind of opened my eyes though quite a bit, especially the 5% annual withdrawal tax free as a pseudo dividend.
Anyway, would love to hear other's opinions. Maybe everyone else knew this?
Cheers
I seem to recall Warren Buffet saying something along the lines of never invest for dividend, invest for capital growth and sell some shares regularly (tax free capital gain) to get the income you need.
Quote from: Raven on Apr 30, 2024, 04:56 PMI seem to recall Warren Buffet saying something along the lines of never invest for dividend, invest for capital growth and sell some shares regularly (tax free capital gain) to get the income you need.
To me it makes SO MUCH sense... the tax benefits alone are 30% plus - that's huge!
A few thoughts. I listened in the other day and thought it was as a good investment of my time, (albeit I had time to burn that day) and certainly provided an interesting perspective.
Investors like Fiordland Moose advocate investment in funds through ultra efficient channels but they are not portfolio investment entities and that's fine if you have a very large portfolio of overseas investments but for most people the complexities and cost of dealing with the FIF regime mean one of the listed or unlisted PIE's here are probably more cost efficient way to go with zero compliance cost or time, (notwithstanding their higher annual changes). Smartshares have a lot to choose from and to the best of my knowledge they are all PIE's https://smartshares.co.nz/
Points worth noting are that PIE's have only been around since 2007 so are there to be taken advantage of in terms of keeping your tax and compliance costs down and do provide excellent diversification. The imputation system is not common overseas, and we are fortunate to have it here but it only applies to N.Z. dividends.
Points not covered in the interview were many but what was notable was a certain bias towards PIE funds v direct investment. Little thought was given to investing in companies that grow dividends, such as Turners that has a superb track record over the years. Dividends were portrayed in a somewhat biased, (in my opinion), way as being "risky". No insight was provided in terms of derisking this or assessing the sustainability of dividends. (I am a huge advocate for looking at the ten-year history of a company's dividends to see if they are sustainable or not or growing or not).
Also he omitted to mention the FIF regime de-minimus level is $100,000 for joint investors and this is important for a lot of couples in retirement.
A very good discussion on the FIRE regime and the 4% sustainable level of withdrawal. That was definitely something that piqued my interest. I think a higher level is quite suitable for those in their 60's or later who are not overtly concerned about how much their kids inherit. Overall, this was well worth listening too.
Quote from: Basil on May 01, 2024, 11:10 AMthe complexities and cost of dealing with the FIF regime
The government could always abolish FIF. Or provide another exemption (in addition to Aussie stocks) for, say, international stock investment via brokers with an "NZ presence".
FIF was introduced to tax investments held overseas, often undeclared investments. I suggest a very high proportion of FIF tax gathered today is via NZ-based institutions and with IRD numbers of individuals given. In other words, the original reason for the tax no longer exists.
Isn't FIF because most overseas companies don't pay out dividends like NZ does, and so FIF is the way the Govt captures the tax on a "5% dividend" from overseas companies that would otherwise be lost to tax-free capital gains.
Quote from: entrep on May 01, 2024, 03:33 PMIsn't FIF because most overseas companies don't pay out dividends like NZ does, and so FIF is the way the Govt captures the tax on a "5% dividend" from overseas companies that would otherwise be lost to tax-free capital gains.
If that's the case it's an extremely strange tax: Australian non-dividend paying stocks are exempt; dividend paying US stocks are not exempt.
I think they really need to review the de-minimus level. $50,000 in 2007 when the rules were introduced is not the same as $50,000 now with inflation in the last 17 years. I think $100K per person, $200K for a couple is a more reasonable level.
Quote from: Basil on May 01, 2024, 11:10 AMSmartshares have a lot to choose from and to the best of my knowledge they are all PIE's
This one gets you into Nvidia with 8.88% of fund:
https://smartshares.co.nz/types-of-funds/us-shares/us-large-growth/
Quote from: Basil on May 01, 2024, 03:52 PMI think they really need to review the de-minimus level. $50,000 in 2007 when the rules were introduced is not the same as $50,000 now with inflation in the last 17 years. I think $100K per person, $200K for a couple is a more reasonable level.
Absolutely. Should be adjusted to match the CPI change each year.
Slightly off topic but related to the FIF conversation. Can one have total holdings with Sharesies for example lets say $48K NZD in US Shares/ETFs and $100K in PIE Fund and not have to file a FIF tax return? Is it based on the individuals holdings under their own name or total funds sitting outside of NZ that was purchased.
Quote from: 0verdose on May 07, 2024, 12:37 PMSlightly off topic but related to the FIF conversation. Can one have total holdings with Sharesies for example lets say $48K NZD in US Shares/ETFs and $100K in PIE Fund and not have to file a FIF tax return? Is it based on the individuals holdings under their own name or total funds sitting outside of NZ that was purchased.
The $50k exemption is based on the total cost you paid for the combined assets that are FIF liable. NZ PIE funds are all FIF exempt, as are all NZ domiciled companies, and most ASX listed Australian companies, although not all of them.
https://www.ird.govt.nz/income-tax/income-tax-for-businesses-and-organisations/types-of-business-income/foreign-investment-funds-fifs/foreign-investment-fund-rules-exemptions/foreign-investment-fund-australian-listed-share-exemption-tool
Quote from: Raven on May 07, 2024, 01:41 PMThe $50k exemption is based on the total cost you paid for the combined assets that are FIF liable. NZ PIE funds are all FIF exempt,
NZ PIE overseas investment vunds are 'Exempt' in ze sense zhat an individual tax payer does not have to complete an FIF declaration - yes. But not exempt een zhat an NZ PIE fund investing overseas does not pay FIF itself. Eet is just done behind ze scenes zo zhat NZ unitholders een zhese PIEs don't have to vorry about eet.
RB
Quote from: Red Baron on May 11, 2024, 01:26 PMNZ PIE overseas investment vunds are 'Exempt' in ze sense zhat an individual tax payer does not have to complete an FIF declaration - yes. But not exempt een zhat an NZ PIE fund investing overseas does not pay FIF itself. Eet is just done behind ze scenes zo zhat NZ unitholders een zhese PIEs don't have to vorry about eet.
RB
Yes indeed you are correct, but the OP question was about having to file a personal FIF tax return.
I posted on the 2CC but it probably belongs here instead.
I really like the idea of owning a good portfolio of NZ dividend paying stocks in retirement. The problem is I'm currently in the top tax bracket and the extra tax really takes the shine off the currently high yeilds from the likes of 2CC and TRA. I know tax shouldn't drive investment decision but it does make PIE funds quite attractive.
I'd love to hear other views on this.
Quote from: Dolcile on May 26, 2024, 08:14 AMI really like the idea of owning a good portfolio of NZ dividend paying stocks in retirement. The problem is I'm currently in the top tax bracket and the extra tax really takes the shine off the currently high yeilds from the likes of 2CC and TRA. I know tax shouldn't drive investment decision but it does make PIE funds quite attractive.
I'd love to hear other views on this.
Perhaps zhis one vould suit?
https://smartshares.co.nz/types-of-funds/new-zealand-shares/nz-dividend
But do you like ze composition?
RB
Quote from: Dolcile on May 26, 2024, 08:14 AMI posted on the 2CC but it probably belongs here instead.
I really like the idea of owning a good portfolio of NZ dividend paying stocks in retirement. The problem is I'm currently in the top tax bracket and the extra tax really takes the shine off the currently high yeilds from the likes of 2CC and TRA. I know tax shouldn't drive investment decision but it does make PIE funds quite attractive.
I'd love to hear other views on this.
I used to like the idea of dividend stocks in retirement, but I've gone a bit cool on the idea. I think Buffet was right about ignoring dividends and just going for SP gains and then selling some shares to generate the income. The Smartshares NZ Dividend fund is an interesting idea, but from time to time the portfolio gets a bit...ummmm... "interesting"?
Quote from: Basil on May 01, 2024, 03:52 PMI think they really need to review the de-minimus level. $50,000 in 2007 when the rules were introduced is not the same as $50,000 now with inflation in the last 17 years. I think $100K per person, $200K for a couple is a more reasonable level.
Yes to this!!
Just looking at options for this - need to see an accountant. Has anyone looked at putting their trading into a business to get tax write offs? or is that just silly.
Quote from: HAWKDOG on Aug 11, 2025, 08:47 AMYes to this!!
Just looking at options for this - need to see an accountant. Has anyone looked at putting their trading into a business to get tax write offs? or is that just silly.
Asked and answered but perhaps consider this. Nobody in their right mind uses best endeavors to make a consistent trading loss year after year after year. Once you declare yourself as a trader in business, that sticks in the years ahead but yes its best to do as you suggested and see an accountant if you have any remaining concerns.
Quote from: Basil on Aug 12, 2025, 11:24 AMAsked and answered but perhaps consider this. Nobody in their right mind uses best endeavors to make a consistent trading loss year after year after year. Once you declare yourself as a trader in business, that sticks in the years ahead but yes its best to do as you suggested and see an accountant if you have any remaining concerns.
My thoughts/question around write offs were more do with office space (% of your home sq footage), new computer, portion of electric/heat/internet bill, cleaning supplies, trips to Australia for conferences.
Agree with your trading loss comment :)
I'm curious about how others are designing their retirement portfolio?
I'd love to hear how others are approaching this. Specifically:
- What's your asset allocation between NZ stocks, international equities, bonds/term deposits, and cash?
- How are you planning to generate income to supplement NZ Super - live off interest? Dividends? sell down?
Personally, I'm finding bonds/TDs/cash pretty unappealing given that real returns seem negative after tax. Curious how others are thinking about this!
The classic 60/40 shares bond portfolio allocation has a lot going for it but the yields on N.Z. bonds are now very low. For that reason I prefer quasi bonds such as the REIT's ARG and KPG and also hold GNE as a bond proxy. Those three combined make up just over 30% of my portfolio and I am currently holding about 10% in cash, which is just parked there waiting for the right opportunity in equities.
Equities are all very high quality N.Z. companies with a laser focus on GARP stocks on highly attractive metrics which are also great dividend payers. I know it breaks all the classic portfolio construction rules having all my investments in N.Z. but I am very content with my long term portfolio performance and I prefer to stick to what I know well and has generated very satisfactory returns for me.
I also know my approach is higher risk than having a large proportion of my investments overseas but I am in the fortunate position that I can wear that risk and would rather have fewer investments in very high quality companies on metrics that are compelling than diversify just for the sake of diversification.
All that said, I might look at having a modest portfolio allocation to some international PIE funds at some stage in due course.
I will be living off my dividends at some stage in the future. Still quite enjoying part time practice, only work a couple of half days a week now which feels about right.
I remember reading a study comparing multiple retirement strategies using a montecarlo simulation constructed using historical equity and bond performance. They found the strategy with the lowest chance of running out of money before dying was 100% equities diversified accross global developed economies, with at most a 20% home nation allocation depending on tax advantages. Personally I think while cash is boring it really can be a sword and shield for your portfolio, shield you from having to sell equities during downturns and allow you to strike at good stocks on fire sale once you are secure.
I haven't thought much about retirement. But I like the concept of having cash/equivalent > year of expenses - half of expected yearly dividend income, and the rest being in equities. As we saw during COVID sometimes the dividend payers get a bit reluctant (E.G. KPG) to pay out. It's good to be prepared, never give someone else the power to put you in poverty.
The graph comparing investments in 2026 in this article I found interesting not sure it helps portfolio management in 2026.
https://www.stuff.co.nz/money/360922035/investment-had-best-returns-2025-and-theres-another-big-opportunity-many-missed
Gold had a boomer of a year. Basil's NZ listed property did well possibly because Basil was buying them. Good to see NZ cash just keeping up with CPI inflation slightly ahead of NZ Shares and ahead of house prices.
Thanks for your openness Basil it is a lot more interesting and informative knowing what people are actually doing and why. I am not confident enough to share as I do not have a logical well thought out process and jump from one thing to the next based on a whim.