Welcome to Passive Income NZ, my Journey to Financial Independence. Every month I share how I am tracking towards financial freedom by providing you with an update of where my portfolio is at and how far I am from financial freedom, and how my spending is tracking. My definition of financial freedom is not really the same as everyone definition. It’s not to just stop working, it is much more than that. It’s about living a more intentional life.
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In June, I wrote a post about Investing in Vanguard Fund and the New Zealand Tax Implications. The question about what your tax obligations are when investing in a foreign investment fund always come up. And since I had to do my own taxes I thought I would share what I know on the topic. It’s actually quite easy.
I also reflected on some Lessons Learned After One Year of Investing. In reality, I have been investing for much longer than a year, but I’ve only been actively passively investing over the last year. If you are new to investing, there are some good lessons in that post
I mentioned actively passively investing because I think that the term passive investing is being thrown around a lot. Some new investors might think that it is totally passive, but it’s not. You actually have to Actively Investing with Passively Managed Funds
Another important topic for new investors is that they have to realise that Investing Won’t Make You Rich. Sure investing helps grow your money, but you need the money in the first place. So the most important metric to focus on is actually savings rate.
Specking of personal finance metrics. I read a post from the Poor Swiss about the 11 best personal finance metrics you need to track that I realy enjoyed. The personal finance metrics covered in this post are;
- Income
- Expenses
- Personal Inflation Rate
- Savings Rate
- Net Worth
- FI number
- FI ratio
- Passive Income
- Investment Fees
- Asset Allocation
- Emergency Fund
The article was a good summary of what you should track if you are interested in personal finance. The one metric that I hadn’t thought about before, or tracked for that matter, was the Personal Inflation Rate. Since I have spending data back to 2013 I thought I would calculate my own Personal Inflation Rate- and to be honest I freaked out! An average of 10% year on year personal expense inflation.
- 2013 +19%
- 2014 +10%
- 2015 -18%
- 2016 +1%
- 2017 +27%
- 2018 +20%
This personal expense inflation is obviously not sustainable at 10% per year- Although I didn’t really notice it because I was too focused on my Savings Rate metric- below is my savings rate over the same period of time.
- 2012 28%
- 2013 48%
- 2014 40%
- 2015 45%
- 2016 45%
- 2017 38%
Obviously since your good at numbers this scenario only makes sense if my income has also had positive inflation over those years- and indeed it has. This shows you why it’s important to look at more than one metric. The majority of the increase in spending had been related to owning a home.
Investment in June
Since I decided that including my spending was not of any value to share I have decided to instead share our savings rate for the month. That is the amount of money invested or principal paid on the mortgage as a percentage of income.
For the month of June;
- Index portfolio: 48% (+18%)
- Mortgage: 16% (-4%)
The decrease in the mortgage percentage looks bad, but in real terms the decrease is only because I received a bonus, which makes it relatively smaller.
Portfolio June 2019
Asset allocation
The proportion of my portfolio invested in peer to peer is still decreasing. I don’t have any automatic investments into peer to peer, instead, all my investments are going into InvestNow and allocated into different funds there.
Also, when I see that there are not more loans to fund on the peer to peer networks, and there is a significant amount of money sitting there idle, I withdraw it and transfer it over to InvestNow. So the decrease is going to continue.
I have been procrastinating about what to do with my kiwisaver- I’m now leaning towards simplicity over Juno. Either way, my kiwiSaver value is becoming significant and I am loosing out with my 1.11% fee charged by one of the big banks.
- Australasian Shares – 27%
- International Shares – 26%
- Europe Shares – 0% (-2%)
- US shares – 4% (-1%)
- Total Shares – 57% (-1%)
- Kiwisaver – 10%
- Peer to Peer Lending 19% (-1%)
- Property ETF 11% (+3%)
- Bonds – 0%
- Cash 3% (-1%)
Goals
Total Portfolio >100K by December 2019
My goal of reaching $100k invested still stands. I’m now 83% of the way there. I now have only 5 months left to achieve my goal. That means I need to invest at least $3,400 per month.
Another goal I have is to transfer my Kiwisaver to a lower cost growth fund. The current one I have is charging too much in fees. I’m going to look at my options and write a post about what I find.
I hope you enjoyed my financial update. I’m considering including my net worth in a future one. Let me know if you would be interested in that. I still suffer from the stigma of sharing financials with total strangers, it kind of feels like bragging- but in reality, I want to help you out by showing how I’m doing, what I’m doing right, and what’s not working.
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I’ve recently transferred my Kiwisaver over to simplicity, into their Growth fund, which offers fees of 0.31% + 30 p.a membership fee.
My Kiwisaver was with ASB before, charging 0.64%. Over the long run the fee differences add up (if you assume the funds perform similarly in the long term)
With Simplicity being so new there are only a couple of years of history to see how they perform. In the years I had to compare, they were performing similar to ASB, and they have a similar asset allocation, so I took the plunge…
I like that simplicity is a non-profit with volunteer directors, their fees are very low and they donate 15% of their fee to charity. Their investments are also into funds which exclude the likes of tobacco and gambling… So there is a lot to like, but of course their funds need to perform too.
Your Kiwisaver fees are quite high so its certainly worth checking out the effects of this. I use this calculator to help demonstrate the effect of management fees: https://www.moneysmart.gov.au/tools-and-resources/calculators-and-apps/managed-funds-fee-calculator
This podcast is worth listening to: https://www.podcasts.nz/kiwisaver-and-private-equity-had-a-baby/
The interview is with Sam Stubbs – founder of Simplicity.
Another article I chewed over is this beast: https://www.interest.co.nz/bonds/85722/cbas-director-interest-rate-strategy-says-demography-destiny-interest-rates-immigration
My take away was that we may be entering into a long period of low inflation and low interest rates.
I wonder if this means the huge boomer generation entering retirement will be increasingly pressured to chase higher returns than those offered by fixed interest – perhaps this could increase demand for index funds.
Nice- how is the simplicity UI?
I know that my kiwisaver fees are high- and I know the effects of higher fees. I did a post on it a while ago. https://www.passiveincomenz.com/do-fees-really-matter-when-it-comes-to-investing/. I’ve just haven’t got around to changing yet, and it’s only recently that there has been any significant money in my kiwisaver. I’ve been doing some research on Simplicity, Juno, and Superlife. I think Juno is out already.
I’ve only just started up my Kiwisaver with them so haven’t spent enough time to encounter issues. Its clean, easy to use, noting super flash but I don’t think you need that anyway… It shows some extrapolations of your saving rates and where they’d end up at retirement age.
I have had great email support from them, they’ve been very helpful and reply within a day.
I’ve gone and put all my eggs in one basket – with my private investments I started with Sharesies, then switched to Simplicity when I had over $10k. Not sure if that was the wisest move having my kiwisaver and private investments with the one provider… but the funds themselves are well diversified. At this stage I didn’t want to get to hands on with my investments, so Simplicity seems good to me for keeping it simple.
I didn’t even look into Juno, why did they get cut for you?
I’m going to do a post comparing them in the near future- Juno is an actively managed kiwisaver managed by the partner of the manager of pie funds. Pie funds have an interesting strategy and have had good returns but I don’t know if I want to go into an actively managed fund. They do have low fees thought.
I would recommend Superlife for Kiwisaver. $30 admin fee a year plus .50% to .60% depending on fund but you get to pick and choose exactly what you want from their funds (currently 30 odd). You can really customize it and make it as aggressive/conservative as you want.
They’re definitely a contender. Still looking into them compared to simplicity at the moment. Simplicity might be better for me as I am already picking funds with InvestNow. Can you automate your superlife kiwisaver like investnow?
Not sure what you mean by automate and I’m not familiar with Investnow. You can pick the same funds for your kiwisaver as if you were picking them for your personal investment. They do offer conservative, balanced and aggressive plans (they refer to as Age steps. pick based on your age including one that will change automatically based on age). Like personal investments you can set your kiwisaver money coming in to be applied at a X percentage based on what you want. no limit on how many funds you choose. spread across them all or could go 100% in US500 if you are that way inclined