How to invest in a Total World Fund from New Zealand
13 Aug, 2023
Every Tuesday morning, at 7 am sharp, a group of Kiwis takes part in Rebel Finance School, now in its fourth year. It’s a free 10-week course created by UK early retirees Alan and Katie Donegan. I’ve really enjoyed the course this year and will be sad when it finishes in the next week or two.
The couple who run the course reached financial independence in 2019 and offer this free course with no upsell, company ties or affiliate links. This course is their philanthropic project aimed to help others reach financial independence. They believe, as do I that we should all have equal access to financial education.
They aim to take you on a journey of systematically getting your finances in order. Each session is about 1.5 hours long, plus they stay around after the course for a Q+A for anyone with questions.
The course starts with the basics:
How to work out how much money you have
How to figure out where your money goes each month
How to pay off credit card debt as quickly as possible
How what you believe about money and yourself might be holding you back
Then in the later weeks, they progress to:
How to talk about money with the people you care about
Understanding what your auto-enrolment pension is invested in (UK focussed)
How to invest your hard-earned money (UK focussed)
How to set a target for retirement
How to figure out when you can retire
If you missed taking part in the course, all sessions were recorded, and an extensive set of resources has been created so that you can take part at any time. The best place to start is HERE. The resources all stay live for only a couple of months before they remove them. Why? Because they want you to have a sense of urgency about getting your money sorted and not keep kicking the can down the road!
When I meet people and talk about money, a common regret is that no financial education was taught in school or at home. I think this course is your best shot at bringing yourself up to speed, and I’ve not found another quite like it. Please let me know if someone knows of a free Aotearoa-based one. It’s a time commitment but also the perfect length because it’s so informative. In my opinion, if you are serious about improving your financial lot in life, you will make the time to listen and learn.
The only sticking point is that while most of what they teach is internationally applicable, some elements are specific to their home country, England. As soon as we reached the investing component of the course in week six, the companies and products they discussed were incompatible with Aotearoa. Today, I want to explain the New Zealand equivalent of the two Vanguard Index Fund options they suggest as concisely as I can.
This blog is specifically for those participating in the course and is particularly relevant if you have just participated in Week 7: Index Investing in Depth. You will need the context of that lesson to explain why they specifically mention investing in just one index fund (although they give two options). I’m not going to go into that detail here.
They steer you away from any fund that is actively managed, that puts you in a “life stage” fund, or that is ESG (because this is stock picking). They are proponents (and they go into detail as to why) of not hand-picking a specific sector, region, or country. Instead, they propose buying the whole world with a single purchase.
Despite Vanguard, one of the largest investment firms in the world, offering a dizzying array of options, Alan and Katie invest in only one fund, and you can watch their explanation of why HERE.
They mention two Vanguard Index Funds.
They mention the Vanguard FTSE Developed World ex-U.K. Equity Index Fund. The region it invests in is “global”, and the number of assets in the fund is 2,089. It’s 100% shares, and it has a fund charge of 0.14%. They said that nearly all of their wealth is invested in this fund.
The second Vanguard fund they mention is the FTSE Global All Caps Index Fund. The region it invests in is “global”. The number of assets in the fund is 7,305. Once again, it is 100% shares, with a slightly higher fund charge of 0.23%. This fund didn’t exist when they began investing, hence going with the first, but they say this is also a good option, which is handy because it’s the only one I could find here.
They specifically go into detail about ignoring all other Vanguard funds and simply investing in one global fund, and I’ve been asked how to access the funds they have mentioned if you live in New Zealand. I’m also happy to have your input on this; if you think I’ve missed anything, please comment below.
A few quick notes:
The difference between an ETF fund and an Index Fund is how it trades on the share market. There are nuances, but for the purposes of this, you don’t need to tie yourself up in knots over the difference.
From the emails I’ve received, I assume that users are investing regular and decent-sized amounts of money (>$500 per month) over a long period.
Not so fast!
Unfortunately, it is not as straightforward in New Zealand as setting up an account directly with Vanguard; you must purchase via an intermediary. Why? We are a tiny country at the bottom of the world, too small for Vanguard to have a dedicated presence here. Instead, we have investment companies providing access to a total world fund or something similar, but buying the two Vanguard funds mentioned is difficult. Also, the fees charged are higher because you have to use a secondary company. Such is life.
Aotearoa Options
SMARTSHARES
Smartshares is a company wholly owned by the NZX. They have bundled up products in the form of ETFs to sell directly to Kiwis. The Smartshares Total World ETF (TWF) invests in the Vanguard Total World Stock ETF, designed to track the return on the FTSE Global All Cap Index. The geographic focus is global. The fund charge is 0.40%. You can buy on their platform, your shares are held with an independent share registry, and you need to use a broker to sell. It’s a clunky process for those new to investing, but it works. There are tax implications to investing using Smartshares. You are taxed at a fixed rate of 28%, even if your PIR rate may be lower as mine is. I work around this at tax time by offsetting the tax I have overpaid here with the tax I owe elsewhere. So, it all evens out in the end, but you could easily argue that this money is not working for me at the time of investment.
KERNEL WEALTH
Kernel is giving Smartshares a run for its money by offering a variety of low-fee index funds and a more user-friendly experience. Their Global ESG index fund is the closest match I could find (I emailed them to ask) to the suggestions of Alan and Katie (even though it has “ESG” in the title). The management fee is 0.25%. You can buy and sell on their platform. The index is highly diversified and is optimised to keep the sector and country mix approximately in line with a standard global index. It is more tax efficient, and you are taxed at your own PIR rate, which differs from Smartshares. This is a very sound alternative.
INVESTNOW
InvestNow gives you access to a wide range of fund managers, such as Smartshares ETFs. You can’t access the specific funds mentioned by Alan and Katie, but you can use Investnow to purchase the same Smartshares Total World Fund ETF (TWF) mentioned above, which is designed to track the return on the FTSE Global All Cap Index. You can buy and sell on their platform, but there are nuances to using it, such as (to my knowledge) not holding investments under your own CSN (common shareholder number). They also charge a fee of .40%, and you are taxed at your own PIR rate.
The above three are the standouts, but there are a couple more options yet. I mention them because you have likely heard of them.
HATCH
Hatch Vanguard Total World Stock ETF (VT) tracks the performance of the FTSE Global All Cap Index. They give you direct access to Vanguard funds. The platform charges you a $3 fee for each transaction, plus a currency conversion fee as your money is changed into USD, plus the fund's management fee. I’m less keen on Hatch because your investment is not domiciled within New Zealand, and there are additional U.S. tax implications once you have over $50,000 invested.
SHARESIES
Sharesies also offer the same Smartshares Total World ETF, which is designed to track the return on the FTSE Global All Cap Index. But, like Hatch, the fees are also high. A 1.9% transaction fee and a management fee of 0.38% when you can buy the same fund cheaper elsewhere. They offer a lot regarding user experience, but for more significant investments, I’d be researching my options elsewhere.
There are other lower-fee companies that would also give access to Vanguard funds, but I’m reluctant to go into detail about any of them because their names keep popping up with the FMA because they have issues with how they run their business. No thanks!
Then, of course, there are the big investment firms such as Forsyth Barr, Fisher Funds, ASB, and Milford Asset Management, to name just a few. But once you start investing with these big firms, your fees will increase as they take their cut to actively manage your investments. The same is true for financial advisors.
An additional resource to add to your education is MoneyHub, which wrote an article called Investing in Vanguard Funds from New Zealand. Plus, New Zealand blogger Money King NZ released a blog that comes up with some options additional to my own that you might consider, too. To add to your reading a bit further, you might also read What’s the best global shares index fund in 2022.
Suffice it to say you can easily invest in Index Funds from New Zealand. But when I had 20 tabs open on my computer showing an ever-increasing list of options, I had to call time out.
I’ll now throw a spanner in the works.
For the entirety of my 7+ year blogging career, I’ve explained that I invest in KiwiSaver (high growth, low fee) and into Smartshares US 500 ETF (USF) and Smartshares NZ TOP 50 ETF (FNZ). After reading JL Collins's The Simple Path to Wealth many years ago, where he constantly referenced a Vanguard index fund called VTSAX, at the time I started investing, the fund I chose, Smartshares US 500 ETF (USF), was the closest I could get here in New Zealand. At that time, a Total World Fund was not considered the ‘best’ option.
I also wrote this blog post about my choice to buy US 500 some time ago called Should I buy VTSAX or US 500 in New Zealand?
At that time, my lowest fee provider options were Smartshares and InvestNow. InvestNow had an awful user experience, so I went with Smartshares. InvestNow has now upped their game, and Smartshares has not changed anything about their website the entire time I have used them!
However, since I began investing, many new providers have popped up. If I were to start again today, would I invest with someone else? Probably. Mainly because the Smartshares user experience is quite average, and for new investors, it’s difficult to understand that there are three parts to the process (you buy on their platform, the shares are held elsewhere (which is a good thing), and you sell using a broker). In contrast, other providers such as Kernel spend much time and resources educating their customers, not so with Smartshares.
In the last few years, index/ETF investors that I follow online have moved into advocating the purchase of a Total World Fund, as Alan and Katie mention, instead of just a US 500 type fund. However, each time I hear JL Collins speak, he allays my fears about my US 500 fund choice by saying that it’s still an excellent option. When I look at the composition of my fund, compared with the fund mentioned by Alan and Katie, I still find that I’ve made a good choice. Plus, when I look at the 5-year annualised returns of the Smartshares Total World Fund (TWF), they are 8.33%, compared with the Smartshares US 500 ETF returns of 12.55%. I know that ‘past returns don’t predict future returns’, but for now, the pressure is not significant enough for me to change.
I hope this post has not been too complicated, and as I said, it was meant for those who are taking the Rebel Finance School course, but I think the final thing to say is that you don’t need to tie yourself up in knots when choosing which platform, or specific fund to use. There is no perfect platform, but there are degrees of ‘good enough’. Don’t be paralysed by choice. Just commit to making a choice and making a start.
As long as you keep an eye on fees, stick with your plan of a Total World Index Fund or something similar, just make a start, create a habit of investing with a regular investment into your fund, track your net worth, and keep an eye on it.
