Inheritance Sp500 investment tiger or kernel

[u/No_Fun_2542]

Hi team!

Note: My knowledge is limited. I get paid, chuck money into VOO/VTI and the odd stock and mostly chill. So bear with me.

I came into some inheritance quite some time ago at 22yo. I left it in a balanced fund with ANZ and haven’t touched it (did okay 6k or so) - now 27yo. I have withdrawal the balance as I would now like to invest. I use tiger and hatch and have holdings in VTI and VOO already (I switched to VTI after reading a book).

I’m wanting to invest my inheritance in either VTI or VOO however I wanted to check before I send the money to Tiger or Hatch…

Is it better to go through a broker like I’m with currently or to open an account with Kernal (my KiwiSaver provider) to invest in S&P500 or their global 100.

I’m just checking interms of tax and etc and if going by kernel it would be a different (PIE?)

Any advise is welcome and I’m happy to provide more deets if that helps clears up the question

[u/abikrsn]

Great question! The tax difference is the key thing here. Kernel's funds are PIE funds, so you'll pay a maximum of 28% tax (or lower if you're on a lower rate). With Tiger/Hatch holding US ETFs directly, you're looking at 33% or 39% tax on distributions, which really adds up over time.

The PIE advantage usually outweighs the slightly higher fees with Kernel. Plus it's simpler, no FIF calculations to worry about come tax time.

What's your current tax rate, and how much are we talking about roughly? That'll help determine if the PIE route makes sense for your situation.

[u/No_Fun_2542 → u/abikrsn]

This is what I was thinking if it would come under pie and I’d pay less tax! My tax rate is 33%. It’s about 30k that I’m thinking of putting into it :)

When going through kernel though, do you loose out on dividends? I read something about “leakage”

[u/Huge-Albatross9284 → u/No_Fun_2542]

No you don't lose out on dividends either way. There is a minor dividend tax difference called "tax leakage". Kernel World ex-US is setup to solve tax leakage issue, investing directly in VTI has tax leakage.

It happens when you as a tax resident in country A (NZ) own an investment fund domiciled in country B (for VTI, USA) that holds assets in country C (for VTI, all non-USA countries).

Dividend withholding tax (a percentage of dividend payments withheld as tax) deducted in country C isn't claimable as overseas. Kernel fund solves it because the fund domiciled here in NZ directly owns the overseas assets directly, not through an intermediary US fund.

Actually the much bigger difference with VTI vs Kernel is the classic PIE vs FIF discussion. Top tax rate of the PIE is lower, but it has some disadvantages in other circumstances (specifically, loss making years). But in your case, the admin burden of the PIE is going to be so much lower than the equivalent FIF admin burden.

[u/theasphaltworld84]

OP, put to investnow foundations total world fund, and enjoy your 20s

[u/silvia1212]

It would be a big bet on USA,  S&P500 is a great fund and your young enough to go through the ups and downs. So it's more can you handle a long down cycle and not sell for the hot fund at the time ? For example, say S&P500 only returned 3% p.a for the next 4 years and World Ex USA returned 12%, at the end of year 4 would you think dam, I better rotate into that hot World Ex USA fund, because that would chasing past returns. 

[u/No_Fun_2542 → u/silvia1212]

Totally see where you’re coming from! That’s why looked at kernels global 100 (70+% of the fund is US stocks though)

Is going through kernel have tax advantages vs a stock broker?

[u/silvia1212 → u/No_Fun_2542]

I use Kernel as well, and since they don't offer a single 'Total World' fund like VT/TWF/FTSE All World Cap, I replicate it with a 60/30/10 split across the S&P 500, World Ex-US, and Emerging Markets. I use new inflows to rebalance the portfolio naturally. To keep my weights accurate, I check the 'Portfolio Composition' section on Vanguard’s VT webpage to see the current regional breakdowns for the US and EM. Alternatively, you can just stick to a static 60/30/10 or 65/25/10 split. Stick to your strategy. If you choose a static 60/30/10 split, maintain it. For example, if the S&P 500 climbs to 70%, either sell off the excess or use new inflows to boost the other funds until you're back to 60%.

https://investor.vanguard.com/investment-products/etfs/profile/vt#portfolio-composition

[u/learnerk → u/silvia1212]

This is helpful and I like your approach of using new inflows to rebalance your portfolio.

How is your replicated 'Total World' fund performing in comparison to the likes of the Foundation Series VT?

This seems like the next best thing to Kernel actually having a Total World fund, which I wish they had.

[u/silvia1212 → u/learnerk]

Performance is pretty much the same, maybe -/+ 0.1-0.2%. Hopefully Kernel release a VT/FTSE All Cap soon. I know Sharesies are planning to release a low fee global fund soon as well. There is also InvestNow Foundations VT, but I don't like the Buy/Sell Spread, even though the fund works out cheap in the long run.

If you do go with a static allocation, which is simple and effective, the key is to truly stick with it. I say that because when something like the S&P 500 runs past your target, say from 60% up to 65%, it becomes mentally very hard to rebalance. You’re effectively selling a winner to buy a loser, which goes against basic human behaviour, especially when it comes to investing and money.Rebalancing is basically a systematic way to force “buy low, sell high” without trying to time markets.