Hard News: Theories, please ...
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Having dealt with 401Ks in the US and currently looking at KiwiSavers here in NZ I find the NZ choices much more difficult - partly it's because in the US your employer basically chooses a securities vendor (a large bank or brokerage) and you choose the investment vehicles you want from their menu>
There's a lot of incentive there for the employers not to choose someone who's going to run off with your money (you might sue) or to encourage you to choose a particular type of fund (again you might sue if the market goes south).
It all makes signing up pretty - you get a menu, often you just write %s summing to 100 next to funds and that's it - once a year or so you can change as your risk tolerance or circumstances change
So far KiwiSaver seems much harder to parse (I'm my own employer too ....) I don't obviously see that sort of choice here - mostly it just seems to be heavily managed funds
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It really doesn't matter what the problem of the day is, the Bush solution is tax cuts for the rich.
I'm starting to think there's some truth in Klein's 'shock doctrine'. The more severe the problem, the more BushCo seem to push for their traditional solutions. Nice feedback loop, since it seems like the traditional solutions are pretty good at creating severe problems.
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Ben: trading for gain is pretty simple really. It means buying and selling with the intention of making a profit frin the sale. As opposed to buying for the intention of enjoying dividend income. Same deal with houses: if you buy so you can get rental income you're sweet, if you bought so you could flip at a profit, in theory your gain is taxable.
The hard part is measuring people's intent. In houses, especially, the IRD hasn't really done much to enforce this rule. Informally, for shares, they've indicated that trading much beyond a half dozen times a year is a sign you're a trader for gain.
re managed funds: I understand what you mean. However, "managed fund" and "index fund" have pretty well-established meanings. It would be nice if "index fund" had a more accurate name, I agree.
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On the other hand (well it is economics, after all) here's Paul Krugman criticising Obama in favour of HRC and JE.
Oh, I thought it was more the general worthlessness of the New York Times op-ed colmnists. Hell, if they're trying to cut costs replacing that lot of dead weight with vintage Peanuts strips would be a good start. (Though I've got to admit that I like David Brooks who, along with George Will, seems to be the only high-profile conservative columnist nowadays who doesn't do a remarkably good impersonation of a flaming bag of bat-shit.)
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Really Craig, why?
For what it's worth Krugman is a Bates prize winner and a highly acclaimed economist. He was also right about George Bush. Right from the start. And a long time before almost anyone else in the punditocracy.
I agree with you on Brooks's merit vis a vis his fellow conservative columnists, though. (Not that I agree with him often mind you...)
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The hard part is measuring people's intent.
Exactly. I fully intend to sell my house for a profit eventually. If I chose shares which don't pay dividends, the same would be true. But the IRD needs rules so they do the best they can.
I agree that index fund generally has a more specific meaning than managed fund.
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For what it's worth Krugman is a Bates prize winner and a highly acclaimed economist. He was also right about George Bush. Right from the start. And a long time before almost anyone else in the punditocracy.
Terence:
I haven't read any of his academic work, and wouldn't be competent to assess it if I had. (I'd also be a little cautious about making an argument from authority citing prizes.) But en masse I've found his columns the rhetorical equivalent of a pair of finger-nails down the world's biggest blackboard. It's not as if political punditry is exactly under-stocked with the type.
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I get the feeling that Krugman's commentary at the moment is being skewed by his links with the Clintons. He seems unduly cranky.
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Okay, here's my newbie question for the day about shares and trading - any answers would be appreciated.
I'd like to start investing a reasonably small sum (~$25/week) into an index fund. My bank has an online trading facility and it looks like they'll charge me $49.50 US for every US based trade. Even I can see that this isn't a terribly smart way to invest, so what IS the best way to make a small weekly investment in an index fund?
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Danyl. Put it in the bank, then when you get to $5,000, put it all in an index fund, and start again.
$49.50 USD sounds pretty pricey for one online trade.
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Re Krugman - I've often had issues with his style but have found it hard to fault the conclusions and suggestions that he comes with. I was "lucky" enough to attend a talk of his at the height of the Asian Paper Tiger collapse where he expounded some out-there but undoubtedlty deeply thought-through ideas on imposed negative inflation and the like. Certainly a smart man, and I like one of the underlying messages in that link - knee-jerk reactions to cyclical recessions are an appalling idea, especially long-term tax cuts (which would presumedly last beyond any economic cycle and therefore independent of any recessions). Measured stimulus to cushion exteremes in the economy is OK, but lets remember that recession is part of the cycle.
Also, there's a potential dark cloud in the silver lining of our sharemarket's "relative" resistance to the fall - that we are just not integrated enough into the global economy for a synchronous recession in Europe and the US to have a large impact on our firms. Hooray for now but that highlights a rathing worrying lack of "skin in the global business game" (blech, how I could I write that?)
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I get the feeling that Krugman's commentary at the moment is being skewed by his links with the Clintons. He seems unduly cranky.
I was unaware - what links are those?
Way back in LBB* Krugman made a name for himself by strongly criticising (Bill) Clinton’s economic team for caving in to the left and flirting with industrial policy. So I’d be surprised to find that he was allies with them now. (But I am open to being corrected).
I think that he is, at times, unfair on Obama but that he’s bang on about the flaws in Obama’s health care plan and that he’s also right that Obama’s ‘reaching across the isles’ rhetoric has little to offer in practice in a the age of movement conservatism.
Craig: It’s not argument from authority it’s just good evidence that he is a very good economist. As for your other comments, it would be more succinct if you’d just said that you personally don’t like him. You offer nothing of substance.
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*Life Before Bush -
Danyl - what Ben said.
But also, have a look at NZX's SmartShares products, which are effectively index funds. The initial contribution is $1500, but you can put in a monthly contribution of as little as $50 without brokerage once you have bought in. They only cover NZX and ASX indexes though.
There are in fact a couple of Kiwisaver index funds, so another angle is choosing one of them as your Kiwisaver provider.
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Under the old regime, index funds did not pay tax on capital gains, because they were not trading for income. (NZ doesn't have capital gains tax, remember; just tax on income). Managed funds did pay tax on capital gains, because they were deemed to be trading for income.
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But instead, PIE funds now pay no tax on capital gains in NZ or Australian shares no matter how they are managed. In other words, I personally would pay income tax if I traded shares for income, but as a shareholder in a PIE, I wouldn't. (In fact worse than that, because PIE income is taxed at 33%).I regard this as an effective subsidy for managed fund managers.
Stephen the flip side of that argument (and the way I have viewed it until your argument there) is that the change minimised the number of "trading entities" that were treated differently. Should the varying degrees/types of management involved in active vs passive index tracking really be taxed differently? Simply because they choose their share makeup with different methods?
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In that case Gareth, I'd like the same tax treatment for my individual share portfolio.
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Danyl, what Stephen said :-)...
There are a lot of funds which operate on a contribution basis. Lots and lots and lots. I personally like my way because when it comes time for my contribution, I could pick any fund, or indeed any investment at all. So if the US index is looking crap, you could go for a kiwi or ozzie one, or whereever. Or just hold onto the cash until it's stopped crapping out.
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In that case Gareth, I'd like the same tax treatment for my individual share portfolio.
Yup, agreed - but the PIE change took us closer to consistency in some ways...
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Re Stephen's comment on fat fees by money managers, I have often wondered if one could set up your own advisory firm and secure the discounts for yourselves and friends on perfectly straight-forward investments.
I did exactly that in the 90s! I already had a consulting company registered, and 2 years later it occured to me that I could save on brokerage if I registered as a 'financial consultant' with various financial institutions. To date my company had nothing to do financial consultancy but that didn't seem to matter. If I said I was a financial consultant then I was one, and I was issued with broking code numbers so I could 'earn' trail commissions.
And not just by small fish either, the National Bank were also keen for me to sign clients up to their unit trusts. This was all done by email (and a Post Box) - I never personally met any of these financial institutions who made me their agent! Pretty damn spooky, and proof that we have a cowboy financial industry.
But that was last century, she's all good now, no cowboys allowed ...
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I was issued with broking code numbers so I could 'earn' trail commissions
As well as all the pamphlets and documents I needed to sign people up with, of course ...
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I think the NZ market is to some extent protected because whatever happens to the world economy, Fonterra's customers will keep buying milk products,and Telecom's customers will keep using the phone and interwebs.
On the Kiwisaver front, I thought all the funds on offer were crap value. Right now, I'd like to have 70% of my money in cash at a AA+ rated bank and 30% in an index tracker. I don't want high-fee managed funds and I do want transparency.
I'd be fairly happy with having access to the Cullen Fund - since the costs are paid for and it's got good scale, I'd expect decent 25-year returns.
Self-invested funds are a dumb idea. People would either spend the money on a house, fuelling house price inflation, or throw it into some fraudulent scheme.
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Thanks Stephen and Ben - something like smartshares is just what I'm looking for. I don't have anything like the discipline required to accumulate 5k in the bank. I'm impressed and a little frightened by people who can exercise such self-control - who knows what else they're capable of?
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This is probably a little off the mark but related to the issue of the health of the NZSX. Surely NZ's reliance on overseas borrowings to create asset bubbles (particularly in property) will ultimately lead to its economic downfall, regardless of the relative prudence of the corporate sector. And the prevailing attitude in NZ is that it's all quite healthy and harmless (see Bond & Bond's advertising fiasco). Private debt in NZ far outpaces income and productivity. The same problem exists in Australia, and its magnitude is laid out in detail here by Professor teve Keen.
http://cpd.org.au/sites/cpd/files/KeenCPD_DeeperInDebt_FullDoc_1.pdf
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Self-invested funds are a dumb idea. People would either spend the money on a house, fuelling house price inflation, or throw it into some fraudulent scheme.
Rich: I think the Aussies are a little more rigorous than that in defining what you can do - you certainly can't claim that your house is your super fund. Your point is taken though, paternalistic though it is. And I too would be happy with access to the Cullen fund as well...
Danyl: I have a high-interest account with Kiwibank. You only get the bonus interest if you make no withdrawals in the month. The command in online banking is carefully hidden in the interface so you can't easily withdraw from it. So get one of them, set up an AP that automatically transfers money into it timed for your payday, and Bob's your uncle.
Alternatively, I can manage your affairs and give you pocket money for a surprisingly modest fee.
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And interestingly, while the US administration is throwing cash out like the Santa Parade, Mark Weldon (NZX boss) is telling all political parties to NOT offer any tax cut as election policy - given the inflationary pressures we are under and the interest rate differentials we have to the rest of the world, we can't possibly afford the extra pressure that a tax cut would provide.
Here
Chances of being listened to? Preeeeeetty much zero I would think. -
Alternatively, I can manage your affairs and give you pocket money for a surprisingly modest fee.
Oh no. The last guy who made me that offer ended up standing over me in a car park wearing a zebra-skin hat screaming 'Don't make me go upside your head'.
I'm not making that mistake twice.
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