Is a managed fund for you?
Investing in property is not for everyone. Some don’t want to deal with maintenance, pay rates, insurance, property management, and everything else owning property entails. Others are simply looking for a faster return on investment (ROI).
Property investment is not liquid. If you need money fast for example to pay for a health problem or to buy a new car etc. you can’t sell a bedroom or a bathroom to arrange fast cash. Sure, you could increase or take out a mortgage on the property, but that is going to cost more money.
If you are seeking an alternative investment outside of property, you might consider a managed fund.
Managed funds provide excellent liquidity, and in a properly diversified investment portfolio can provide access to property investment both within New Zealand and overseas.
Managed funds can provide solid returns without all the hassle of owning a property. And the returns are generally better than what banks offer.
What is a managed fund?
Wherever possible, we prefer to recommend the use of managed funds or indirect investments because of the significant benefits to individual investors. These stem from the concept of “pooling” funds so that smaller investors can gain access to the sort of benefits usually available only to large corporate investors. They include:
- A wider spread of investments than direct investors could achieve which reduces exposure to any one asset, thereby reducing risk and increasing the prospect of sustainable growth.
- The funds are run by proven professionals who are monitoring the investments on a day to day basis and are therefore much closer to and more informed about the markets than the average individual could be.
- The funds deal in large dollar amounts and therefore have access to more competitive fees and brokerage rates.
- The availability of a wide range of types of funds which allow the individual to design a broadly diversified portfolio, but with the flexibility to be able to increase or decrease holdings easily.
Why would you consider a managed fund?
Just as with a property investment, you can earn income and obtain capital gains. Unlike property, where you need a substantial sum to get a foot on the ladder, the initial outlay can be a lot less. As the investment is diversified, the risk is spread. And you don’t need to be an expert as the experienced fund manager chooses the investments.
The use of professionally managed funds are an excellent vehicle to use alongside Kiwisaver to secure your financial security as you work towards retirement and are as equally beneficial to provide an ongoing income once in retirement.
Who is a managed fund for?
Anyone really. They are available to New Zealand-resident individual and company investors, trustee investors and non-resident investors. For individual investors, they are a great way to start investing without having to have in-depth knowledge of investment markets.
Portfolio Investment Equity (PIE) funds
We use (PIE) funds, which have been in existence since 2007. Like other managed funds, investor contributions are invested in different types of investments. They are taxed at the source at a special lower tax rate. The tax rate, which is based on your prescribed investor rate (PIR), is calculated from reviewing your previous two income years. For example, with a taxable income above $48,000 in each of the last two income years, your PIR is 28%.
Investing in a PIE
First, we talk about what your goals are, how much you’d like to invest and answer any questions you may have about PIEs. Then we complete a risk profile. This helps us determine if a growth, balanced or conservative fund is best for you.
If you think a managed fund might be of interest, then contact us to arrange an obligation-free appointment to discuss the best options for your situation. Call us (0800-230-235) or send an email (firstname.lastname@example.org) to set up a mutually convenient time.