NZ Shares vs International ETFs: Which Investment Strategy is Better?

Introduction

Choosing between New Zealand shares and international ETFs is a crucial decision for Kiwi investors. This comprehensive guide analyzes both investment strategies to help you make an informed decision based on your financial goals, risk tolerance, and investment timeline.

Understanding the Basics

NZ Shares Overview

Direct investment in New Zealand companies offers:

1. Local Market Knowledge

   • Familiar companies
   • Local economic conditions
   • Market accessibility
   • Direct ownership

2. Tax Advantages

   • Imputation credits
   • Simplified tax reporting
   • No FIF tax considerations
   • Local currency

International ETFs Overview

ETF investment provides:

1. Global Diversification

   • Multiple markets
   • Various sectors
   • Currency exposure
   • Risk spreading

2. Professional Management

   • Expert oversight
   • Index tracking
   • Rebalancing
   • Corporate actions

Comparing Investment Strategies

Risk Assessment

1. NZ Shares Risks

   • Market concentration
   • Individual company risk
   • Limited diversification
   • Liquidity concerns

2. International ETF Risks

   • Currency fluctuations
   • Foreign market exposure
   • Political/economic risks
   • Tax complexity

Return Potential

1. NZ Shares Returns

   • Dividend focus
   • Capital growth
   • Market knowledge advantage
   • Direct company engagement

2. International ETF Returns

   • Global growth exposure
   • Diversified income
   • Market opportunities
   • Risk-adjusted returns

Cost Analysis

NZ Shares Costs

1. Direct Costs

   • Brokerage fees
   • Platform charges
   • Transaction costs
   • Account fees

2. Indirect Costs

   • Research time
   • Monitoring effort
   • Portfolio management
   • Tax compliance

International ETF Costs

1. Management Fees

   • Expense ratios
   • Platform fees
   • Currency conversion
   • Trading costs

2. Hidden Costs

   • Bid-ask spreads
   • Foreign exchange
   • Tax implications
   • Compliance expenses

Tax Considerations

NZ Shares Taxation

1. Dividend Treatment

   • Imputation credits
   • Resident withholding tax
   • Capital gains rules
   • Record keeping

2. Tax Advantages

   • Local tax benefits
   • Simplified reporting
   • Direct credit claims
   • Tax planning opportunities

International ETF Taxation

1. FIF Rules

   • De minimis threshold
   • FDR method
   • CV method
   • Annual calculations

2. Foreign Tax Implications

   • Withholding tax
   • Double taxation
   • Tax treaties
   • Reporting requirements

Investment Strategies

NZ Shares Strategy

1. Portfolio Construction

   • Stock selection
   • Sector allocation
   • Risk management
   • Position sizing

2. Management Approach

   • Research requirements
   • Monitoring needs
   • Rebalancing decisions
   • Corporate actions

International ETF Strategy

1. ETF Selection

   • Index choice
   • Geographic exposure
   • Sector focus
   • Cost consideration

2. Implementation

   • Dollar-cost averaging
   • Rebalancing approach
   • Currency management
   • Tax efficiency

Market Analysis

NZ Market Characteristics

1. Market Size

   • Limited opportunities
   • Concentration risk
   • Sector dominance
   • Growth constraints

2. Market Advantages

   • Local knowledge
   • Direct access
   • Regulatory protection
   • Currency stability

International Markets

1. Market Opportunities

   • Global leaders
   • Emerging markets
   • Sector diversity
   • Innovation exposure

2. Market Challenges

   • Information access
   • Time zone differences
   • Cultural factors
   • Regulatory variations

Portfolio Integration

Combined Approach

1. Allocation Strategy

   • Core-satellite approach
   • Risk balancing
   • Geographic weighting
   • Sector distribution

2. Implementation

   • Position sizing
   • Rebalancing rules
   • Monitoring framework
   • Performance tracking

Portfolio Examples

1. Conservative Portfolio

   • 70% NZ shares
   • 30% International ETFs
   • Risk focus
   • Income priority

2. Balanced Portfolio

   • 50% NZ shares
   • 50% International ETFs
   • Growth and income
   • Risk balance

3. Growth Portfolio

   • 30% NZ shares
   • 70% International ETFs
   • Growth focus
   • Global exposure

Investment Platforms

NZ Share Platforms

1. Local Brokers

   • ASB Securities
   • Direct Broking
   • Jarden Direct
   • Platform features

2. Modern Platforms

   • Sharesies
   • Hatch
   • Stake
   • User experience

International ETF Access

1. Global Platforms

   • Interactive Brokers
   • Hatch
   • Stake
   • Platform comparison

2. Selection Criteria

   • Cost structure
   • Market access
   • User interface
   • Support quality

Performance Monitoring

Tracking Methods

1. Performance Metrics

   • Total return
   • Income yield
   • Capital growth
   • Risk measures

2. Benchmark Comparison

   • Index selection
   • Peer comparison
   • Risk adjustment
   • Time periods

Regular Review

1. Review Process

   • Monthly monitoring
   • Quarterly assessment
   • Annual review
   • Rebalancing triggers

2. Assessment Criteria

   • Return objectives
   • Risk tolerance
   • Cost efficiency
   • Tax effectiveness

Making the Decision

Personal Factors

1. Investment Goals

   • Return requirements
   • Risk tolerance
   • Time horizon
   • Income needs

2. Personal Circumstances

   • Investment knowledge
   • Time availability
   • Tax situation
   • Financial resources

Decision Framework

1. Choose NZ Shares If

   • Local market knowledge
   • Direct ownership preference
   • Tax efficiency priority
   • Active management interest

2. Choose International ETFs If

   • Global diversification need
   • Passive approach preference
   • Professional management desire
   • Simplified administration

Conclusion

The choice between NZ shares and international ETFs depends on:

• Investment objectives
• Risk tolerance
• Time commitment
• Tax situation
• Personal preferences

Success factors include:

• Clear strategy
• Regular monitoring
• Cost awareness
• Risk management
• Long-term focus

Additional Resources

• Financial advisors
• Investment platforms
• Market research
• Educational materials
• Professional associations