Cliffe Consulting - Blog , InvestmentsCliffe Consulting - Blog , Investmentshttps://www.cliffeconsulting.co.nz/blogs/investmentsThu, 24 Jul 2025 20:24:58 +1000http://zoho.com/sites/<![CDATA[Navigating world sharemarket volatility with confidence]]>https://www.cliffeconsulting.co.nz/blogs/post/navigating-world-sharemarket-volatility-with-confidence

You may have seen recent news about volatility in sharemarkets. Naturally, such news can be unsettling, and we wanted to give some reassurance and perspective.


Short-term market fluctuations, while concerning, are a normal part of long-term investing. Our portfolios are deliberately structured with this in mind. They are globally diversified, meaning our clients' portfolios are spread across different countries, sectors and asset types. This approach helps reduce the impact of any single market event.


Importantly, our portfolios contain a mix of growth assets (such as shares) and defensive assets (such as cash and bonds). If clients need to draw on their investments in the short-term, we can access funds from the defensive assets - allowing the share component of their portfolios time to recover. This helps avoid the need to sell growth assets when prices are temporarily low.


History has shown that markets do recover, often more quickly than many expect. For example, during the Global Financial Crisis, global sharemarkets (as measured by the MSCI World Index) fell sharply from late 2007, reaching their lowest point in March 2009. But, by early 2010 (less than a year later), a significant portion of those losses had already been regained.

 

More recently, during the COVID-19 pandemic, the MSCI World Index dropped over 30% of its value between February - March 2020. However, by November 2020, the index had recovered to the levels seen in early 2020.

 

Investors who remained patient and stayed the course were rewarded as markets rebounded.

 

We believe that now is not the time to make changes based on short-term movements.  History has shown us that reacting emotionally to market volatility can often do more harm than good. Staying the course and remaining invested during periods of uncertainty is key to long-term success.

 

If you have any concerns, would like to review your financial position, or just have a chat, please do not hesitate to get in contact.

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]]>Mon, 14 Apr 2025 08:30:02 +0000<![CDATA[the  wealth   tax  you  don't  know  you  are  paying]]>https://www.cliffeconsulting.co.nz/blogs/post/the-wealth-tax-you-don-t-know-you-are-paying

Last year, I chatted to Susan Edmunds about what is probably a unknown tax on KiwiSaver and PIE investments when investing in overseas shares. She published an article in Stuff explaining it further and included my comments (you can click the button at the bottom of this post to read the article).

Each year, all PIE investors (including KiwiSaver) pay tax on 5% of the market value of the opening value of their overseas shares (OECD country shares, emerging market shares, real estate shares, but excluding Australia). This happens regardless of how they performed during the year. This is known as the Fair Dividend Regime (FDR) method. This is all handled within the PIE, which investors do not need to include in their tax return if they are on the correct PIR (Prescribed Investor Rate) rate, aka their tax rate for PIEs.

In the past weeks, we have been sending out tax statements to our clients for the financial year ending 31 March 2024. Because they are not all invested in PIEs, our portfolio clients can elect whether to use the FDR method or an optional method called 'Comparative Value' for their overseas shares. Because global sharemarkets have performed strongly in the past financial year, they will most likely elect to use the FDR method and pay tax on the first 5% of their double-digit return in their global shares. Last year however, when global sharemarkets declined, they would have been better off using the Comparative Value method, meaning that there was no tax to pay.

Investors in PIEs do not get a choice, they are taxed using the FDR method every year, regardless of performance. When PIEs were first established, back when KiwiSaver was launched in 2007, we were all probably thinking about the capped headline tax rate of a PIE, and the employer and government contributions that we would receive if we contributed to KiwiSaver. I don't recall much being said about the FDR taxation method of global shares back then. The cherry on the top was that we wouldn't need to file a tax return if were were on the correct PIR rate.

Now I would be completely okay with having to complete a tax return if it meant that I could use the optional Comparative Value tax calculation in years that my KiwiSaver declines in value. It is very simple and easy for our portfolio clients (the ones who don't have an Accountant) to do this via their myIR account. The trouble is that it is unlikely to get any political will to make this happen, as they are counting on the revenue from PIEs which occurs every year, regardless of how global sharemarkets perform. Hence in a bad (i.e. loss) year, you still pay this wealth tax even though in fact you got poorer, because your overseas shares were worth less. 

How much tax could the government be collecting by KiwiSaver schemes via the FDR method?  A back of the envelope calculation might say that some 40% of KiwiSaver accounts are invested in overseas shares. With $100 billion in KiwiSaver, (that's $100,000,000,000), that's $2 billion tax revenue for the Government every year on foreign shares held via KiwiSaver. And that's just KiwiSaver. What about all the other PIE investments held by Kiwis? The only offset is the Government contribution of $521.34 for members who contribute $1,042.68 in the KiwiSaver year. So, approximately 40% of the $521.34 in Government contribution is effectively given back via FDR, i.e. last year the Government was ahead by $2 billion minus $388 million (being 40% of $970.2 million of Government contributions they paid out). A great outcome if you're the Government because you're ahead by $1.612 billion (approx). 

We need a level playing field for all investors and asset classes when it comes to tax.  But, we have far from this. Consider that the National-led Government have brought back interest deductibility for residential property investors, just one investment class. Those investors don't pay capital gains tax when they sell their rental property, and are now incentivised to help with our country's building supply by investing in non-profitable and non-taxable houses. The banks love it as it promotes borrowing and leverage, and meanwhile young people can't buy their first house. Tax needs to be fair. If the concession to rental property investors was removed as Nicola Willis' figures in the budget, it alone would balance the Government's books.

Feel free to get in contact if you would like to discuss any aspect of this post.

Rachelle Bland, Financial Adviser
rachelle@cliffeconsulting.co.nz
021 631 327

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