A couple of weeks ago I compared the fees of Simplicity’s investment funds and Smartshares’ ETFs (check that article out here if you need refreshing).
Today I continue the comparison with the help of Sam from Simplicity and Dean from Smartshares. This time, I’m looking other aspects like taxes, ease of tracking and how much it costs to get started.
I’m a big fan of both these providers and want to help you figure out which one (or both!) is right for you.
Quick recap on how they differ
Smartshares offer a really wide range of different ETFs tracking everything from the NZ economy to global bonds to the Australian financial industry. Heaps of funds for pretty much everything out there.
Dean says: “Smartshares offers a range of flexible investment options for investors to create their own portfolio to suit their unique risk appetite. Investors can access 23 ETFs offering exposure to global and domestic asset classes of shares, bonds, property and cash“
On the other hand, Simplicity just offers three separate funds: Conservative, Balanced and Growth. These funds all have a mixture of international shares, Australasian shares, and local and overseas bonds.
A Simplicity fund is similar to a collection of Smartshares ETFS – the difference being that with Simplicity, someone’s already done the research for you and created a diverse portfolio. It’s just way more simple (ha ha). It saves you time and energy.
If you think you could make a better portfolio on your own, you’d be better off picking a few Smartshares funds and having a crack. If on the other hand, you’d be really happy with a pre-built portfolio and not having to spend much time deciding what to invest in, you might be better off with Simplicity.
How much does it cost to get started?
Smartshares is pretty accessible, allowing you to get started with $500 minimum, whereas Simplicity funds require $10,000 to get started.
Unfortunately, this $10k minimum will mean many people won’t be able to invest with Simplicity just yet, especially younger people. It’s disappointing if you’re keener on Simplicity, though they have plans to decrease that minimum in the future.
Here’s what Sam from Simplicity had to say about their $10k minimum:
“The $10k minimum is in place so we are able to keep costs down while complying with AML [anti-money laundering] legislation. Having a $10k minimum allows us to fairly allocate our costs to all our customers.”
Simplicity is still a smaller outfit and doesn’t have the personnel to deal with lots of small account signups.
Can I reinvest my dividends and set up a regular payment?
Both providers have the ability to reinvest dividends without any extra fees.
For Smartshares, dividends are reinvested by default, but you do have the option to get them paid out to you if you wish.
Simplicity also reinvests dividends by default and they currently don’t give the option to receive dividends as income.
What about taxes?
Ah, taxes, perhaps the most confusing and boring (but very important!) aspect of investing.
Both Smartshares ETF and Simplicity’s funds are structured as PIE funds. Basically, a PIE fund means the investors pay their own tax rate (your PIR rate, which is determined by your income), rather than the tax rate of the fund itself.
Income from Smartshares funds is taxed at a rate of 28%. However, if your personal PIR (prescribed investor rate) rate is less than 28%, you can potentially use this extra tax paid to offset tax on other investments.
I know tax is super confusing and definitely something I struggle to wrap my head around occasionally.
If you want to check your own PIR rate, the link on the IRD website is here.
Eyes glazed over yet? If you want to know more about the tax on Smartshares funds, check out this document here.
Tax paid on Simplicity funds are simply paid at your PIR, which can be between 0 and 28% depending on your income level. In general, if you’ve made over $48k in both the last two years, your PIR rate will be 28%, if you’ve made less, it might be a lower rate.
How can I track my investments?
Personally, I don’t stringently track my investments. That’s mainly because I’m a long term investor and I know that the sight of the short-term fluctuations would just stress me out too much. There’s nothing you can do but ride them out and I find it’s a lot easier to do this if I can’t look at what’s going on! The most I do is a quick monthly check.
Having said that, if you’re investing in single company shares (like Apple or Air New Zealand) it could be a good idea to keep a closer eye on what’s going on with them, especially if you’re thinking of selling in the short-term.
Another good argument for tracking your investments would be if you had quite a complicated portfolio or you were a more active investor. Some people really enjoy keeping a close eye on things.
Here’s what Dean had to say about tracking your Smartshares investments:
“Units that an investor holds in the Smartshares ETFs can be monitored via the registry Link Market Services. As the units are held on CSN [this is your personal number and shows what investments you own], an investor can monitor their ETF units in conjunction with any other direct share investments they hold and they can feed this into a portfolio tool such as Sharesight.co.nz“
With Simplicity, you simply track your investments via their website. They provide an easy to understand breakdown that includes: what your investment has earned, what you’ve paid in fees and tax paid and owed.
Here’s a quick table that breaks down the key differences between the two providers. In the future, I’ll add other providers to this table.
Minimum initial investment
|$500 per fund||$10k|
|23 ETFs offering exposure to global and domestic asset classes of shares, bonds, property and cash.||3 separate funds (Conservative, Balanced and Growth) each of which invests in Australasian Shares, Global shares and local and foreign bonds.|
|$50 minimum per fund||Any|
|Yes (with ability to receive them as income)||Yes|
|28%, ability to get deductions if your PIR is lower||At your PIR rate|
|Through Link Market Services or a portfolio tracking tool like Sharesight.co.nz||Through their own website provides info on earnings fees and tax.|
Who can invest?
|Individuals, Joint, Corporates, Trusts, Children||Individuals, Trusts|
Here are some links you might find useful!