Investing in Vanguard Funds from New Zealand (2024)

Summary:

• ​With over $7 trillion USD in assets under management, Vanguard is one of the largest investment management companies in the world, and offers a wide range of investment products, including managed funds, exchange-traded funds (ETFs), and more.
• Given their global scale and expertise, Vanguard products have proven to be popular amongst retail investors worldwide, and investing in Vanguard funds can greatly grow the wealth and better safeguard the financial futures of many New Zealanders.
• However, Vanguard doesn't have a dedicated New Zealand presence or platform to offer. This lack of presence has been a point of uncertainty for many Kiwis that are keen to take advantage of Vanguard’s super-low management fees and global expertise for their own investment portfolios.

In this guide, we’ll take a closer look at Vanguard, its investment products, and how Kiwis can best invest in Vanguard funds in New Zealand. Our guide outlines the most popular options for investing in Vanguard, the associated platform fees and minimum investments. We cover:

• Who is Vanguard?
• Index funds Explained
• How can Kiwis invest in Vanguard funds?
• Investment Options Cost Comparison
• Getting started and investing in Vanguard funds
• What are the Pros of investing in Vanguard funds?
• What are the Cons of investing in Vanguard funds?
• Must-Know Facts about Vanguard Investing
• Frequently Asked Questions related to Investing in Vanguard Funds

Please notethis guide does notreview the individual Vanguard fundsavailable in New Zealand – there are too many, so you will need to evaluate these independently. Furthermore, we have not placed any focus on individual Vanguardfund fees. Instead, we look at the costs incurred using each investing platform to buy and sell Vanguard funds to help your investment decision-making process.

Who is Vanguard?

Know This First: Index Funds Explained

​All of the Vanguard funds offered in New Zealand are index funds. Index funds aim to track the performance of a broad market or specific sector, rather than trying to pick shares that are expected to outperform the broader market or specific sector. This lack of active management can be a low-cost and efficient investment method, as index funds typically have lower fees compared to actively managed funds.

To help you make a fully informed decision, we explain what you need to know about this increasingly popular investment option:

1. An index fund follows an index (e.g. the S&P 500) and aims to replicate the performance of the set index. So, for example, if the S&P 500 went up 10% in one month, a S&P 500-tracking index fund would also go up by 10%.
2. When investors buy an index fund, they get a diverse selection of many shares in one bundle. This diversification avoids the need for the end investor to purchase the shares individually. Instead, the index fund will invest in companies that fall within the index's criteria.
3. Investments are 'passive', meaning there isn't a fund manager actively buying and selling shares trying to pick winners, so the costs are typically much lower.
4. You can invest in almost anything with index funds.
5. If you're a long-term investor looking to build up savings over five, ten or even twenty years, index funds can deliver consistently strong returns, as while index funds aren’t going to outperform the market, they also won’t underperform the market either (which actively managed funds are susceptible to doing).
6. The occasions of underperformance, combined with the typically higher annual fees involved with actively managed funds often sees them perform worse off compared to index funds over the long term – this is supported by much research, as evidenced in this research from CNBC.

More details:Our guide to index funds and index funds vs ETFs helps explain and outline everything you need to know about making an informed investment decision.

Vanguard Investing Options

Vanguard Through InvestNow

• InvestNow is an online investment platform that gives New Zealanders access to over 150 managed funds from local and international fund managers, banks' term deposits as well as an in-house KiwiSaver Scheme – all in one place.
• InvestNow charges no additional fees for their investments, meaning that the costs of any funds on their platform are identical to those charged by the fund managers themselves. Instead, InvestNow primarily makes their money by charging the fund managers a fee for being available on their platform.
• InvestNow offers a variety of Vanguard-powered funds, including two from their in-house Foundation Series Funds (which invest into Vanguard ETFs), nine from Smartshares ETFs (which also invest into Vanguard ETFs) and two managed funds from Vanguard Australia (note as the two Vanguard International Shares Select Exclusions Index Funds are Australian unit trust funds, they fall under Foreign Investment Funds tax rules, which are taxed at the investor’s marginal tax rate of up to 39%, compared to the maximum 28% tax rate for the other Vanguard-powered funds on InvestNow, due to their efficient structure as PIE funds).
  
• InvestNow has the scale to grant access to investments with significantly higher minimum investment requirements (e.g. $500,000 in the case of funds from Vanguard Australia). This means that investors can get access to any (or all) of the 13 Vanguard investment options on InvestNow for as low as $50 (if part of a regular investment plan) or $250 for a one-off investment.
  

InvestNow Vanguard-powered funds available and respective annual management fees:

Benefits of using InvestNow for Vanguard Investing:

• Low minimum investments: $250 one-off or $50 per fund for a regular investing plan
• No additional platform fees

More details:InvestNow review

Foundation Series Funds

Foundation Series Vanguard-powered funds available and respective fees:

• Foundation Series US 500 Fund (invests in the Vanguard S&P 500 ETF) – 0.03%
• Foundation Series Total World Fund (invests in the Vanguard Total World ETF) – 0.07%

The Foundation Series range of funds available on InvestNow includes two funds that invest exclusively in Vanguard ETFs. The main benefit of these funds is that the annual management fees are in line with the underlying Vanguard ETFs so that investors can take advantage of Vanguard’s super low annual fees of 0.03% for the US 500 Fund and 0.07% for the Total World Fund.

In addition, both these Foundation Series funds are structured as Portfolio Investment Entity (PIE) funds, which can enable investors to benefit from tax efficiencies compared to investing in the same Vanguard ETFs directly. This is because investing in the Vanguard ETFs through an online investment brokerage platform (such as Sharesies, Hatch and Stake) count as foreign investments, that would ordinarily incur Foreign Investment Funds (FIF) tax, and which is charged at the investor’s marginal tax rate of up to 39%, compared to PIE funds which are only taxed at a maximum tax rate of 28% (the investor’s Prescribed Investor Rate).

All else equal, this means that investors can benefit from of up to 0.55% per year in tax savings alone by investing in the Foundation Series Funds compared to investing directly in the equivalent Vanguard ETF – which means more dollars in the pocket of investors – particularly for those investors that have $50,000 or more invested into foreign investments, who stand to gain the most from these tax efficiencies as they wouldn’t be eligible for the de minimis exception to FIF taxes.We explain the 0.55% saving in a dedicated frequently asked question.

Know This: The two Foundation Series funds is that they charge a 0.50% transaction fee on each buy and sell order, which covers all foreign exchange, brokerage and fees associated with operating the funds. This fee structure is similar to the types of fees that an investor would pay if they were to invest in the underlying Vanguard ETF directly through a share brokerage platform (such as Sharesies, Hatch and Stake), which charge upfront fees to cover the likes of exchanging NZD and USD as well as brokerage costs for buying and selling the ETF that in total are higher than the 0.50% transaction fee charged by the Foundation Series Funds.

Overall then, the fee structure of the two Foundation Series Funds are highly beneficial for those investors with a multi-year investment horizon, as the benefits of the super-low annual management fees, competitive one-off transaction fees alongside the tax advantages of the PIE structure means that the after-fees-and-tax returns (or the returns that you as an investor actually get to keep) will be some of the highest out of all Vanguard investment options available to New Zealanders.

Video Explainer:To help explain the Foundation Series funds, we suggest watching the video below from a MoneyHubLIVE event held in June 2023. In it, Doug Shephard of MoneyHub and Jason Choy of InvestNow discuss investing in Vangaurd funds, the risks, pros, cons, costs and answer common investor queries from the MoneyHub community.

Vanguard Through Smartshares and SuperLife

Know This: Each of the Smartshares Funds above are also available on InvestNow, which for many investors will be a more cost-effective way of investing into these funds compared to investing directly through Smartshares, as:

• Smartshares charges a $30 set-up fee for new customers versus $0 for InvestNow.
• Smartshares minimum lump sum investment is $500, versus InvestNow’s $250.
• Orders undertaken directly through Smartshares are processed only once per month, compared to every business day with InvestNow.
• You can’t sellyour units through Smartshares (you have to sell them through a NZX broker like Sharesies, which will charge you extra brokerage fees), while InvestNow allows you to sell your units for no brokerage fees.

Why do Smartshares and SuperLife charge, for example, a 0.40% p.a. management fee when Vanguard charges 0.07% p.a.?

The difference is due to the costs of making a Vanguard fund available in New Zealand. This cost includes trading expenses, fund administration, accounting, auditing and legal requirements. Also, every Smartshares ETF can be bought and sold on the NZX; Smartshares must pay an annual listing cost for every ETF to appear on the NZX. These costs and general overhead expenses are why the annual charges are higher than the Vanguard fee.

More details:

• Smartshares review
• SuperLife review

Vanguard Through Hatch, Sharesies and Stake

Hatch.
Hatch is a platform that allows you to invest directly in companies and funds listed on both the Nasdaq and New York Stock exchanges in the United States.

There are many Vanguard funds offered on the Hatch Investment platform. Hatch has over 60 Vanguard ETFs available for Kiwis to invest in. All Vanguard ETFs charge the base Vanguard annual management fee rate, which starts from 0.03%.

However, extra fees are involved when investing with Hatch, such as currency exchange fees of 0.5% and a minimum $3 USD brokerage fee per trade. Similar to other investment platforms, investing in Vanguard funds offered by Hatch will have foreign investment fund (FIF) tax implications. Hatch has broken down the implications of FIF taxes in New Zealand in this summary note.

More details: Hatch review

Sharesies.
Sharesies is a New Zealand-based platform that allows you to invest in over 170 companies listed in the country. It also offers more than 35 local funds, some of which are the same Vanguard-powered funds provided through Smartshares discussed above. The fees for these Smartshares funds powered by Vanguard range from c. 0.34% to 0.59%.

In addition, Sharesies also offers investment in US stocks and ETFs, including over 60 Vanguard ETFs. All Vanguard ETFs charge the base Vanguard annual management fee rate, which starts from 0.03%.

However, extra fees are involved when investing with Sharesies, such as currency exchange fees of 0.5% and a 1.9% brokerage fee per trade. Similar to other investment platforms, investing in Vanguard funds offered by Sharesies will have foreign investment fund (FIF) tax implications.

More details: Sharesies review

Stake.
Stake is an Australian-based investment platform that allows users to buy and sell shares in publicly listed companies in the United States. It offers a range of investment options, including a range of Vanguard ETFs which will charge their typical annual management fee.

However, once again extra fees are involved when investing through Stake, including currency exchange fees of 1% and a soon to be implemented $3 USD minimum brokerage fee per trade or 0.01% brokerage fee transactions above $30,000 USD (effective 4 March 2023). You can find a detailed breakdown of Stake’s fee structure.

Similar to other investment platforms, investing in Vanguard funds offered by Stake will have foreign investment fund (FIF) tax implications.

More details: Stake review

Each of the three platforms above offers around 60+ Vanguard-powered investment options, with Sharesies offering the widest selection, given it offers Vanguard ETFs and NZX-listed Smartshares funds (many of which invest in Vanguard funds).

Given the underlying Vanguard investments are more or less identical, the biggest factor will be the costs involved with using each option, as each has a slightly different foreign exchange fee and brokerage fee applicable, depending the amounts invested.

It’s also important to understand the implications of these offshore investments and thus being taxed under the FIF tax regime implemented by the Inland Revenue (IRD), as this can lead to significantly higher tax costs and administrative burdens compared to investing locally. For a comprehensive breakdown of FIF taxes in New Zealand, check out our definitive guide to taxes on investments.

Comparison reviews:

• Sharesies versus Hatch versus Stake
• Comparing Sharesies vs Investnow vs Hatch vs ASB Securities vs Jarden Direct

Vanguard New Zealand Investment Options Cost Comparison

We’ve compared the overall costs involved with investing into Vanguard funds using the various options available to New Zealanders, and as an example outlined below a breakdown of what the costs would look like for investing in one of NZ’s most popular Vanguard Funds: the Vanguard S&P 500 ETF (Ticker: VOO) through the various options available to Kiwis.

This comparison takes into account all costs that an investor would pay for investing into this Vanguard ETF, including annual management fees, platform-specific transaction fees (e.g. foreign exchange fees, brokerage costs) as well as tax-related costs.

To demonstrate the significant impact fees and tax can have on investment outcomes, we’ve also outlined how these costs would impact an investor’s overall returns by providing an indicative portfolio value and total return for the Vanguard investment after 10 years (net of all costs including fees and taxes), assuming that an investor has:

• An initial lump-sum investment of $100,000
• An annual rate of return of 7%, plus a 2% annual dividend yield; and
• A marginal tax rate of 39% and a Prescribed Investor Rate (PIE tax rate) of 28%

Important:

• ​​Based on this analysis, the Foundation Series US 500 Fund from InvestNow comes out on top with the highest overall return on investment after 10 years. This reflects the Foundation Series Fund’s cost-effective fee arrangement as well as tax-efficient fund structure, as nowhere else in the market would Kiwi investors find this unique combination of super-low annual management fees (matching the underlying Vanguard ETF at only 0.03%) whilst still providing the tax benefits of the PIE fund structure (which caps the tax rate charged at 28%), which ultimately results in the best long-term after-fees-and-tax outcomes for investors that are otherwise eligible for FIF taxes.
• Despite the 0.50% transaction fees that the Foundation Series Funds charge, which for example the equivalent PIE fund Smartshares ETFs don’t charge, the fact that the Foundation Series Funds result in annual management fee savings of 0.31% compared to the equivalent Smartshares fund means that for multi-year investors, the one-off transaction fees are more than offset by the benefits annual fee savings, which allow investments to better compound over longer time horizons.
• Furthermore, the Foundation Series Fund’s transaction fee structure is also highly competitive compared to the transaction fee structures of online share brokerages such as Sharesies, Hatch and Stake.
• Note that this example is for illustrative purposes only and relies on a few underlying assumptions – investors should take into account their individual circ*mstances in determining the optimal investment option for themselves.
• Nevertheless, the analysis does highlight the broader importance of considering the overall costs for each investment option (i.e. not just the fund’s annual management fee, but also the platform’s transaction fees and the associated tax costs). For it is these after-fees-and-tax returns that ultimately determine the success of an investment – in much the same way that your take home salary (net of taxes) is what most people are concerned about and plan their finances around, investors should be most interested in which investment option and cost structure leads to the best take-home investment returns.
• Remember, each of these investment options invest into the same underlying Vanguard S&P 500 ETF, so while the investment’s gross returns are identical, the fact that the Foundation Series US 500 Fund comes out with an ending portfolio value of almost 14% greater in dollar terms compared to the worst performing option highlights the drastic role that an efficient cost structure has on your overall investment returns.
• It is important to note that these overall cost savings are fully realised for those investors that would otherwise be subject to FIF taxes (i.e. those that have $50,000 or more invested into foreign investments and thus would not be eligible for the de minimis exception to FIF taxes).
  
• For investors that are eligible for the de minimis exception on their foreign investments, which charges tax on all dividends earnt at their marginal tax rate, this scenario may not be fully applicable, given it models a $100,000 lump sum investment (i.e. FIF taxes fully applicable).
  
• Investors who are investing in up to $50k directly (and eligible for the de minimis exception) may find an alternative option cheaper for their individual situation, depending on their marginal tax rate, investment amount, investment frequency, among others – we recommend consulting a financial adviser for any specific advice on your own situation.

Getting Started and Investing in Vanguard Funds

Investing in a Vanguard fund is usually much easier than picking individual shares. Yet it can be hard to know where to start. We believe it's a three-step process, which we outline in detail:

1. Decide where to buy. Find the right platform for you, and in particular considering key factor such as the costs of the platform and the investment options available – this may, for example, be InvestNow (for the Foundation Series US 500 and Total World Funds, which invest into Vanguard or Smartshares' Vanguard series), Sharesies, Hatch or Stake (for Vanguard ETFs) or another platform you already invest with.
2. Pick a Vanguard fund or ETF you want to invest in. What funds meet your investing strategy will take some time to consider – please do not rush this process, as it's essential to be comfortable with what you're investing in. Figuring out your investment goals can easily filter down the ideal Vanguard funds or ETFs you want to invest in. For example, are you saving for retirement, your child's education, or a down payment on a house? Understanding your investment goals will help you choose the right Vanguard funds tailored to your specific situation and needs.
3. Check the investment minimum, ongoing other costs and redemption times. Then, find the right investment for your budget and financial demands. When setting your investment strategy, it's important to decide how much money you want to invest in each fund and how often you want to make investments (e.g. monthly, quarterly, etc.).

Vanguard publishes useful guides and videos for creating a robust investment plan:

1. Vanguard's principles for investing success
2. Building your investment portfolio

Why Would Kiwis Want to Invest in Vanguard Funds?

What are the Pros of Investing in Vanguard Funds?

What are the Cons of Investing in Vanguard funds in New Zealand?

Must-Know Facts about investing in Vanguard funds in New Zealand

• Vanguard is a leading global investment management company with over $7 trillion in assets.
• Vanguard is known for its low-cost index funds, which often have lower fees than actively managed funds.
• Vanguard offers an incredibly wide range of investment products, including index funds, managed funds, and ETFs.
• Kiwis can invest in Vanguard funds directly through dedicated investment managers (such as InvestNow and Smartshares), directly through online brokerages (such as Sharesies, Hatch, Tiger Brokers or Stake) or indirectly through fund providers (such as SuperLife).
  
• Vanguard's investment products are managed by a team of professional investment advisors who use a disciplined approach to investment management.
• Vanguard is best for Long-term investors looking to follow a market, investors focused on low-cost funds and investors who already prefer index funds and ETFs.

Conclusion

• Investing in Vanguard funds in New Zealand can greatly grow your wealth and better prepare you for your financial future. With a wide range of investment products, low fees, and professional management, Vanguard offers several benefits for Kiwi investors.
• There are several options available for New Zealanders to invest in Vanguard funds. InvestNow, Smartshares, Sharesies, Hatch, Tiger Brokers, Superhero and Stake all offer access to Vanguard funds through various platforms and intermediaries.
  
• The easiest and most cost-effective option for most investors will be through InvestNow and in particular their in-house Foundation Series Funds in many cases provide long-term investors with the highest after-fees-and-tax returns out of all Vanguard options in New Zealand.
• Online share brokerages like Sharesies, Hatch, Tiger Brokers and Stake on the other hand offer the widest breadth of Vanguard options, albeit at a higher overall cost to the investor due to the additional and often times significant fees involved, such as currency exchange, brokerage and other platform fees, which see require investors needing to return up to 4% on their initial investment just to breakeven with the fees they’ve been charged.
• Our guide has been prepared to explain how to invest in Vanguard funds; considering your investment goals and the fees associated with each platform is important before deciding which option to use.

Frequently Asked Questions

How do I pay the fund fees?

If I invest in a fund now, what price will I get?

What's the minimum amount I can invest?

Where can I find the performance history of some of the Vanguard funds?

What is the cheapest way to invest in Vanguard?

How long does it take to sell a Vanguard fund?

What do I need to do with paying tax on profits?

With regards to the "0.55% per year in tax savings alone by investing in the Foundation Series Funds compared to investing directly in the equivalent Vanguard ETF", how is this calculated?

This answer refers to our tables under the Investment Options Cost Comparison.

As a high level summary:

• The Foreign Investment Fund (FIF) tax rules stipulate that if you were investing directly into offshore shares, such as investing into the Vanguard S&P 500 ETF (VOO) through the likes of a Sharesies, Hatch, Stake, etc, then any investment income you make in the tax year is taxed at your marginal tax rate (0%, 10.5%, 17.5%, 30%, 33% or 39%).
  • If you have $50,000 or more invested into foreign investments, thenFIF provides two different methods for calculation your investment income for any one year:
    • Fair Dividend Rate (FDR) Method: Taxable FIF Income = Market Value of your Foreign Investments at Beginning of Tax Year x 5%; or
    • Comparative Value (CV) Method: Taxable FIF Income = (Opening Market Value of FIFs + Costs of new FIFs) – (Closing Market Value of FIFs + Proceeds from FIFs)
  • Typically, investors will choose the FDR method in positive return years and CV method in negative return years, as this would minimise their tax burden.
    • Our assumptions for the Investment Options Cost Comparison is that investors achieves a 7% return each year, they would logically choose the FDR method to minimise tax.

• However, if you were to invest into the same underlying global shares by these investments are done within a PIE Fund (like the Foundation Series US 500 Fund), then any investment income is charged at the investor’s Prescribed Investor Rate (0%, 10.5%, 17.5%, 28%).
  • For someone on the 39% marginal income tax rate, they would fall under the 28% PIR rate
  • Therefore, if their VOO investment is taxed under FIF rules (FDR), then their Tax Obligation for that year will be calculated as 5% x 39% = 1.95% tax rate of beginning market value (footnote 7)
  • However, if their VOO investment is wrapped up in a PIE Fund, then their Tax Obligation for that year will be calculated as 5% x 28% = 1.40% tax rate of beginning market value (footnote 6)

• The difference between 1.95% (under FIF’s applicable tax rate of 39%) and 1.40% (under PIE’s applicable PIR rate of 28%) results in your 0.55% of tax savings each year.
  • If the investor fell under 33% marginal tax rate, then the annual savings would be (5% x 33%) = 1.65% - 1.40% = 0.25% p.a. tax savings
  • If the investor fell under 30% marginal tax rate, then the annual savings would be (5% x 33%) = 1.50% - 1.40% = 0.10% p.a. tax savings
  • Any investors falling underneath 30% tax rate will likely have the same marginal RWT rate as their PIR rate, so equivalent savings
    • The PIE still has benefits though from an administrative point of view, as the PIE tax is final – there is no need to separately fill out a tax return for your foreign investments.
  • Note however if an investor has less than $50,000 invested into foreign investments, then they would be eligible for the de minimis exception to the FIF tax rules, which means that instead of choosing either the FDR or CV methods, their foreign investment tax obligations are simply the dividends they received in the tax year, charged at their marginal tax rate.

I see Vanguard has an Australian and UK website for investing directly. Is there an option to do this in New Zealand?

If I use Sharesies, Hatch, InvestNow or anyone else to buy Vanguard funds, what happens if the platform goes bust?

Where can I find the fund summary of some of the Vanguard funds?

How do index fund fees work for funds like Vanguard?

Can Kiwis work with a financial advisor to invest in Vanguard funds?

What other options exist if I want to invest in Vanguard funds but don't want to use any of the investment managers or platforms listed above?

Why are the Smartshares and Superlife Vanguard funds fees not the same as those shown on the Vanguard fund summary?

How do SuperLife's Vanguard KiwiSaver options compare to other KiwiSaver fund providers?

Related Guides:
​​If you’re interested in checking out some of the other ways to invest, check out our reviews of the top investment platforms in New Zealand:
New Zealand Investment Platform Reviews:

• InvestNow
• Sharesies
• Hatch
• ASB Securities​
• Jarden Direct
• Simplicity Investment Funds
• Kernel Wealth

International Investment Platform Reviews:

• Interactive Brokers
• Stake
• Tiger Brokers