Portfolio Rebalance: We sold $103,000 of investments!
01 Sept, 2024
In August, I made a significant change to our investment mix. I sold all $103,000 of our Smartshares NZ Top 50 ETF (FNZ).
This change ties in with all the other tweaks I’ve made over the years, where I have been progressively refining how we invest and setting ourselves up for future growth.
Although I began actively saving and investing earlier, it’s only since 2015 that I’ve tracked our net worth. I reached a point where I needed to keep better records to answer my question, “Does this type of investment work?”. I’ve kept records ever since, and they now show how our investing has evolved. I noted the name of the investment each month and its value on the first of the month. Year after year, our mix changed as I learned and understood more, so this recent change is part of this evolution. If I were to use investment speak, I’d say I have ‘rebalanced my portfolio’.
Trial and Error
I looked down the years and compiled a list of all I’ve invested in and the order in which I did it, starting in about 2010. I’ve crossed out the ones I no longer hold:
Bonus Bonds
Meridian Energy Shares
OneAnswer KiwiSaver Balanced Growth
OneAnswer Single Asset Class International Share Fund
Smartshares NZ Top 50 ETF (FNZ)
Term Deposit
Gold
Simplicity KiwiSaver Growth
Smartshares US 500 ETF (USF)
Bitcoin
Sharesies Smartshares New Zealand Property Fund ETF (NPF)
Ryman Healthcare Shares
Hatch Invest SHE Index Fund
Kernel Investments NZ20
Kernel Investments Innovation Fund
Simplicity KiwiSaver High Growth
As we learned more about share investing, specifically ETF investing, we refined our investments by selling off things that once seemed like a rational idea but no longer did.
By mid-2024, I’d whittled down our investments to just three:
Simplicity KiwiSaver High Growth (for both Jonny and myself)
Smartshares NZ Top 50 ETF (FNZ)
Smartshares US 500 ETF (USF)
By August, we now hold just two investments:
Simplicity KiwiSaver High Growth (for both Jonny and myself)
Smartshares US 500 ETF (USF)
Why did we sell our entire Smartshares NZ Top 50 ETF (FNZ) investment?
The hardest part of investing is starting and committing my hard-earned pūtea to an investment in the first place. In the beginning, I like many, couldn’t imagine having $20,000, $50,000, or $100,000+ tied up in a share market that we barely understood. Therefore, I told myself from the beginning, “Don’t worry about the final destination; just start investing and learn as you go”.
My list of investments above shows all the paths I took along the way. When I look at my spreadsheet, I see the list decreasing year on year and beginning to concentrate on three main areas: KiwiSaver, US, and NZ share market ETFs.
Speaking specifically about the Smartshares NZ Top 50 ETF (FNZ) investment, in November 2015, I invested a lump sum of $2,000 to kick things off. Then, I committed to investing monthly, come rain or shine. I promised myself that I would continue doing that until my investment reached $10,000. At this point, I would reassess my strategy.
Soon enough, in early 2017, my investment grew to $10,000 via my inputs into the fund, reinvested dividends, and share market growth, aka capital gains.
I realised that the systems all worked, and my investment had grown in value. It was OK to proceed. I felt confident enough to increase our contributions and would reassess when they reached $50,000, which they did in December 2020.
Again, once I reached my goal, I reassessed.
Along the way, in addition to creating my spreadsheet, I began using Sharesight to track this investment because although I could see the value was rising, I didn’t know what my actual returns were. With Sharesight doing better math than I ever could, I got an absolute picture of how my investment was going, and it was going OK. See the graph below. So, we kept upping our monthly contributions, even making the occasional significant lump sum investment when money allowed, and we kept pushing for our next check-in point: $100,000.
Meanwhile, I kept learning about investing. I kept reading books and blogs, listening to podcasts, and gleaning wisdom from others on this journey before me. I also spoke with many friends in the Financial Independence space about my investment mix and talked about how they invest. Of all the things we were doing, our ‘heavy’ investment in the New Zealand share market raised their eyebrows. In their view, it was overly represented in our portfolio.
The knowledge continued to build, and I stuck to the parameters we had set for ourselves.
In 2023, our Smartshares NZ Top 50 ETF (FNZ) reached $100,000, but only for a short time. Throughout 2023, the balance of the investment wavered up and down, reaching as high as $103,000 and as low as $93,000. By this time, I knew that a significant change to our investment mix was imminent, so I reduced and then stopped our monthly contribution to this fund and set about making a decision. I significantly upped our contributions to our US 500 ETF.
US vs NZ share market
The share markets of these two countries have told quite different stories over the last five years. New Zealand has ambled along, with 18% growth, but the US has grown by 96%. Therefore, I’m sure you are not surprised to hear that I was reassessing our situation. The value of our New Zealand investment had become too exposed to a very ho-hum share market, and by leaving it there, we were potentially (and realistically) missing out on far more significant returns.
This Sharesight graph of my Smartshares NZ Top 50 ETF (FNZ) benchmarked against their US 500 ETF shows how poorly my fund has performed (particularly since July 2021) compared to the latter:
Hometown bias
You may have heard the phrase “hometown bias” bandied about. That means that, whatever country you live in, you feel your share market is highly likely to do well. As I watched my investment progress via Sharesight, I saw it did very well initially. And I hoped it would get its mojo back again soon. You will also have heard the phrase “putting all your eggs in one basket”. These two things combined mean that you invest your money into the share market of your own country, and this is not too great an issue if your home country is massive, like the United States of America, where you can spread your risk out over many sectors, but from an investment point of view, if your country is a tiny spec on a map of the world, then you could face a potential problem. New Zealand has much riding on a far smaller pool of companies.
While I’ve been sticking to my plan of steadily investing in our NZ Top 50 ETF, and our wealth has indeed grown, as much as I like this place, I’ve become over-invested in our small country. With $500,000+ now invested, my hometown bias essentially meant that $100,000, or 20% of our invested money, was purely in the New Zealand share market. Also, given that our KiwiSaver funds are part of this $500,000 and have a combined balance of $220,000, and 15% of our fund is New Zealand shares, we are even more exposed to the New Zealand economy. And let’s not forget I also own a home in New Zealand, tying up even more money here.
Aotearoa is great, but our share market is tiny, making us vulnerable to something significant going wrong. Therefore, I’ve chosen to rebalance our portfolio and reduce our exposure to the New Zealand share market.
Good idea. Interesting timing!
On July 30th, using ASB Securities as our share broker, I sold our entire Smartshares NZ Top 50 ETF (FNZ) fund of $103,645 and immediately reinvested that money into our Smartshares US 500 ETF (USF). Note the price to do so was $310. We paid a similar amount when rebuying US 500.
Dollar-cost average or bulk buy?
If you pay any attention to investing, you will eventually hear in minute mathematical detail the merits of dollar cost averaging (or drip-feeding money into an investment over time) vs just making one large purchase.
I dollar-cost-averaged our money into the NZ Top 50 fund, which grew to $103,000. But only because I didn’t have $103,000 to invest in one go. Any time I had money to invest, I invested it. But it was always smaller monthly amounts varying from hundreds of dollars to a few thousand. Most people will invest this way. Having a lump sum to invest is rare. Still, because I’ve become so accustomed to regularly investing whatever I have, I also have no qualms about investing a more considerable sum if I have it.
Now that I wanted to move this money to another investment, our Smartshares US 500 ETF (USF), I had no hesitation in doing it as a lump sum. I wanted our money out of the share market for as little time as possible, and personally, once I’ve made a decision, I want to get on with it.
I pay little attention to what the share markets do. I check the balances of our investments on the 1st of each month, and that’s about it. Trying to ‘time the market’ or pick the perfect time to sell and buy is an inexact science whose results are only proven in hindsight. It’s more luck than skill.
Therefore, only hindsight showed me that I’d sold our NZ Top 50 shares in a rising share market (getting slightly more than I anticipated) and bought our US 500 shares in a sinking share market (buying shares cheaper than expected). A few days after the trade was completed, the share market had a much more significant drop. Hindsight tells me I should have held off buying the US 500 for a few more days, and I could have bought more cheaply, but I wasn’t to know then.
In the grand scheme of things, it does not matter.
The portfolio rebalance is now complete.
Conveniently, today is September 1st, a month since I made the switch and the day I updated our net worth. On August 1st, our total investment value (KiwiSaver and US 500 ETF) was $518,000. Today, it is $512,000. We are $6,000 down.
In the grand scheme of things, this change in value is what it is. I’ve got time. And as sure as the sun will come up tomorrow, the US share markets are going up again. Over time, share markets go up, and they will take our investments with them.
The worst investment we have is our home.
I reached a milestone in my thinking about investing when I felt comfortable having hundreds of thousands of dollars invested in the share market via an ETF fund and our KiwiSaver. I’m extremely impatient to get to $1,000,000 and beyond. Most people I meet are terrified by that thought. Having so much money in the share market sounds risky to most.
Our house, which we own debt-free, is valued at $900,000 - $1,000,000 (who knows?). Does that worry me? Having so much money tied up in one single ‘investment’?
You bet it does!
Why?
Putting two-thirds of our money into one property on one street in one town can go badly. Don’t believe me? As a result of the Canterbury Earthquakes, the New Zealand government compulsorily acquired our land, and it took a three-year wrangle with our insurer to get our money out of our fully paid-for home. Only in the last few years did we get our final insurance payout. So, to me, buying a diversified ETF fund is the less risky option. Plus, it produces income. The chances of a few companies turning to dust are high, and the chances of them all disappearing are almost impossible.
Not to mention that we have a lot of money tied up in an asset that costs us via rates, insurance, upkeep, etc. While we remain living in it, and because we don’t ‘do debt’, the equity and any capital gains it enjoys are unusable. I’m itching to tip the scales and invest most of our money, with the minimum amount possible tied up in a single house. If the tables were turned today, with $500,000 invested in a home and $1,000,000 invested in ETFs, we would be almost retired by now, using The 4% Rule to draw an income of $40,000 yearly from our investments.
I spend a lot of time thinking about that.
Although I'm incredibly impatient to reach the finish line of being able to opt out of paid work so I can join many of my friends who are already there, I’m pleased with our progress, given our incomes and the fact that we only work part-time. Rebalancing our portfolio will set us up nicely for early retirement, where our money is invested in the right places to continue applying The 4% Rule.
When is the next reset?
The next big financial move on our horizon will be when we sell our home sometime in 2026 and buy a smaller, cheaper home in Alexandra or elsewhere. Or we may even rent for a while. Work will become optional. Options and opportunities are endless. This move will free up hundreds of thousands of dollars, which we can invest in our US 500 ETF. In the meantime, we’ll keep managing our money well, investing as much as we can monthly, letting the share markets do what they do, and growing our total net worth over time.
I hope you enjoyed this update. It’s got me very excited for our future!
