Explore strategic approaches to leverage the Prescribed Investor Rate (PIR) tax advantage in New Zealand. Discover insights on optimizing regular monthly contributions through Portfolio Investment Entity (PIE) funds, capitalizing on the 10% PIR rate for the next 18 months. Uncover tips for diversifying lump sum investments, monitoring PIR changes based on income fluctuations, and regularly reviewing and adjusting your portfolio.
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“Having moved to NZ fairly recently from overseas, I’ve got a lot to learn about how investing and tax works. I recently discovered how the PIR tax rate slowly increases over time. Lucky for me, I have a 10% rate for at least the next 18 months.
Given that I plan to make regular monthly contributions, plus an initial lump sum, how would I be best served to take advantage of my PIR rate for the next couple of years? My initial thoughts were opening a PIE investment fund for regular auto-investing in a growth managed fund/index funds/etfs, and the lump sum in a Term PIE for diversification.”
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It’s great that you’re thinking strategically about how to optimize your investments and take advantage of the favorable PIR (Prescribed Investor Rate) tax rate in New Zealand. Here are some suggestions for making the most of your situation:
Regular Monthly Contributions:
Consider investing in a PIE (Portfolio Investment Entity) fund for your regular monthly contributions. This could be a growth managed fund, index funds, or ETFs within a PIE structure.
Since you have a 10% PIR rate for the next 18 months, it’s beneficial to invest in funds that generate capital gains, as these are taxed at your PIR rate. Growth-oriented investments are more likely to produce capital gains over the long term.
Initial Lump Sum:
Diversification is a good strategy for your lump sum. Your idea of putting it into a Term PIE is a sound one. This provides stability and can act as a counterbalance to the potential volatility of growth investments.
You might also want to consider spreading your lump sum across different asset classes (e.g., equities, bonds, and maybe even some alternative investments) to further diversify your portfolio.
Keep an Eye on PIR Changes:
Since PIR rates can change based on your income, it’s important to monitor your situation. If you anticipate changes in your income that may affect your PIR, adjust your investment strategy accordingly.
Review and Adjust Regularly:
Regularly review your investment portfolio and goals. If your circumstances change or if there are shifts in the market, be prepared to adjust your investment strategy accordingly.
Consider Professional Advice:
Given that tax and investment strategies can be complex, it might be beneficial to seek advice from a financial advisor who is familiar with the New Zealand tax system and investment landscape. They can provide personalized advice based on your specific situation.
Remember that investment decisions should align with your financial goals, risk tolerance, and time horizon. It’s always a good idea to stay informed and adapt your strategy as needed.
Hope this helps.
Regards, Clive Fernandes (Financial Adviser)
Director – National Capital
Disclosure: I am the director of National Capital, a KiwiSaver advice firm. The views expressed in this article are the views of the author. The information provided is of a general nature and is not intended to be personalised financial advice. You may seek appropriate financial advice from a Financial Adviser to suit your individual circumstances or contact National Capital.
