No, it's not a clickbait title. In this month's post, I will show you exactly how a tiny change in our portfolio can literally make and save you thousands of dollars. How? Well, let me explain in today's post. Sponsored by nobody. NERD POST ALERT This post will take an in-depth look at how a potential change within a sample portfolio could make/save you thousands if you are in a similar situation.
What is this all about?
A little while back, Sharesies introduced US stocks to their platform and it allowed us to invest with US companies directly. Long time followers of the blog would know that we don't invest in single companies. but rather we are invested in a broad base index fund through an ETF. In our case we are invested in the Smartshares 500 ETF This fund allows us to invest in the S&P 500 directly via a brokerage account at Vanguard. When Sharesies was first introduced, the platform only allowed us to invest in ETF's or exchange-traded funds like the aforementioned one above.
What is the big fuss?
I logged in to my Sharesies account one day and browsed some of the US stocks that are available. I start browsing to funds that track the 'S&P500' and I saw the Vanguard one or ticker VOO. This is globally known to many index investors as the gold standard for investing in the S&P 500. Then it hit me... I am invested in the S&P500 through the NZ Smartshares ETF, which has an account with Vanguard for us. So I am investing in the same index but in this scenario, Smartshares is essentially acting as the middle man.
This got us thinking...
Crunch the numbers
Now, the sudden realisation didn't hit me until I started looking at both of the funds numbers. I shared the numbers with my newsletter readers last week and what I found was eye-opening.
Now, what are the key differences between the two funds?
- Management fees - Percentage each fund charges you on your total portfolio annually
- Exchange fees - Percentage charged when you change money from one currency to another (Only applicable to VOO as Smartshares is NZ based)
- Dividends - Percentage paid out (usually quarterly) to the investor by the fund. Essentially the fund rewards the investor for being invested with them.
- Transaction fees - Sharesies charges a certain transaction fee to both funds. The fees for both at present are the same.
Now with that in mind, I looked at the numbers and what I found blew my socks off... The key differentiator between the two funds are the management fees and the number of dividends paid each quarter. So let's take a look at them.
Smartshares US500 fund
Management fees - 0.34% (Paid over a year, I confirmed this with the Sharesies team)
Latest gross dividend yield - 0.54%
Vanguard S&P 500 (VOO)
Management fees - 0.03%
Currency fee - 0.4%
Latest gross dividend yield - 1.35%
At this stage, these numbers should make a bit more sense and hopefully you can see from the key differentiators that VOO is clearly a better option at this stage. So let's look at an example portfolio to see what the differences might be over a 10 year period.
Assumptions and conclusion
As you can see, the numbers speak for themselves. Now I have to note, that Gross dividend yield won't be the exact number that is returned to you, it will most likely be slightly less. That is the number I used in my example to show the differences. These numbers really jump up once you start accounting for market returns, additional contributions etc. Fire me a message if you want me to work out your scenario for you and see what return it could yield you!
I went a step further and contacted an accountant friend of mine to ensure that the numbers made sense and that I am not missing something crucial. He ran the numbers and come to the same conclusion. VOO is the way to go.
Hope this has been insightful! We've since made the move and we are directly invested in the Vanguard fund VOO.
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