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3 - Retirement Income
Sue and Bob
Sue and Bob are a retired couple with NZ$250,000 invested in bank term deposits. They wonder if the performance of their term deposits is truly maximising their investment return potential. They are considering switching their investment over to either bonds or Smartshares, with low fees and higher historical performance. They want their investment to generate an income to support them in the future.
They have an initial investment horizon of seven years. The table below presumes the bonds return the New Zealand average over the past seven years of 5.95% and SmartMIDZ returns an average 10.32%, based on the seven year historical performance of the NZSX MidCap Gross Index to 30 June 2004.
Annual passive income generated from investment of NZ$250,000
|
Year 1
(NZ$) |
Year 2
(NZ$) |
Year 3
(NZ$) |
Year 4
(NZ$) |
Year 5
(NZ$) |
Year 6
(NZ$) |
Year 7
(NZ$) |
Total
(NZ$) |
| Bonds 1 |
$14,875 |
$14,875 |
$14,875 |
$14,875 |
$14,875 |
$14,875 |
$14,875 |
$104,125 |
2 |
$22,250 |
$22,837 |
$23,136 |
$23,439 |
$23,746 |
$24,057 |
$24,372 |
$163,837 |
| Difference |
$7,375 |
$7,962 |
$8,261 |
$8,564 |
$8,871 |
$9,182 |
$9,497 |
$59,712 |
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1
Based on the Reserve Bank average New Zealand one year bond rate over the seven years to 30 June 2004.
2 Based on actual performance of the NZSX MidCap Gross Index (which MIDZ tracks) over the seven years to 30 June 2004.
3 This example assumes that the full gross annual (i.e. before any applicable taxes) of the interest and the dividends received are reinvested. Any tax on these returns is ignored for the purposes of this example.
After seven years Sue and Bob would have received only NZ$104,125 in income generated from investing in bonds versus NZ$163,837 with SmartMIDZ, a staggering difference of NZ$59,712. In addition to the difference in income generated, if Sue and Bob had chosen to invest in bonds they would still have NZ$250,000 at the end of seven years. If they had instead invested in SmartMIDZ, the value of their investment at the end of the seven years would have increased to NZ$273,846 – an extra NZ$23,846!
Smartshares Limited is a wholly owned subsidiary of New Zealand Exchange Limited
(NZX) and is the manager of SmartFONZ, SmartTENZ, SmartMIDZ, SmartMOZY and SmartOZZY Funds. NZX does not guarantee the performance
of SmartFONZ, SmartTENZ, SmartMIDZ, SmartMOZY, and SmartOZZY Funds. Units in SmartFONZ, SmartTENZ, SmartMIDZ, SmartMOZY, and SmartOZZY Funds have been accepted for
quotation by NZX and will be quoted upon completion of allotment procedures. However the
Special Division which regulates NZX takes no responsibility for this offer. Copies of relevant
Investment Statements can be obtained by contacting a Primary Market Participant or
Smartshares Ltd directly at www.smartshares.nzx.com or by phoning 0800 80 87 80.
All currency in New Zealand dollars unless otherwise stated.
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