Assessment — May 2026
This is the analytical work product for our first session. It documents what we found, the reasoning behind recommendations, and expected outcomes. For raw data, see Snapshot. For the live strategy, see Current Plan.
Key Findings
1. Over-Rotated to Defensive (the big problem)
42% of Kernel ($1.6M) sits in Infrastructure + Dividend Aristocrats. These are income/defensive assets — appropriate for retirees, not for someone with: - High income still flowing in - High risk tolerance (comfortable with 30% drawdowns) - 15–25 year horizon to major drawdowns - Historical returns: 11–14% vs 15–21% for growth equities
The original pivot was to reduce Mag 7 concentration (valid concern) but overcorrected into low-growth assets.
2. MSFT Concentration — Triple Correlation
- Direct shares: $205K (4% of liquid — fine alone)
- Unvested RSUs: $936K vesting over 5 years (contingent)
- ESPP pipeline: ~$44K/year
- Plus: salary, bonus, career progression
Risk: Job loss simultaneously kills income AND freezes unvested wealth. Mitigated by sell-on-vest policy (don't accumulate more).
3. Tax Structure — PIE is Clearly Superior
| Factor | PIE (Kernel/InvestNow) | Direct FIF |
|---|---|---|
| Tax rate | 5% × 28% = 1.4%/yr | Best of: 5% × 39% OR actual × 39% |
| Down years | Still pay 1.4% | Pay $0 (CV method) |
| Provisional tax | None | $150K/yr in 3 instalments |
| Admin | Zero | FIF calculations, accountant |
Expected value over decade (on $3.8M): PIE saves ~$48K vs direct FIF. Cash flow benefit eliminates $150K/yr provisional tax obligation once MSFT direct shares are sold.
4. FX Exposure — Accepted
Only 2.4% hedged ($131K in KiwiSaver S&P 500 Hedged). NZD strengthening hurts; weakening helps. Conscious position — hedging costs eat returns over long horizons.
5. Cash Flow Squeeze
Net free cash is only $2,000–3,700/month after tax, ESPP, KiwiSaver deductions. Provisional tax alone is $50K per instalment. Relies on bonus + share sales to bridge. Once MSFT direct shares are sold and FIF drops to nil, provisional tax reduces significantly.
Recommendation: Growth-Tilted Rebalance
Principle
Optimise for 10–25 year compounding. Already FI. Biggest drawdowns are decades away. Accept volatility in exchange for returns.
Kernel Target Allocation (on $4.01M = current $3.81M + $205K MSFT sale)
| Fund | Current | Target % | Target $ | Action |
|---|---|---|---|---|
| S&P 500 | $198K (5%) | 28% | $1,123K | Buy $925K |
| World ex-US | $763K (20%) | 33% | $1,323K | Buy $560K |
| Global 100 | $251K (7%) | 13% | $521K | Buy $271K |
| Emerging Markets | $817K (21%) | 15% | $601K | Sell $216K |
| Infrastructure | $919K (24%) | 8% | $321K | Sell $598K |
| Div Aristocrats | $689K (18%) | 3% | $120K | Sell $569K |
| Cash Plus | $172K (5%) | 0% | $0 | Sell $172K |
Cash Plus eliminated: No buffer needed. When tax payments are due, sell from whichever fund is most overweight. Kernel settles in 3–5 days — schedule the sale a week before the due date.
Why These Targets
- S&P 500 (27%): Historical outperformance, broad US exposure without single-stock risk
- World ex-US (32%): Global growth WITHOUT Mag 7 concentration — addresses AI bubble concern
- Global 100 (13%): Quality mega-caps, moderate position
- EM (15%): Long-term growth optionality (India, China, Taiwan)
- Infrastructure (8%): Small diversifier, uncorrelated to tech
- Div Aristocrats (4%): Minimal position — kept for income diversification, heavily reduced from 18%
Other Holdings — No Change
- InvestNow ($726K): Hold. Lower fees (0.03% vs Kernel's 0.25%), platform diversification.
- KiwiSaver ($712K): Hold. Locked 20+ years. Growth allocation correct for timeframe.
Expected Outcome (Post-Rebalance)
Geographic Exposure
| Region | Exposure | % |
|---|---|---|
| United States | $3,100K | 48% |
| International Developed | $1,500K | 23% |
| Emerging Markets | $600K | 9% |
| Global (infrastructure) | $321K | 5% |
| KiwiSaver (mixed) | $712K | 11% |
| InvestNow US 500 | $726K | 11% |
Return Projections
| Scenario | Annual Return | 10yr Value | Hits $15.2M target? |
|---|---|---|---|
| Pessimistic | 5% | $10.5M | No (need 14yr) |
| Conservative | 7% | $12.6M | No (need 11yr) |
| Base case | 9% | $15.2M | Yes (~9yr) |
| Optimistic | 12% | $19.9M | Yes (~7yr) |
5-year fund returns of 11–21% reflect an exceptional bull market. Base case uses 9% (conservative). Plan works even at 5% — just takes longer.
Risk Scenarios
| Event | Impact | Mitigation |
|---|---|---|
| 30% US crash | -$930K | 25-year horizon; World ex-US ballast |
| AI bubble burst (tech -50%) | -$600K | 30% World ex-US + 15% EM = $1.8M uncorrelated |
| MSFT layoff | Lose unvested ($936K) | Already FI; liquid wealth is diversified |
| NZD strengthens 10% | -$400K | Diversified regions; conscious unhedged position |
Future Topics
See topics.md for the running list of topics to discuss in future sessions.