New Zealand has generally been the land of property investment. Sure, one or two people here and there invested in the share market or managed funds. But overall, we’ve always been a little shy of dipping our toes into the investment pond.
But this is slowly shifting and investing in the share market is becoming more popular. Thanks in part to KiwiSaver and the rise of digital retail investment platforms.
So, what are the options for investing in New Zealand and building a more diverse portfolio?
1. The property market
Even when there’s uncertainty around what house prices are doing, investing in property remains a popular, and stable investment option in New Zealand. Provided you choose the right property and have the right hold strategy for that property and your situation.
With the number of new builds popping up around the country, and incentives making these a more attractive buy, this isn’t as difficult as you might think. Our tips? Choose a new build, off the plans, in a good area, which will be ready to move into once it’s completed. Even better, it meets the Healthy Homes requirements and comes with a rental appraisal so you have some idea of what you’ll get when you rent it out. Understand what capital growth rate you need, and what yield you can tolerate, to help narrow down the right property for you.
2. Savings accounts and Term deposits
Money in the bank. It certainly provides a sense of security knowing you’ll have it to hand if you need it. And, it’s certainly worth having a bit of a buffer to help you out in the event of a very rainy day. But remember, with high inflation it is losing value – so only set aside what is needed to ensure your overall wealth plan can operate well.
After KiwiSaver, it continues to be one of the most popular types of investment for Kiwis, with 54% investing in cash or term deposits. However, the interest rates you’ll earn from savings accounts or even a term deposit, are unlikely to keep up with inflation. Which means the “rainy day” fund is coming at a cost.
KiwiSaver was probably many a Kiwi’s introduction to investing in the share market and continues to be the most common form of investment with 63% of kiwis contributing to the scheme. And, for 30%, it’s the only investment they hold.
KiwiSaver funds in New Zealand are managed funds (will touch on that below) and come with a couple of benefits – if you meet certain criteria.
First up, for every dollar you invest into your KiwiSaver account, the government will put in 50c, up to a maximum of $521.43 per year. So, if all you’re doing each year is investing $1,042.86, you have the potential for some pretty sweet returns. Then, if you’re employed, your employer also has to contribute 3% of your salary to KiwiSaver.
The downside of KiwiSaver is that you can only take out money if you’re using it for a deposit on your first home, or if you’ve turned 65. So, it’s not the most liquid of investments. It also isn’t the silver bullet for your retirement needs, with most people needing other investments working hard to close out their retirement gap.
When people think ‘investing’ this is likely one of the first things that come to mind.
It certainly has attractive aspects to it. You can invest in a company you love or aligns with your values. But it’s also a risky choice. It’s harder to diversify when you’re picking individual companies to invest in, and it can take a lot of time researching each company to make sure it’s a sound investment choice. And, if Elon Musk tweets at the wrong time, you could be out of some serious cash.
5. Managed funds
Then, there are managed funds (also known as mutual funds). As mentioned above, KiwiSaver is a managed fund, so if you’ve done any digging into how your KiwiSaver money is invested, you’ll already have some idea of what a mutual fund is.
But, let’s break it down.
A managed fund can be made up of a mix of investment assets – growth assets like shares or property, and income assets like bonds or cash. Each individual fund will have its own mix based on its rules, goals and/or ethics. The ratio of growth assets to income assets will determine the risk of the fund and you may find that some funds only invest in one type of investment class (i.e., shares). So, you’ll want to do your research to make sure it’s the right fund for your situation.
6. ETFs and Index Funds
Finally, we can’t talk about managed funds and not touch on Exchange Traded Funds (ETFs) and Index Funds.
ETFs are popular forms of passive investing. What do we mean by passive? Not managed by a team who are trying match or beat the performance of the market. Instead, ETFs can be structured to track anything from a specific index or sector, an individual commodity, or even another fund. ETFs can be bought and sold on a stock exchange just like individual stock making them flexible and liquid.
An Index fund is any investment fund that is constructed to track the components of a financial market index (e.g., NZX50 or S&P500). Index funds must follow their benchmarks without reflecting market conditions. The strategy behind an index fund is that a portfolio matches the composition of an index (without variation) and will therefore match the performance of that index and that the market will outperform any single investment over the long term
Like managed funds, they’re a diversified investment option which is a great way of lowering the risk. They’re also a great entry point into share market investing and tend to have lower fees than a managed fund.
Disclaimer: This blog post is for informational purposes only and does not constitute individual financial advice. If you’re interested in receiving personalised financial advice, you can book in a consultation with an enable.me coach. Costs apply.