For those venturing into the world of investments, it's crucial to emphasise the role of research. We strongly advise you to gather as much information as possible and conduct thorough research before making any financial commitments. Remember, all investments carry a certain level of risk, and despite what others may claim, no investment is entirely risk-free!
With so many different ways to invest, we can't guarantee that these investments will suit you. Still, suppose you're starting your research and looking to be pointed in the right direction. In that case, researching these investment opportunities may be worthwhile.
From the popular KiwiSaver to the innovative world of crowdfunded loans, our guide covers a diverse range of investment opportunities in New Zealand. Whether you're a risk-taker or prefer a more conservative approach, there's something for everyone.
Here's our guide to the different ways to invest your money.
Actively Managed Funds
An actively managed fund is a financial investment managed by somebody other than the investor.
Actively managed funds provide an excellent and straightforward entry point into the world of investments. With these funds, the decision-making is left to a professional manager or management team, making it an easy way to start investing.
Since you're paying someone else to manage the investment, actively managed funds have higher fees than other investment options.
In terms of risk, you can still choose how much risk you'd like to take. Risk-averse investors can ensure that their actively managed fund is low risk.
Bonds
A bond is an investment where you lend your money to the government or a company. When an entity issues bonds, they ask for part of a loan. In return, you'll be paid regular interest. At the end of this loan, the bond is said to have "matured", and your initial investment is paid back to you in full.
However, you still run the risk of a company, business, or government defaulting. New Zealand has a good track record of not defaulting, but other countries' governments aren't as trustworthy regarding bonds.
Cash Deposits and Term Deposits
Cash deposits and term deposits are a way of investing by simply placing money into a bank account.
For cash deposits, you can access this money whenever you like and will earn interest on the balance in the account.
A term deposit means you can't access the money in the account for a limited time, but this typically offers a better interest rate. The term is between 1 month and 5 years. While there are ways to access this money if you desperately need it, there are "break fees" that will cost you some of the interest you would have otherwise earned.
These offer low interest rates. Still, they are reasonably safe investments and one of the simplest ways to start investing. All you need is a bank account.
Crowdfunding Equity Investments
Crowdfunding equity investments are high-risk investments where you invest in a company or business.
Unlike the usual buying and selling of shares, which is typically ongoing, the shares of a private company are only available during the crowdfunding campaign.
You should only invest money you would be willing to lose, as these are incredibly high-risk investments.
On the other hand, if there's a company or project that you believe in, this is a fun way to support them while also being part of their journey.
Exchange Traded Funds (ETFs)
Exchange-traded funds, or ETFs, are similar to managed funds. They are a way to invest in a diversified security.
However, ETFs aren't the most diverse investment, as they are often only diversified within a single sector or commodity. They offer better diversity than shares but not the best possible diversity.
ETFs also don't allow quick access to funds and are subject to trading fees and other expenses.
Index Funds
An index fund is a diverse selection of shares grouped together. Rather than buying individual shares, an index fund invests in things according to investment criteria.
In terms of fees, index funds usually have lower management fees than actively managed funds.
Index funds have been shown to outperform individual shares over longer periods, so they provide an easy investment opportunity for investors looking for long-term investment opportunities.
You can invest in index funds using Kernel, Sharesies, Hatch Invest, and InvestNow.
Remember that the potential return for index funds is usually relatively low.
KiwiSaver
KiwiSaver is a specific type of managed fund in New Zealand. New Zealanders with regular paychecks can contribute a percentage of their earnings, which are then invested on their behalf.
Employers even match contributions (up to a certain percentage), and the New Zealand government also contributes. In fact, employers are required by law to put 3% of your salary into your KiwiSaver fund.
KiwiSaver does come with management fees, but if you plan on participating for a long time, they'll be worth it. Short-term participation won't make the management fees worth it.
The downside of KiwiSaver is that you cannot access your returns before age 65. However, KiwiSaver is a fairly safe long-term investment strategy for retirement.
Peer-to-Peer Lending
Like crowdfunding, peer-to-peer lending or crowd-lending allows people to earn interest in exchange for loans.
Depending on who the loans are for and how they intend to use them, you can use loans to other people and their interest to generate regular income.
Typically, the platforms that offer P2P lending will check the borrowers to mitigate some of the risk. Still, if they default on payment, it's the creditor.
Property and Real Estate
Property and real estate are ways to invest. After all, property investments typically appreciate, and a mortgage on additional properties can be paid by rent while also enjoying a profit.
You'll need a 20% deposit to get a mortgage for a home or any property (unless you have enough money and won't need a loan). Whether you intend to sell the property at a profit later and/or enjoy regular rental payments (another source of income), the property will likely earn you money. A mortgage is just a type of loan used to buy a home. Typically, mortgages come with different conditions and protections than other loans.
However, investing in property is more difficult than many of the other investments we've examined so far because getting a mortgage requires thousands of dollars.
Much like a borrower defaulting on a payment, non-payment of rent can also leave homeowners without returns that should otherwise be theirs.
Shares
Last but not least, we have shares. A share or stock is a percentage of a company or business. You buy a percentage of the company or business, and when the company experiences growth, the value of that percentage will increase.
With shares, you do all the investing yourself. While you can pay people to manage your shares, if you do it yourself, the barriers to entry regarding knowledge are pretty high.
The cost of shares can vary wildly, and you can buy shares for next to nothing or several dollars.
With shares, there's little to no guarantee of return, and you can even lose money on your investment. If a share loses value before you sell it, you could be left with less than your initial investment.
Remember to invest only money you can afford to lose and never invest in shares using credit or loans.
To buy and sell shares, you must go through brokers, who buy and sell the shares on your behalf. There are online platforms that allow you to buy shares (and other securities) in different ways.
You'll need to set up an account with one of these brokers before you can get started. Typically, the signup process is more comprehensive than your typical website because security features and verification are required.
Learn More About Investments from a Private Tutor
If you really want to learn about the best way to invest your money, how a stock exchange works, or whether or not Bitcoin is worth it, you should speak to a financial advisor or learn more about finance and economics from a private tutor.
Even if you're just getting started with KiwiSaver, the Superprof website allows you to search for finance and economic tutors from New Zealand and around the world.
Just search for what you want to learn and where you want to learn it (in-person or online). You can start finding tutors from Christchurch, Tauranga, Auckland, Wellington, or even the other side of the world.
Since many of the tutors on the Superprof website offer their first lesson for free, you can try out several different tutors before you choose the right one for you and what you want to learn. It's an investment with no risk!
Just search for finance or economics on the Superprof website today!
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