Investing your money is a great way to provide for your future or grow your savings for a particular life goal. With more and more people moving out of term deposits and into higher risk investments like shares, it's worth understanding what investment options are available to you.
The Financial Markets Authority 2021 annual Investor Confidence Survey showed that 72 percent of investors are confident in New Zealand's financial markets. This is much higher than the 56 percent of investors who were feeling confident five years ago. The research also revealed investors are increasingly showing a preference for shares while term deposits are declining in popularity.
Over the last few years interest rates have reached record lows, share markets have reached record highs, and gaining access to investing through do-it-yourself (DIY) platforms and fund managers has become easier than ever. This is a positive development because it opens up the option of investing to a lot more people.
Now that access to investing is easy, the next step is to make sure you're making the most of your investments. A good place to start is understanding what options are available and what might be the right fit for you.
A term deposit involves depositing money with a bank. In this case, you are actually lending money to the bank. They will pay you a fixed interest rate over the 'term' you have signed up for and they will return your original investment at the end of the term. They are useful in situations where you have a specific need for your money at a particular future date or you are not comfortable assuming a potential loss in your investment value. With interest rates at historically low levels, term deposits are currently not returning as much as they used to.
Investing in companies on the share market offers the potential for higher returns than term deposits, but it comes with higher risk. If you are passionate about investing, a do-it-yourself approach can be very fulfilling. It offers you a high degree of autonomy and allows you to create a portfolio that is unique to you. On the other hand, investing directly in the share market yourself can be a lot of work - requiring time, knowledge and confidence that you're making the right investments.
Instead of investing directly in the share market yourself, another option is to put your money into a professionally managed investment fund. There are a range of options available, from lower-risk conservative funds to higher-risk growth funds. The beauty of an investment fund is you get the benefits of a professionally managed portfolio without having to do all the detailed work yourself. Like any form of investing there are risks involved and the value of your investment can decrease. Investment funds are very similar to KiwiSaver funds except you don't have to wait until you buy your first home or retire, to access your money. This means they can be used to help you reach savings goals of any length, whether that’s saving for retirement, a home renovation, a holiday or to support your children later on.
Not sure where to start?
Whether you're a confident investor or you're just starting out, it can help to get advice. Research shows 75 percent* of people believe their overall wellbeing is linked to their financial wellbeing. That means there are a lot of emotions in play when you're investing and those emotions can lead you astray. Although financial advice has not traditionally been very accessible to those without large amounts of money – that's starting to change. Milford offers in-person financial advice and they have created custom-built online tools that deliver expert financial advice in relation to Milford’s KiwiSaver Plan and Investment Funds. This digital advice is right at your fingertips, no matter how big or small your balance is. And it's offered at no extra cost.
Disclaimer: This is intended to provide general information only. It does not take into account your investment needs or personal circumstances. It is not intended to be viewed as financial advice. Before making any financial decisions, you may wish to seek financial advice. See our Financial Advice Disclosure Statement at milfordasset.com/getting-advice for more information about our financial advice service. The disclosure statements of all Milford Financial Advisers contain more information and are available on request free of charge. Read the relevant Milford Product Disclosure Statement as issued by Milford Funds Limited at milfordasset.com. Past performance is not a reliable indicator of future performance.
*Source: Money and You – Research – Financial Services Council – August 2020.
This article was created for Milford.