Sharemarket fear costs NZ investors
New Zealanders’ lack of confidence in investment markets is costing them.
The Financial Markets Authority (FMA) has released its latest investor confidence report, which shows 66 per cent of investors were confident about New Zealand’s financial markets, down from 69 per cent a year earlier.
Confidence was lowest among women, young and Pacific people.
FMA chief executive Rob Everett said there were low levels of understanding of the sharemarket in particular in New Zealand.
Although there has been 10 years of record growth on the New Zealand sharemarket, and equities have delivered a period of unusually strong returns, many New Zealanders still felt it was ‘‘for other people’’, he said.
‘‘For a bunch of reasons New Zealanders as a whole still think the sharemarket is for people who really know their way around it. They think they don’t have enough money so they keep putting it into term deposits or aspire to buy a rental property.’’
But he said people who left their money in term deposits lost out.
‘‘If you look at the sharemarket in the last 20 or 30 years you can’t argue that people who have invested in broadly diversified equity funds wouldn’t be better off.’’
The NZX 50 index gained 22 per cent last year, 9 per cent the year before, 12.8 per cent in 2015, 16.8 per net in 2014 and 24.3 per cent in 2013.
Term deposits, meanwhile, are still only offering a maximum of about 4 per cent a year if people are willing to lock their money away for the long term.
Infometrics economist Mieke Welvaert calculated that, excluding tax and reinvested dividends, someone who had $1000 in the NZX 50 would have made $760.14 over the past 10 years, including the aftermath of the global financial crisis.
Someone in a term deposit, meanwhile, would have only made $501 – and the growth would have stagnated in recent years.
But the sustained period of low interest rates, where term deposits delivered less than 3 per cent interest per year in some cases, was not enough to change investors’ reluctance, Everett said. ‘‘That under-investment is a problem.’’
Everett said investors could get started in the sharemarket with very small amounts of money to invest.
NZX’S Smartshares offers a payment plan through which investors can put money into an index-tracking fund if they commit from $50 a month.
Sharesies allows investments of as little as $5 a time. Investnow also offers cheap access to managed funds.
Sharemarket returns have been solid over recent years but that will not continue forever. ‘‘We are at the end of a very sustained market upswing. At some point relatively soon it’s going to get quite ugly,’’ Everett said.
Everett said it was vital that investors understood that, provided they were invested in ways that were appropriate for their circumstances, pulling money out during a downturn was widely considered to be one of the worst moves an investor could make.
Staying the course and riding it out would deliver better results overall.