A DIY guide for would-be investors
If you are not of a mind to keep it all under the mattress, there are plenty of investment options other than property.
If you believe the hype, shares are unfathomably risky and complicated. Think every movie or TV programme that shows a trader screaming “Buy! Buy! Buy!” into a phone. Even though the reality is somewhat less dramatic, the perception remains.
But a new class of online platforms is emerging, giving mum-and-dad investors, student investors or young professionals with a bit of spare cash more options than ever to invest their money themselves.
International research suggests millennials are more anxious and risk-averse when it comes to share portfolios, which is hardly surprising when many have given up the prospect of ever owning a house and are still battling with weighty student loans.
In June, a report from Macquarie Wealth Management in Australia found young people are attracted to digital-based tech solutions, especially where they can manage their own funds: there are lower minimum investments, smaller fees and user-friendly apps and language, which create a lower barrier to entry for sharemarket beginners.
“Tapping into their distrust of established financial institutions, nimble fintech startups are specifically … using technology to provide better choice, convenience and sustainable options all in a turnkey smartphone-app environment,” the Macquarie report noted, adding that in Australia, young single people have seven times as much money in their bank accounts as in shares, and the richest demographic of couples, aged 55 to 64, had a ratio of less than 3:1.
Many Kiwi millennials have been enrolled in KiwiSaver since starting their first job, and young people are increasingly aware of the returns possible from shares. Some are content to stick with more hands-off options, such as term deposits, but increasing numbers are looking to get stuck in themselves.
Locally, savings and investment provider InvestNow, which launched in March, reports that it has over $75 million being managed by clients using its website. The platform offers products such as the Nikko Asset Management NZ Cash Fund and the AMP Capital NZ Cash Fund, which are typically open to retail clients investing at least $2000. Harbour Asset Management and Salt Funds Management, to name a few.
Sharesies, whose invitation-only beta platform launched in June, has even lower barriers: it costs $30 a year to join and users can invest from a minimum of $5 into index funds.
Less than two months after its launch, more than 3500 people have used the platform to invest more than $1 million into NZX shares, though it’s still in development mode: there are plans to
family trusts are also getting involved.
Recently, he’s noticed that investors who would normally put short-term investments into term deposits are taking an interest in cash funds instead; perhaps no surprise given the Reserve Bank’s latest indications that inflationary pressures are lower than expected, and interest rate raising is some way off.
Crowdfunding is another place for investors looking for alternatives to the sharemarket. Three years after the first platforms were granted licences, the market has consolidated somewhat to see three major players: Snowball Effect, Equitise and PledgeMe. However, crowdfunding is more of a long-term investment with less ability to withdraw money if circumstances change, and no platform is planning to offer a formal secondary market, on which investments could be traded.
Mark Peterson, chief executive of sharemarket operator NZX, says crowdfunding isn’t a threat to conventional investing but rather “has a place in the total ecosystem”.
“We’ve got to work out how we play with crowdfunders – all those commercial decisions,” Peterson says. “People should be aware of the risks and make choices around that risk-return trade-off. I do see linkages between the life cycle of businesses and the raising of capital and potentially the secondary market.”
Ultimately, investors looking for more risk and return than banks can give them face fewer barriers than ever. Houses remain the largest asset most Kiwis own, but the rise of low-barrier alternatives can only be a good thing for those who can’t – or don’t want to – sink their money into bricks and mortar. something that’s quite bad, you take up to a generation to change it. What happened [after 1987] was that a whole pile of that age group swung into residential property, which proved to be a very good investment, and because it’s done so well and they’re able to borrow and leverage off it, there’s been huge interest in it.
“But now people are beginning to think, ‘Housing has done very well; can it keep going? I need more liquid assets’, because if you own a house, you can’t sell a window, but if you own shares or are in a fund like we run, you can take 5% of the fund out at any given time. The apathy is still there, but it’s not like it was.”
A NEW COHORT
The change has been driven in part by a whole new cohort of savers that has begun to emerge as the effects of a decade’s worth of KiwiSaver savings start to kick in. For most of this generation of savers, their only experience of non-bank investment has been through a KiwiSaver managed fund. Today, there are almost 150 schemes offered by at least 15 providers, managing more than $47.5 billion. And that total is expanding quickly. By 2030, total funds under management by KiwiSaver providers are forecast to be more than $200 billion.
As these savings accumulate, interest in investment performance is rising. “You don’t change this environment from apathy to being really interested in a short period of time, but it’s definitely changing,” says Gaynor.
“This is a 10- to 20-year process.”
Increasing life expectancy is changing behaviour, he says. “I was telling these students today that the biggest thing that has changed, to me, in the past 10 or 15 years is that people now expect that they’re going to live until they’re 80 or 90 or 95 and that National Super isn’t going to give them the li f estyle t hey want.”
Another major force is the diminishing expectation among younger New Zealanders that they will own their own home one day.
Of course, many of the kids at St Peter’s, where annual tuition fees range from $16,500 to $21,450, will probably achieve that goal: the children of financially secure households, they will be able to count on help from the bank of mum and dad for the deposit on an otherwise unaffordable house in Auckland, if and when the time comes.
But all over New Zealand and particularly in Auckland, the next generation is less likely than at any time in the past 66 years to end up as homeowners. About 63% of New Zealanders own their own homes and that is the lowest rate of home ownership since 1951, when 61.2% of homes were owner-occupied, according to official statistics.
Between then and now, which is getting on for three generations, the notion of home ownership became entrenched as part of the expected Kiwi way of life, before it started to become unattainable for many.
The home-ownership dream itself is alive and well. A small sample poll for Auckland real estate firm Barfoot & Thompson late last year found that nine out of 10 of the millennials surveyed wanted to own their own place. The vast majority also wanted a Kiwi-style standalone house rather than an apartment.
Gaynor sees plenty of young, salaried professionals giving up part of their
“They then invest $250 to see how InvestNow works, and after that they will ramp up their investment and start building their portfolio.” People now expect to live until they’re 80 or 90 and that National Super isn’t going to give them the lifestyle they want.