Taking your investments to the next level
The new year (and decade) is prompting many Kiwis to revisit their savings and investment plans.
You don’t need to be an expert or super rich to get started in managed funds.
Is 2020 the year to make more of your money? If so, it’s time to make a plan for next year and the next decade. KiwiSaver, property and term deposits are enough for some. But if you want to take investment to the next level then it’s time to get comfortable with investing in managed funds.
TAKE ACTION
Start by working out your goals and creating a written plan, says Ainsley McLaren, executive director at Harbour Asset Management. Are your goals to build up a safety net to get through tough times, buy a home, educate your children, save for a comfortable retirement, or something else? When you know where you are heading, it’s easier to choose the investments best suited to you, says McLaren.
PLAN OF ACTION
As well as having goals and a plan, it’s a good idea to brush up on the basics. Understand risk. All investments, even bank deposits, have risks, and you need to understand how much volatility you can stomach personally, says McLaren. Sorted’s Investor Kickstarter quiz at Sorted.org. nz/tools/investor-kickstarter can help you understand your investment personality and how you’ll react to these ups and downs. Diversify. As tempting as it might be to have a punt on investments that you heard about around the water cooler, there is no guarantee that you’ll be able to pick a winner, says McLaren. “Don’t put all your eggs in one basket, as the old saying goes.” You can lessen your risk by choosing managed funds, which do the diversification for you by spreading your money across multiple companies and other “assets”, such as bonds and cash. If one investment within the fund is having a tough time, there will usually be others doing better to balance it out. Then, you need to hold on through the inevitable ups and downs that will occur over a decade. Get better returns: If you want better returns from 2020, look for actively managed funds. Managers such as Harbour hand-pick the investments that are best placed to outperform the market, especially in the bad times. The opposite of active funds is passive (index) funds that rise and fall with the market. Your return from active funds should outweigh the extra cost of the expert analysis that goes into stock picking. If you choose a PIE (Portfolio Investment Entity) managed fund it’s likely you’ll be taxed at a lower rate. Think about responsible investing: We’re entering a new decade with more and more people becoming concerned about environmental, social and governance factors in investing. There is logic behind that approach, says McLaren. “We believe that integrating these sorts of issues into our investment processes in decades to come will be good for your wealth, as it can protect against investing in stocks for companies which face big risks.” Check out Mindfulmoney.nz to find out how ethical your KiwiSaver is.
GETTING STARTED IN MANAGED FUNDS
You don’t need to be an expert or super rich to get started in managed funds. Investing has become easier and cheaper in recent years thanks to online platforms. “You can, for example, invest in Harbour’s funds through InvestNow for as little as $250 as a one-off or $50 a month,” says McLaren. It lets you take baby steps as you get more comfortable with managed fund investing.