Taxonomy Path

• This MoneyHub guide is sponsored by our friends at InvestNow, our 2023 Favourite Low-Cost Investing Platform.
• If you're looking to invest, this guide helpfully takes you through the entire process of what you need to know.
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Cash deposits and term deposits

What are they?

• Cash in the bank means you put money into an interest-earning bank account (where you have instant access to the funds) or term deposit (where the money is off-limits for a set period).
• Most banks offer interest-earning bank accounts, but better returns are earned from term deposits. You decide how long you invest for, with anything from 1 month to 5 years being offered.

Difficulty to invest and manage: Easy

Risk: Low

Potential return: Low

Pros & Cons

• Pros: Relatively safe - you get back what you invest, in addition to the interest earned. Also, you'll have ready access to money - you can withdraw from a bank account at any time (and term deposits are accessible, but you’ll lose interest as a ‘break fee’).
• Cons: Relatively low returns – interest rates are at record lows in New Zealand so you won’t earn more than 1% to 2% per year after tax which is close to the inflation level.

How to start investing in cash and term deposits: Look at Best Term Deposits, Best PIE Term Deposits and Best Call Accounts to see which bank is offering the highest interest rates. If you’re unsure how long to invest for, consider a three-month or six-month term as interest rates are similar.

Related guides: Best Term Deposits, Best PIE Term Deposits and Best Call Accounts

KiwiSaver

What is it?

• Our view is simple - KiwiSaver is an excellent savings scheme which, with proper planning and a commitment to regular contributions, can make retirement more comfortable and provide more lifestyle options. 
• If you're looking to make a regular contribution to a savings nest egg, KiwiSaver does just that. Best of all, you can't touch it before you turn 65 (other than for a specific purposes like buying a house) and you can still do your own investing on the side.
• A great feature of Kiwisaver is that if you contribute more than $1,042.86, the government will contribute a maximum of $521.43.
• When you join KiwiSaver, you either pick a fund you want to invest in, or if you can’t decide, the IRD picks one for you. After that, your employer must contribute the value of 3% of your gross salary into your KiwiSaver fund. You will also have to contribute at least 3% of your gross salary too. The only fees you’ll pay are those charged by your fund, which comprises of two annual fees. There is a management fee, usually anything from 0.25% to 2.00% of the value of your fund, plus a membership fee (generally under $50)

Difficulty to invest and manage: Easy

Risk: Low to High (depending on what fund you invest in). If you select a growth fund, it will invest in the sharemarket. As the price of a share can go up and down every day, your investment may fall in value, but over time the KiwiSaver fund is expected to increase in value.

Potential return: Low to Medium (long-term) depending on the fund selected

Pros & Cons

• Pros: KiwiSaver is free to join and your employer is obligated by law to invest 3% of your salary into your fund. Annual membership fees are no higher than around $50 a year, and management fees continue to move downward, meaning higher returns are passed on to investors. There are hundreds of funds to choose from. Most importantly, KiwiSaver is a perfect secondary savings scheme that for most people can't be accessed until retirement. This means the returns can compound year-on-year to build up the biggest nest egg. 
• Cons: Very few - KiwiSaver isn't a short-term investment and fund-switching isn't advised by many investment managers.

How to start investing in KiwiSaver: You'll need to join KiwiSaver first and select a fund. Our KiwiSaver section covers the investment options extensively.

Related guides: Our KiwiSaver section reviews all the schemes currently offered as well as listing must-know facts and useful calculators.

Shares

What are they?

• When you buy a share, you buy a piece of a company – the more you buy, the more of the company you own. Investors buy shares believing the price will go up in time and/or that the dividend (cash return on the share) is attractive. 
• Shares are a popular asset to invest in but picking the right company is not without its risks. The NZX (New Zealand's sharemarket) has many success stories such as Xero and A2 Milk. It also a number of high-profile failures such as CBL Insurance and Snakk Media which have evaporated investors' money.

Difficulty to invest and manage: Medium to Hard

Risk: Low to High (depending on what companies you invest in). The price of a share can go up and down every day meaning your investment may fall in value, but you don’t make (or lose) any actual money until you sell your shares.

Potential return: Negative to High

Pros & Cons

• Pros: A lot of potential profits if you choose the right shares, but this is harder than it appears. For example, Fisher & Paykel Healthcare has risen from $1 to over $30, Xero from $1 to over $140 and A2 Milk from 25 cents to over $20. However, many companies have gone the opposite way. Burger Fuel ($3.50 to 40 cents), Moa Beer ($1 to 12 cents) and Sky TV ($6 to 14 cents) are just some examples.
• Cons: Risky – if you choose a company that underperforms, you will see a drop in your original investment.

How to start investing in shares: Our guide to investing in shares explains more. If you’re unsure what to invest in, it’s worth considering an index fund that focuses on shares. Examples of such funds include the Vanguard S&P 500 fund (via Hatch) or the NZ Share Fund (from Simplicity Investment Funds). Trading platforms Direct Broking and ASB Securities are two major platforms popular for low-fee share buying and selling.

Related guides: Investing in Shares, Sharesies Review, Hatch Review, Stake Review, Tiger Brokers (NZ) Review, Jarden Direct Review and ASB Securities Review.

​Want to compare Sharesies with InvestNow, Hatch and other platforms? Read our Comparing Sharesies vs Investnow vs Hatch and more guide.

Property

What is it?

• Buying houses is a longstanding New Zealand favourite investment option. The process is simple; you buy a property with two goals in mind – renting it to pay the mortgage and/or provide an income whille anticipating an increase of value over the time you own it. When you decide you want your money back, you advertise the property for sale, sell it and get paid the proceeds.
• Most investor mortgages now require 35% or 40% of the price of the house upfront (but not always), while some investors also go for 'interest-only' loans. The rates of returns differ depending on the property type and location. For example, a house in Auckland is likely to rise in value faster than a flat in Greymouth or a lifestyle block in Kaitaia.

Difficulty level for investing and management: Easy to Hard, depending on the property you purchase and how you rent it out.

Risk: Low to High (depending on what property you invest in). While house prices generally go up, property is a long-term investment as in the short-term they can fall significantly.

Potential return: Negative to Medium

Pros and Cons

• Pros: Property is, generally, an asset you can see and understand (compared to shares in a company or a crowd-funding investment). You have full ownership over a residential property investment and the right to do whatever you want with it (rent it, renovate it or live in it). Up until 2021-2022, New Zealand’s house prices increased to record highs thus suggesting property was a good investment, but past performance is no guarantee of future returns.
• Cons: If you have problem tenants, you may not be paid rent which can cause financial stress if you need to pay a mortgage. Also, repairs and maintenance can be costly and unexpected - $5,000 for new drainage, $40,000 for a new roof etc means you’ll need to continue to spend money to ensure the property is rentable.

How to start investing in property: Interest.co.nz has useful insights into housing market conditions. You’ll need to have a deposit saved and be prepared to spend 8% to 15% of rental income on a property manager if you don’t want to deal with tenants. Our guide to mortgages rates has the latest offers.

Related guides: ​Investment Property Mortgages, First Home Buyer Guide and ​Landlord Insurance

Bonds

What are they?

• Bonds are an investment which sees you lend your money to a company or government for a fixed period. You’ll be paid interest just like you would be if you leave money in the bank, but the interest rate tends to be higher given there is more risk.
• The riskier the company you invest in, the higher the yield (i.e. return on investment). For example, a bond in Air New Zealand is riskier (and therefore pays a higher interest rate) than a bond in Contact Energy. This is due to Contact’s relatively stable industry (electricity production) vs the aviation industry. Many KiwiSaver schemes invest in bonds as part of their fixed-interest asset allocation.

Difficulty to invest and manage: Medium to Hard (if you buy and sell bonds directly)

Risk: Low to High (depending on the bond you invest in)

Potential return: Low to Medium

Pros & Cons

• Pros: Relatively safe if you pick the right bond – the New Zealand government, for example, is safer than investing in government bonds from Argentina or Lebanon which have a history of defaulting (i.e. not repaying their investors). Also, the interest rate can be significantly higher than bank deposits.
• Cons: Risky – if you choose a company that goes bankrupt, you’ll likely lose all of your investment.

How to start investing in bonds: Our investing in NZ bonds guide is a helpful starting point. interest.co.nz’s bond guide explains more, and their bonds data covers what’s available right now. If you’re unsure what to invest in, many conservative funds invest in bonds as part of their investment strategy. An example is the NZ Bond Fund from Simplicity Investment Funds. Trading platforms Jarden Direct ASB Securities both offer bond investment opportunities.

Index Funds

What are they?

• When investors buy an index fund, they get a diverse selection of many shares in one bundle. This avoids the need to purchase the shares individually. The index fund directly invests into companies that fall within its investment criteria.
• Investments are ‘passive’. This means there isn’t a fund manager actively buying and selling shares trying to pick winners, so the management costs are much lower.
• You can invest in almost anything with index funds. Want to invest in the Australian share market, top 500 America companies, or New Zealand's top 20 companies? There are funds for all of that, and a lot more.

​Difficulty to invest and manage: Easy

Risk: Low to medium

Potential return: Low to Medium

Pros & Cons

• Pros: Index funds make investing easy and remove the need to research individual companies - the index buys and sells shares on your behalf and never deviates from the investing strategy. And research shows that, in most instances, markets out-perform the vast majority of individual shares in the long run so an index fund should beat an actively managed fund (see below). Finally, index funds charge as little as 0.10% p.a. in management fees, whereas some actively managed funds charge as much as 2% p.a. 
• Cons: There is no downside protection - when the market index sinks, as was the case in 2022, the fund's value sinks with it. An actively managed fund may sell off everything to avoid further losses. An index fund rides the ups and downs exactly like the index itself.

How to start investing in index funds: OurIndex Funds guide has more details, as well as five popular index funds from platforms such as Kernel Wealth, Sharesies, Hatch and InvestNow.

Related guides: Index Funds andSimplicity Investment Funds

A MoneyHub User explains:

“I thought of myself as an active investor, but the events of the early months of COVID changed my approach. I now invest in some actively-managed funds and index funds with five or six different managers. This suits my needs, and I have exposure in New Zealand, Australia, Asia, Europe and America. I like index funds for their low fees but also trust the managers I’m with to pick winners”.

- Arthur, Auckland

Actively Managed Funds

What are they?

• Actively managed funds are investments whereby a manager or a management team makes decisions about how to invest the fund's money on a daily basis. This means they continuously watch the sharemarket and will pick certain companies to buy shares in that they see as under-valued, and hold them until they sell at a higher price.
• Like index funds, you can invest in almost anything via actively managed funds. This includes New Zealand, Australian, American and European companies. Actively managed funds can also be industry-specific, such as industrials, infrastructure and pharmaceuticals. 

​Difficulty to invest and manage: Easy (the active manager does all the work on your behalf)

Risk: Low to high (depending on the fund you invest in)

Potential return: Low to high

Pros & Cons

• Pros: Investment managers only buy shares based on their predictions of the companies' performance statistics - the aim is to beat the market and pick winners in the short-term, and repeat the strategy over and over, growing the fund's value.
• Cons: The fees are higher than index funds, and you'll pay the management fee regardless of whether your fund does well or does poorly. If, for example, you invest in a fund that makes 7% in one year but charges a 2% management fee, your actual return is 5%.

How to start investing in actively managed funds: InvestNow offers a range of managers like Fisher Funds, Milford Asset Management, Pie Funds and Pathfinder, all of which are active managers. Alternatively, you can go directly to the fund manager and invest. Our guide to popular funds also shortlists investment options.

Peer-to-Peer Lending

​​What is it?

• Also known as crowd-lending, peer-to-peer websites are financial platforms that match individual borrowers to investors.
• Investors lend their money at above-market interest rates directly to borrowers looking for personal and business loans.
• There is risk - if a borrower doesn't repay, your peer-to-peer investment can be reduced. However, this risk is minimised by the platforms pre-checking and verifying borrowers.
• The platforms also manage the day-to-day loan repayments and collections process for overdue loans. Bad debt, which arises when a borrower doesn't repay the loan, is deducted from your investment. 
• Peer-to-peer lending usually appeals to investors who want a higher return on their money than what a bank or term deposit offers while retaining a cash investment. 

Difficulty to invest and manage: Low to Medium (some platforms ask you to select and fund the borrower, while others auto-lend to those that meet the guidelines of investor profile)

Risk: Medium

Potential return: Low to Medium

Pros & Cons

• Pros: You can own a small part of a business that you believe in, and many opportunities are positioned within a specific community. If the business does well, you can sell your shares to a new investor or receive money if the business is sold.
• Cons: Most peer to peer lending is unsecured - you may not get back what you put in if the borrower defaults. Also, you can’t withdraw your money early.

How to start investing in peer-to-peer lending: Visit the Squirrel review to see current investment opportunities. 

​

Related guides: Peer to Peer (P2P) Lending in New Zealand

Crowdfunding Equity Investments

​What is it?

• Crowdfunding occurs when an investor buys shares in a private company that lists on a crowdfunding website such as Pledge Me or Snowball Effect.
• Investments are made during a 'campaign'; the company looking for investment promotes its positive future with financial statements and strategy documents, known as an 'investor memorandum'. This information helps a potential investor decide whether or not the business is worth the risk.
• Equity crowdfunding offers shares to anyone willing to risk the money the specific company is asking for investment. Usually investors put in between $100 and $10,000 (or more) in the hope that the investment will be successful. 
• Investors are repaid when the company is sold or when new investors want to buy shares at a higher price later on.

Difficulty to invest and manage: Low to Medium

Risk: High

Potential return: Low to High

Pros & Cons

• Pros: You can own a small part of a business that you believe in, and, assuming it stays in business, receive personal updates about the company's journey. If the business does well, you can sell your shares to a new investor or receive money if the business is sold. The founding shareholders may also offer to buy your shares later on.
• Cons: Crowdfunding equity offers are extremely high risk and investors should be comfortable with losing all of their money. Investors need to be realistic and only invest money that they are 100% happy to lose.​

How to start investing in Crowdfunding campaigns: Visit the Pledge Me or Snowball Effect websites to see current investment opportunities. Before investing, make sure you understand that the money you put in won't be able to be cashed out for some time. You may also find it difficult to find a buyer of your investment unless the company's prospects improve. 

Related guides: Equity Crowdfunding Review

Real Estate

​​What is it?

• Investing in real estate usually involves buying a rental property.
• You'll usually need a 20% deposit of the purchase price, and/or security over your existing home. 
• Once you own it, you rent it out to tenants, either directly or via a managing agent. 
• Real estate investors make their money from having rental income pay off the mortgage, as well as benefiting from any capital gain (i.e. increase in house price).
• As an example, if you purchase a property for $500,000 with a $100,000 (20%) deposit, and later sell it mortgage-free for $800,000, the gain of $700,000 is largely tax-free. 

Difficulty to invest and manage: Medium to High

Risk: Medium to High

Potential return: Low to High

Pros & Cons

• Pros: You invest in something you can see, improve and understand. There tends to be a rentals shortage in key areas of New Zealand, so demand can be sustained. House prices historically increase in New Zealand (but this is no guarantee of future returns).
• Cons: Rental properties cost a lot to fix, and the outlay needs to be paid upfront. For example, new roofs or drainage issues can cost tens of thousands of dollars. Further to that, law changes mean rental increases (and removing problematic tenants) has become harder. There's also the issue of not being paid rent which can make keeping up with mortgage payments near-impossible and can compromise your investment significantly.

How to start investing in real estate: Do your research - the size of the investment (and commitment) is significant, so you'll need to be extra careful. We suggest reading this comprehensive guide, written specifically for the New Zealand market. 

Related guides: Renting a Home Directly to Tenants vs Using an Agent, Investment Property Loans and Landlord Insurance.