Between the rise of geopolitical tensions causing havoc on industries, rising interest rates and talk of an impending recession, you might be wondering “what should I do with my money?” Instead of getting wrapped up in investing trends, finding the best way to invest money comes down to your risk tolerance, goals and how long you plan to hold your investments. We compared multiple investment options and chose the 5 of the best ways to invest money based on the return rate, liquidity, time horizon and how much activity and knowledge you need to have to invest.
Find the best way to invest money in New Zealand
We’ve rounded up 5 of the best ways to invest money in New Zealand depending on what type of investor you are, plus a bonus strategy on how to prepare your finances for a recession.
1. One way to invest money if you want to control your portfolio: Shares
Shares have the greatest variety of trading options because you can choose from emerging businesses you think will explode, companies that pay dividends, established businesses in industries that are resistant to downturns and more. It’s easy to open a share trading account and start trading.
- Where to buy: Online brokers
- Risk level: Low, medium or high – depends on which shares you invest in
- Liquidity: High
- Minimum: Investment minimums depend on the broker
- Fees: Brokerage fees typically range from $15 to $30 for NZX trades depending on the broker. There are other fees and costs you need to consider, including transaction fees and inactivity fees.
2. One way to invest money if you want to be hands off: KiwiSaver
KiwiSaver is a voluntary, work-based savings scheme set up by the government to help you save for retirement. After joining KiwiSaver, employees can choose to contribute 3%, 4%, 6%, 8% or 10% of your gross wage or salary to your KiwiSaver account. Employers are required to contribute 3% of your gross salary if you contribute. There’s also an annual government contribution of up to $521. Your savings are invested by a KiwiSaver provider of your choice. In some cases, you can use KiwiSaver to help buy your first home.
- Where to buy: KiwiSaver providers
- Risk level: Low, medium, high – depends on which funds you invest in
- Liquidity: Low
- Minimum: Typically 3% of your gross wage or salary
- Fees: Starting from 0–0.2% depending on the fund
3. One way to invest money if you are a conservative investor: Index funds
Index funds offer one of the best risk/reward ratios for long-term investing, meaning they offer decent rewards for relatively low risk. That’s because major indices have consistently gone up in the past 90 years.
- Where to buy: Brokers
- Risk level: Low, medium – depends on which funds you invest in
- Liquidity: High
- Minimum: Investment minimums vary
- Fees: Management fees start at 0.03% per annum depending on the fund. There may be other fees you need to consider, such as membership fees.
4. One way to invest money if you are a risk taker: Cryptocurrencies
Being a relatively new investment option among mainstream investors and institutions, cryptocurrencies are a high-risk, high-reward investment. What’s more, there are always new coins coming out or older ones getting the spotlight every now and then. Because of that, the rate of return could be way higher than investing in stocks. But since cryptos aren’t currently regulated, you could lose your entire investment.
- Where to buy: Brokers and crypto exchanges
- Risk level: High
- Liquidity: High
- Minimum: No investment minimums
- Fees: Vary depending on the broker and the exchange
5. One way to invest money if you are close to retirement: Government bonds
Investing in New Zealand government bonds is one of the safest investments you can make. That’s because the chances of the New Zealand government failing to pay off its debts are low – which is why this investment option comes with relatively low return compared to other options like shares and ETFs. Investors who are close to retirement likely want to be exposed to low-risk investments, as they need to access the proceeds in the near-term so market fluctuations can have a big impact.
- Where to buy: Brokers and directly from the government via broker
- Risk level: Low
- Liquidity: High
- Minimum: Typically $1,000 for government bonds and $5,000 for corporate bonds
- Fees: Vary depending whether you buy bond ETFs or bonds directly
Bonus: How to prepare your finances for a recession
From dealing with debt to what to do with your KiwiSaver, check out our guide on how to prepare your finances for a recession.
5 steps to start investing
Now that you have an idea of the best ways to invest your money, here’s how to start:
1. Identify your goals, time frame and risk tolerance
- Time horizon: Your time frame dictates your risk. The sooner you’ll need the funds, the more liquid you want to keep them. This way, a dip in the market (assuming it recovers, but we don’t know how long it will take) won’t destroy the retirement fund you’ll need in a year.
- If you’re nearing retirement, typically a low-risk investment, such as bonds, is the way to go. You would earn less, but the risk is minimal compared to shares or crypto.
- If you’re younger, you have a long way to go before retirement so you might want to consider setting aside some funds for riskier investment options (like more speculative shares or crypto).
- Risk: Be honest with yourself about how much risk you can reasonably tolerate. If it is going to be impossible for you to watch your portfolio drop in a downturn, you’ll want to invest in lower-volatility assets like bonds. Remember, an easy way to hedge risk is through diversification – investing in different assets so that your entire portfolio doesn’t depend on the success of one investment.
- Goals: Do you want to be highly involved in picking shares? Are there some industries you aren’t comfortable investing in? Is your goal retirement or do you have other shorter-term goals? The answers to these questions, as well as those above, will dictate the best way to invest your money.
2. Decide how much help you need
Investors who are just starting out or those who never had the chance to manage their portfolio may consider consulting an expert. Investors who want to try their luck can always start by themselves, as many platforms have research tools and low barriers to entry. Make sure you use money that won’t impact your life if you lose it.
3. Choose your account type
Depending on your goals and investment time frame, you can choose several types of accounts:
- KiwiSaver account. This is a retirement account. If you contribute a minimum of 3% of your gross salary, your employer must make monthly contributions of at least 3% of your gross salary also. The government also contributes an annual payment of up to $521. Conditions and tax apply.
- Individual accounts. This is the most common type of account you can open with any broker and start investing your money as soon as your funds land. This account often has no limits to depositing and withdrawing but gains are taxable.
4. Open your investment account
Depending on who manages your account, a standard account with an online broker is the most common option for those who want to place their own trades and choose their investments. You will need to open a share trading account, which is usually easy and with lower costs.
5. Deposit and invest
Once you open and fund your account, it’s time to put your money to work. Make sure to choose the best way to invest, depending on your financial situation and goals.
Compare share trading platforms
Online share trading
The best way to invest money in New Zealand depends on factors like your financial goals, risk tolerance, level of involvement and time frame. There is no single best way to invest your money, but these 5 investment options (shares, KiwiSaver, index funds, cryptocurrency and bonds) are good places to start when you are deciding how to invest money in New Zealand.
Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, CFDs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involves substantial risk of loss and therefore are not appropriate for all investors. Trading CFDs and forex on leverage comes with a higher risk of losing money rapidly. Past performance is not an indication of future results. Consider your own circumstances, and obtain your own advice, before making any trades.