Kiwis are struggling to profit from investments in rental property as yields plummet to near record lows.
Experienced investor Ainsley McLaren says new data shows gains from rentals - traditionally a popular form of investing for many New Zealanders - have fallen to just 3.3 per cent before expenses such as rates, insurance, maintenance and tax.
"While house prices have been increasing by more than 75 per cent over the past 10 years, as many home owners in Auckland (and Sydney and Melbourne) have found, they don't always go up; property is also increasingly out of reach for many," she says.
McLaren, executive director at investment management company Harbour Asset Management, says property investors unable to rely on capital gains are left with rental yields.
"But these are near record lows (according to MBIE and Core Logic data from April 2019)," she says. "With average bank term deposits down to just 2.6 per cent, many Kiwis are looking beyond these investments to build a nest egg."
McLaren says a lot of people have been coming to Harbour interested in investing but with no idea where to start. So, here are some tips for starting an investment portfolio in 2020:
Have a goal
Money is more meaningful if you have a purpose for it. You could be building a safety net for you and your family in case times get tough, you could be saving for a comfortable retirement, a nicer car, a better holiday, a home deposit or your kid's education or you could even be investing for fun. Knowing what it's for helps figure out what types of investments might suit you best.
You don't need as much as you might think to get started with investing. New Zealand is seeing a growth in the number of platforms where people can invest without needing much cash. Harbour Investment Funds are all currently available on InvestNow, a self-serve platform which allows investment in a range of different funds for no platform fees.
The minimum amount to invest in a fund on InvestNow is $250.
The saying 'don't put all your eggs in one basket' goes for investments too - investing in different things spreads your risk. One of the positives about KiwiSaver and other managed funds is each will hold a number of different shares or bonds. This spreads the risk so if one company has a tough time, the entire portfolio won't be affected.
Think about responsible investing
Increasingly people are demanding environmental, social and governance factors be taken into account in investing. Integrating these sorts of issues is good for your wealth as it can protect against investing in stocks for companies which face big risks. Mindful Money is a great tool for people who want to figure out how ethical their KiwiSaver fund is.
Understand the risks
Markets go up and down and so do investments - different types of investments are likely to go up and down by different amounts and at different times. Think about what sort of risk appetite you have – do you feel comfortable investing in something with bigger ups and downs and more potential reward, or would you prefer to err on the side of safety; do you need to be able to take your money out at short notice or can you leave it to grow over a longer period of time? Check out the quiz at Sorted.org.nz to find out what your risk appetite is (Sorted is run by the Commission for Financial Capability and includes loads of resources to help you figure out how to start investing).
Look, don't touch
People have a tendency to panic when investments shrink and try to pull out - then buy back in when things are doing well. This tends to mean you take the hits but miss out on the growth. Funds are built with a time frame in mind – for example the Harbour Income Fund is designed for a medium-term investor (around three years) whereas the riskier Harbour Australasian Equity Focus Fund is aimed at a longer term horizon (five years or more).
Check the fees being charged
Know what total fees you are being charged and how they compare to similar financial products from other companies. Look out for entry and exit fees or buy-sell spreads which increase your costs of investing. If there are performance fees, look to see if they are fair.
What about tax?
One of the key benefits of PIE (Portfolio Investment Entity) managed funds - which are the main types of funds offered in New Zealand - is they take care of the tax for you. The only thing you have to do is tick the right rate at the start. The top tax rate for PIE funds is 28 per cent but be sure to update this when your circumstances change.
Don't be afraid to ask for advice
There are hundreds of highly qualified authorised financial advisors (AFA's) in New Zealand who can help design a portfolio of investments to suit your life goals. At Harbour we work with about 400 advisors who are completely independent from us. Sorted.org.nz has guides to help find advisors and you can also find an AFA through various industry groups such as SIFA or Financial Advice NZ.
For more information visit: www.harbourasset.co.nz
Note: This article is meant for information purposes only and is not personalised financial advice. If you have any questions Harbour recommends you consult with an authorised financial advisor.