New Zealanders need to change their mindset on investing to beat a risky over-reliance on property investment and help spur the national economy.
That's the view of Ainsley McLaren, executive director of investment management company Harbour Asset Management. She says many Kiwis have a mistaken anxiety over investment cultures outside property – and regrettably low levels of understanding of the benefits in managed funds.
Recent statistics and research bear her out. At the end of last year, Statistics New Zealand figures showed that in 2017, 32 per cent of all investment by Kiwis went into houses – the highest level since records began measuring investment levels 45 years ago.
Meanwhile, a Financial Markets Authority survey published last month revealed a lack of confidence in investing, concluding that Kiwis must drop the attitude investing is only for the rich. FMA head Rob Everett said at the time that he felt many New Zealanders "opt out" as other countries he had worked in had a lot more people investing even smaller sums in financial markets.
Another survey last month showed that, of Kiwis who did not own shares, about a third said they did not have spare cash to invest, another third said they did not know how and another third felt it was too risky.
McLaren says the fact that about two-thirds either didn't know how to invest or felt it was too risky showed the gap in understanding between investments like shares, bonds and managed funds and residential properties.
"Having said that, I think we also have to acknowledge the fact that the biggest and best known managed fund in New Zealand – KiwiSaver – has 40 per cent of their 2.5 million members not contributing right now.
"Many are on a contributions holiday and I think that is a concern," says McLaren. "It maybe speaks to the fact that, even though we are in a relatively low period of inflation, some may be having trouble meeting their day-to-day expenses and may not feel they have cash to spare."
However, most Kiwis, the other two-thirds, did not understand that small amounts could also be channelled into managed funds – where money is pooled with other investors' funds, spread across different kinds of investments.
On a no-advice basis, savers can invest a minimum transaction of $250 or regular payments of $50 online with Harbour Asset Management via InvestNow.co.nz, McLaren says the great advantage of managed funds is that they spread the risk across diverse investments, companies, industries and geographies, with the investor's money quickly and easily retrievable.
"I am going through it myself at the moment," she says, "selling our house in Auckland. It is a lovely property but it is taking a whole lot longer to sell than we have experienced previously.
"So that money is all tied up and it can be a month or two before you get your hands on it – whereas if you want to pull cash out of a managed fund, it can generally be available in about 24 hours."
Kiwis' fondness for property investment is well-known but they are exposed to significant losses if there is a sudden correction in the housing market – as seen around the globe in 2007 when the last housing bubble burst and some parts of the world had mortgages of higher value than the corrected worth of the property, post-crash.
Ironically, McLaren believes some New Zealand investors are still sensitive to the 1987 stock market crash and the 2007-2008 global financial crisis.
"But many managed funds are robust and diverse enough to withstand downturns. Instead of having all eggs in one basket, they spread them out over a range of baskets. If something goes wrong with one company, it is unlikely it will go wrong across all the companies in the fund."
Like property, managed funds are a medium- to long-term investment. Fund managers choose how the fund is invested and each investor owns a proportion of the total fund. The value of the fund can vary up and down each day – and many Kiwis didn't like that.
"It's like KiwiSaver – you don't look at your balance every day. The investments have to be given time to work and to provide compound returns."
Over time, benefits accrued and she says many Kiwis – instead of trying to save a deposit for a house – should be paying into a managed fund for returns often better than a traditional bank account.
But New Zealanders' financial literacy was not always acute – evidenced by the huge percentage of KiwiSaver accounts (more than two-thirds) who let their contributions drift into a default fund, potentially costing themselves large amounts – sometimes estimated at hundreds of thousands of dollars if calculated over a 40-year working period.
Economically, healthy stock markets and investment cultures generally mean more wealth for businesses, pension funds and individual investors. Companies can find more funding for expansion. When stocks and shares rise, business confidence increases, and spending and investments grow.
That contrasts with property rises which, as in the Auckland market, benefitted those with property but made it harder for those without to break into the market.
"So there are social and economic reasons for broadening our investment range," McLaren says, "and managed funds – with their passionate, professional fund managers who work all hours and love looking ahead to find growth opportunities – are a good way to do it."
# This story does not constitute investment advice to any person.