Concern that some New Zealanders are moving money out of term deposits and piling into shares in search of higher returns has prompted the financial regulator to contact investment platforms this week.
Rob Everett, chief executive of the Financial Markets Authority, said: "We have spoken to Sharesies, the NZX and fund managers and asked them to be mindful of direct investment, to keep an eye out for people who may expose themselves [to possible losses] without fully understanding the risks."
Everett said the FMA was hearing anecdotal evidence of people taking money out of term deposits and putting it all into sharemarket investments in one lump sum.
"You do worry, a large lump sum going in right now will expose people to the significant risk of a major downturn."
Online platform Sharesies and rival InvestNow saw significant increases in new clients signing up during the lockdown period.
Sharesies now has more than $500 million in funds under management, with 175,000 customers - up from around 100,000 before Covid-19 hit.
InvestNow has also reached half a billion dollars, although it has a smaller customer base of 26,000.
Retail investors piling in are thought to be part of the reason why the sharemarket has bounced back so quickly, with some people taking a punt on stocks like Air Zealand despite its uncertain prospects.
Everett said talking to Sharesies, there seemed to be a lot of people entering the market for the first time.
The situation was not unique to New Zealand, and Everett said he had talked to other regulators in Asia this week who had also seen the same thing.
"Some of it is the ease of the technology. Some of it is that there is nowhere else to put their money. Some of it is just small sums of money."
While it was a good thing more people were investing directly, Everett said the FMA was worried about people piling in money they could not afford to lose.
Australian research had shown a lot of people were trying to time the market to make a quick gain - and a lot got it wrong, he said.
If it was small amounts and it was money people could afford to lose, that was okay.
But overseas there had been situations where people also borrowed against their investments and were left owing money to the online trading platform.
That hasn't happened here, but the FMA is worried about people betting all their retirement savings on share investments without understanding the risks.
"I do worry about someone who sees themselves as the next Warren Buffett."
"We are certainly encouraging anyone facilitating investment to look at their metrics."
Sharesies co-chief executive Leighton Roberts said they had regular meetings with the FMA - including this week - and had a really good relationship with the regulator.
"I would say the conversation from their end was more of an interest in what sort of behaviours we are seeing, more than anything else."
Roberts said a "tiny proportion" of their investors appeared to use the platform for day-trading type behaviour, but in surveys 90 per cent claimed to be long-term investors and the way they had behaved through the recent market turmoil appeared to back this.
InvestNow managing director Anthony Edmonds said it had record growth during lockdown, and put that down to the ease of access offered by platforms such as InvestNow and Sharesies, and people having more time to undertake direct investing.
But he didn't think the rise was related to low deposit rates driving investors into shares and managed funds.
"Our general feel is people who are investing are deliberately investing into specific funds as opposed to a knee-jerk reaction to low interest rates."
Edmonds said it appeared its new customers were experienced, as they were investing in specific funds rather than asking what they should invest in.
He said it wanted to attract people who were serious about investing and saving rather than just taking a punt.
"If you're investing without being aware of the risk, you could end up being disappointed."
Betting on the market was not something it saw a lot of on Investnow, he said.
"But I assume it is happening within the market. That is not something we are promoting."
Term deposit figures from the Reserve Bank of New Zealand show total deposits dropped from $193 billion in February to $189b in March and $186b in April.
The average six-month term deposit rate fell to just 1.87 per cent in May, compared to 3.17 per cent in May 2019.
There is no way of knowing if the money has gone into on-call accounts, share investments, to reduce debt or for people to live off if they have lost their job.
Tom Hartmann, money editor at Sorted, said it hadn't been tracking whether term deposit money was being invested in shares or managed funds, but it was something it had been concerned about for a while, ever since the low interest rate environment had worsened, especially for retirees who relied on income from their savings.
Last year KiwiSaver opened up to allow over-65s to join the retirement savings scheme and there has been encouragement for them to use it to invest.
"We have seen a lot of people getting into investing. We think there is a section of the population trying to invest their way out of the problem [of low interest rates]."
A term being commonly bounced around the markets is TINA - there is no alternative - for investors.
Hartmann said it was still an advocate of using KiwiSaver to save for retirement, and increasing the hoped-for reward level was perfectly acceptable as long as people understood the additional risk they were taking on.
But, he said, people typically did not do a good job of assessing risk.
"That is why greater rewards - if they don't walk hand in hand with understanding greater risk - is a worry."
Hartmann said a lot of people talked about the risk of shares as being greater volatility - more ups and downs - but it was more than that.
"We know the value of shares can go up and down. But when we talk about risk there are many kinds - not just volatility - but risk that come with an industry - like aviation and geographical risk."
Hartmann said share investing was a long game of at least a decade because of the risks that came with it.
"We are concerned about the decoupling of risk and reward."