In today’s low interest rate world Kiwis are changing their approach to investing.

Confidence among Kiwi investors in bank term deposits seems to have reached a tipping point as falling interest rates drive down returns.

This is the view of Chris Di Leva, a multi asset specialist with investment management company Harbour Asset Management (Harbour) who says current rates - now down to an average of 2.6 per cent - are considered not nearly high enough by growing numbers of New Zealanders.

"Over the last 18 months I think we've reached a tipping point," he says. "We've noticed an increasing number of people coming to us saying they are worried about what to do with their savings as rates drop.

"As a result many are dipping their toes into options like managed funds, although for some this requires new thinking. But the experience with KiwiSaver has shown that if you stay the course with a mixed portfolio of shares and more defensive assets, you can beat the returns you'll get from term deposits."


Di Leva's comments follow a Financial Markets Authority (FMA) survey in August which revealed 43 per cent of term deposit investors say they are likely to invest less in them because of low rates while 58 per cent were concerned at the impact on their long term savings goals.

Chris Di Leva - Multi Asset Specialist for Harbour Asset Management. Photo / Supplied.
Chris Di Leva - Multi Asset Specialist for Harbour Asset Management. Photo / Supplied.

The survey also showed nearly half (47 per cent) were looking to other options such as managed funds or exchange managed funds.

Other FMA data shows 34 per cent of New Zealanders aged over 18 invest in term deposits, placing it only behind KiwiSaver (66 per cent) as the most popular form of investing and well ahead of shares (17 per cent), managed funds (14 per cent) and residential property (14 per cent).

Di Leva says historically term deposits have been a good - and relatively safe - form of investment. Back in November 2007 the average one-year bank term deposit rate was 8.6 per cent (according to data from

"But fast forward to now and the Reserve Bank (RBNZ) has cut the OCR to 1 per cent - its lowest level on record - and the average term deposit was, at November 1, down to 2.6 per cent," he says. "What's more, the RBNZ has indicated that interest rates are unlikely to rise for a while yet.

"This means investors who once may have relied mostly on term deposits to earn extra income are facing a challenge."

Di Leva says at today's term deposit rates an investment of $100,000 returns only $2650 a year before tax. "You kind of need at least $500,000 to get a meaningful return, but even then the return is only $13,000 before tax a year which is not a lot."

Di Leva says there has also been a decade of returns from the share market that have been well above average. "The New Zealand share market has, for example, delivered just shy of 15 per cent per annum over the last 10 years.


"But we think forward looking investors would be well advised to hold more realistic expectations – we think for the next 10-15 years returns for shares could be lower at around 6 per cent."

Di Leva says while diversified funds are becoming increasingly popular, it can be daunting for many: "They may be considering managed funds for the first time and not know what to expect."

Harbour manages two funds spread across a range of assets - the Harbour Income Fund and the Harbour Active Growth Fund. Di Leva, who is also portfolio manager for the active growth fund, says both target returns well above the official cash rate (OCR) by 3.5 per cent and 5 per cent respectively.

Di Leva says diversified funds give investors strong options in a low interest rate world: "They can be diversified across hundreds of different assets such as equities, property and fixed interest securities so that if one goes bust it won't have a huge impact on an individual's portfolio.

"Harbour's diversified funds also both have the long term performance objectives attached to them," he says. "These not only give a clear idea of the return the fund is aiming for over the medium to long term, it also guides decisions we make so we only take on the risk we see as necessary to meet them."

He says the company has established partnerships internationally, one of the most significant being with Baltimore-based US company T.Rowe Price. It has over 200 analysts managing more than $NZ1.4 trillion in assets and, over the last 11 years, has achieved average returns four per cent above the market rate.

Di Leva says one of the fears people have with managed funds is in moving away from a fixed rate of return. To help out, Harbour offers the option of a monthly payment (called a distribution) from a client's fund; this gives comfort around the level of income they can expect while also recognising capital investments can fluctuate. The distribution is based on a percentage of the total invested.

This article does not constitute advice to any person (
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