Popular Ways to Invest in the NZ Market

  • Apr 04, 2020 NZDT
  • Team Kalkine
Popular Ways to Invest in the NZ Market

A famous Mexican investor, Mr Robert G. Allen has rightly said, Anyone who is not investing now is missing a tremendous opportunity."

The message is clear, there is no better time than present to start investing. As money needs time to multiply, the sooner you start investing, more time your money gets to grow for you. Additionally, there are numerous benefits of investing, ranging from earning potential long-term returns and building wealth to outperforming inflation and saving taxes.

A strong credit rating and robust NZD makes New Zealand an attractive place to invest. In this context, let’s familiarize you with some popular investing options available in New Zealand, believed to be one of the world’s most famous tourist destinations.

Shares

Besides offering an opportunity to have a stake in the company, investing in shares can help an investor earn significant potential returns from the equity market movements.

Majority of investors consider shares as an appealing form of investment in New Zealand, wherein the stocks of publicly listed companies are traded on the NZX or the New Zealand Stock Exchange. More than 200 companies trade on the NZX market, including several longest-established businesses from New Zealand and overseas.

The NZX50 is the headline index of NZX, which includes 50 largest companies by market capitalisation in the NZX market. The NZX50 holds considerable potential to deliver lucrative returns to investors. Notably, the index produced a return of over 30 per cent in 2019.

It is worth noting that the NZX functions in a regulatory framework and has been devised to maximise efficiency, fairness, competitiveness and transparency, and stimulate confidence in all market participants. Regulators, including the Financial Markets Authority, enforce a range of security laws in NZ to regulate the way investments are offered to investors.

In the NZ market, investors can invest in the NZX directly via an NZX registered broker, which include Sharesies, UBS, Forsyth Barr, Deutsche bank and several others.

In the current volatile equity markets marked by coronavirus, investment decisions need to be backed by strong analysis of fundamentals, prevailing opportunities in the specific industry along with the scope of fiscal reforms and monetary decisions undertaken by the policy makers.

Property

Property investment has remained one of the favourite choices of investors attempting to build wealth in the NZ market, owing to the nation’s favourable tax regime. The property investors have a major advantage in the NZ market with no capital gains tax in place.

To invest in property, investors usually use the following strategies in NZ:

  1. Invest in a well-kept property and hold it for a long-term, building wealth from the increase in property value over time.
  2. Invest in a property that needs some renovation, carry out restoration work and then, either hold it for a long term or sell it straight away.

Investors undertaking the first strategy rent out the property after purchasing it and then wait for it to increase in value. Besides being more accessible, this strategy is less time consuming and less risky too for property investors. On the other hand, investors adopting the second strategy benefit from the immediate capital gains from selling the property.

Before choosing any of these strategies, investors can possibly take professional, financial and legal advice to assess the property in order to avoid potential losses.

Bonds

As bonds generally deliver greater returns than the bank deposits, several investors prefer to invest in bonds in the NZ market. Investors have a choice amongst a range of fixed-interest bonds to invest in NZ.

Investors can purchase newly issued debt securities via brokers or investment advisors, and via the NZDX market, which is the NZ’s leading market for listed debt securities. This market also offers a secondary market, wherein interested investors can sell and purchase debt securities like government bonds and corporate bonds, by means of NZX advisors.

Besides, members of the public have the option to purchase government securities, referred to as Kiwi Bonds, via NZX brokers, some registered banks, solicitors, registered banks, investment advisors, chartered accountants and investment brokers.

Kiwi bonds hold the potential to pay a higher interest rate, investors can take into consideration various risks associated with investing in the bond market. These risks include inflation risk, liquidity risk, interest rate risk and safety of bonds.

KiwiSaver

KiwiSaver is the NZ government’s voluntary retirement saving scheme to help individuals invest for the future. Individuals can choose to invest 3 per cent, 4 per cent, 6 per cent, 8 per cent or 10 per cent of their gross salary or wage (before tax) to their respective KiwiSaver accounts. Employers also contribute to individuals’ KiwiSaver accounts, minimum 3 per cent of the employee’s salary.

Individuals hold a right to choose their KiwiSaver provider, which if they don’t, Inland Revenue Department assigns them randomly.

One of the key benefits of investing in KiwiSaver account is that the government too makes an annual contribution of up to NZD 521. Moreover, individuals starting a new job after 18 years of age can get automatically enrolled for the KiwiSaver scheme.

KiwiSaver schemes have a range of funds to choose from, with each fund having a variety of assets it invests in, like shares, bonds, property and bank deposits.

Peer-to-Peer Lending

Peer-to-peer lending is another exciting investment opportunity designed by the Financial Markets Authority for New Zealanders. The peer-to-peer lending platforms match investors with individual borrowers, enabling investors to lend money at interest rates higher than the market rate to borrowers needing business and personal loans.

Working of peer-to-peer lending: Borrowers seeking a loan can list their requirements on the provider’s website, from where investors can choose the loans to invest in. Moreover, lenders might have an option to lend all or a part of the loan demanded by borrowers. As per the regulation, borrowers can borrow up to NZD 2 million in a one-year period.

Though peer-to-peer lending offers higher returns to investors, it carries a risk of default on the side of borrowers. However, to make sure lenders carry a minimum risk, peer-to-peer platforms have their own criteria of credit application.

It is imperative to note that besides these investing opportunities, there are multiple other investing options available in the NZ market. Additionally, instead of putting all eggs in a single nest, investors can potentially diversify their portfolio to evade possible risk.

   
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