Read through some of our common queries
That depends on several things, including your risk profile, your goals and your investment time horizon.
The New Zealand banks are well regulated and supervised by the Reserve Bank of New Zealand. The major banks are a low-risk proposition for deposits. Clients can invest directly with their bank or through CIP Cash Management Nominees Ltd, where funds are held in cash management accounts under a bare trustee arrangement. Clients with on-call balances in cash management accounts may be paid interest on NZD and a range of foreign currency deposits. Clients using our Custodial service can also access term deposits, via CIP Cash Management Nominees Ltd, from a selection of approved banks at attractive interest rates.
This is a great approach for funds that you might need to call on in the near future, or as part of an investment portfolio. However, cash and deposits alone do not make for a sensible long-term strategy, because they don’t offer any growth, or inflation protection.
Long-term investors should aim to maintain (and grow) their purchasing power, by ensuring their portfolio (and the income it generates) keeps pace with the cost of living.
To achieve this, investors should also hold a range of other assets that can deliver higher returns than cash and deposits, and help grow their capital. This might include fixed income, listed property, shares or alternative assets such as private equity.
All investments have some degree of risk, and the risks go hand in hand with prospective returns.
We have many clients with a low tolerance for risk and volatility, which means portfolios will be dominated by safer, more conservative assets such as high quality bonds. These should provide reliable, predictable income with much less risk of capital loss, albeit with more modest returns. If they do own some growth assets like shares or listed property, these will be of a lower risk nature (typically in sectors like utilities, healthcare or consumer staples).
In contrast, clients with a long investment time horizon and little need for income might opt for a greater focus on growth assets, such as shares and listed property, with a tilt toward higher growth parts of the market such as the technology sector. These types of assets offer higher long-term returns, although there will be more ups and downs along the way.
Several things determine where an investor sits on that spectrum, and many people have a bit of both. Our goals and objectives, as well as our tolerance for risk, can also change over time, which means our team regularly review whether a portfolio is delivering what a client needs.
Everyone is different, so we tailor solutions to the needs and goals of the individual client. Our advisers can help you figure out what might work best for you.
Saving and investing both involve setting aside money for your future. However, there is an important distinction between the two.
People who are accumulating money in the bank are savers while those who are using their savings to buy assets (like shares, property or businesses) are investors.
Investors own assets they anticipate will generate a profit in the future, provide an income stream (from interest or dividends) and possibly some capital growth (an improvement in the value of the original investment).
Their returns (at least over the long-term) will hopefully outpace inflation, as well as earn more than any fees, costs and taxes that are incurred along the way.
Investing can allow us to protect our purchasing power, grow our wealth and help us use our capital to reach our goals in life.
Shares, stocks or equities – the terms are interchangeable and they all mean the same thing.
Share investors are simply business owners. When you buy a share, you become a part-owner of the company in question, along with many others who all own a piece of that same business.
Along with all the other shareholders, your investment will be impacted by the ups and downs of that business. You might receive dividends from the company (which is your share of the profits), and you will benefit from any increase in the market value of the company if it becomes more successful (and the share price as well as dividend increases over time).
However, the contra also applies and if the company encounters any problems or if the market takes a more pessimistic view on its future or prospects for any reason, this could be reflected in the share price and your investment may fall in value.
This is why getting access to information and research on a company is critical before any investment decision, just like it would be with the purchase of an entire business.
The timeframe you intend to invest for is extremely important, and it plays a key role in determining the approach you should take. Often described as your investment time horizon, this is the period you expect to hold an investment for until you need to call on your money.
Your investment time horizon is largely dictated by your goals. The longer it is, the more risk you have the ability to take on, because you’ll be able to ride out any market ups and down. In contrast, if you might need to use some of your funds in the near future, you are better to play it safe to avoid the prospect of selling at a time when asset prices are depressed.
For example, if you’re saving for a house deposit and hope to purchase a home in two years’ time, your investment time horizon is relatively short. If you’re investing with your children’s tertiary education in mind five years from now, you have a medium-term time horizon. If you’re investing for retirement in another ten years or even thinking beyond that to the next generation, you have a long-term time horizon.
It is a myth that you need a lot of money to start investing. We have a range of products that suit people at all stages of their investment journey, including those just starting out. In fact, we have offered a fractional investing product to clients investing from $100 a month since the 1990s called mySTART®.
We also have a range of free resources that cover the basics of investing. Our educational videos, insightful eBooks as well as our range of topical insights cover everything from getting started, to diversiﬁcation, to the various asset classes to consider. You don’t need to be an expert to get started, our advisers’ role is to guide you through the process and educate you along the way.
One of the secrets to successful investing is to start early, invest regularly and to harness the power of compounding returns. The earlier the better, as this will give your investments longer to grow.
The concept of compounding is when you earn a return on not only the money you’ve invested, but also on the returns from those investments. When you start earning interest on your interest, or dividends on your dividends, that unlocks the power of time to help grow your investment, like snowball picking up speed.
Your investments will generate a return in two ways – from the income that is generated (which you have the option of spending, or reinvesting) and the change in value of the assets your own. The quantum of the returns will be determined by several factors, including:
- The mix of assets you invest in
- How much you invest and how frequently
- Your investment time horizon
- The dividends, interest and other income your investments earn
- Changes in the value of your assets
- Fees, expenses and taxes
- How much you withdraw on the way through.
All investments involve risk and with any investment, there is a chance that the return may be different to what is expected. The value of an investment might go up, down or in extreme circumstances, lose its entire value.
Experience tells us that we can reduce the overall risk of a portfolio by investing in a range of asset classes, geographies, sectors and securities, as well as following a disciplined approach and maintaining a long-term mindset.
Our advisory team can provide further information about the potential long-term returns from the various types of portfolios, as well as some evidence of how the various asset classes have performed in the past.