While New Zealanders have an enduring fascination with property as the investment of choice, shifting economic sands and the emergence of powerful and accessible technology have made stocks, bonds and managed funds an increasingly attractive proposition.
With the benchmark S&P 500 index returning 23% in 2024 and the S&P/NZX 50 up 11% while NZ property prices were flat, Harbour Asset Management believes it’s time investors take a hard look at their options. For many, the income that rental properties generate – a traditional Kiwi retirement strategy – won’t be enough to generate sufficient income to retire on.
New Zealanders need to take this as a wake-up call to diversify their investments.
“It’s not just about returns, either,” notes Chris Di Leva, Harbour’s Head of Global & Multi Asset Investments. “But also about accessibility, liquidity, and running costs.” He says one of the key points of difference from the traditional approach to investing – which essentially boiled down to ‘buy a house, then buy another’ – is that people today have much more choice.
“Look back 15 to 20 years; participating in managed funds or the share market was expensive. You had to have an account with a stockbroker, and often a lot of money saved before you could get started. With today’s technology, participation in investment markets is easier, as is access to professionally managed funds.”
Regulation has also reshaped the investment landscape. Many investors burned by the 1987 stock market crash or the collapse of finance companies in the early 2010s turned to term deposits for security. But since the Global Financial Crisis, the industry has evolved, with managed funds now operating under a strong regulatory framework overseen by the Financial Markets Authority. While term deposits may seem like a safe choice, inflation can erode their returns over time. Turning his attention to New Zealand’s golden goose, Di Leva says the shine has come off the eggs. “The cost of owning property has gone up. There are higher mortgages, there’s property management fees, and insurance and rates going up by double digits. Gross rental yields before costs are currently less than 4% on average, so investors really need capital gains to get a decent return. Unfortunately, those have not been forthcoming in recent times, though it’s realistic to think we’ll see some small capital gains now rates have fallen. But this is not back to the races.”
He adds that rentals were never “set and forget” investments, requiring a lot of planning and management by the owners or their property manager. “And before starting a rental portfolio, you’d need to save up a deposit of up to 35%.”
By contrast, engaging with a professional fund manager can start immediately, without the requirement for a lump sum – which leads Di Leva to his next point. “Stocks and bonds are attractive on both ends of the investment spectrum, for those just setting out, and also for those approaching or enjoying retirement,” he notes. And while investment markets will go up and down, being able to ride out the bumps over the long term can benefit investors.
Managed funds offer versatility, appealing to investors across all life stages. For the starter, it’s about immediate accessibility without the delay of needing to save a large cash deposit. For the retiree, it’s more about flexibility. “If you needed say $25,000, you could typically expect a redemption by the very next day – with an investment property, you can’t just subdivide part of the back garden or sell one bedroom,” Di Leva explains.
Liquidity doesn’t only mean withdrawals, he adds, but also contributions. Any extra money can easily be allocated to a share or bond portfolio, further growing the investment.
A final further advantage of a managed share portfolio over housing is diversification, meaning an investor’s eggs aren’t all in the same basket. Thousands of companies are listed on stock markets around the world, with those in the US (the NYSE and the Nasdaq) pre-eminent among them.
“Diversification is limited with property, and natural disasters aren’t hard to find in New Zealand. If an investor’s properties were in Christchurch, or in Gisborne, for example, they may well have suffered a catastrophic loss. And if the NZ dollar takes a hit and all your investments are in our currency, the same applies. In investment markets, there isn’t only diversity of underlying assets, but also countries and currencies.”
Talking to a registered financial advisor is a great starting point if you are thinking about investing. They can help you navigate through the options and tailor a solution to your individual needs. All investing comes with risk, so they will ensure that your investment strategy matches your risk appetite, and that you understand all the risks involved with your portfolio.
The investment landscape is shifting. The rising costs and uncertain returns mean in our view property is no longer the default path to wealth in New Zealand. Managed funds allow investors to adjust as markets evolve, spreading their investments across stocks and bonds for growth potential and security.
With over 15 years of experience, Harbour Asset Management is a trusted partner for investors seeking stability and returns. In an era where investment scams and financial uncertainty are more prevalent than ever, Harbour’s expert fund managers provide a secure, well-researched approach to wealth-building.
To explore how Harbour’s funds could support your financial future, visit harbourasset.co.nz.
The Product Disclosure Statements for Harbour Investment Funds, issued by Harbour Asset Management, are available at www.harbourasset.co.nz. This article is not intended as financial advice.