Why it's important to diversify your investments
By investing in lots of different things, like tūtanga pakihi (shares), property, or bonds, you can reduce the total risk of all your investments without reducing your expected return. This is called using the power of diversification (whakakanorautanga).
Essentially, the more you spread your money around, the less money you’ll lose if one of your investments loses value.
Mary Holm's tip: Invest in high-quality, fixed-interest bonds
Fixed-interest securities (bonds) are a type of lending that governments and companies can use as another way to raise funds. When you buy fixed-interest securities, you lend the issuer money. In return for your investment, the issuer pays you interest for a fixed amount of time. The interest rate is often fixed but can also be floating. On maturity, the principal amount invested is repaid to you.
- If you’re investing in investment-grade bonds, the bond issuers are not very likely to default. It’s still possible, though, so investing in several different companies is a good idea.
- If you’re investing in higher-risk fixed-interest securities, where default is more likely, spreading your money around is particularly important.
Learn more about investing in bonds | Financial Markets Authority website
Mary Holm's tip: Invest in different property types and regions
Investing in a broad range of property types in different regions will lower your risk when it comes to property.
Things to consider when buying an investment property
- Buy a property in a different neighbourhood from where you live in case prices fall across your neighbourhood. Owning more than 1 property in the same town can be risky, especially if the town depends on 1 industry.
- Buy a different property type, like a unit or apartment as the markets are somewhat different.
- Consider investing in commercial property, such as a shop, office building, or factory, as their markets differ even more from the housing market.
Mary Holm's tip: Invest in a share fund or several funds
Share funds
One easy way to diversify your shares is by using a share fund (also called exchange-traded funds or ETFs) or several funds. Share funds invest money from many people in many different shares. Some funds hold only about 30 companies, while other big international funds hold thousands. They are all well-diversified, but some are better than others.
International shares
Buying international and New Zealand shares can diversify your investments even more, which is important because international and New Zealand share prices don’t always move together.
Check out our chart comparing the performance of New Zealand shares vs World shares
The easiest way to invest offshore is by using tahua taurima (managed funds). When you buy shares in a managed fund, you buy units in the fund with other investors. This means the fund has more money to invest. A professional fund manager decides how to invest the money and when to buy and sell. Investing in KiwiSaver is an example of a managed fund.
Over the long term, average returns on international shares have been high. And you can invest in many under-represented industries on the New Zealand share market.
The simplest way to invest internationally is through a New Zealand-run fund that buys shares worldwide.
Almost all KiwiSaver funds hold a wide range of investments in the asset types they invest in. For example, a predominantly bond fund holds many different bonds, and a predominantly share fund holds many different shares. Many KiwiSaver funds also have international investments.
Talk to your KiwiSaver provider for information on their range of investments so you can make sure your fund is the right fit for you.
How to pick the right KiwiSaver fund for you | sorted.org.nz