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Upside, downside

Looking ahead as you invest

What makes investing different to saving, and what are the risks if you need to access your money early?

Investing vs saving

A savings account means your money is available at any time, whenever you need it and is a low-risk option.  But, suppose you’re putting aside more money in your savings account than you would need in an emergency. In that case, your money is likely to earn a lower return.

Investing has a higher risk, but you can also get a higher return on your money. Before you decide to invest, it’s a good idea to do some research so you understand the benefits and risks and what would happen if you need to get your investment out early.

Know your investment options

When you put your money into an investment, the value of your investment will go up and down.

KiwiSaver

For most people, KiwiSaver is a long-term investment. But, if you’re going to withdraw money from your KiwiSaver to buy your first home, or because you’re turning 65, it's a good idea to move your money from a high-risk fund to a low-risk one.
If you qualify, you can take out all the money in your account except $1,000 to buy your first home.  

Check the Kāinga Ora website for eligibility criteria.
Once you turn 65, you can take out some or all of your KiwiSaver money whenever you want to.  You can also continue to make contributions or stop contributing. If you’re not planning on spending your KiwiSaver money for a while, leaving the money in a higher-risk fund is a good idea as you’ll get a better return. 

Talk to your KiwiSaver provider to discuss what option works best for you. 

You may be able to access or withdraw some or all of your KiwiSaver savings early if: 

  • you’re experiencing significant financial hardship 
  • you become seriously ill, injured or disabled
  • you’re moving overseas 

Talk to your KiwiSaver provider to check if you qualify. 

Planting seeds in a container

Fixed interest investments (term deposits)

If you plan to spend your money in the next 1 to 2 years, a term deposit can help you build up your money quicker than a savings account.

But, if you need to break your fixed interest investment early, some banks may charge you a penalty. You may only get a proportion of the interest you’ve earned, or you may have to pay a fee.

Bonds

You can sell bonds listed on the NZX Debt Market website before the term ends — but you may get more or less than you put in.

Let’s look at an example. You bought a $5,000 5-year bond with a 6% coupon rate - this means, you get 6% interest every year on your $5000. , But since you bought the bond, interest rates have gone up to 8%. Selling your bond with a low interest rate may be harder, and you risk getting back less than what you paid.

Note, too, that the reverse can also happen. If market interest rates fall, you might get more money for your bond than you paid.

Property

House prices go through cycles — in between the booms come periods of slow sales.

If house prices fall and you need to sell, it may take a long time, and you may need to lower your price to well below what you had hoped for.

Shares and share funds

Most shares are listed on a stock exchange, so you can trade them easily. Some share funds (exchange traded funds or ETFs) are also listed, and even the unlisted ones are usually easy to get out of.

Unlisted shares, for example in a family company, can be harder to sell.

Want to learn more?

Looking ahead as you invest

PDF | 519KB
Download Section 3 of Upside, downside: A Guide to Risk for Savers and Investors written by investment commentator Mary Holm.