Happy 2022! Money King NZ is back after a much needed break spending the last couple of weeks escaped from Auckland, visiting family in Wellington and camping in the South Island. Following an exhausting 2021 it was one of the best holidays we’ve ever had, using the time to relax, eat good food, and see parts of the country we haven’t explored before like Akaroa, Castle Hill, and the Marlborough Sounds. We welcomed the new year in Christchurch, joining hoards of early risers at New Brighton Beach looking to catch the first sunrise of 2022 in lieu of the midnight fireworks display that usually takes place.
Over the new year many of you may have made goals to improve your financial situation, either by starting to invest or by getting your portfolio into shape. So whether you’re new to investing or looking to review your investments, let’s kick-off 2022 on a positive note with this article which explores our favourite investment tips, platforms, and funds, which you could use as a starting point for your own portfolio.
The below is for entertainment purposes only, and is not a recommendation to invest in any of the following platforms or products. The products mentioned may not be suitable for your personal financial situation, so please do your own research or use a professional adviser before making any investment decisions.
This article covers:
1. Favourite investing tips
2. Favourite investment platforms
3. Favourite funds
1. Favourite investing tips
Invest based on your personal circumstances
Meme stocks and meme cryptocurrencies like GameStop and Shiba Inu dominated the headlines in 2021. Many investors followed the herd, buying into these assets in an attempt to get rich quickly. However, following the herd is rarely a good idea in investing – there’s no guarantee the hottest asset of the day will suitable for your investing goals and preferences.
So instead of following others and investing with the goal of maximising returns, it’s better to invest based on your personal circumstances. Investments with potential for the highest returns also tend to come with the highest risk. That might be fine if you’re investing for the long-term and have plenty of time for your portfolio to recover in the case your investments fall.
However, those with a short-term investment timeframe and/or low risk tolerance may wish to stick with bonds and/or bank deposits rather than follow the herd on speculative assets. Here the goal should be to protect your capital rather than taking on unnecessary risk in an attempt to squeeze out greater returns. For example, someone needing money to buy a house in a year’s time may be better off keeping it in the bank instead of exposing their precious house deposit to the volatility of the sharemarket.
Keep it simple
Investing doesn’t have to be complicated. If you’re looking to invest in the sharemarket you should know that there’s no need to research companies, analyse financial statements and ratios, or subscribe to paid courses to get started. The easy solution for investing in the sharemarket is to invest in funds:
- Actively managed funds employ fund managers to research companies to invest in. They try to select the companies they think will perform the best.
- Passively managed funds don’t research and pick companies, but invest according to a market index. This is essentially a collection of companies, for example, the S&P/NZX 50 index contains the 50 largest companies listed on the NZ sharemarket.
By investing in funds you don’t have to select what companies to invest in, and can instead spend more time on other things in life. We personally started our own investment journey by picking individual companies but have gradually come to realise that it’s incredibly hard to select the best ones – so we now strongly prefer investing in funds.
If you do decide to invest in funds, you don’t need a lot of them to build a diversified portfolio. A single fund is already diversified, potentially containing hundreds or even thousands of assets. There’s no need to have a complex portfolio of several funds when one fund could potentially be enough!
Recently there’s been plenty of favouritism towards investing in the S&P 500 index (representing the ~500 largest companies listed in the United States). That favouritism is understandable given the index has performed well in recent years (as well as over the long-term), and is diversified across some of the world’s most famous companies like Apple, Microsoft, and Tesla. At the same time there’s been a lot of talk suggesting NZ shares are a waste of time because of their poor returns over 2021.
However, our view is that investors should be diversified, rather than focus towards or away from a particular market. The problem with the S&P 500 is that it invests solely in US companies and lacks geographic diversification, missing out other regions like Asia and Europe. It’s inappropriate to favour a particular market like the US based on recent returns. And it’s inappropriate to write-off a long-term investment vehicle like NZ shares based on short-term performance – all markets have good years and bad years. 2021’s results aren’t indicative of how these markets will perform in 2022 and beyond. Plus over the longer-term, the NZX 50 has performed quite well compared to the S&P 500:
|NZX 50||S&P 500|
|10 year return (p.a.)||14.8%||15.7%|
Overall we believe investments should be well diversified instead of cherrypicked based on short-term results.
There’s plenty of commentary suggesting 2022 will be the year we’ll have the next great sharemarket crash. Is there any truth to these predictions? Maybe. The problem is that we see the same market crash predictions every year. So will 2022 be the year that these predictions finally come true? No one knows.
So instead of trying to time the market or waiting for a crash before investing, you’re probably better off having a plan and sticking with it. This could mean contributing to your investments consistently every payday rather than making knee-jerk changes based on volatility or the latest sentiment towards the market. There are always news headlines spelling out doom and gloom in the markets, and early in our investing journeys we were guilty of being hesitant to invest because of these headlines. Markets continued to advance to new all-time highs, costing us thousands in potential returns. This mistake could have been avoided if we had consistently drip fed money into our portfolios rather than trying to time the market.
Remember the importance of cash
Thanks to low interest rates, cash has been an unpopular asset class in recent years. However, it remains one of the most important assets, even for those investing for the long-term. Cash is incredibly useful as an emergency fund – a pool of money that can be used to pay for any unexpected expenses such as fixing a car issue, or paying rent after getting laid off from work.
Shares are not a substitute for an emergency fund. They’re a long-term growth asset, rather than a savings account to dip into every time you need to pay for something. Having cash on the sidelines saves you from having to disturb your long-term investments whenever life takes an unexpected turn. We experienced the value of having an emergency fund late last year after having to pay thousands of dollars for dental treatment. We were able to pay using cash on hand, getting our teeth back into healthy condition without taking on debt or having to sell off any long-term investments.
2. Favourite investment platforms
So if you’re looking to start investing long-term or make a fresh start on your portfolio, here’s a few of our favourite investment platforms, as well as a few honourable mentions:
For investing in Funds
Winner – Kernel
Kernel is a provider of 11 index funds allowing you to invest in NZ and international shares, as well as in specific themes like electric vehicle companies. 11 funds isn’t a huge offering, but each fund is unique and high quality (nor do you need a lot of funds to achieve diversification). Their fees are also competitive ranging from 0.15% to 0.55%, plus a $36 per year membership fee for balances over $1,000. The minimum investment is only $1!
– Kernel review – High quality index funds
- InvestNow – Offers over 150 funds from 27 fund managers including Smartshares, Milford, and AMP. There’s no transaction or account fees, and their minimum investment is $50. It’s an incredibly efficient platform with lots of choice.
- Simplicity – An easy and low fee option for investors. They offer just 5 funds, but their Growth, Balanced, and Conservative options are diversified enough that they could be the only fund you need in your portfolio. Fees range from 0.10% to 0.31%, but their minimum investment is relatively high at $1,000.
– InvestNow review – The most efficient way to invest?
For investing in individual companies
Winner – Sharesies
Sharesies is a broker offering investment into the shares of individual companies. While our preference is to avoid the complexity of investing in individual companies, if you insist on doing so then Sharesies is still a great solution for accessing companies listed in NZ, Australia, and the US. They’re far from perfect – for example they don’t offer the ability to participate in dividend reinvestment plans, nor do they give shareholders voting rights. But their platform is easy to use, the fees are competitive, and there’s no minimum investment.
– Sharesies review – Still a good investment platform in late 2021?
Keen to start building your investment portfolio with Sharesies? Sign up with this link, and you’ll get a bonus $5 in your account to invest!
- Interactive Brokers – Cheaper than Sharesies for larger investment amounts. Provides significantly more investment options such as Canadian and UK shares, however they don’t offer NZ listed companies.
– Interactive Brokers & Tiger Brokers review – Better than Sharesies & Hatch?
Winner – InvestNow
InvestNow KiwiSaver offers one of the most flexible and lowest cost schemes in the market. They allow you to build a highly customised KiwiSaver portfolio out of over 30 different funds from 12 fund managers such as AMP, Milford, and Pathfinder.
– Build your own KiwiSaver – InvestNow vs SuperLife vs Craigs
- Simplicity – Offers Growth, Balanced, and Conservative fund options. They’re a popular choice for their low management fees of 0.31%.
- Milford – An active fund manager with higher fees, but their long-term track record of delivering strong returns has made them a well-regarded provider.
– Simplicity vs JUNO vs BNZ – Battle of the low cost KiwiSaver funds
Other platforms worth mentioning
- Heartland Bank – They offer some of the highest interest rates for savings accounts making them a good option to place spare cash such as your emergency fund.
- Easy Crypto – One of the easiest ways to buy and sell cryptocurrencies like Bitcoin and Ethereum in New Zealand.
– The best bank accounts and credit cards for managing your everyday finances
– What’s the difference between Easy Crypto, Binance, Exodus, and more?
3. Favourite funds
And here are some of our favourite funds across a few different categories:
Winner – InvestNow Foundation Series Growth Fund
The InvestNow Foundation Series Growth Fund invests in a mix of ~80% NZ and international shares and ~20% bonds, meaning this fund could be all you need to build a diversified investment portfolio. The management fee is cheap at 0.37% and the fund is conveniently available through InvestNow’s KiwiSaver and non-KiwiSaver platforms.
- Simplicity Growth Fund – Also invests in a mix of local and international shares and bonds, with a low 0.31% management fee. The fund is available in both KiwiSaver and non-KiwiSaver form. A full comparison with InvestNow’s growth fund can be found in the below article.
- Milford Aggressive Fund – This fund invests in a mix of Australasian and international shares, without any allocation towards bonds. This may make it suitable for investors seeking higher potential returns from having more shares in their fund (though comes with higher volatility). Also available in both KiwiSaver and non-KiwiSaver form.
– InvestNow Foundation Series vs Simplicity funds – Tax leakage an issue?
NZ share funds
Winner – Kernel NZ 50 ESG Tilted Fund
The Kernel NZ 50 ESG Tilted Fund invests in the NZX 50 with a twist. It has a greater weighting towards companies considered to have positive ESG (Environmental, Social, Governance) practices, and lower exposure to companies with worse ESG practices. It also excludes investment into SKYCITY (for gambling) and Z Energy (for fossil fuels). The fund comes with a low management fee, starting at 0.25% and dropping to an effective fee of 0.15% if you’ve invested at least $25,000 through Kernel.
- Smartshares S&P/NZX 50 ETF – This is a standard NZX 50 index fund with a low management fee of 0.20%. It’s available through InvestNow, direct via Smartshares, or through Sharesies.
- Harbour NZ Index Shares Fund – This fund also invests in the NZX 50, but with a maximum 5% weighting towards a single company in the fund (like the Smartshares NZ Top 50 ETF). The fund also has a low management fee of 0.20% and is available via InvestNow.
– Smartshares vs AMP vs Kernel vs Harbour – NZ Share Index Fund shootout
International share funds
Winner – Smartshares Total World ETF
The Smartshares Total World ETF is an excellent international shares fund investing in over 8,000 companies from around the world including the US, Europe, and emerging markets. This fund alone has more than enough diversification to provide your investment portfolio with all the exposure to international shares it needs. Management fees are a reasonable 0.40%
- Kernel S&P Global 100 Fund – A lot more concentrated than the Smartshares Total World ETF with just 101 holdings, but arguably this number of companies already provides plenty of diversification. The fund is 70% invested in US companies with the remaining 30% invested throughout Europe and Asia.
- AMP All Country Global Shares Index Fund – Provides a similar exposure to international shares as the Smartshares Total World ETF, investing in about 2,500 companies across the whole world. Available through InvestNow on both their KiwiSaver and non-KiwiSaver platforms. Management fees are slightly higher at 0.45%.
– Smartshares vs Vanguard vs AMP vs Kernel – International Share Index Fund shootout
Winner – Kernel Moonshots Innovation Fund
Thematic funds typically focus on companies relating to a specific theme like electric vehicles or robotics. However the Kernel S&P Kensho Moonshots Innovation Fund doesn’t invest into a single sector, but rather invests into 50 innovative companies involved across several disruptive themes like autonomous vehicles, cybersecurity, and space exploration. It’s a relatively speculative fund, but a good way to get exposure to different areas of innovation through a single asset.
– Smartshares & Kernel – Thematic Index Fund shootout
Other funds worth mentioning
- Smartshares Global Aggregate Bond Fund – This fund invests in bonds from around the world, making it a suitable candidate for those wishing to add bonds to their portfolio in order to reduce its volatility.
- Vault International Bitcoin Fund – This fund is designed to track the price of Bitcoin. It’s available through InvestNow, providing an easy way to get exposure to the cryptocurrency without having to set up and maintain your own wallet, and is structured in a way that may provide tax advantages over holding Bitcoin directly.
– Vault International Bitcoin Fund review – The best way to own Bitcoin?
The new year is a popular time to get started with your investment journey, or to iron out the kinks in your existing portfolio. We know it’s pretty hard to know where to start so we hope this article helped. Just remember to do your own research as the funds and platforms mentioned in this article may not be the best choices for your individual preferences and circumstances.
As for us we’ll be following our own advice of keeping things simple and consistent by investing small amounts of money into 3-4 index funds every payday, no matter how the market is moving and what the sentiment is. This uncomplicated portfolio has exposure to a mix of local and international shares and is more than enough to provide a diversified vehicle to grow our wealth over the next 20-30 years.
Lastly, wherever you’re at with your investing journey we’d like to wish you a happy 2022 for your investments. It’ll surely be another interesting year with plenty of developments and new products popping up in the NZ investment scene. We’ll be reviewing them as they come out so make sure you’re subscribed or following Money King NZ through our various channels!
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The content of this article is based on Money King NZ’s opinion and should not be considered financial advice. The information should never be used without first assessing your own personal and financial situation, and conducting your own research. You may wish to consult with an authorised financial adviser before making any investment decisions.