Workshop: Investing 101

The Investing 101 workshop covers the following InvestNow Investing Principles:

  • Invest Now: The benefits of beginning your investment journey today.
  • Have a plan: There is more than one way to reach your financial goals.
  • Stay Informed: Learn how to keep up with financial markets without getting overwhelmed by the noise.
  • Investing is Not a Game: Recognise the seriousness of investing and the importance of a strategic approach.

The full set of ten InvestNow Investing Principles are available here and you can download the slides here.

Watch the recording

Audience questions & our answers

When you rebalance you change the weighting or amount invested in the funds you currently hold, back to what your initial investment plan was.

For example, you started investing in two funds with a 50% holding in each. During the first year of investment, Fund A moves to 55% of your total portfolio, with Fund B moving to 45% of your total portfolio.

You sell holdings in Fund A to reinvest into Fund B to rebalance your portfolio back to 50% in each fund.

When you change strategy, you change your investment plan from what you began with.

An example of changing strategy is when you begin investing in Fund A and Fund B and after the first year you decide to sell all your holdings in Fund B and invest in Fund C.

Rebalancing is generally undertaken on a regular basis (typically at least once a year) while a change of strategy is generally less frequent, and should be done to reflect a change in your personal circumstances and investment goals.

We don’t currently have any funds on the InvestNow platform that track gold prices or invest in underlying gold investments. We are exploring the option to offer this type of fund in the future and once a fund is available, we will let you know.

Workshop: Portfolio Construction

The Portfolio Construction workshop covers the following InvestNow Investing Principles:

  • Understand the risks: Learn how different assets behave, the importance of allocation and diversification.
  • Asset allocation is crucial: Understand how the right asset mix can significantly impact your long-term investment returns based on your goals.
  • Diversification is essential: Learn why spreading investments across various asset classes can enhance performance and help reduce the risk of major losses.
  • Individual risk tolerance matters: Find out how to evaluate your comfort with investment volatility and its implications for potential returns.
  • Investment styles can be complementary: Get insights into passive, active, and responsible investing strategies, and how to choose what suits your preferences best.

The full set of ten InvestNow Investing Principles are available here and you can download the slides here.

Watch the recording

Audience questions & our answers

Investments that don’t fall into the traditional asset classes of cash, bonds and stocks are classified as ‘Alternative Investments’. This includes asset classes like property, commodities, infrastructure, hedge funds and private equity.

Alternative investments can play a role in adding additional diversification into your portfolio, by providing exposure to assets that are less correlated to traditional investments like cash, bonds and stocks.

Alternative investments generally make up a small allocation to a diversified portfolio, typically between the region of 5% to 10%. However, those with higher risk tolerance or longer investment timeframes may opt for a larger exposure in their portfolio.

The most common alternative investment exposure that many diversified funds have is to property. The diversified funds from Fisher Funds, Generate, Milford and Pathfinder are some examples of funds that have exposure to property, which sits at between 5% to 15% exposure depending on the fund.

There are also a wide variety of property funds available on InvestNow, just filter by the “Listed Property” sector on the InvestNow Managed Funds Page.

Equally there are a handful of other non-property alternative investment funds on InvestNow, including the Mercer Macquarie Global Infrastructure Fund and Vault International Bitcoin Fund.

We are constantly looking at adding more alternative investment funds on the platform, with upcoming options we are exploring including the Mint Diversified Alternatives Fund, Smart Gold ETF and Smart Bitcoin ETF.

The important thing to note is that the ‘Rule of 100’ is just a rule of thumb, a tool that could be used to determine growth asset exposure.

The key is that you regular review your investments to ensure they continue to make sense relative to your investment goals and risk tolerance.

Note that reviewing or revising your asset allocation is different to rebalancing. The former is what this rule of thumb is talking about as it involves changing the target asset allocation (e.g. going from a target split of 60/40 stocks and bonds to a target of 50/50 stocks and bonds).

Meanwhile, the latter involves rebalancing a portfolio that has deviated from its target asset allocation (due to market movements) back to its target asset allocation. For example, if your current portfolio split has deviated from your target 60/40 stock and bond split to a 55/45 split (due to bonds performing better relative to stocks) then rebalancing back to your target 60/40 split would involve selling 5% worth of bonds and buying stocks in your portfolio.

Both paying down a mortgage and investing into a diversified fund can be good options in furthering a person’s financial journey. Putting excess cash towards paying down the mortgage or investing in a diversified fund comes down to a combination of the expected payoff and individual risk tolerance.

The key difference is that paying down the mortgage provides a guaranteed ‘return’ on your investment – it is possible to quantify exactly the ‘return’ generated (via reduced interest payments) based on the current mortgage rate.

Meanwhile, the return on a diversified fund is less certain as that depends on the performance of markets – some years the return will be better than the ‘guaranteed’ return of the additional mortgage payments, and some years it will be worse.

Generally speaking, the higher the mortgage rate, then the more attractive it could be to investors because a relatively higher ‘guaranteed’ return can be locked in, versus the uncertain return of a diversified fund performance.

One further thing to note is that the ‘return’ from paying off a mortgage is tax-free, so for a more apples-to-apples comparison of the potential payoff involved, the comparison should be against what returns can be expected from the diversified fund on an after-fees and tax basis.

With mortgage rates quite high recently, many Kiwis have prioritised paying down the mortgage and earning a relatively high tax-free return. However, diversified funds have also performed well as of late so there really is no right or wrong answer.

As always, it all depends on your own goals and individual risk tolerance. The stability of returns and peace of mind a paid off home brings can result in some prioritising paying down the mortgage, versus the potential for higher returns that could see a preference for investing into funds. Don’t forget, these two things are not mutually exclusive – both can be adopted together.

The investment fund options on InvestNow that have the lowest risk are cash funds, with there being four cash fund options available from Fisher Funds, Mercer, Milford and Smart.

Cash funds have the lowest risk profile within managed funds offerings as they are solely exposed to a breadth of liquid, cash equivalent type investments such as term deposits, deposit accounts, and very short-term bonds.

Cash funds are diversified across a number of issuers, and like most managed funds provide the ability to withdraw your money with a couple of days’ notice.

Note that the return received from cash funds is a bit of a moving target. While the approximate return of cash funds is typically in-line with prevailing interest rates on offer, the fact that cash funds are constantly having underlying investments (e.g. term deposits, bank notes, etc.) maturing and being re-invested at new interest rate levels results in this moving target.

In terms of the fees and tax involved, cash funds are structured as PIEs, capping the applicable tax rate at 28% and resulting in tax efficiencies for investors on marginal tax rates of 30% or higher. Cash funds also have a management fee apply to them as well, so any returns that investors receive would be net of fees and tax.

While bond funds are also somewhat low risk, they do present a materially different risk profile compared to the lower risk cash funds. This reflects the fact that bond funds present a higher chance of the value of the initial investment capital fluctuating underwater (as the mark to market value of bonds can decrease day to day), while cash funds are generally designed to preserve the initial capital.