If you are not of a mind to keep it all under the mattress, there are plenty of investment options other than property.
But a new class of online platforms is emerging, giving mum-and-dad investors, student investors or young professionals with a bit of spare cash more options than ever to invest their money themselves.
International research suggests millennials are more anxious and risk-averse when it comes to share portfolios, which is hardly surprising when many have given up the prospect of ever owning a house and are still battling with weighty student loans.
In June, a report from Macquarie Wealth Management in Australia found young people are attracted to digital-based tech solutions, especially where they can manage their own funds: there are lower minimum investments, smaller fees and user-friendly apps and language, which create a lower barrier to entry for sharemarket beginners.
“Tapping into their distrust of established financial institutions, nimble fintech startups are specifically … using technology to provide better choice, convenience and sustainable options all in a turnkey smartphone-app environment,” the Macquarie report noted, adding that in Australia, young single people have seven times as much money in their bank accounts as in shares, and the richest demographic of couples, aged 55 to 64, had a ratio of less than 3:1.
Many Kiwi millennials have been enrolled in KiwiSaver since starting their first job, and young people are increasingly aware of the returns possible from shares. Some are content to stick with more hands-off options, such as term deposits, but increasing numbers are looking to get stuck in themselves.
Locally, savings and investment provider InvestNow, which launched in March, reports that it has over $75 million being managed by clients using its website. The platform offers products such as the Nikko Asset Management NZ Cash Fund and the AMP Capital NZ Cash Fund, which are typically open to retail clients investing at least $2000.
InvestNow founder Anthony Edmonds says the smaller minimum investment of $250 is popular with investors, and low annual management fees also appeal.
“We get lots of people who initially open an account just to look around InvestNow,” Edmonds said. “They then invest $250 to see how InvestNow works, and after that they will ramp up their investment and start building their portfolio.”
Investors using the platform can access funds run by global fund managers such as Vanguard, as well as a slew of major local fund managers – AMP Capital, Harbour Asset Management and Salt Funds Management, to name a few.
Sharesies, whose invitation-only beta platform launched in June, has even lower barriers: it costs $30 a year to join and users can invest from a minimum of $5 into index funds.
Less than two months after its launch, more than 3500 people have used the platform to invest more than $1 million into NZX shares, though it’s still in development mode: there are plans to add more fund options and performance tracking over time and to move to open beta, where wannabe investors will be able to sign up straight from the website.
The company’s founders say they want to encourage people to become more financially literate and give them the gratification of being able to invest the $20 they might have otherwise spent on brunch.
InvestNow general manager Mike Heath says it’s not just young people using the platform: retired chief executives, grandparents wanting to save for their grandchildren’s education and large family trusts are also getting involved.
Recently, he’s noticed that investors who would normally put short-term investments into term deposits are taking an interest in cash funds instead; perhaps no surprise given the Reserve Bank’s latest indications that inflationary pressures are lower than expected, and interest rate raising is some way off.
Crowdfunding is another place for investors looking for alternatives to the sharemarket. Three years after the first platforms were granted licences, the market has consolidated somewhat to see three major players: Snowball Effect, Equitise and PledgeMe. However, crowdfunding is more of a long-term investment with less ability to withdraw money if circumstances change, and no platform is planning to offer a formal secondary market, on which investments could be traded.
Mark Peterson, chief executive of sharemarket operator NZX, says crowdfunding isn’t a threat to conventional investing but rather “has a place in the total ecosystem”.
“We’ve got to work out how we play with crowdfunders – all those commercial decisions,” Peterson says. “People should be aware of the risks and make choices around that risk-return trade-off. I do see linkages between the life cycle of businesses and the raising of capital and potentially the secondary market.”
Ultimately, investors looking for more risk and return than banks can give them face fewer barriers than ever. Houses remain the largest asset most Kiwis own, but the rise of low-barrier alternatives can only be a good thing for those who can’t – or don’t want to – sink their money into bricks and mortar.
This article was first published in the September 2, 2017 issue of the New Zealand Listener.