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Why you should think about investing in a managed fund

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Ainsley McLaren.

Investment funds may sound intimidating but can be safer than a single investment. Harbour Asset Management’s Ainsley McLaren and Christian Hawkesby explain how.

Is minimising risk important to you? Many Kiwis think “investment property safe, shares risky”. Yet a diversified mix of shares and other investments could be a whole lot safer than owning a single investment property, says Harbour Asset Management’s Ainsley McLaren. At the same time, the returns from a managed fund can provide a better income stream than term deposits.

All your investment property eggs in one basket

Kiwis could do themselves a lot of financial favours by diversifying some of their wealth away from property, which, as the saying goes, isn’t always “as safe as houses”.

Property investment is often seen as the Kiwi way, says McLaren, yet it can be risky if the tide turns and property prices fall just when you need to sell, the bank calls in the mortgage or the tenants trash the place.

Managed funds, on the other hand, spread your money widely across property, bonds and shares in a number of countries. When one market or economy’s cycle turns, the other investments in the fund should balance it out through time, says McLaren.

Risks are also reduced by the fact that fund managers are licensed, regulated and monitored by the Financial Markets Authority.

Your KiwiSaver is a managed fund

KiwiSaver is a form of managed-fund investing, though some Kiwis don’t realise it. The main difference between KiwiSaver, which we’ve become comfortable with as a nation, and other managed funds is that KiwiSaver attracts member tax credits and other perks from the government in return for the money being locked away until you buy your first home or retire.

Kiwis have access to a vast array of managed funds, which can be conservative, balanced or growth-orientated, as well as coming in a great range of other diverse forms.

A property takes much more work on your part than a managed fund, where someone else is doing the hard work, choosing the investments and minimising risk.

A better standard of living

The other investment that Kiwis often swear by is the term deposit. Yet since the global financial crisis, returns on term deposits have fallen from more than 8% to about 3%. Harbour’s income-focused managed fund is designed to deliver a fixed quarterly distribution that amounts to 5% on an annual basis. This helps provide certainty for investors such as retirees seeking stable income.

Money when you need it

Another advantage of managed funds is that your money is available whenever you want to withdraw it. There is no need to wait for retirement, the real estate agent to sell your property, or a term deposit to finish. What’s more, Harbour’s managed funds don’t have break fees, and are PIE funds, which means you may pay less tax if you are on the top tax rate. Fund values, however, can rise or fall over time.

A variety of uses

The flexibility of managed funds makes them suitable for medium-term goals such as parents and grandparents investing for their children’s education, or saving for a home deposit, says Harbour Asset Management’s Christian Hawkesby.

Today, new investment platforms such as InvestNow make it possible for anyone to invest as little as $50 regularly in Harbour Asset Management’s funds.