There are many ways to invest your money, though some investments are riskier than others. What’s right for you will depend on your investment goals and investing experience.
The following pages will explore different investment types so that you can ensure that your choices align with your experience and risk profile.
Registered banks in New Zealand must hold a certain amount of ‘capital’ to make them less likely to go out of business. This is called regulatory capital, and banks offer financial products to raise this money.
These products are similar to bonds and shares and often have a scheduled payment to investors (which can be cancelled). But they also have some very different features to bonds and shares, which makes them riskier; they may not be suitable for many investors.
Also called ‘all-or-nothing’, ‘fixed return options’ or ‘digital options’, binary options enable you to make (or lose) money by predicting the short term movements in the price of a share, commodity, currency or index. Usually, the timeframes are short and you don’t have long to make your call – in some cases less than a minute. For example, you might put money on your guess that a share will trade above its current price in the next hour. If you guess correctly you could ‘win’ a fixed amount of money. If you guess incorrectly you would lose the money you invested.
Bonds generally offer more stable returns and lower risks than investments such as property or shares. But some bonds are riskier than others. Make sure you understand these risks.
Cash investments are relatively safe because you’re promised a fixed interest rate. But the returns you get through interest rates tend to be low, so they’re not always the best option – particularly if you’re saving for retirement.
When you invest via crowdfunding you're buying shares usually in a start-up or growing business. Equity crowdfunding is risky – your investment may do well, but you could also lose your entire investment.
Derivatives trading is very high risk, even for experienced investors.
Derivatives are complex financial instruments, and trading them is not a suitable ‘investment’ for most consumers. They are designed to track the value of something without the need to actually buy or sell that underlying thing and are used by professionals to manage risk or to speculate.
The risk of online foreign exchange (forex) trading is high.
It’s even higher if you trade with borrowed money, as this increases any gains or losses you make. We regularly receive complaints and enquiries from consumers who have lost money in online forex trading.
Commodities like gold are often used to spread risk because their price tends to move at different times to other types of investments. But investing in commodities is not low risk.
Investment or ‘wealth creation’ software or seminars promising large returns are almost always too good to be true and that ‘opportunity of a lifetime’ may even turn out to be a scam.
Managed funds enable you to invest in different types of assets, even if you don’t know much about investing. KiwiSaver schemes are managed funds.
Peer-to-peer lending providers match people who want loans with people who might be willing to fund those loans. You may be offered a high interest rate, but this is because you take more risk.
Property investment is one of the most popular types of investment in New Zealand, and often one of the biggest investments we ever make. Property investors are exposed to risk for a longer time, so it’s important to understand the risks before you invest.
Property syndicates are often advertised as providing regular income, with attractive returns quoted. However, syndicate structures can be complex, there are risks to be aware of, returns are only estimates, and you may struggle to get your money out.
Shares are riskier than other types of investments such as bonds and cash investments. If you own shares, you’re not guaranteed a return or capital gain, but they potentially offer a higher return, particularly over the long term.
Wholesale investment offers can promise attractive returns but don’t have the same protections of retail investment offers. Wholesale investment offers are aimed at experienced investors, often with large sums of money to invest. Unless you are a very experienced investor, you should proceed with caution and talk to a financial adviser before investing in a wholesale offer.
Thinking about making your money work harder but not sure where to start?
There are many ways to invest your money, though some investments are riskier than others. What’s right for you will depend on your investment goals and investing experience. Watch our video to find out more.