What Are the Best Things to Invest in NZ?

New Zealand offers a range of investment opportunities for individuals seeking to grow their wealth. The country’s financial landscape accommodates various investment preferences, from traditional assets to pooled funds. This overview clarifies the primary investment categories and mechanisms for participating in the New Zealand market.

Key Investment Categories in New Zealand

Investing in New Zealand provides several distinct options, each with its own structure and operational methods within the local market. These categories include direct share ownership, residential property, collective investment vehicles like managed funds and Exchange Traded Funds, the unique KiwiSaver retirement scheme, and fixed-income options such as term deposits and bonds.

Shares (Equities)

Investing in shares involves purchasing a portion of a company, which in New Zealand typically means buying shares listed on the NZX (New Zealand Exchange). The value of these shares can fluctuate based on company performance, industry trends, and broader economic conditions. Shareholders may benefit from an increase in the share price, known as capital appreciation, or from dividends, which are distributions of a company’s profits.

To access the NZX, individuals typically use an online share broker or a full-service brokerage firm. These platforms facilitate the buying and selling of shares on behalf of investors. Orders are placed through the platform, and once matched with a seller, the ownership of the shares is transferred. The NZX provides a regulated market environment for trading, ensuring transparency.

Residential Property

Direct residential property investment in New Zealand involves purchasing property with the intention of renting it out. This approach seeks to generate income through rental payments received from tenants. Beyond rental income, property investors often anticipate capital gains, which occur if the property’s market value increases over time.

Acquiring residential rental property typically involves securing a mortgage from a bank or financial institution. Investors then manage the property directly or engage a property management company to handle tenant relations, maintenance, and rent collection. Rental income, after deducting expenses such as mortgage interest, property taxes, and maintenance costs, contributes to the investor’s overall return.

Managed Funds and Exchange Traded Funds (ETFs)

Managed funds and Exchange Traded Funds (ETFs) are collective investment vehicles that pool money from many investors to invest in a diversified portfolio of assets. In New Zealand, these funds are managed by professional fund managers who make investment decisions on behalf of the investors. This pooling allows individuals to gain exposure to a broad range of assets, such as shares, bonds, and property, that might be difficult to access individually or would require significant capital.

Managed funds are typically bought and sold directly through the fund manager or an investment platform. Investors purchase units in the fund, and the value of these units reflects the underlying assets. ETFs, while also pooled investment vehicles, are traded on a stock exchange, similar to individual shares. This means they offer liquidity, allowing investors to buy or sell units easily. Both managed funds and ETFs provide diversification benefits and often come with varying fee structures, including management fees.

KiwiSaver

KiwiSaver is a voluntary, work-based retirement savings scheme designed to help individuals save for their retirement. Contributions are typically deducted directly from an employee’s salary or paid directly by self-employed or non-employed individuals. Employers often contribute to their employees’ KiwiSaver accounts, and the New Zealand government also provides an annual member tax credit, subject to certain contribution thresholds. Funds contributed to KiwiSaver are invested by professional fund managers in a variety of asset classes.

Members can choose from different fund types, ranging from conservative (lower risk, lower potential return) to growth (higher risk, higher potential return). While primarily for retirement, funds can be withdrawn earlier under specific circumstances, such as for a first home purchase or in cases of significant financial hardship.

Term Deposits and Bonds

Term deposits and bonds represent fixed-income investments in New Zealand, offering a predictable return over a defined period. A term deposit involves depositing a sum of money with a bank for a fixed term in exchange for a set interest rate. The principal amount is returned at the end of the term, along with the accumulated interest. These are generally considered lower-risk investments due to their stability and guaranteed returns.

Bonds, on the other hand, involve lending money to a government or a company for a specified period. In return, the issuer promises to pay regular interest payments, known as coupon payments, and repay the principal amount at maturity. Bonds can be traded on secondary markets, and their value can fluctuate based on prevailing interest rates and the issuer’s creditworthiness. Government bonds, often referred to as ‘gilts’ in New Zealand, are generally considered lower risk than corporate bonds. Individuals can invest in bonds through brokers or directly from issuing entities.

Understanding NZ-Specific Tax Structures

Navigating the tax implications of investments in New Zealand involves understanding specific regimes, with the Portfolio Investment Entity (PIE) structure being particularly relevant for many individual investors. The PIE regime is designed to provide a tax-efficient framework for certain investment products, aiming to simplify tax obligations and potentially reduce the effective tax rate for investors. This structure plays a significant role in how income from managed funds, including many KiwiSaver funds, is taxed.

A PIE is a type of investment fund that pays tax on investment returns at the investor’s Prescribed Investor Rate (PIR). The PIR is determined by an individual’s taxable income from the previous two income years, with rates typically ranging from 10.5% to 28% for individual investors. This mechanism means that the tax liability on investment earnings within a PIE is generally capped at the investor’s PIR. For example, if an investor’s PIR is 17.5%, their PIE income will be taxed at that rate, regardless of whether their personal income tax rate is 30% or 33%.

The fund manager of a PIE is responsible for calculating and paying the tax on the investment earnings directly to the Inland Revenue Department (IRD). This simplifies the tax process for investors, as they typically do not need to include PIE income in their annual income tax returns. The tax paid by the PIE is considered a final tax.

Steps to Begin Investing in New Zealand

Embarking on an investment journey in New Zealand involves a series of practical steps, from selecting a suitable platform to funding your account and executing your first investment. The process is designed to be accessible, though it requires attention to detail regarding identity verification and financial transfers. These procedural aspects are standardized across the financial industry to ensure security and compliance.

Choosing an investment platform or provider is the initial step for an individual. Options include online share brokers for direct share trading, fund managers for managed funds, or dedicated KiwiSaver providers for retirement savings. Researching the fees, available investments, and user interface of each platform can help an investor make an informed decision.

Once a platform is selected, the next step involves setting up an investment account. This typically requires providing personal identification documents, such as a passport or driver’s license, and proof of address. Financial institutions in New Zealand are subject to Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) regulations, which mandate thorough identity verification processes.

After the account is established, funding it is the subsequent action. Most platforms allow deposits via bank transfer from a New Zealand bank account. Some may also offer direct debit options for recurring contributions, which can be particularly useful for regular savings plans. The time it takes for funds to appear in the investment account can vary, usually ranging from one to three business days.

Finally, with funds available in the account, an investor can proceed to make their first investment. This involves navigating the chosen platform to select the desired investment product—whether it be specific shares, units in a managed fund, or a contribution to a KiwiSaver scheme. The platform will guide the user through the process of placing a buy order or making a contribution. It is important to review all details before confirming any investment to ensure accuracy.