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How to create an investment portfolio that’ll benefit you in the long run
Sep 07, 2020

Whether saving for a house, a trip overseas or retirement, growth takes time. Investing is a great way to make your money work for you and help achieve your long-term savings goals. It’s never too early, or too late, to start investing for the future and putting a few simple measures in place now can help ensure your investment portfolio benefits you in the long run. So, where’s a good place to start?

Diversification

Diversification is the name of the game. If you are serious about building an investment portfolio for the longer term you should consider all types of investment - debt, equity, property, and different sectors and sizes of business. This is important risk mitigation for your investment strategy, enabling you to ride the troughs and crests of economic and business cycles, such as that created by the current COVID-19 pandemic response here in Aotearoa.

The current financial environment has increased interest in investment opportunities outside of term deposits in banks, with the official cash rate (OCR) expected to continue its downward slide. The OCR is the interest rate set by the Reserve Bank and influences the price of borrowing money, economic activity and inflation in New Zealand. Indeed, the Reserve Bank has started preparing us for the concept of a negative OCR and the impact that would have on borrowers, savers, lenders, the Government, and the New Zealand dollar. A negative OCR would mean negative interest rates for banks, a concept our banking computer systems have not yet had to deal with. It is, however, very unlikely banks will start paying you to borrow from them, as it probably won’t mean negative interest rates for the average Kiwi, but it should drive down the cost of borrowing, which may stimulate the economy. Holding and accumulating capital becomes harder in a negative interest rate environment, though. Banks may face reduced profitability, as will fund managers and insurance providers. In short, everyone will need to do more to get to the same end point in any investment strategy – hence the need to ensure you have a strong and diverse investment portfolio.

Kiwis love property investment and this fascination is likely to continue in a low mortgage interest rate environment. However, there’s also plenty of opportunity in other investment areas. Capital markets allow for potentially higher returns than cash investments, as well as diversifying wealth and gaining exposure to the growth of a particular business or sector. The NZX equity and debt markets provide investment opportunities in large corporates and in Government debt, but you can also consider investing a portion of your portfolio in small-to-medium sized businesses (SMEs). Getting in early can provide you with a good return on your investment, as well as supporting SME business growth.

Getting started

If you would like more information about how Catalist’s investment opportunities could be included in your investment portfolio, sign up for an account and make sure you opt in for our newsletter. We’ll let you know when we have investments in small and medium-sized businesses available, so you can diversify your portfolio to benefit you in the long run.

By Michelle Polglase







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