5 types of investments and how they work

Securing your financial future can require careful consideration of various investment options. Understanding these avenues can empower you to align your investment strategy with your risk tolerance and long-term goals.

Essentially, an investment is a plan to put money aside today in the hopes of obtaining a greater amount in the future. There are many ways this can be achieved.  

Whether you're aiming for a comfortable retirement, looking to own a home, or seeking to grow your wealth steadily, there are a range of investment options out there to help you achieve your goals. 

1. KiwiSaver

How KiwiSaver works

KiwiSaver is a voluntary work-based retirement savings initiative encouraging New Zealanders to proactively save for their future. 

A KiwiSaver scheme is a type of managed investment scheme. They are managed by a number of independent licenced providers, including Medical Funds Management Limited, a MAS group company.  

There are a lot of ways to contribute to a KiwiSaver member account. If you’re an employee you can choose to contribute 3%, 4%, 6%, 8%, or 10% of your gross salary or wages straight into your KiwiSaver account.  

One of the significant advantages of joining KiwiSaver as an employee is the contribution from your employer, which involves the possibility of them matching your personal contributions up to 3%. This can amplify your savings efforts. 

Considerations regarding KiwiSaver

KiwiSaver members may also be eligible for a government contribution. If you are contributing to a KiwiSaver scheme, you could be eligible for up to $521.43 towards your KiwiSaver savings annually. You will need to meet certain criteria, including contributing a minimum of $1,042.86 yourself between the period of July 1 and 30 June in the preceding year. 

Moreover, KiwiSaver could play a pivotal role in your journey towards home ownership because you can use it to withdraw funds to purchase your first home.   

Choosing how you want your money invested 

KiwiSaver scheme providers can offer a diverse range of investment options. Different funds can provide you with the opportunity to choose how your money is invested, such as a fund with a focus on responsible investment. 

The MAS KiwiSaver Scheme is primarily designed to help you save for your retirement, and may also be used to help buy your first home.  

2. Superannuation schemes

Superannuation schemes are a different type of retirement savings plan that are designed to provided retirement benefits. They commonly allow employer contributions, but do not operate under the same rules as KiwiSaver schemes. 

The MAS Retirement Savings Scheme is our employer-based workplace savings and superannuation scheme that’s designed to help you meet your retirement savings goals. You can find out more about the MAS Retirement Savings Scheme. 

3. Property Investments

Investing in property involves acquiring real estate with the aim of generating income or capital appreciation. This can be achieved through rental income and an increase in property value. 

How property investments work

Successful property investment hinges on market dynamics. Thankfully, seeking the opinion of experts, like mortgage brokers or property managers can help you to navigate the highs and lows of the property market. As with any investment, property has its advantages and disadvantages. It is crucial to be mindful of prevailing market conditions and the overall risks of owning and letting out property when considering the timing of a property investment. 

4. Term deposits

At its essence, a term deposit involves entrusting a sum of money to a bank or non-bank deposit taker for an agreed-upon duration. This decision can complement long term savings and may provide a sense of security in knowing you’re getting a set rate of return for a set timeframe.   

How term deposits work

If you choose a term deposit, you’ll generally need to follow two steps. First, choose the amount you wish to invest. Next, you decide the duration of your commitment. You’ll probably want to consider the consistent income available, considering an interest rate. 

A phrase you will need to know when it comes to term deposits is the ‘maturity date’. This date signifies the maturity of your investment. At this time, you will have access to both your initial deposit and the accumulated interest. Up until this point, your investment is usually untouchable. 

Benefits of a term deposit

Term deposits may offer a range of benefits tailored to various financial aspirations. The fixed interest rate provides a fixed income stream, potentially supporting your financial stability. This predictability distinguishes term deposits from potentially volatile investment avenues, often making them an appealing option for those who may prefer peace of mind. In saying that, it’s important to understand the correlation between interest rates and the potential risk of investment, as well as understanding what credit ratings of issuers mean. 

For those who appreciate flexibility, some financial institutions allow early withdrawal from term deposits. This feature can grant you the freedom to access your funds before the maturity date, catering to unforeseen financial needs or seizing unexpected opportunities. It’s worth noting that break fees will often apply.  

5. Bonds

Bonds can offer a distinctive opportunity to engage with companies or governments by lending them money, and in return, you can benefit from interest payments corresponding to your invested amount. 

How bonds work

Governments and companies issue bonds as a means to raise capital, generally for specific projects or initiatives. As an investor, you have the choice to invest in these bonds, effectively lending your financial support to these endeavours and receiving an income stream as a benefit.  

Broadly speaking, buying a bond means you’re lending money to a company or local/central government in return for receiving interest payments. Bonds are different from term deposits because they can be priced and sold at any time – they don’t need to be retained until their 'maturity' date when you receive your initial investment back.  However, you won’t know the price you will get if you sell your bonds early.  Bonds are able to be bought and sold on a secondary market, such as the NZDX (NZX Debt Market). 

Considerations regarding bonds

Bonds require careful consideration. Key factors to think about include the issuer’s credit rating, the origin of the bond and changes in interest rates that will influence a bond’s price. If interest rates increase, the value of the bond will decrease (and vice versa if the interest rates decrease).   

Bonds issued by governments are sometimes perceived as lower risk, as they are issued by government bodies. This can instil a sense of confidence in the face of potential market fluctuations. Regardless of perceived risk, there is no guarantee that investors will receive the full amount of their investment back. Bond investors should always carefully consider the issuer’s credit rating. 

A hallmark often attributed to bonds is their ability to furnish a reliable and anticipated income stream. Fixed interest rates, or coupon rates, may help with a stable income, irrespective of the fluctuations that can arise in the share market. Generally, the long-term nature of bonds means that some options, especially government bonds, can go years before they are repaid.  

Other common investments

In addition to the familiar investment options we've discussed, there are other common avenues that could be worth considering. These alternatives may offer distinct advantages that can complement your investment strategy. 

Shares 

Investing in shares means owning a portion of a company. In New Zealand, you can purchase shares in publicly traded companies listed on the NZX, or by purchasing off-market directly from the company or from another shareholder. By holding shares, you become a shareholder and have the potential to benefit from the company's growth and success.  

Commodities

Commodities include tangible goods like gold, oil and agricultural products. You can invest in the global commodities market through financial instruments like exchange-traded funds (ETFs) or other investment products, like futures, forwards or listed funds. Investing in commodities may act as a hedge against market volatility and inflation, providing a different dimension to your investment strategy. 

Access to advice

Everyone’s financial journey is different, and we’re here to help our Members create the financial future that is right for them. We offer access to a nationwide network of MAS Advisers to help you with your investment decisions, at no additional cost. 

You can speak with a MAS Adviser in person or on the phone for simple general advice, such as making the right fund choice to meet your savings goals and adding extra contributions to your investment. If you would like to talk to a MAS Adviser, phone 0800 800 627 or email info@mas.co.nz.