Managed funds or term deposits? Ask yourself these 4 Questions to help you decide.
Ask yourself these 4 questions to discover whether managed funds or term deposits might suit you.
Where’s a good place to keep your money?
Here’s a clue: it’s not under the mattress, in your sock drawer or cunningly tucked away in an old Milo tin in the pantry.
Yet in the US, at least, an American Express survey found that 43% of people preferred to keep their savings in cash – and more than half of them like to hide it round the house.
So where do Kiwis like to keep their savings?
One popular choice? Property.
Another? Term deposits, which we’ve traditionally considered safe as houses when it comes to protecting our money.
It’s a no-brainer that term deposits are popular with Kiwis who want to lock their money away and earn predictable returns for a fixed period.
But term deposits aren’t for everyone, because some savers want:
- the freedom to withdraw how much they want, when they want it
- the potential to gain higher returns for a higher degree of risk.
With term deposits and savings accounts offering historically low rates of return, Reserve Bank Governor Adrian Orr is suggesting Kiwis should diversify their investments and make their money work harder.
So what’s an alternative to term deposits?
Simple – managed funds.
Managed funds can help with any wealth goal, from buying a rental property to starting an early retirement fund.
Your individual circumstances will determine whether managed funds or term deposits are more appropriate for you – we wouldn’t recommend one over the other – but here are four questions to consider when you’re deciding where to put your money.How much are the returns?
Kiwi Wealth Managed Funds: Long-term, managed funds usually generate greater returns than term deposits, although they can fluctuate over time.
What are returns in managed funds?
When you invest in our managed funds, you’re issued units. A unit represents a share of the total investments held by a fund. The current price of a unit reflects the value of that share of the investments held by a fund. If the value of the fund’s investments goes up, the unit price will increase, if the value of the fund’s investments goes down, the unit price will decrease.
The returns are therefore the difference between the unit price that applied when you invested your money and the unit price that applies when you make a withdrawal.
There is no fixed rate of return, which means there’s no cap on the potential return you might receive. On the flip side, there is also the risk that you may receive less than you originally invested.
Check out the latest returns of Kiwi Wealth Managed Funds here.
Term deposit: The returns of your investment are usually known up front, and it’s very unlikely you’ll receive less than you invested.
The return may be paid during the term of your investment or when the term ends.How much flexibility do you want?
Kiwi Wealth Managed Funds: You choose how much you want to invest and when you want to make a withdrawal – without penalties.
Term deposit: You’ll invest a set amount for an agreed term, and may not be able to withdraw your money before then. If you are able to withdraw your money early, you may lose some or all of the interest.How long do you have to invest?
Kiwi Wealth Managed Funds: Choose a fund with the minimum suggested time frame that suits you:
- Conservative: 1-5 years
- Balanced: 5-10 years
- Growth: 5-10 years
You can find out more about each fund here.
Be mindful that if you want to withdraw your investment earlier than the suggested time frame, there’s a higher risk you’ll receive less money than you invested.
Term deposit: You choose how long you invest for – often six months or a year, but can be as much as five years – and are paid a fixed rate of interest for your chosen term.Do you want all your eggs in one basket?
Kiwi Wealth Managed Funds: Your investment is diversified by being invested across different assets, such as cash, fixed interest and international shares.
You can check out each of our funds – Conservative, Balanced and Growth – to see how it is invested.
Term deposit: Term deposits are usually a single stand-alone investment.
They aren’t as diversified as managed funds, but are generally a stable investment because you know what return you’ll receive.
You can find more helpful, jargon-free tips on investing in our Investor 101 resource centre.
It’s important to consider your own personal circumstances when deciding to invest. The information provided is intended to be of a general nature only and does not take into account your personal financial situation or goals, and is not intended to be read as advice.