Tips on protecting your house deposit savings

As Hannah McQueen, who heads financial adviser, enable.me says, a term deposit isn’t keeping up with inflation at the moment: “You’re losing money with a term deposit, it’s not an option,” she says.

Hannah regularly works with clients on investment strategies as they build their funds to buy a property. “Young people really need to be getting advice on investing with the savings they have plans for,” she says.

For those who may be five or eight years away from buying a home, Hannah finds managed funds can work well, as they’re the next most conservative choice after the term deposit but give better returns. You’re not choosing your own stock, with these funds, the choices are managed and tweaked over the years. A managed fund typically invests in shares, bonds and commercial property among other things.

“You create those plans with the least amount of risk we need to take,” says Hannah. “Property keeps moving up so the money needs to keep up too,” she says. The investment will often be split between growth and conservative investments, giving layers of protection.

While some experts suggest making the maximum KiwiSaver contribution you can, Hannah doesn’t advise this.

“I prefer to diversify to something that you can control yourself more, a more dynamic investment plan,” she says.

The financial adviser remembers a clients going to draw on her KiwiSaver fund when markets were down in 2020 and she was suddenly $30,000 short of her settlement payment.

Hannah sees KiwiSaver as a bit of a blunt instrument. You might have an 80% growth fund and 20% income split, or a balanced fund with a mix of conservative and growth.

“Most of my clients don’t fit in those splits, you want to use more nuance. It’s why investment plans need to be dynamic,” says Hannah.

If you go through an advisor, you’ll get access to funds not on the market and you’ll pay substantially lower fees than the branded funds out there, says the enable.me director.

The split of risk will change over time, adds Hannah. “Every year, as you’re coming closer to the time when you’ll be drawing funds, you need more certainty that they exist.”.

John Bolton, managing director of Squirrel, the tech-focused mortgage broker and lender, says you can put more into KiwiSaver but it’s good to have some savings not in KiwiSaver so if you’re going to auction you have access to at least some of the deposit in cash.

Savings outside of KiwiSaver are how you demonstrate affordability to your lender, he adds. “Your KiwiSaver fund doesn’t say anything about your saving behaviour. It doesn't say anything about your ability to manage expenses to save, he says. I think some level of genuine saving is really good.”.

John has seen some people dip their toes into cryptocurrency and some of them have done very well, he says.

For its investment customers, Squirrel is offering an alternative to the term deposit, where people can invest in home loans, construction loans or personal loans. One option, which gives regular returns of 6%, invests in home loans and is relatively low risk but all investments come with some risk, Squirrel says.

Loan Market Central mortgage adviser, Cam Muggeridge, says home buyers’ saving choices are changing at the moment.

“If you went back four years ago, one in ten clients would have shares, now with platforms like Hatch and Sharesies in New Zealand, there’s a big change and people are investing a portion of surplus funds into shares,” he says. The mortgage adviser estimates around 60% to 70% of his clients are putting money into shares.

Younger clients in their early to mid 20s, on the other hand, are putting some of their savings into cryptocurrency tool, he says.

Those with four or five years to go are also trying ETFs (exchange traded funds), adds Cam. With EFTs, you buy units in an investment fund that invests in a basket of securities like company shares, bonds and other assets, according to ASB.

Loan Market Central mortgage adviser, Mikey Smith, who’s also seen a massive increase in his clients invest through Sharesies and Hatch in the last year, says people like the fact they are reasonably liquid. They can get their money back in around two weeks, he says.

Clients investing in cryptocurrencies like Bitcoin like the fact it’s very liquid and can be converted in one day too, he adds.

The returns can be 500% but there is risk involved, you can equally see it go down 50% so it depends on your appetite for risk.

“If you do have it long term then that can work but for short term it’s pretty risky,” he says.

Sharesies has done research which shows that a good chunk of investors on its platform are investing in shares with a house or an investment property purchase in mind.

“Our stats show 28% of New Zealanders investing in the platform cited “property” as one of their reasons,” says Helen Matterson, Sharesies communications manager.

Sharesies investors are less likely to do the “standard things” with their savings according to recent research. Fewer of them will keep their savings in the bank (42% vs 48%) of general New Zealanders) or place them in a term deposit (32% vs 39%) At the same time, 66% of Sharesies investors plan to purchase property as an investment vs 46% of New Zealanders and 24% plan to buy cryptocurrency, compared with 13% of New Zealanders.

Tom Hartmann, Personal Finance Lead at the Retirement Commission (Te Ara Ahunga Ora), and Sorted.org’s resident blogger, advises caution when looking for investment options with your house deposit money. He’s a fan of putting more into your KiwiSaver if you have spare savings.

Some people take risks too far in a bid to grow their house deposit, he says.

“We know a lot of people try to push the envelope. Until the last minute they’ll have their money in growth assets. But this is a dangerous thing to do. When you go to get the money and the markets have corrected, it may not be there,” he warns.

The personal finance writer notes that side hustles can be really useful for your savings, in other words having a side business that brings in extra income.