The Best Asset Allocations to Invest to Build Wealth

Our guide offers ideas as to what percentage of your investments should be in shares, fixed interest and cash based on your age group

Updated 11 August 2021

Disclaimers:

This guide estimates what advice financial advisors typically suggest to New Zealanders at each stage of their life. It is journalistic in nature and is not specific advice in any form. Just as some KiwiSaver schemes or financial products adjust the asset allocation of shares vs fixed interest based on your age, our guide does the same. The stated allocations are examples only and represent the common suggestions you'll find published in respected financial resources.
For advice tailored to your unique situation, please see our guide detailing financial advisors in New Zealand and/or Mary Holm's financial advisor list.
This guide is conservative in nature - everyone is different and the investment allocations are examples only.
The classes/categories of people identified below are a generalisation and are by no means meant to imply or represent any segment or class of individuals. This categorisation is intended to make it easier and more relevant to understand what is more practical.
Our purpose is to provide light structure to assist in giving ideas to help in your financial journey. We aim to see personalisation above and beyond risk profile and age.
The age categories below are based on the most common situations where New Zealanders aren't typically classified when they get financial advice.
This guide does not mention or factor in

Financial Advisors - Our View:

We believe that financial advisors can be expensive, and a lot of useful information is available for free. Their core value proposition is that they listen to each person's unique life situation and provide bespoke solutions to reach your goals.
However, the main reason people seek out these services is for the interpersonal relationship, empathy and support these advisors can provide.
A common piece of feedback from people who work with financial advisors is the advice can seem somewhat generic (e.g. an advisor takes 0.25% to 1% of your investment every year only to recommend "putting 80% into equities and 20% into cash").
We also believe that, while useful, robo-advice tools still need some work and are interpersonal.

Our guide outlines:

Why have we published this guide?

We believe financial advice shouldn't be limited to those with money. While we are not offering financial advice in any form, our intention is to give ideas and highlight the opportunities and rewards available to each age group. With inflation at hovering around 2% (but arguably higher for many people with everyday costs), money is losing value in term deposits and better options exist for long-term wealth creation for those below the retirement age.
MoneyHub's objective is to help New Zealanders plan a financially robust future, and this guide has been published to highlight what's important in one easy-to-follow resource.

Our Eight Age Group Categories:

1. Children and Young Adults (4 – 20 years old)

Common Allocations: 100% Equities

Background:

Most kids don't have income or expenses, so they usually don't need financial advice. Instead, the responsibility will likely fall on the parents to manage any money that children get through bequests, wills or "pocket money".
This is the best time to set your children up for financial success, mainly because they have a long runway in front of them. 50% of children born in the 21st century may reach 100 years of age. As such, sowing the seeds as early as possible will allow compounding returns to take over well before the children need the money as adults.
Given the long-time horizon for young children, putting 100% of any money they have (whether carved out college funds for kids or other money set aside) into equities is one popular way to provide financial security for them later on.
Many innovative products have been launched to help children achieve this - Hatch for Kids, Investnow Children's Accounts, and Sharesies Kids Accounts are some options.
More details: Our investing for Kids guide outlines popular options.

2. Students and Recent Graduates (20 – 25 years old)

Common Allocation: 100% Equities

Background:

Personal finance typically isn't a standalone subject in most schools. A lack of basic financial understanding leaves many young New Zealanders clueless about managing money, applying for credit, and managing debt. The biggest thing students or recent graduates can do to improve their financial position is to learn more about saving, investing and building habits of self-control.
Regarding allocation, most students and recent graduates won't have any big-ticket items, debt or other obligations when it comes to expenses (apart from student loans, but they are typically interest-free in New Zealand with an undefined payoff date).
Financial advisors would typically advise 90% - 100% of spare cash to equities as the time horizon for most young investors is long (60 – 80 years). If there are things that are necessary to purchase (e.g. a laptop for university, a car to get around or money to spend on overseas travel), then setting aside cash (10-20%) is an option.
Most income generated will either be pocket money from parents or part-time jobs, so this is the best time to set great financial habits.

Pro Tip: Learning Self-Control

Self-control is a skill we continue to develop over time. The earlier you learn the art of delayed gratification, the easier managing your finances becomes. Typical buy now pay later providers (Afterpay, LayBuy) allow you to effortlessly buy an item on credit whenever you want it; it is better to delay the purchase until you're sure this is something you need.
However, if you create a habit of putting all of your purchases on credit cards despite not having the ability to pay your bill fully at the end of the month, then the interest payments can rack up fast. Credit cards can be useful in the right situations, and paying them off on time helps you build a robust credit profile (and can offer appealing rewards). However, it's typically advised to pay your balance off fully within the month to avoid paying interest.

Pro Tip: Taking Control of Your Financial Future

If you don't learn to manage your money early on, people will find ways to mismanage it for you (e.g. financial advisors, your spouse, family, friends etc.).
These people may mean well but might not know what they're doing and can harm the longer-term independence necessary to manage one's finances.
The best way to learn about personal finance is to read some trusted books. Or for a cost-effective option, personal financial websites are useful, as is listening to podcasts.
Once you've understood some of the basics of personal finance, you're much more likely to be able to make independent decisions. In addition, this provides a strong base for you to tackle other financial problems as you get older (e.g. when conversations around loans, mortgages and kids arise).
A general awareness may also influence some of the short-term decisions you'll have around who you hang out with, what you spend money on and how often you go out.

3. Young Adults (25-30 years old)

Common Allocation: 100% Equities

Background:

As a young adult, you've still got a massive runway ahead of you (50-70 years to go), so you theoretically want as much money as possible invested in higher-risk assets like equities.
It's at this stage of life that you're probably out of university and working full time, flatting with friends and generally enjoying your 20's. While it's important to make the most of your youth and take advantage of the experiences you'll have – it's also important to bolster some essentials before you get more responsibility (e.g. mortgage and kids).

Pro Tip - No One Regrets Starting an Emergency Fund

You'll likely no longer be able to rely on your parents to bail you out or to provide you with cash flow now that you're living on your own – and this means being prepared for any unexpected expenses that come your way.
For example, you could lose your job, get into an accident or underestimate certain "life admin" expenses like insurance, car registration, replacing damaged items etc.
A safe emergency fund is six months' salary minimum, so you have cash to draw down if some of these things happen. For example, if you make $50,000 a year, it's prudent to have $25,000 in cash or short-term deposits access. Many people like to live dangerously, especially at this age. If your parents are still working or happy to help you out in emergencies financially, you may not need the full six months' salary in an emergency fund. And for this reason, savings are rarely a priority for young adults.
However, it's important to build these habits now as your parents won't be around forever, and you may end up having to become the backstop for your kids eventually. It's easy to place your fund into a typical transaction account, but this typically earns no interest. Putting your funds into a higher-interest savings account or term deposit (for a term of less than 6 months) can be a good option to stop inflation eroding the value of your savings. Be sure to understand the terms that you're able to break your term deposit – as this may substantially reduce the interest you get on your money.

Pro Tip - Know Where Your Money Goes

Now that you're earning a full-time salary, it's important to understand your big-ticket expenses and that you aren't living above your means.
For example, a $6 iced latte each morning doesn't seem like a lot but looking at this through a budget perspective shows how small things can add up over a month or a year. $6/day is over $2,000 a year for coffee or close to 5% of the average New Zealand pre-tax salary of anyone in 30-34 per this Stuff.co.nz article.
You don't have to force yourself to change overnight, but just recognising where your money is going is the first step in making these changes. Small, manageable changes in your everyday expenses can have a big impact long term. In addition, it can help to set targets or goals that you're aspiring towards (e.g. 20% deposit for a house, a nice holiday in 6 months to Rarotonga or money to buy that wedding ring for your partner).
Tying savings to a tangible goal is one way to stay motivated – and helps you take a long-term view on what is effectively sacrificing enjoyment now for more enjoyment later.

4. DINKs (double income no kids, 25 – 35 years of age)

Common Allocation: 90% Equities and 10% Cash

Background:

"DINKs" typically have a high income, low responsibilities (e.g. no kids) and may not have purchased a house yet.
DINKs are in a unique position where they may be generating between $200-300k between the two people and no mortgage payments or kids.

Top Tip - Ramp up Investing for Retirement

DINKs are in the perfect position to invest in retirement well beforehand. The earlier you begin saving, the more time you have to compound returns.
This is a prime example of a great time to invest for the longer term and to set a higher allocation towards equities (around 90%). Having 10% cash aside for emergencies is always prudent, but given the high-income nature of the DINKs, it is less important to have money stashed away and more important to be investing in the longer-term (unless looking to buy a house or have kids within the next year).

5. Millennials (30-40 years old)

Common Allocation: 70% Equities and 30% Cash (the exact mix will vary widely)

Background

Millennial investor needs and habits vary significantly. For example, millennials later in the cycle may already own a house or have kids. In contrast, millennials earlier in the cycle may still be saving for a deposit and be either single or with a partner with the intention of having kids.
The two biggest factors that will influence what allocation Millennials choose is whether they:

Have purchased a house (and/or have a mortgage), and
Whether they have kids (or are intending to have kids in the short to medium term).

Millennials without a home

For Millennials looking to buy a house in the short term (i.e. the next year or two), a higher cash balance (50 – 70%) is important. Sharemarkets are subject to short term volatility and record-high indexes can quickly retreat.
For those looking to buy a house, allowing market factors to influence your life decisions (such as buying a house) is too much of a risk. For this reason it's arguable to focus on cash. While equities are the more efficient medium to long term option (at 30 years old, you still have 60-70 years to live), the short-term need for cash to pay the deposit takes priority.

Millennials with a home

If you already own a home, your main priority will be to cover your mortgage payments. If this is on track, allocating a higher weight for any excess income to equities can be a good strategy (i.e. 70% equities 30% cash).
Note that increasing interest rates can influence mortgage payments once the fixed term ends (or they will apply automatically if you're on a variable rate), so having an ample cash balance is important. In addition, if you're planning to have kids in the short term, your expenses will likely be higher for the first few years. For these reasons, a larger than normal cash balance is advised.

Tips for saving for a deposit
When you've set a goal to buy your first home, every dollar counts. In many cases, mortgage lenders will expect a 20% deposit (unless you go through Kainga Ora where in such instances, you may only need 5%– 10%). However, a lower deposit means you'll have higher monthly payments and may not be as feasible for lower-income buyers. The idea of saving 20% of $1 million can seem like a tough goal. However, a consistent schedule and realistic expectations can help. If you've been contributing to KiwiSaver you may have already saved a significant chunk of the 20%. Our suggest options to save for a deposit include:

1. Set up automatic payments

If possible, transfer money into your investment or savings account soon as your wages hit your bank account. Then, by automating everything (bills, payments and savings), you won't be tempted to use your excess income and will be able to save without much effort.

2. Ask family

Getting some financial help from your parents or other family members can be one way to shorten the deposit saving journey. This can be in the way of a cash deposit, offset mortgage or a guarantor arrangement. A guarantor arrangement may be a way for relations to use the equity in their own homes to assist you without them having to place up any cash.
However, not all people have access to this option, and these types of agreements should not be taken lightly. The family member's property may be in danger if you fail to meet your payments. However, if both parties are comfortable with this arrangement, asking your family for help could be an option.

3. An income injection

One way to get to a 20% deposit is to increase your income. Whether that's working more hours, changing jobs, asking for a pay rise or taking on a side hustle, there are various ways to increase your income.

4. Add more to KiwiSaver contributions

Increasing your KiwiSaver contributions to 4%, 6%, 8%, or 10% may be beneficial. If you're currently not contributing, you're missing out on one or two extra sources of income to help put towards your house.
Employer contributions add up, as does the annual government contribution. While a few thousand dollars may seem insignificant per year, over the next five to ten years, that can translate to you getting to your 20% deposit significantly faster than if you didn't contribute to KiwiSaver.

6. The Middle-Aged (40 – 50 years old)

Common Allocation: 70% Equities and 30% Cash

Background:

This group may typically feel the most constrained. Out of all of the groups, this group has the most responsibility and typically experiences the highest stress out of all other groups.
People in this bracket will likely own a house and pay a mortgage, rack up credit card debt, have kids in their teenage years, and be some way into their marriages.
Setting specific allocations for this can be rather difficult. Some may have paid off their mortgage already (or have multiple cash flow positive homes) and some will have kids attending private schools or universities costing $50,000+ a year. Others will have many different payments on cars, boats, businesses etc. In general, you are more likely to want to have at least 50% invested in equities given the years ahead.

Know This - Managing Debt Effectively is Critical

Managing debt will be an important part of this group. Middle-Aged New Zealanders typically have debt in some shape or form, and understanding the various payback periods, interest rates and penalties if failure to pay occurs is important.
Mapping all family income sources and expenses (including debt payments) is an easy way to ensure unexpected events don't happen and force you to default on any of these loans. Budgeting apps help you analyse your money by looking at bank statements, credit card debt, salary stubs and tax returns.
Discussing with your family the strategies and goals you have for the near term can help to keep you accountable. Whether that's to completely pay off all debtors to manage the debt and pay down the higher interest items (e.g. credit card debt), this group has to realistically live with the fact that debt is a part of their life.
However, not all debt is necessarily bad. Mortgages on longer-term low-interest rates can benefit many, and housing can become a key source of wealth for people in this age bracket. They typically have the income security and credit history to get better rates than most. This group is in their peak earning potential – with another 20+ years of work to go and at this age, will typically be earning the most they will earn across their career (earning start to plateau after this point).
Restructuring debt may also be an option (effectively rolling debt up or switching providers for a lower rate). For example - a homeowner with equity in their property could also be ready to remove a mortgage and use that cash to pay off three credit cards. The lower rate of interest of the mortgage enables homeowners to pay off a portion of principal monthly rather than just maintaining current interest payments.

7. The Divorcee (50 – 60 years of age)

Common Allocation: 60% Equities and 40% Cash

Background:

Unfortunately, not every marriage works out. Divorces are tough on both parties, both psychologically but also financially. This is typically a volatile time in a person's life where many different factors need to be considered. The biggest thing is to keep a longer-term view – things will get better, but being optimistic about your situation typically helps.
Financial experts would recommend to continue to hold more than 50% of your excess cash as equities to grow your wealth. However, many divorcees may need to pay for unexpected costs such as legal fees, relocation costs or potentially a deposit on a new house (assuming the family home is sold and proceeds are shared 50/50). Our guide to divorce has more details.
Getting the proceeds can take many years as they may need to be ordered to be sold by the court.

Pro Tip - Pick Up The Pieces (and figure out where your assets are)

Identifying the total number of assets the family had before separation is important. Understanding which assets you may be entitled to and what those assets are typically worth are crucial. There isn't an easy way to value certain things, (e.g. art, consumer electronics or sentimental items), but other assets will be easier (e.g. house, car).
Creating a Long-Term Plan is essential. Each situation will be different, but taking a holistic view of your long-term plans can help plan out what life will look like going forward. This could include saving up for retirement, becoming financially independent, ensuring your kids are well supported in university or buying that ideal holiday home. In addition, it can pay to think about items like life insurance to support dependents in the case of premature death.

8. The Retiree/Empty Nester (60 – 70 years of age)

Common Allocation: 60% Equities and 40% Cash (this is a conservative allocation, especially in low-interest periods with high inflation)

Background:

This age group typically has two common characteristics. First, they've either resigned from their current job and are targeting retirement. Alternatively, they have been made redundant by a company and are struggling to find work. Either way, both situations lead to family members having much more time at home but may not yet hit the age to draw down NZ Superannuation (currently 65).
Additionally, this is approximately the age by which children have finished college or university and move out of home – leaving a typical 4-to-5-bedroom household somewhat empty (downsizing can become an option).
Given the relatively low number of working years left and the shorter time span required to draw down funds for retirement, financial advisors may suggest a somewhat defensive position (60% equities 40% cash or bonds).
The exact mix will depend on how much each family spends, their risk profile, and how long they expect their funds to last. People live much longer, which is impacting how much they will need their money to grow.
For example, New Zealanders aged 60 – 70 years old now will likely live to 90 – 100 years of age. This means they may need their wealth to grow significantly more than if someone had a typical age of life-ending around 75 – 80 years old. This is the key reason why there is still a 60% weighting towards equities.

Pro Tip - Protect Your Health:

Health Insurance premiums will get higher as you age. However, for many people in this group – it is essential to have. Operations in New Zealand are typically much more cost-efficient than other countries (e.g. the USA), but the waiting list can be long for some specific operations.
Take as many steps as you can to stay healthy – we believe this is the best "financial" advice you will get. Eating a healthy diet, maintaining a healthy weight, exercising, not smoking, avoiding excessive alcohol consumption and going for regular checkups is the easiest way to not incur large, unexpected bills (for this group, this is the highest risk by far).

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