How to Invest Regularly for Long-Term Wealth Creation
Our guide explains the benefits of auto-investing, what platforms offer it, what you can invest in and what it will cost.
Updated 17 July 2024
Summary:
To explain your options and what you need to consider, our guide covers:
- Auto-investing is the process of regularly contributing money to an investment platform to buy shares, funds or a mixture of the two.
- There are arguably no downsides to auto-investing, but you will first need to decide what to invest in and then estimate how much you can sustainably afford to start a journey to wealth creation.
- Sharesies, Kernel, Hatch, InvestNow, Tiger Brokers (NZ) and Smartshares lead the way with auto-investing features, and we have reviewed their offerings in detail below. These platforms offer mix-and-match funds, share purchases and curated funds. The service is either free or limited to standard transaction fees.
- Having reviewed the options, our view is that Kernel, InvestNow and Tiger Brokers (NZ) offer the greatest flexibility and lowest costs for auto-investing in local and global funds and ETFs, while Hatch exclusively offers US share auto-investing, which will appeal to anyone wanting to auto-build a US-listed share portfolio.
- Beyond the major investing platforms, almost every fund manager in New Zealand will take your money if you set up an automatic payment, so your options are not limited to five platforms. The only limitation will be a 'minimum deposit', which may be as high as $1,000 per fund in some cases.
- If you want to auto-invest in your KiwiSaver fund beyond your employer/employee contributions, you can do this too. However, once the money is transferred, there are few opportunities to withdraw it (outside of first home purchase, retirement, emigration, hardship or death).
To explain your options and what you need to consider, our guide covers:
Know This First: What do I need to do to start auto-investing?
You will need to decide what to invest in, the amount you want to invest, how regularly you invest, and what platform to use. Each platform offers unique investments, so it's best to decide first what investments you prefer, as this will drive what platform you can use. For example, Hatch's auto-invest feature will only let you buy US-listed shares, while Kernel specialises in index funds and InvestNow offers ETFs and managed funds.
What matters most is that you are realistic about the amount you want to contribute to on a regular basis. If you invest too little, it may be a lost opportunity, while investing too much (and having it become unaffordable) isn't a good idea either. The best starting point is estimating what you can afford, start with that, and then review the amount after getting familiar with the idea of money regularly leaving your bank account.
How does it work?
Once you've chosen an investing platform and the investments you'd like to regularly contribute to, it's time to set up the money flow. While each platform's requirements may be slightly different, generally, the process to start auto-investing is the same, as we outline:
Step 1 - You will set how much you want to invest and when you'd like to invest. For example, it could be $50 every week, starting on 1 March.
Step 2 - Set up an automatic payment with your bank to send money to the investing platform.
Step 3 - Keep enough money in your bank account to make sure the payments clear. It may be worthwhile setting up an alert to let you know a day or two before that your auto-payment is due.
What matters most is that you are realistic about the amount you want to contribute to on a regular basis. If you invest too little, it may be a lost opportunity, while investing too much (and having it become unaffordable) isn't a good idea either. The best starting point is estimating what you can afford, start with that, and then review the amount after getting familiar with the idea of money regularly leaving your bank account.
How does it work?
Once you've chosen an investing platform and the investments you'd like to regularly contribute to, it's time to set up the money flow. While each platform's requirements may be slightly different, generally, the process to start auto-investing is the same, as we outline:
Step 1 - You will set how much you want to invest and when you'd like to invest. For example, it could be $50 every week, starting on 1 March.
Step 2 - Set up an automatic payment with your bank to send money to the investing platform.
Step 3 - Keep enough money in your bank account to make sure the payments clear. It may be worthwhile setting up an alert to let you know a day or two before that your auto-payment is due.
MoneyHub Founder Christopher Walsh shares his views on automatic investing plans:"I love automatic investing and, like regular KiwiSaver contributions, it's a proven way to grow your investments while limiting the risk of short-term losses".
"It all comes down to willpower, but the most successful New Zealanders are those who make regular (e.g. weekly or fortnightly) contributions that make a difference. While some platforms advertise 'one dollar' investments, you have to think about what you want to save per year and work backwards. So, for example, if you like the idea of saving $2,000 a year, investing $40 a week is a good starting point. The good news is that $2,000 for five years is $10,000, which, with the right investment and benefit of compounding returns, has the potential to be much higher". "Of course, the 'right' investment isn't always obvious, and many New Zealanders have been burned previously with bad players. Thankfully investing in proven investments (such as S&P500 or NZX50 funds, and funds that invest in the world's leading companies) are widely available and have never been more accessible". "Whatever you decide to do, patience and commitment are the keys to growing a healthy investment balance that gives you choices and freedom later on". |
MoneyHub Founder Christopher Walsh
|
|
Your investor guide to investing regularly is sponsored by our friends at Kernel, a leading New Zealand-based index fund manager.
|
Advantages of Auto-Investing:
There are arguably no downsides to auto-investing. On the contrary, we believe that every dollar you can save for the future will exponentially help you later. To explain further, we list five must-know advantages:
|
You don't need to 'save up to investRather than save $500 or $1,000 etc., to invest, automatic investing lets you grow your wealth from as little as $1 a week. Best of all, there are no excuses - you invest what's affordable regularly. As a result, small amounts turn into big amounts, and the nest egg keeps growing.
Best of all, the money you invest works for you as soon as you add it in. With savings accounts and term deposit interest rates so low, top-performing dividend-producing shares and funds can be more rewarding in the short term and provide capital gains in the long term. In addition, regular contributions, no matter how big or small, maximise your returns faster. |
|
Dollar-Cost AveragingThe principle of dollar-cost averaging (DCA) is simple - you invest the same amount of money in a given investment at set intervals. DCA is a popular, time-tested investing system and remains the most popular investing system for New Zealanders. Our DCA guide explains it in detail.
DCA avoids the risk of overpaying for a share or fund only to have it drop in value. For example, you save up $1,000 and buy shares in Mainfreight at $90, but it drops the week after to $81, meaning a negative 10% return on your investment. DCA avoids this and is a significant benefit of auto investing. Rather than saving up $1,000, you may invest $100 a month over ten months and buy the shares for less than $90. The average cost per share may be around $75, meaning the investment has more protection from losses. Overall, DCA is a long-term strategy which is why it works well with auto-investing. |
|
Reduced commission and fee costs (with the right platform)Because many investing platforms compete fiercely, the winner is the investor regarding fees. Many funds and ETF platforms don't charge any fees to buy or sell because, arguably, they want to encourage as many regular contributions as possible.
Platforms like Sharesies and Hatch will charge a fee for shares purchased. InvestNow, Smartshares and Kernel, for example, will not. Platforms that don't charge brokerage or buy-in fees are arguably the most cost-effective as all of your money is invested. |
|
Your auto investing amount is treated as a bill, so you don't notice the 'cost'Just like housing costs, phone bills and gym membership, auto investing is a regular expense that comes out of your bank account before you would otherwise spend the money.
For example, you may decide to set up a $200 auto-invest per fortnightly payday, $100 of which goes into funds, and another $100 goes into shares. You then have the option of increasing the auto-investment if you can comfortably live without the existing $200/fortnight. Whatever you decide, the more you keep out of your bank account today is more money you'll have later when you need it for something important. |
|
Fractional sharesMany of the US shares favoured by investors cost over US$1,000, which would otherwise require some significant savings. However, Hatch is the only platform to include fractional shares in their auto investing offering. However, given the US$3 per trade minimum, it suggests a US$300 investment to keep fees to 1% of the investment. Alternatives include Kernel's Global 100 fund, which invests in companies such as Amazon and Alphabet, both with US$2,000+ share prices and without the brokerage/transaction fees.
If you want to specifically buy dividend-producing shares (e.g. not funds or ETFs), buying fractional shares regularly with an auto investment is a low-cost way to achieve this. While you'll pay transaction fees, you'll minimise the time it takes to build up your income-producing portfolio. |
Auto-Investing Platforms: Sharesies vs Hatch vs InvestNow vs Kernel vs Smartshares
The platforms listed below offer specific auto-investing features. Having reviewed the options, our view is that Kernel and InvestNow offer the greatest flexibility and lowest costs for auto-investing in local and global funds and ETFs, while Hatch exclusively offers US share auto-investing, which will appeal to anyone wanting to auto-build a US-listed share portfolio.
Other observations:
Please note, many other investing platforms will accept automatic payments, as will your KiwiSaver. We outline the likely options below our review of the five platforms' auto-investing features.
Other observations:
- We believe investing in Smartshares ETFs is likely to be easier and more flexible using InvestNow.
- Despite having access to US, Australian and New Zealand markets, Sharesies only offers a limited range of managed funds and Smartshares. Anyone purchasing Smartshares via Sharesies will be charged 0.50% brokerage (for investments under $3,000) compared to the InvestNow and Smartshares platforms which charge nothing.
Please note, many other investing platforms will accept automatic payments, as will your KiwiSaver. We outline the likely options below our review of the five platforms' auto-investing features.
|
Product Name: InvestNow Regular Investment Plans
Our view: InvestNow offer the greatest flexibility and lowest costs for auto-investing, with 100+ investment options, an easy-to-use interface, and no fees above the standard fund/ETF fees. It's also the most cost-effective and convenient way to invest in Smartshares. |
|
Product Name: Kernel Auto-Invest
Our view: Kernel's index fund fees are some of the cheapest in New Zealand, and its investing platform caters to anyone wanting to make auto-investing a habit. While the funds on offer are a fraction of those housed on InvestNow or Smartshares, the funds offer exposure to US markets, global infrastructure, New Zealand and developing technologies. |
|
Product Name: Tiger Brokers (NZ) Auto-Invest
Our view: Tiger Brokers (NZ)'s offering is cheap and US-specific and aimed at people who want to dollar-cost average into ETFs and shares at the lowest possible price. |
|
Product Name: Hatch Auto-Invest
Our view: Hatch is likely to appeal to New Zealand investors who want to build up shares in US-listed companies regularly. The platform is realistic in suggesting investors wait until they have contributed US$300 or US$600 to lower their brokerage costs to 1% and 0.50%, respectively. In addition, Hatch is unique in offering auto-invest for US shares, something not available on rival platforms Stake and Sharesies. |
|
Product Name: Smartshares Regular Savings Plan
Our view: Smartshares, like InvestNow, offers 35+ ETFs, but their auto-investing platform, known as the Regular Savings Plan, is limited in how frequent you can invest and is arguably more paper-based. Money is also taken by direct debit rather than an automatic payment. |
|
Product Name: Sharesies Auto-Invest
Our view: Sharesies is innovative in offering specialist fund mixers focusing on ethical investing, kids investing and global companies. However, it is uncompetitive when buying ETFs compared to InvestNow and Smartshares, given it charges brokerage. It also doesn't permit auto-investing in US or Australian markets. |
Alternative Platforms and Setting Up Auto-payments With Your Bank
If you'd like other options beyond auto-investing with the platforms above, almost every fund manager in New Zealand will accept regular automatic payments and auto-invest in your existing fund(s). We explain your options below:
Option 1 - Setting up an Automatic Payment to Fund a Regular Investment
Option 2 - Making Regular Additional Contributions to KiwiSaver
- Automatic payments are a simple option that lets you auto-invest in almost any managed fund. For example, if you're an existing investor and want to build up your balance, you can do so with an automatic payment from your bank. You will need your fund's investor number/reference code to insert into the bank's automatic payment details, so the fund manager knows who is paying the money in.
- Once the money is processed, additional units in your fund will be purchased, and your balance will increase as regularly as you invest.
- Investment managers like Simplicity Investment Funds, Booster, Pathfinder, Pie Funds, Harbour Asset Management, Milford Asset Management and Fisher Funds are examples of many who accept regular payments without any prior notification. However, some fund managers may have minimum contributions, so ask first before setting up an automatic payment.
Option 2 - Making Regular Additional Contributions to KiwiSaver
- If you would like to contribute to KiwiSaver above your current employee and employer percentages, the fastest way to do so is using an automatic payment as described in Option 1 above. This means you'll need your investor reference and any special code to match up your payments with your fund.
- The benefit from automatic payments from your bank account directly into a KiwiSaver fund is that the process avoids the IRD, which has been known to sit on the money for weeks.
- However, just like all KiwiSaver money, what you contribute can only be withdrawn for a home, hardship, permanent emigration, retirement or in the case of death.
Frequently Asked Questions
When does auto-investing start once I've activated it?
Each investing platform will require you to select a start date and decide how regular you want the payments to be made. Once that is confirmed, you will set up an automatic payment with your bank to send money to your platform. Your first payment will be taken on the start date, and continue every week, fortnight, month or quarter, depending on the frequency you set up.
Will I be able to customise what I want to invest in and when I want to make the payments?
Yes - you have full control of what to invest in and how often you want to make the payments. However, generally, investing platforms prefer weekly, fortnightly, monthly or quarterly auto-investing.
Will I still be in control of my investments if I auto-invest?
Yes - money contributed using auto-investing is like any other payment, and you can sell your investments at any time or switch to another fund etc.
Will my auto-investing payments go towards funds or shares I've already invested in?
This depends on what you decide to invest in. You are also limited to the investments offered by the platform you use. Many New Zealanders diversify their auto-investing to split, for example, $50 or $100 into two or three funds. For anyone auto-investing in shares, there may be a preference to contribute money regularly and then place a buy order every month. Hatch, as an example, suggests a range of options here.
Can I set up a direct debit rather than an automatic payment for auto-investing?
Yes, it's not the standard process. Direct debits are usually used for a credit relationship (for example, paying a phone bill or gym membership) where the company you pay controls the amount debited. Automatic payments are controlled by you and are fixed amounts. Most auto-investing uses automatic payments, but we are aware Smartshares' platform uses direct debits for its Regular Savings Plan offering.
How do I stop auto-investing?
You will need to disable auto-investing on your platform and cancel or pause the automatic payment via your bank's online banking.
Conclusion - Is Auto-investing Right for You?
- Auto investing requires discipline, sacrifice and a long-term commitment. While a contribution of $50/month, for example, is investing by definition, anyone looking for a financially secure future may need to think bigger. For example, $175 a month will invest around $2,000 a year, whereas $200 a week will invest over $10,000 a year.
- The best approach is to start small; a regular $50 or $100 is a step in the right direction and form great habits for the long term. The best platforms, based on fees and investment choice, are arguably Kernel Wealth (index funds), InvestNow (managed funds) and Hatch (US shares), although other options exist and have merit.
- Whatever you invest, the benefits of dollar-cost averaging and wealth creation are almost certain. And best of all, you can invest on your terms and keep fees as low as possible. In addition, regular contributions will, over time, build a strong portfolio that rewards you. Many New Zealanders have been surprised with how large their balances have grown in a short space of time.
|
|
Your investor guide to investing regularly is sponsored by our friends at Kernel, a leading New Zealand-based index fund manager.
|