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The Top Ten Investing Mistakes Made by New Zealanders

From going big on a single share to spending a fortune on useless products, our guide outlines ten common investing mistakes repeated over and over throughout New Zealand
Updated 30 April 2023
Disclaimer: The idea and some of the subject matter for this guide was first presented by a post on Reddit's Personal Finance New Zealand. While we are a research-based organisation, we believe this topic to be important to every New Zealander and appreciate the honesty that was displayed in the original post.

To make the insights more accessible, we list ten investing mistakes below to help raise awareness about how even the most certain bet can prove to be a loser. We haven't covered everything - if you have something you'd like to share confidentially with our research team, please send an email. We continuously update our guides; your feedback will be warmly received.

MoneyHub Founder Christopher Walsh shares his experiences of investing mistakes

"Worrying about where to put your money is perfectly normal. I have spent too much time at various stages of my life thinking about options. I've also failed to spend enough time properly researching before investing in something unproven.

Investing isn't a science - how successful you are will depend on luck, timing and how much risk you're prepared to take. Many people of my parents' generation still talk about the 1987 crash and how it affected their lives. Unfortunately, we are always in uncertain times, and even the most obvious winning investment may turn out to be a dud. We have put together this guide to help you understand where many others have gone wrong so you can avoid the same mistakes.

I am no exception. In my younger years, I've held a share for too long (and far too short), spent big on an idea without proving demand and wasted money and time on ventures that were not viable. While I can put the results down to 'learning and development', time and money are in short supply. I hope you get something out of this guide and enjoy the honesty".

Ten Common Mistakes:

Going big on a single share

The NZX has seen many New Zealand companies rise from nowhere, only to come crashing back down when the enthusiasm dies down. In the 1980s, Chase Corporation saw its share price drop from $10 to $0 after the 1987 crash. The collapse of Chase, then worth over $3.5 billion, is still a pain point for many New Zealanders. 

More recently, companies that have been hyped up have included CBL Insurance (now in receivership), Pumpkin Patch (which aggressively expanded overseas and then couldn't repay the debt), and Rakon (which went from around $5 to 25 cents after the GFC). Unless you diversify, there is always a risk that even the most well-managed company can go off course. 

It's almost certain that the fall in the share price of A2 Milk (from around $20 in August 2020 to around $6 in August 2021) will have hurt everyday New Zealand investors. 

How do you know if a fast-rising listed company is about to hit turbulence?
Delisted.co.nz sets out a range of early indicators that may suggest a company is about to fail. These include:
  1. Large turnover of management and board members
  2. Negotiations with banks over the extension of credit, or proposals to raise further money
  3. The offer to purchase shares is not fully taken up
  4. Share sales by founders, management and board members
  5. Delays in audit report signoffs and/or the announcement of financial results 

Our View: Good companies can go bad. For this reason alone, it's highly risky to 'go big' on one company as the downside can be wealth-destroying.

Starting a business that demands a lot of upfront costs and overhead

It's very easy to get into business but often hard to get out, especially if you have sunk in a lot of money to get things off the ground. Opening a shop is a big step and requires a lot of additional management – testing demand for your product or service online before making any expansion plans is often a good idea.  

New Zealand towns and cities are full of 'for lease' notices; many businesses do not make it. Running a business is extremely hard, and that has become harder with lockdowns and border restrictions. Cashflow is everything, and operating costs are high – getting into business is not a 9 to 5 alternative but a whole-life commitment.  

Our View: Our research team repeatedly hears from business owners who need to raise capital or take on new debt to keep afloat. Even the most simple clothing shop or burrito store can get into trouble very quickly when customers don't buy, and costs keep piling up. Banks are reluctant to lend without personal guarantees, which puts family homes at risk. Ultimately, starting small and building up a following (i.e. food truck to pop-up to a restaurant, or online store to sample sale to retail shop) is a more stable way of investing in your future.

Being in a relationship with someone who has conflicting spending habits

Money is a major cause of relationship collapses, and debts or financial commitments can continue after a relationship ends. Our research team frequently hears from distressed people looking for help in exiting the debts from their relationship. The reality is simple – if you start a relationship with someone who has completely different spending habits, sooner or later, you will be subsidising those habits. There will be shortfalls, and your money (and assets) will be accessed. 

Our View: Talking about money is the only way to get a situation under control. Ignoring debts or the cause of debt creation will mean the situation gets worse. And by the time things get too much (e.g. big debts, lots of shouting and general unhappiness), it's often too late. Being on the same page is best.

Spending on expensive ideas without proving demand first

This isn't the same as starting a business but instead relates to ideas for side hustles that require some setup costs. This is often expensive Apple products, software, machinery, buying stock in bulk or some sort of outlay that goes into several thousands of dollars. The idea is that the investment will produce income, but there is a risk that nothing happens, and you're left sitting with a lot of regrets.

Christopher Walsh, MoneyHub's Founder, shares his experience of doing just that:
"When I was at university, I had an idea to import a number of items from overseas and sell them at markets. I worked to save around $1,000 and sunk it all into the 'business'. I then ended up with a bunch of stuff no one wanted to buy. It became evident that my taste didn't match those of the discerning New Zealand public, and I had no viable way to market the merchandise. After a few tries on Trade Me, I made the decision to donate the stuff to church sales, charities and friends and family. It was a valuable learning experience and arguably one that was worth more than $1,000".

Multi-level marketing and pyramid schemes

While this was rife in the 1980s and 1990s, Multi-level marketing continues to fool some New Zealanders and take their money on the promise of a 'great investment'. Examples have traditionally been cleaning products and other consumer goods, but recently there has been a rise in online products such as cryptocurrencies and FX trading 'memberships', which only pay you when you bring in more members. This RNZ article has more details. 

Generally, the warning signs you're being sold an MLM or pyramid scheme include:
  • There are no products to sell, or what you need to sell is low-quality and overhyped. 
  • The company requires you to buy a lot of stock upfront
  • The company requires you to join a program which costs money
  • The company charges you for 'training' to sell its products
  • The company tells you that big returns await, for example, $10,000 for a $500 investment
  • The company can't answer your questions, and/or you get a strange feeling about it. 

The Commerce Commission has more details about pyramid schemes here.

Our View: Anything that seems too good to be true probably is. The chance you'll see a return on your investment is likely to be very small. Also, it's almost certain you'll lose the money you put in. Too many times in the past, people have knocked on doors trying to sell oddly-named products like "Komplete Klean" or "Super Soaps". There is no money to be made in buying a garage full of junk.

Thinking you can time the market (when it's near-impossible)

If you plan to invest for the long term, picking individual shares for your portfolio takes a lot of research time. You may also get the timing wrong. For every Xero and Mainfreight, there has been a Snakk Media and Pumpkin Patch. It's near impossible to achieve perfect market timing, and the time investment to do so will almost certainly be counter-productive to your everyday life.

Our View: Index funds and ETFs, along with well-managed funds, diversify your risk and provide more sustained returns in the long run. Our guides to managed funds, ETFs and index funds explain what's important.

Lending money to family and friends

Being asked to lend someone money is never a great feeling - there's a lot of guilt and pressure, and often it's hard to talk about it with anyone else. While it's not an "investment", the money that you lend can be lost. 

Know This: If you do lend money, it's not uncommon to see the borrower on Facebook or Instagram with dinners out, drinks at the bar, concerts, seats at major sporting events, new clothes etc. Many feelings come into play, and asking for your money back can be difficult and emotional. 

It's not uncommon to be asked for more money later on, and it can feel like you're being taken advantage of. Lending money is never easy, and people who borrow often have a tendency to be in your life less and less. 

Our guide covers everything you need to know about lending to friends and family. 

Our View: In most cases, the best approach is to decline such requests, as lending money is so often plagued with problems.

Not buying a home when you had the deposit and financing

Life can be complicated, and there are many reasons to delay or withdraw from the homeownership, notwithstanding the problem of being outbid at an auction.

Our View: There is never a wrong time to buy a home if you have all the financing in place. You'll always need somewhere to live, and while property prices can fall, overall, it's a more economical alternative than renting if you can afford a mortgage.

Not paying down debt

The older you are, the more difficult it becomes to clear debts. This is because your income may reduce while your costs stay the same. Small loans can hang around for a long time as lenders roll them over. The costs of living in New Zealand are high, and debt is everywhere. The problem is that debt costs a lot of money, and we see thousands of older New Zealanders taking reverse mortgages every year when they can't afford retirement. This is, in our view, a very expensive way to live out your golden years.

By changing personal values and desires to spend less, the money you save can repay debt and allow you to become financially independent. Debt repayment is critical to living a life free of money worries. Our FIRE guide is a good starting point to help you redefine your approach to money.

Our View: There is arguably no downside to paying off debt. Even in times of record-low interest rates, debt still costs money - both in terms of repayments and interest. Keeping debt around is a mistake if you have the means and strength to repay it.

Not having a Kiwisaver account as an adult, not contributing and/or getting the annual government contribution

KiwiSaver is, in its purest form, an investment tool to look after you in retirement. While you sacrifice income now, the payoff later compounds year after year. Yet, despite all the benefits, many New Zealand never join KiwiSaver, or join and stop contributing.

Our View: KiwiSaver is an excellent savings scheme that can make retirement more comfortable and provide more lifestyle options with proper planning and a commitment to regular contributions. By joining, you're investing in your future. Not joining is, arguably, an investing mistake. You probably won't miss that $30 or $50 a week now, but you will appreciate a $200,000+ balance by aged 65. Our KiwiSaver Essentials guide has more information.

Conclusion

The above list covers common investing mistakes, but there are many other examples. In the past, young New Zealanders learned the hard way when their investments in NZ Post's First Day Covers, stamps and Telecom Phone Cards failed to return riches. However, mistakes can easily be repeated. 

Ultimately, the best way to avoid a mistake is to make sure you understand what you're investing in and think hard about the 'why'. Too many times, people rush into something without thinking about the detail. Media hype, advertising, word-of-mouth and social media can get anyone excited about an investment - it can also leave many people burned when the good times end. 

If you have something you'd like to share confidentially with our research team, please send an email.
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