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How Wealthy New Zealanders Invest Their Money

Investment

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5.5.22 |

Become Wealth Editor

Eight ways New Zealand's wealthiest invest

Forget the stereotype of flashy cars and champagne towers.

New Zealand's high-net-worth individuals have a more deliberate approach to using their money.

Let’s take a closer look into their investment habits to reveal the mix of approaches used by the wealthiest Kiwis.

1. Shares in Major Corporations Listed on Stock Exchanges

Stock exchanges like the New Zealand Stock Exchange (NZX) and international markets like the ASX, Dow Jones, and S&P 500 offer a way for Kiwis to grow their wealth. By owning shares (also called stocks), you benefit from company growth and potential dividend payouts. These dividend-paying stocks can provide a regular income stream, while growth stocks aim for significant share price appreciation over time.

The lack of heavyweight companies on the NZX tends to push Kiwis to invest offshore, including into sectors of the economy the NZX lacks a decent exposure too. This includes financials, oil and gas, mining, and of course, technology. Wealthier Kiwi’s know diversification is important to protect what they’ve built, and so is being able to invest in some great businesses overseas: think of household names like Google, Apple, Facebook, McDonalds, Visa, Johnson & Johnson, Microsoft, Samsung, and so on.

The boom in US tech companies over the last decade or more – giants like Facebook, Google, Apple, and others – has minted a lot of new wealthy people. We're talking millionaires and billionaires, all thanks to the success of some of the best businesses in these industries.

The Investor Mindset

So, what separates the “average Joe” from the super wealthy when investing in the stock market?

One key difference between successful investors and the rest is temperament. Staying calm during market downturns separates long-term winners from one-timers.

Legendary investor Warren Buffett famously said, "Success in investing doesn't correlate with IQ. What you need is the temperament to control the urges that get other people into trouble."

Fearing the stock market might crash and their money will be permanently lost can lead investors to make emotional decisions, like pulling their money out of the market at the wrong time. Most people who invest based on emotions end up losing money. They panic and sell their investments when the market dips, only to miss out on the gains when it recovers.

When everyone else is panicking, successful investors stay calm and collected. This is evident in the recent turn in the market.

Early 2023 saw recession fears and rising interest rates, hitting the tech sector hard. However, the market surprised everyone with a strong rebound later in the year and in early 2024. A combination of factors, including inflation coming under control, and surging developments with artificial intelligence (AI), fuelled the growth.

The "Magnificent Seven" - Google, Meta, Apple, Amazon, Microsoft, Tesla, and Nvidia - were the big winners of 2023. Nvidia's stock price skyrocketed after it was revealed that its chips were used to train ChatGPT, a powerful AI language model.

As they usually do, stock markets soon hit new records. This again proved the benefit of remaining calm when the stock market gets tumultuous, holding your investments for the long term, and the wisdom of tactically buying more when prices drop.

2. Beyond the Blue Chips

High-net-worth individuals often diversify their investment portfolios by including non-blue-chip stocks. While blue-chip stocks are shares of well-established, financially sound companies with a history of reliable performance (think companies like Apple or Coca-Cola), non-blue-chip stocks represent smaller, less established companies that may offer higher growth potential.

Investing in non-blue-chip stocks allows these investors to tap into emerging markets and innovative sectors that could yield significant returns. Although these investments come with higher risks, the potential for substantial gains can be very attractive. By balancing their portfolios with a mix of blue-chip and non-blue-chip stocks, high-net-worth individuals can manage risk while still pursuing rewards.

As always, whatever the approach, conducting thorough research and understanding the specific company, competitors, and industry is crucial before investing.

3. Listed Property Trusts and Funds

Looking beyond individual shares, some wealthy Kiwis invest in listed property, or unlisted property syndicates or funds. This offers exposure to a wider range of commercial real estate, healthcare facilities, and infrastructure, all while maintaining a level of liquidity compared to directly owning individual properties.

If you like the sound of this approach, take care. Especially in the case of unlisted investments, you’ll want to ensure you carefully research the underlying assets, the fine print in the documentation, and fees associated with these syndicates and funds before investing.

4. Shares in SMEs

Looking beyond established corporations, some wealthy Kiwis get involved with the next big thing by investing in smaller businesses. This is the world of ownership of shares in Small and Medium Enterprises (SMEs).

Here are two ways to participate in the SME investment space:

Venture Capital (VC): This involves investing in startups with high growth potential. VC firms pool funds from wealthy individuals and institutions to invest in promising young companies. These investments offer the chance for significant returns, potentially exceeding those from established companies. However, they also carry a higher degree of risk, as many startups fail. Carefully vetting potential investments and understanding the venture capital landscape is crucial. VC is usually only available to wholesale investors, which means it’s off-limits to most “mum and dad” retail investors.
Direct Investment: Taking an even more hands-on approach, many high-net-worth Kiwis directly invest in small businesses. Along with their investment, they may help shape the company’s strategy and contribute to its success through their guidance and expertise. However, this requires significant expertise in evaluating businesses, understanding the applicable sector of the economy, conducting due diligence, and managing the investment actively. It's not a passive approach and it’s best suited to those with the time, funding, and experience likely to lead to good results.

Charles Gibbon, a New Zealand businessman who made it to the Forbes Billionaires list, has over 20 years of experience managing institutional funds. However, according to the NZ Herald, his significant wealth of $1.1 billion stems primarily from his investment in WiseTech Global, an Australian software firm of which he is a director.

Investors Beware

This approach is best suited for those with a high tolerance for risk, a strong understanding of the business environment of each individual business they’ll be investing into, the ability to take losses, and no immediate need for the return of the sum they invest into anything as it may be difficult to sell.

It can take years for these investments to mature, if they ever do! After all, most small businesses fail, so this approach is not for the faint of heart.

5. Funds and Portfolios of Shares and Other Assets

While some high-flying New Zealanders enjoy the thrill of picking individual stocks or properties, others prefer a more diversified approach:

Professional management: Many wealthy New Zealanders utilise professionally managed funds and portfolios. These funds might hold a mix of shares, bonds, property, and other assets, depending on the investor's risk tolerance and goals. This allows them to benefit from the expertise of experienced fund managers who actively research and manage the underlying investments. A wide variety of funds are available, from low-cost index funds that track a particular market segment to actively managed funds that aim to outperform the market.
Diversification: The benefit of these funds is diversification. They spread your investment across different assets and asset classes, to help manage overall risk. This allows you to invest without putting all your eggs in one basket. For example, a balanced fund might hold a mix of stocks and bonds, offering a balance between growth potential and income generation.
Simplicity: taxes, routine decision-making, and other areas of investing are simplified for investors when taking this approach. In the case of many wealthy New Zealanders, this allows them to focus on what made them wealthy in the first place, for instance: focusing on sustaining or building their primary income stream.

6. Beyond Traditional Funds

In addition to traditional mutual funds, some also consider alternative investment funds:

Private Equity

Private equity investing involves buying and growing companies that are not publicly traded on stock exchanges.

Private equity firms search for companies with a good foundation, like a strong brand or a steady cash flow but aren't quite firing on all cylinders or reaching their full potential. They might be unable to invest in enough technology, lack the scale to access a different market, or could even be burdened by debt.

Private equity investors then might swoop in, buy them, and then work their magic to make them run more smoothly and squeeze out more profit.

This strategy can offer access to high-growth potential companies but also carries a high degree of risk and a longer investment horizon as these companies typically take longer to exit (sell their shares or go public).

New Zealand billionaire businessman Graeme Hart is known for being a successful private equity investor.

The packaging magnate, who left school at 16, owns Rank Group, a New Zealand-based private equity firm that invests through leveraged buyouts.

Hart, who has been featured on Forbes’ Billionaires list and was nudged to second place on NZ’s rich list in 2024, told Fairfax he stays away from volatility, and is attracted to low-risk, quality businesses where he can add value.

For instance, he bought Whitcoulls Group in 1991 and built it into the largest company in its field in Australasia and the fifth-largest in the world.

His biggest buy to date was Alcoa's Packaging & Consumer group in 2008 for US$2.7bn. After buying that packaging company, he gave it a new name - Reynolds Packaging Group, and he expanded the group to reach over $20 billion in revenue, with a massive team of 40,000 employees working across 400 facilities scattered throughout 50 countries.

The NZ Herald reports that financial statements show that Hart drew US$143 million ($226m) in dividends from his majority-owned US company Reynolds Consumer Products in 2022, the same amount in 2021, and US$92m in 2020.

Hart’s investment strategy goes beyond private equity. NBR Rich List editor Hamish McNicol told RNZ's Morning Report Hart has “started investing, particularly in Auckland, a lot in commercial and residential property”.

Hedge Funds

These funds employ more complex investment strategies, often using leverage and short selling, to aim for higher returns. Hedge funds can be a good option for sophisticated investors seeking to diversify their portfolios, but they also come with higher fees and can be more volatile.

This approach relies heavily on the skillsets and risks taken by the fund manager.

7. Real Estate

Property has long been at the forefront of wealth creation in New Zealand.

A great advantage of property is leverage, the ability to borrow. New Zealand banks look favourable at property, far more so than businesses or listed shares, so you can borrow more to buy property, especially residential real estate.

But, the wealthy understand the importance of diversification and tend to venture beyond traditional residential properties, investing in:

Commercial buildings: These can offer stable rental income and potential for capital appreciation. Though take care, changing work habits and consumer routines since Covid means some properties are no longer worth what they were. Think about more online shopping, and less working in office.
Agricultural land: Provides exposure to a different asset class altogether and can benefit from long-term trends in food production.
Development projects: Can offer significant returns if managed well, but also carry a higher level of risk.

Among them is billionaire property investor Sir Michael Friedlander who has an "empire of office buildings, retail strips and industrial properties".

Responsible debt management is crucial here. The wealthy understand the risks associated with high leverage and proceed with caution when using it. It’s important to have a strong understanding of loan terms, interest rates, and potential market fluctuations before leveraging into property investment.

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8. Beyond Money: Impact and Legacy

Building wealth isn't just about accumulating money. Some wealthy Kiwis take it a step further and invest in companies or funds focused on social and environmental impact alongside financial returns. This allows them to invest in a way that aligns with their values while potentially generating positive social or environmental outcomes.

More importantly, many wealthy New Zealanders focus wholeheartedly on their family legacy, rather than money. They’re interested in leaving behind a legacy of good values, faith, commitment to cause or community, and so on.

The Bottom Line: Lessons From NZ’s Power-Players

Building wealth takes discipline, calculated risks, and a long-term perspective. Keeping it requires many of the same skillsets and disciplines.

Here are some key insights gleaned from successful New Zealand investors:

Diversification is king: Spreading your investments across various assets and asset classes, both locally and internationally. This helps manage risk and maximise returns.
Patience is power: The wealthy understand the value of time in the market. They prioritise long-term growth over chasing short-term gains.
Seek guidance: Many successful investors leverage the expertise of financial advisers like the team here at Become Wealth, or specialist internal wealth managers to navigate complex investment decisions.
Beyond bricks and mortar: While property ownership is common among millionaires, most billionaires have built their fortunes through investments in businesses and the stock market.

So, there you have it. A peek behind the curtain at how New Zealand's big shots play the wealth game. Now the question is, will you use these insights to build your own financial empire (or at least a comfortable nest egg)?