Your choices on investment options: Managed Funds vs. Term Deposits

People often ask us what's the smartest way to invest or grow their savings (other than using a KiwiSaver account). Unfortunately, there's no one-size-fits-all answer, and we usually say there's no absolute 'best' way—it depends on your savings goals and how long you want to invest.

We get it, that might not be the answer you're hoping for, so we wanted to break it down a bit, starting with two popular options: managed funds and term deposits.

They each have their own perks and things to think about, and can both be good options depending on what kind of returns you’re after and how much risk you're comfortable with.

Managed Funds:

With a Generate Managed fund, your money is pooled with all the other money in the fund and invested by our team of expert fund managers in local and international markets. Here's a breakdown of the key advantages:

Professional Management: Generate Managed Funds make investing simple and easy. You get all the benefits of a professionally managed investment portfolio, as our team of qualified, expert fund managers actively manage your investment for you.

Potential for Higher Returns: While returns are not guaranteed and can vary, managed funds have the potential to deliver higher returns over the long term, especially when invested in a growth fund type.

Ease of withdrawal: You are free to access your money whenever it suits you. There is a $500 minimum for lump-sum withdrawals, or you can choose to make regular withdrawals either weekly, fortnightly, or monthly, of at least $100.

Diversification: Generate Managed funds spread investments across a variety of assets, reducing the risk associated with having all their eggs in one basket. Spreading investments around helps reduce the impact if some assets don't do well.

Key considerations

It’s important to remember that a Managed Fund is an investment, and all investments involve risk and can go up and down in value, as a result of many external factors that investors cannot change e.g global wars or political changes. To make sure your investment aligns with your risk tolerance and investment goals, talk to a Generate Adviser before investing.

Generate Manged Funds are also designed to be long-term investments and may not be suitable for short-term investors.

Term Deposits:

Term deposits, on the other hand, represent a more conservative approach to investing. When an investor puts money into a term deposit, they are essentially lending it to a bank or financial institution for a fixed period at a predetermined interest rate. Here are the key features:

Capital Preservation: Term deposits are considered low-risk investments. The capital is typically secure, and investors receive the principal along with interest at the end of the agreed-upon term.

Fixed Returns: Term deposits have a fixed return, which is agreed at the start of the term and paid at the end of the term. The return is generally lower than Managed Funds as the investment is lower risk.

Suitable for conservative investors: Setting up a term deposit is straightforward. Investors choose a term (e.g., 6 months, 1 year) and deposit amount, and the interest rate is determined accordingly.

Key considerations:

Term deposits are generally locked in once you’ve chosen to invest. This includes the interest rate – you will only get what you commit to and won’t benefit from any market increases after you’ve locked in your rate, and also the time period you choose to lock in for. If you need to withdraw your money before your term is over, you will likely be charged a fee.

Choosing the Right Fit

The decision between managed funds and term deposits ultimately depends on your financial goals, risk tolerance, and investment horizon.

Consider a Generate Managed Fund if:

You want your fund professionally managed by an award-winning team.

You’re a long-term investor looking for potential for higher returns.

Having a diversified investment portfolio is important to you.

You want the flexibility to withdraw when you want too.

Consider Term Deposits If:

Capital preservation and a predictable return are your top priorities.

You have a short-term investment horizon (less than 2 years) or need funds in the near future.

You prefer a very low-risk, straightforward investment option

Both managed funds and term deposits have their pros and cons. We recommend talking to a Generate adviser before selecting a managed fund, to make sure your choices suit your savings goals, investment timeframe, and risk appetite.

Are you ready to step into a new phase of your investment journey? Click here to talk to a Generate adviser.