Compound interest! Managed funds! Other buzz terms that sound like you’ve got your finances together! But do we really know what our options are when it comes to our financial health? We speak to AMP Workplace Manager Robyn Conway, who walks us through some of the lesser-known investment and management avenues when it comes to your hard-earned cash
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Kia ora Robyn, thanks for chatting with us because we’re ALL about making your money work harder for us!
Absolutely, you want your money to do as much as possible for you, and there are so many tools we can be utilising to get ahead that we weren’t perhaps taught at school, or have slipped under the radar!
So, let’s start with compound interest… why should we care?
I look at compound interest as the eighth wonder of the world… seriously! It’s incredibly essential in terms of being able to maximise growth potential, but so many people don’t understand it or utilise it, or understand why things like managed funds (we’ll get to that in a minute!) or KiwiSaver are so beneficial, and it’s because of compound interest.
Compounding interest is essentially when you’re earning interest on your interest. So it’s not like a savings account where you are getting an annual investment earning, or an annual return. If your investment is growing, you’re earning interest on that amount in total, so your capacity to earn is much greater.
It’s a passive thing, but it’s really powerful. Here’s an example: with a savings account, you might receive a one-off amount of interest earned at the end of each year, and whatever value you have invested, it’s just the one investment earning. But if you have compounding interest, or an account that earns compounding interest, it’s the process of earning interest on both the principal amount, and then the interest from previous periods. It’s so, so powerful that has exponential growth over time, and significantly so by comparison to other ways where you have money sitting or accumulating in a bank account.
So, why are we all not doing this???
Because people don’t know about it! This is why it’s so important we tell these stories. There’s a lot of jargon in this industry, and somewhat complex situations or topics that can mean sometimes you don’t get a lot of insight to it. I mean, this wasn’t taught at school when I was there! Tools like KiwiSaver and managed funds are great ways of making your money work harder for you.
Ok, let’s get onto managed funds. What are they, and again, why should we be looking into them?
I’d describe managed funds as a collective of investment funds and they’re essentially pulled together and invested in a diversified portfolio, and that portfolio generates returns. Different managed funds have different lock-in periods – some are locked or unlocked, but they’re a really, really good place to start with your investments. Just be aware of the different fees you can come across sometimes. But it’s very much a first step for people who want to start making the most of their money, earning compound interest when they need it, and also benefiting from companies and fund managers who are doing the work in terms of what those different funds should be, and how to maximise earnings within the funds within the investments.
So there’s not a lot of pressure on you to “get it right” with managed funds – that’s the fund manager’s job?
Exactly, it’s their responsibility. You’re not picking individual companies to invest in, and then hoping that those companies do well, especially if you don’t have a larger understanding or knowledge of how those companies are going to perform.
Is there anything else you think we should be taking advantage of, especially as women, when it comes to investing and financial freedom?
The key thing I’m really hot on is time invested in market – it’s one of the most important aspects of investing . People who are younger have the opportunity to set themselves up for retirement and yeah sure, retirement is not at the front of mind for a 24-year-old! But time invested in market with your managed funds and compounding interest, you have so many opportunities to do so well, and you don’t have to do big investments. It’s small amounts on a regular basis and over time, it’ll have such a massive difference. The difference of 10 years of investing can be a substantial amount. I’m really passionate about women, especially younger women, having an understanding of what their options are – and there’s research that shows that women actually do better at investing than men.
So how do you figure this all out for yourself?
Go and see a financial advisor. I use this analogy all the time: people will go and see a mechanic when their car isn’t running right, and they’ll go to a personal trainer when they want to lose weight. Why not see a financial advisor when you’re trying to grow your wealth? When you’ve got someone like AMP here, we’re happy to talk to anybody to help them on their right path, and people should capitalise on that. There are so many people who don’t know where to start and are often intimidated by what they don’t know. The best place to start is to just have a conversation.
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