When people first start investing, the question is usually pretty simple:
What should I buy?
Should I buy shares? An ETF? A managed fund? Property? Bitcoin? Something someone mentioned at a BBQ?
It’s an understandable place to start. Individual investments feel tangible. You can see the company name, look at the share price, and feel like you’re making a real decision.
But after sitting down with Chris Douglas from Mapua Wealth on the latest episode of Beat the Bank, it was a good reminder that the biggest investors usually start somewhere else.
They don’t start with the product. They start with the portfolio.
I’ve worked with Chris before, and he is one of those people who can take quite complex investment ideas and explain them in a way that actually makes sense. Mapua Wealth also works with some of the biggest investors in New Zealand, so I wanted to understand how those investors actually think.
So where do big investors start?
Chris made the point that large institutional investors, such as the NZ Super Fund, ACC, and iwi investment groups, generally start with asset allocation. That means they are not sitting around asking whether they should buy one individual company over another.
They are first asking much bigger questions.
- How much should be in shares?
- How much should be in bonds?
- How much should be in property, infrastructure, private equity, or private credit?
- How much should be invested in New Zealand?
- How much should be invested globally?
- How much liquidity do they need?
Only after those questions are answered do they start thinking about the individual fund, manager, ETF, or stock. That’s an important distinction. Because for most investors, the conversation often starts at the very end of the process.
Why does asset allocation matter so much?
There is a well-known study by Brinson, Hood and Beebower which found that a portfolio’s long-term asset allocation explained over 90% of the variation in returns over time. In plain English, the big decision usually isn’t whether you picked the perfect stock. It’s how your money is split across growth, defensive, and diversifying assets.
Chris explained it well in the podcast. Deciding whether to invest in the US market, the New Zealand market, Australia, emerging markets, or global shares is often going to have a much bigger impact than trying to pick a handful of companies. That doesn’t mean stock selection is irrelevant.
But it does mean the first question should probably be:
What markets and asset classes should I own?
Not:
What stock should I buy this week?
What can everyday investors learn from institutions?
The biggest lesson is probably time horizon. Some institutional investors are thinking 50 to 100 years ahead. Chris spoke about iwi investors in particular having a genuinely intergenerational mindset. That changes how you think about investing.
If you are investing for future generations, you can look through short-term market noise. You can tolerate volatility. You can own assets that might take longer to play out. Most everyday investors do not have a 100-year timeframe, but many still have longer than they think. If you are 35, 45, or even 55, you may still be investing for decades.
That matters.
Are New Zealand investors too focused on New Zealand?
This was one of the most relevant parts of the conversation. A lot of Kiwi investors naturally buy what they know. That might be Contact Energy, Mainfreight, Fisher & Paykel Healthcare, Auckland Airport, or a few other familiar names. There is nothing wrong with owning New Zealand companies.
But the New Zealand market is small. It is not especially diverse, and it does not give investors exposure to many of the largest growth themes in the world. Chris made the point that the NZ market has a lot of mature businesses, utilities, gentailers, and industrial companies. It does not have the same depth as global markets.
So if your portfolio is heavily tilted toward New Zealand shares, the issue may not just be which companies you own. It may be that you are overexposed to one small market. That is an asset allocation decision.
What about emerging markets?
Emerging markets were another interesting part of the discussion. These are markets like China, India, parts of Asia, Latin America, and other developing economies.
They can feel less familiar. They can be more volatile. The regulation and transparency may not always be at the same level as developed markets. But they also include some of the fastest-growing economies in the world.
Chris’s view was not that everyone should rush out and pile into emerging markets. It was more that long-term investors should at least understand what role they could play in a portfolio. That’s the key point. Every investment should have a job.
Has it become easier to build better portfolios in New Zealand?
Yes, and this was another point Chris raised. The New Zealand funds market has changed a lot. There are now far more funds available than there were five or ten years ago.
Investors can access low-cost global share funds, active global managers, emerging markets, infrastructure, climate strategies, private markets, and more. Fees have also come down, which is a good thing for investors.
But more choice does not automatically lead to better outcomes. In some ways, it can make things harder. Because if you don’t know what you are trying to build, more options can just create more confusion.
What about Bitcoin and crypto?
We also touched on Bitcoin and crypto. Chris was fairly direct on this. His view is that Bitcoin still feels highly speculative. It is volatile, it does not produce income, and a lot of the investment case relies on the idea that someone else will pay more for it later.
That doesn’t mean people won’t make money from it. But it does raise an important question:
Is this an investment, or is this speculation?
For portfolio construction, that distinction matters.
So what should investors actually do?
Towards the end of the episode, I asked Chris what someone could do if they wanted to invest a bit more like an institution.
His answer was simple:
- Think more globally.
- Have a long-term mindset.
- Consider whether your portfolio is diversified enough.
- Rebalance regularly.
- Avoid becoming too concentrated in one country, company, or idea.
None of that sounds particularly exciting. But that is probably the point. Good investing is often less about excitement and more about structure. It is not one perfect investment decision that builds wealth. It is the combination of many decisions working together over time. That is portfolio construction.
And for most investors, that is where investing really starts.
General information only, not financial advice. Please speak with a qualified financial adviser before making investment decisions.