You might have heard people talk about investing, or maybe you’re learning through KiwiSaver. What is investing and how do you get started?
What is investing?
Investing is when you put money into a financial product, business, or property, aiming to make a profit. It’s a way to help grow your money to achieve your goals. But there’s no guarantee you’ll make the money you want to, or you won’t lose money, because all investments come with risks.
Types of investments
- Shares - When you buy shares, you’re buying a tiny slice of ownership of a company. This makes you a shareholder in that company. Shares, sometimes called stocks, securities or equities, are bought and sold on the share market. Two main ways you make money through shares are 1/ through a dividend that some companies pay out, or 2/ capital gain, where your shares increase in value over time, so when you sell them you make a profit.
- Property - This could be a family home or an investment property. Your family home you hope rises in value over time, so when you sell you make a profit. An investment property could rise in value over time too, or you can get regular income through tenants paying rent.
- Cash – This includes things like term deposits and interest-earning savings accounts. Term deposits are where you loan money to the bank for a time, and you get interest in return.
- Fixed income - Bonds are similar to term deposits but are instead issued by companies, councils, or governments.
- KiwiSaver – KiwiSaver is a way to invest in a mix of investments (like shares, property, cash, fixed income and other investment types). Rather than invest directly, however, you own a share of a fund run by an investment manager. But, just like a direct investment, you still earn returns on your money. You may already have a KiwiSaver account. KiwiSaver’s a government savings scheme, to help Kiwis save for their first home or retirement. If you contribute regularly, your employer and the government put in money too.
- Other types of investments include gold, peer-to-peer lending, private equity, foreign currency and crypto-currency.
Before you start investing...
- Think about your goals and time frame. How long will you be investing for? What do you hope to achieve? Have you done enough research?
- Think hard about how worried you would be if markets are moving up and down – especially down. If you feel like you would hate losing money, a lower-risk investment is probably better for you, even if you don’t end up with as much return.
- Pay off high interest consumer debt first (credit cards, personal loans etc) before you start investing. The exception is KiwiSaver, due to the employer and government contributions you can receive.
- Avoid locking up all your savings in investments. Have some cash in a bank account you can access easily, for emergencies.
Risk versus return
Different investments come with different levels of risk - which means the chance of losing some, or all, of your money. Taking on higher risk means you’ll hopefully be rewarded with the chance of higher returns. And lower risk investments, usually viewed as safer, mean you won’t earn as much on your investments. If anyone promises you high returns for low risk, don’t believe them!
What type of investor are you?
All investments come with risks. And the level of risks you are able to, or want to take, depend largely on your appetite for risk. Just how much risk can you handle? Sorted.org.nz has a great tool to help you work out your investor profile
, and an investor kick starter quiz.
KiwiSaver’s a great start
If you’re unsure where or how to start your investment journey, KiwiSaver is a great learning tool. Learning about your fund type, performance, fees, and how tolerant you are with seeing ups and downs in your balance can help you learn about how investing works. Once you feel confident with KiwiSaver, you may want to consider other investments - for example, buying your own shares.
Important things to know about investing
You could lose money. Investment comes with risk and you are never guaranteed to make money on any investment. Some investments do not make the returns you may be promised, and some businesses or industries can go out of business.
Scammers love a keen investor, and investment (and other types of) scams are very real in New Zealand. Sometimes it can be very hard to tell if you’re being a victim of a scam. The Financial Markets Authority has excellent information on investment scams
, and so does Netsafe
. Stay on top of the latest tricks scammers may try, and help spread awareness among friends and family.
Fees. Know what you’re paying in fees for particular investments. If you have a very small amount invested, high fees might not make it worthwhile. Always read the Product Disclosure Statement before signing up to any financial product or investment opportunity, and understand how the investment works.
Know your timelines. Many investments are for the long-term. This means you put your money into the investment and it may not deliver you the returns you want for 20, 30 or more years. Not all investments can be withdrawn straight away if you need the money, some can take at least three months. Think about how easily you need to access your money and if it suits your situation.
Diversify. Diversifying your investment portfolio means investing in a range of different types of investments. For example, you might have some money in a savings account, some money in KiwiSaver, and some money in property. You can help reduce your investment risk by doing this, as it’s unlikely all investments would fail at the same time. A common investing phrase is “Avoid having all your eggs in one basket.”.
Do your research. Learning about investing might seem daunting. The Financial Markets Authority and Sorted.org.nz have great resources. Other platforms that allow you to buy shares, like Hatch and Sharesies, also have excellent financial education sections. Because everyone’s situation is different, it can be good to see a financial adviser, who can help direct on what investments could suit you. If you’re doing it on your own, start small. Or, if you’re feeling unsure about your KiwiSaver account, speak to your KiwiSaver provider or call IRD.
Published 17 June 2020
Pie Funds Management Limited is the issuer of the JUNO KiwiSaver Scheme. You can read our Product Disclosure Statement. This article is general in nature only and has not taken into account any particular person’s objectives or circumstances. We recommend you speak with an independent financial adviser. All content is correct at time of publication date.