Try training wheels for rookie investors
Even if you only have a few bucks to play with, it’s never been easier to dip your toes in the share market.
OH, how I envy new investors. When I scraped together my first $2000, I had to figure out how to set up an account with a broker. It was confusing. There was paperwork involved. I finally managed to buy shares in a single company, knowing full well it was the worst possible strategy.
But there were no other options available to small investors in those days. This was back in the ancient era of . . . the early twenty-tens.
Reflecting on how far the New Zealand investing scene has come in just five years brings a tear to my eye.
The single greatest development is the ‘‘passive’’ investing revolution. Instead of trying to pick hot stocks, you can buy a tiny slice of every single listed company in New Zealand – or every company in the world. The likes of SmartShares, Superlife, and Simplicity offer a range of excellent options for low-cost index investing in KiwiSaver and standalone funds.
The management fees are much cheaper than the ‘‘active’’ funds, you get amazing diversification, and still tend to outperform the clever-dick stock-pickers: it’s pretty much impossible to consistently beat the market average.
The second great development is the lowering of barriers to entry. Sharesies, which is the hot young company on the block, aims to give someone with $50 the same opportunities as someone with $50,000. You can get started with literally a few bucks, and choose from 13 funds.
I’m a fan – but not for the reasons you might think. From a narrow financial perspective, Sharesies is poor value for money. Its monthly fee of $1.50 might not seem like much, but that’s the equivalent of wiping 7.2 per cent off the annual returns on a minnow’s $250 portfolio. And you still have to pay the management fee of the actual underlying funds it channels you into.
Once your portfolio gets beyond $3000, you pay $3 a month, or a flat $30 a year. That’s much more attractive – the equivalent of 1 per cent of your portfolio – but still not the best option out there.
Where Sharesies really shines is as training wheels for new investors. Unlike some of the hopelessly byzantine old guard, its application process, website and app are beautifully designed. It holds your hand through everything. There’s no jargon.
You can chip in a few bucks with the minimum of fuss, get comfortable with the market, and learn as you go. For someone who finds the whole idea too daunting to get started, this sort of gentle introduction could be well worth paying a premium for.
I fully support what Sharesies is trying to do. But you don’t want to be the kid who needs training wheels forever, while everyone else is whizzing by on their 10-speeds.
InvestNow is another welcome new addition to the scene. Unlike Sharesies, the platform is entirely free, with no middleman clipping the ticket. You can get started with as little as $50 a month, or a $250 lump sum. Its choice of 90 funds might be overwhelming to the newbie investor, but it’s a neat way to get access to investments which normally have minimum buy-ins of several thousand dollars.
My final recommendation for small investors is Superlife. Again, the options and advanced functionality could be overwhelming. But there’s no minimum buy-in, the annual fee is only $12, and the underlying fund fees are extremely competitive.
It doesn’t matter too much how you get started with investing, so long as you get started. You’re not going to be making (or losing) vast sums anyway. The important thing is to climb on the bike and bravely push off into space – with your training wheels on, if need be.
‘It doesn’t matter how you get started with investing, so long as you get started.’