Diving into investments? This is where you start
As interest rates fell to record lows last year, more Kiwis turned to investing in the sharemarket.
Investing platform Sharesies’ customer base grew more than 200 per cent in 2020, from 78,000 at the beginning of the year to 260,000 investors by the end of it, co-founder Sonya Williams said. ‘‘We are close to that group having invested $1 billion through Sharesies.’’ Wondering how you can jump in? Here are some tips.
Just start
Fisher Funds senior investment analyst Ashley Gardyne said two of the biggest mistakes people made were waiting for the right time and thinking they needed a certain amount of money to start.
‘‘We don’t have a crystal ball,’’ he said.
‘‘There is no right time. The earlier you start, the more you can benefit from compound interest.’’
He said that before companies like Sharesies and Hatch cropped up, there were higher barriers to entering the world of trading shares but that was no longer the case.
The general manager of investing platform Hatch, Kristen Lunman, said ideally the best time to invest was from the day you were born.
She said the three golden rules to investing in the sharemarket were having an emergency savings fund to buffer losses, using KiwiSaver and starting with the right frame of mind.
Gardyne recommended starting with a rough plan to determine where to invest and when to cash out. ‘‘The timeframe does determine what fund you should be investing in. There is a correction in the market – which is a dip greater than 10 per cent – every two years and you would expect a 25-30 per cent fall every 10 years.’’
Lunman said investors had to expect volatility in the sharemarket but over time markets rose because companies that did not do well were kicked out of the index and were replaced by better-performing companies.
What to invest in
Lunman suggested an 80/20 split to ensure you did not have all your eggs in the same basket.
According to this guideline, 80 per cent of your investment goes into index funds, like the US S&P 500 or other international exchange traded funds, which secures the bulk of your investments in backing the world’s best publicly listed companies. The remaining 20 per cent is left for investing directly in companies and emerging industries like cannabis and clean energy.
Gardyne said that although you should know about the businesses you invest in, buying shares in the company you worked for could be risky because your salary was already tied to the company’s wellbeing. He said that when investing in individual companies it paid to understand the company’s prospects and growth plans, rather than basing decisions on trends and where friends were investing.
Making small but regular contributions was more important than stockpiling lots of money to invest, Williams said.
The average portfolio was worth about $3000 and about $200 was invested amonth, on average.
When to cash out
Your plan or goal would determine when to cash in your earnings, Williams said. ‘‘It comes down to whether you havemet your goals.’’
Investors with a long-term plan were less likely to sell in a recession or in a panic, she said.
Lunman said if you invested in an industry doing poorly during a downturn, such as travel during Covid, you might have a short-term investment plan to sell when things got back to normal. ‘‘The best investors in the world are the most patient. They have a long-term view, they sit and let the money do the work for them.’’