1. Investors
  2. Investment - Understanding the basics
  3. Before you invest

Before you invest

Page last updated: 13 Nov 2018

These are the basics you need to understand before you invest:

Set your investment goals

Be clear and realistic about what you want to achieve. The investment that’s right for you will depend on your goal and when you hope to achieve it.

Research and compare your choices

The right investments for you will depend on your goals, your knowledge of investing and whether you want to take a hands-on or hands-off approach to manage your investments.

Our ways to invest section explains some of the many different types of investments available.

If you need help working out which investment will best suit you, you may want to speak to a financial adviser. See our getting financial advice pages for details.

Find the right balance between risk and return

Over the short term, riskier investments increase your chance of losing money because you don’t have time to wait for them to increase in value again after a loss. However, over the long term, they typically produce better results.

Start by finding out what type of investor you are - your ‘investor profile’. This will determine how well you might handle ups and downs or possible losses. You can also work out your investor profile on the Sorted investor kickstarter tool.

See our deciding how to invest page.

Find the right mix of investments for you

The next step is to choose a mix of investments that matches your investor profile. The experts call this ‘asset allocation’.

You can use the Sorted investor kickstarter tool to see the suggested mix of investments for each type of investor. It will also give you an idea of what results to expect from different mixes of investments.

You can read about shares, property, bonds and cash, and other investment options, in our ways to invest section. You can also speak to a financial adviser – see our getting financial advice page.

Don’t put all your eggs in one basket

Reduce your risk by spreading your money within each type of investment - known as ‘diversifying’. For example, if you’re investing in shares you could buy shares in different companies, across a variety of industries and even in different countries. While some investments may do badly, others may do well.

Spreading your investments in this way helps to smooth out the ups and downs and reduces the risk of losing money.


Having a number of different investment properties may not spread your risk enough, as multiple properties can be affected when there are changes in the property market or mortgage rates.

It’s a good idea to consider spreading your risk across different types of investments, such as cash, bonds and shares. Investing in KiwiSaver or other managed funds is an easy way to spread your risk.

Understand how investments grow and compound over time

Investments usually earn interest. If you leave interest invested, you will start earning interest on that additional amount, as well as on the original capital you contributed. This is called ‘compounding’ interest and it is a powerful force for wealth creation.

Regularly adding to your investments can greatly improve your results. If you reinvest your return or make regular contributions to your investment, you’ll see the highest growth. You can find out more about compounding on Sorted.