A smart investor takes the time to understand basic investment principles and gets professional financial advice to develop and keep to a sound investment plan. Here's what to do and what not to do:
What to do
- Understand your appetite for risk, and how much you can afford to lose if things go wrong.
- Ask your financial adviser as many questions as you need to until you’re confident you completely understand what you’re about to invest in.
- Agree how you and your adviser will communicate with each other. Ask the adviser to send you a written summary of your discussion.
- Find out what you will be charged. If you are receiving personalised services from a financial adviser, the adviser is required to provide you with a disclosure statement that sets out how he or she gets paid.
- Find out if the investment will be held in your name, or if someone else will be holding the investment in his or her name on your behalf.
- Make sure all correspondence, statements and reports are sent to you and not just to your adviser.
- Make sure you receive a record or statement of the investment regularly. Statements should be sent out at least twice a year.
- Read all investment related correspondence, statements and reports and keep them in one place — check for anything unexpected and any warnings about risk.
- Find out how the value of your investments is calculated and who calculates this.
- Find out how you can cash in your investments, and whether there are conditions for withdrawing your money.
What not to do
- Rely on word of mouth or friends’ recommendations — do your own research.
- Be fooled by investments that offer a high return for little or no risk – if it sounds too good to be true, it probably is.
- Rush into signing up or be pressured because of time frames or other factors.
- Sign a blank document given to you by your adviser (or anyone else for that matter).
- Have long-term, open-ended arrangements. Even if you do have reason to give your adviser power to buy and sell investments on your behalf, set boundaries. If you are sick or going away for a long time, authorise a lawyer or an independent person to act for you, and to check what your adviser is doing.
Keep track of each investment
- For each investment you have, you'll receive periodic transaction statements showing the value of your investments and the fees and taxes paid. Store these records in a safe place so that you can easily lay your hands on them for accounting and tax purposes.
- Good record keeping is an essential part of investing. Treat your paperwork like your best friend and it will save you from stress in the future.
- You may also wish to monitor your portfolio by looking at websites or newspapers. You don't have to check every day, but it's easy to check the price of shares and units in investments such as managed funds and KiwiSaver funds.
- If you have invested for the long term, don't be too concerned by short-term ups and downs.
Review your plans
- The world changes and so do you. That's why successful investors review their plans regularly. The rule of thumb is to revisit your investment plan at least once a year.
- Start with a review of your financial situation and goals. Perhaps your circumstances have changed. Life events may mean some goals are no longer relevant and you may need to revise or set some new investment goals.
- Finally, consider whether the value of the individual investments in your portfolio has changed. If you are making your own buy and sell decisions, you may need to review and rebalance the investment mix to make sure it still matches your strategy and attitude to risk. If you are using a fund manager they will generally make rebalancing decisions for you.
Look out for warning signs
Mistakes, delays, audit qualifications and controversy over accounts can be warning signs. Accounting rules can be complex and genuine errors or differences in views do occur, but repeated issues may indicate deep-seated problems.
- A key on-going requirement for listed companies is to disclose certain information to the market in a timely manner through an information service - usually via a stock exchange.
- It is a good idea to keep an eye out for such announcements as it will help keep you informed as to what is happening within the company.
- If you belong to KiwiSaver a good place to look for information is in the annual statements and reports.
Director and senior management in-fighting, resignations, breaches of the law or unethical conduct can be warning signs. Changes in management may be necessary, but it could distract the management's attention from running the business.
Over-promising and under-delivering
While even the best managers can make mistakes, on-going disappointing results, lack of communication and falling service standards may point to something being seriously wrong.
Deal with investment challenges
Market and economic conditions can change rapidly, but a knee-jerk reaction can make things worse. The key is to keep your end goal in mind. The investment loss may be due to various factors, for example; a fall in the overall market, problems with one investment in your portfolio, poor advice or breaches of the law. Here's what to do if:
What if your investment value falls?
If your investments have fallen in value seek advice from a financial adviser.
What if your investment company gets into financial trouble
Sometimes companies fail for different reasons. You should contact them immediately if:
- They stop paying your interest payment
- They stop paying the distribution you expect to receive
- You see something in the media about your investment company going into administration, liquidation or receivership.
The most recent prospectus or the investment statement will have your investment company's contact details. Alternatively, if you know who the receiver is, you can contact them directly.
Whether you will get any money back will depend on what type of investment you have and the financial status of the company. For example, if you own shares in the company, any money that is recoverable will first go to the company's creditors and then to shareholders.
It's also a good idea to get legal advice about your rights and whether you are entitled to any compensation early on. The reasons for the company defaulting may include misconduct or a breach of the law, and you might be able to be compensated. For more information see our information on how to get your money back.
What if you think you've been scammed
Investment scams are often so professional, slick and believable that it is hard to tell them apart from genuine investment opportunities. The scammers set up a fake business and website to trick people out of their money. Don't be caught out. For more information see our latest warnings, alerts and scams. Also, check the Ministry for Consumer Affairs website for their latest scam warnings.
What if you think you've been given bad advice
If you think the financial advice you've been given by an adviser was inappropriate, you have the right to make a complaint.
When there are problems with your investments, work out what your options are and if you can recover any money. It's important that you focus on the future to get your finances back on track.