By Gillian Boyes, Investor Capability Manager
First published by Stuff on 8 October 2020.
Investing is having a moment. The use of online investing platforms exploded during the first lockdown, when many had spare time and money, and market volatility made a lot of KiwiSaver members pay attention to their funds for the first time in years. Share clubs are back too, investing seminars are selling out, and there’s been a surge in ‘experts’ eager to offer their tips online.
While this renewed enthusiasm and interest is great, we’re also picking up a growing sense of anxiety. About how to get started and make the right choices. About the jargon and the risk involved. And exactly how you can fit it in with so much else going on right now?
Amid all the hype, it’s best to remember that investing is about growing your money over time. When you invest, you put money into assets like shares, bonds and property, with the aim that your money will grow over the longer term.
Direct investing is for those who want to be hands-on
Online investing isn’t new. Kiwis have been able to buy and sell shares and other investments directly for the past 20 years at least.
What some of the newer online platforms like Hatch, InvestNow, Kernel and Sharesies have done is let people get started with just a few dollars. Rather than having to buy full shares or units in a fund, smart technology lets you buy fractions of these products.
While this allows smaller investors to take part in buying shares, and units in funds, it also has some downsides. If you invest in shares through Hatch or Sharesies, for instance, you’ll get dividends based on the portion of the shares, you own, but you may not get voting rights, as you would if you were investing in shares through a more traditional broker.
And, while all the new platforms provide general information and education to their customers, the platforms don’t always provide research reports on the performance and strategies of individual companies or funds, important information for making good investing decisions.
Social media chatter is no substitute for expert advice either, and some of it is downright terrifying!
These new platforms provide an opportunity for people to learn about investing by doing it.
An important aspect of investing is remembering principles like diversifying your investments, doing research before you buy, and learning to buy and hold, long term.
Let KiwiSaver be your core
For most of us, KiwiSaver is likely our most significant investment outside of buying a house (which is a whole different topic that we won’t go into here!)
As far as investments go, it’s also one of the simplest, mostly because many of the basic rules of good investing are baked in: there’s a clear investment goal (your retirement and also perhaps a deposit for your first home); your investment is usually diversified across a range of assets and asset classes; and you drip-feed contributions to KiwiSaver from your pay which means you are continually investing and making the most of ups and downs in the markets. On top of all that, it’s regulated with multiple levels of checks and protections.
Just because it’s easy it doesn’t mean you’re not ‘investing’! Your money is still going into a mix of cash, shares, bonds and/or property – the difference is that a fund manager is choosing them for you.
Of course, no one expects those fund managers to work for free, so keep an eye on your KiwiSaver fees. Even 1% of your balance is significant if your return is a respectable long term 5% average.
Managed funds are like KiwiSaver without the lock-in
If you’re fine with someone else making investment decisions for you, you might want to consider managed funds.
Like KiwiSaver (which is a type of managed fund), your money is pooled with other investors’ money and invested on your behalf. You can typically drip-feed your money in, and diversification is managed for you.
Managed funds come in all shapes and sizes. Want to invest solely in global companies? Worried about climate change? There are managed funds for both concerns. Want a fund that you can buy and sell like shares? An exchange traded fund (or ETF) is a good (and often cheaper) option. Just want something like your KiwiSaver? Ask your KiwiSaver provider – they’re bound to have an equivalent.
Like KiwiSaver funds, some managed funds are riskier than others so make sure this fits with your needs. Check the fund and the manager you’re considering are regulated by the FMA.
Also keep an eye on fees. Use Sorted’s Smart Investor tool to see how different funds’ fees compare.
Be wary of high-risk and non-regulated ‘investments’
As your confidence grows, be wary of any products that offer high or quick returns. Some, like cryptocurrencies aren’t regulated so you have little protection. Others, like derivatives are very high risk and you’re just as likely to lose money as win it (despite what the marketing might promise).
Above all, remember it’s your money – and other people want it, whether as a lump sum or in fees. Make them work for it, read their reports, compare their risk and returns, and assess them against your own investment goals. Don’t just throw it at them because it’s what everyone else is doing.
There are plenty of good investments out there, but unfortunately there are bad ones too. The best way to work out the difference is by doing your homework before you buy.
Because if you sink $100 on a bad one you haven’t just lost that but also what you could have earned had you gone with a good one. Yes, with investing, FOMO cuts both ways.