How to start investing

How long you invest your money for is called ‘duration’. For example, you may have goals for the short (1–3 years), medium (4–9 years) or long term (10 years plus). Each of those timeframes would require a different sort of investing, since you’ll need your money back at a certain time.

For the short term, you might invest in a term deposit or a fund that is ‘defensive’. For the medium term, perhaps mostly bonds (which are loans to governments or companies), or a ‘conservative’ or even ‘balanced’ fund. For the long term – when you can ride out the ups and downs of more turbulent markets for a while – a basket of shares in a ‘growth’ or ‘aggressive’ fund would typically bring you higher returns in time.

How easily you can turn your investments into cash is called ‘liquidity’. For example, a bank savings account is a high-liquidity investment because you can get to your money easily and probably won’t have to pay any penalties for taking it out.

Investments that are low liquidity include property (because it takes time to sell and may be expensive) and retirement schemes like KiwiSaver, where your money is generally locked up until you retire.

No financial institution or investment is entirely risk free, but the level of risk can vary greatly. If an investment seems too good to be true, it probably is.

The main risk is that your money may not be there when you need it. Your investments could lose value, or you may not receive all of your money back.

Lower-risk investments like bank deposits or bonds are less likely to suddenly fall in value than higher-risk investments like shares. But if you can tolerate higher risk, there is a better chance of achieving greater returns in the long run with shares.

Some investments like bonds may be given a rating by an independent agency. These ratings are a useful tool in an overall assessment of the investment risks.

With so many ways to invest your money, it helps to understand the different kinds of investments, particularly:

• Investment funds
• Shares
• Bonds
• Bank deposits
• Property
• A business

Find out more about the different kinds of investments in our guide. The Financial Markets Authority has information about more complex kinds of investments. 

If you’re planning on your investment spinning off a regular income for you to live on, it’s best to put the money where you can have more certainty about the returns it will earn, such as a bank deposit or a bond paying a fixed amount of interest for a set period. Investments can also provide income through regular dividends from shares, or rents and leases from commercial property.

But if you are aiming for your money to grow as much as possible, you could consider more volatile investments such as shares or property, which potentially offer higher long-term returns but fluctuate in value over time.

Knowing the fees involved with investing is important, since those costs affect your results. So is knowing how you’ll be taxed on your investments. Weigh the fees being charged against the likely return from the investment. How much seems reasonable to pay?

The fees information can be found in the investment statements – remember, good investments will be transparent.

Take a look at our KiwiSaver fund finder to estimate how much you’ll pay in fees over your KiwiSaver experience, for example. It can make tens of thousands of dollars difference to your results!

We all have so much information at our fingertips, including on the markets and their effect on our balances. But that’s not always a good thing – especially when we can see our balance fall that much more often. It can put us off investing entirely. Yet this is all part of investing – we’re buying productive assets whose value can go up and down. The key is to have a long-term plan in place and stick to it. And when markets are down, you’ll be buying assets that are on sale. Here’s more on investing in our world of uncertainty.

These days as little as $1 can get you started. Investing platforms such as Sharesies, Hatch, InvestNow or Kernel have lowered the barriers to getting started with investing. You no longer need steep amounts of money just to begin. To start though, it helps to map out your spending plan (aka your budget) so that you can flow more money towards your investing. The more you do, the better results you can get. Here’s where to start your plan. 

Great question! The cost of doing nothing is known as the ‘opportunity cost’ – measuring what you could’ve gained when opportunity knocked. Unfortunately, there is also what you lose over time, particularly due to the effects of inflation and taxes. Many people who are only saving – setting aside money without investing it – are actually rolling backwards as time goes by.

You may already be investing in shares through KiwiSaver, so it’s good to understand how much so you don’t take on more risky investments than you intend. Then, beyond KiwiSaver, depending on what you’re looking to achieve with your share investing, it helps to figure out how much of your money you want invested in shares – your mix of investments. To check out the most appropriate mix for you and your situation (often called your ‘risk profile’), here’s our investor profiler.  

All investments come with risk, but the level of risk varies greatly. A good place to start is to check your attitude toward risk (no sense losing sleep over your investments, after all), as well as how well-placed you are to take on risk, such as your job security and level of debt. That way you can base your investment decisions on an appropriate level of risk for your situation. Here’s our profiler for investors to do just that.

It’s important to understand the main kinds of investments out there, such as bank deposits, bonds, property and shares. Each of those brings different levels of risk and potential returns. You can invest directly in those investments or into funds that hold a mix of them. Once you find the mix of investments you’re after, you can then base your choices on that strategy. In terms of how much to invest, it helps to work backwards from what you are aiming to achieve – your investment goal. This way you make sure you hit your target. Here’s more on the different kinds of investments. 

We’re not able to endorse or recommend specific investment products, especially because we have no idea of your financial situation or your investment goals. But what we can say is that there have been opportunities all around us, whether it be in the share or bond markets. For managed growth funds, which hold mostly shares, for example, you can compare performance for the past five years using Smart Investor. Here’s where to see the top past performers. 

If by ‘safer’ you mean those investments that have fewer ups and downs in value, and less of a rollercoaster ride, then you are looking for ‘income’ assets such as bonds and cash. Have you heard of ‘defensive’ funds? Out of all the types of managed funds out there (including KiwiSaver), these protect you most from sudden drops in your balance, as they hold mostly bonds and cash. You won’t get the potential returns that you would in other types, but you’re also less likely to be at risk of sudden drops in value or losses. So if you’re going to use your invested money soon, especially within the next 1 to 3 years, they can come in handy. Here are all the defensive managed funds to compare.

No, you need a huge savings rate! This means that you need to be able to put large portions of your earnings aside and invest them. When the amount you receive from your investments (your returns) outpaces your expenses, you become financially independent (ie, you don’t depend on a job for money). This of course depends on what your expenses are as well. So a huge salary is not enough to be independent, since many of us may earn heaps but spend heaps too. It all comes down to your savings rate. Here’s more about saving and investing.

The easiest way to start investing from your very first pay is to be in KiwiSaver. Employees are opted in straight away, so they don’t miss a payday. That money is joined by employer and government money and used to buy investments such as shares in companies or bonds (loans to governments or companies). But KiwiSaver is good for two things: a first home and retirement. For your other goals, you can invest beyond KiwiSaver into the many kinds of investment funds out there. Here’s where to compare them on Smart Investor. 

Not all women have, actually. The evidence points to us being better at investing than men (avoiding stunts like timing the market, trading often or speculating). We tend to find a better balance between risks and returns. But many of us have been on the investing sidelines, unsure of where to start. We’ve got to get in the game! Because of how investment returns compound over time, the sooner we start, the better off we’ll be.

What are the chances you might not achieve your goal through investing? That’s risk. When you’re investing, there are actually many kinds of risks you’re taking on (that’s why you're getting paid a return after all), not just one. There are risks that cause the value of your investments to go up and down, as well as the possibility that you might lose your money altogether. The law requires that the documents that come with an investment product must explain the main risks involved. For KiwiSaver and other investment funds, and bond and share offers, you’ll find these on Smart Investor.

For the riskiest of investments – ‘growth’ investments like shares and commercial property – you would typically experience the widest range of returns: anywhere from as high as 23.9% to as low as -9.0%. And statistically that’s 90% of the time, so some results could be even higher or lower. We can’t tell the future, but that gives you an idea of what’s achievable. (And if anyone promises you a higher return that’s outside of the norm, run! It’s most likely a scam.) Here’s our investor profiler to get more of an idea of what results to expect.