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Whether you’re putting away some savings for the first time or are ready to start investing, you’ll have questions. Maybe you’re wondering where you should be putting your money? Or how much risk you should take on?
Sometimes saving’s just not possible when you’re doing it tough. That said, many of us tend to inflate our lifestyles to be in line with our pay, no matter how much it is. We spend as much as we earn, and then some (using debt). A spending plan helps, as well as what’s called ‘paying yourself first’. The idea is, before you pay everyone else, you automatically tuck money away, even just a small amount. This way it goes to your goals – not someone else’s. Here's more on paying yourself first.
These days as little as $5 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.
We feel your pain – everyone goes on about compound interest and all that, but if there’s not much around to compound (and it’s still getting taxed), you get nowhere. The way to start investing is to learn some basics and give it a go. Now we’re not encouraging everyone to take too many risks (no sense losing sleep over this), but investing can help your money keep growing so you get something back into your pocket. Here’s where to start with investing.
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 kickstarter.
Both, ideally. And without setting aside savings, there won't be anything to invest! But it always will depend on what that money is for. If you are saving up an emergency fund, for example, you wouldn't typically invest it or lock it away. If you are saving up for a house or retirement, you'll probably want to invest in order to hit these larger targets you're aiming for. Because larger goals take much more to achieve, for many of us investing is part of our future. Here are some fundamentals to investing.
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 kickstarter 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 managed 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.
It depends on your plans for the money you’re putting aside and how soon you want to use it. Online savings accounts and term deposits are convenient for saving. They’re relatively safe places to park our money and earn a bit of interest, but returns on bank deposits aren’t anywhere near as high as other types of investments. You’ll also typically be taxed more on term deposits than PIEs like KiwiSaver, as they are taxed at different rates. Here’s more on investing in term deposits.
Whatever gets you the most back. That's typically paying down debt, but it helps to have an emergency fund in place first so that if something pops up, you don’t get further into debt. If you're carrying costly debt from a payday lender, store card or credit card, paying it off is almost like getting a ‘sure return’ of that high interest rate. The interest on savings is typically much lower. Tackle your debt today.
Yes. It's best to have your emergency stash separate and at the ready. So even though that money will be mostly sitting idle and not earning much interest, it's probably best in an online savings account. You wouldn't want it locked away for longer than a month or two typically. That said, as you build your emergency fund to cover 3, 6 or even 12 months of expenses, you could consider splitting some into term deposits that can earn a bit more, cycling them on and off when their term runs out. Here's more on starting your emergency fund.
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 market. 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 most important is to ‘pay yourself first’ – instead of paying all the bills and saving whatever’s left over, the very first thing you do each pay is send a chunk of money to your savings and investments, before covering things like food shopping and other stuff. This keeps your money flowing where you want it to. Here's more on how this can work for you, and some more savings tips.
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 other goals you have, you can invest beyond KiwiSaver into the many kinds of managed funds out there. Here's where to compare them on Smart Investor.
Micro-investing platforms such as Sharesies, Hatch, InvestNow or Kernel have done a good job of lowering the barriers to getting started with investing. You no longer need steep amounts of money just to begin. But like any ‘tool’ as you call it, whether these are a good idea will depend on the job you are trying to do. That money you're investing ... what's it for? How long do you want to invest for? Questions like these can help you find answers. And in terms of when you're ready, that depends on your financial capability – not your age. Some platforms have kids’ accounts even. It can help to give it a go, as we tend to learn by doing in the investment space. Here's more on getting started.
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 both risks that cause the value of your investments to go up and down, as well as the possibility that you might lose your money all together. The documents that come with an investment product by law need to include the main risks you are running when you invest. For KiwiSaver and managed funds, and bond and share offers, you'll find these on Smart Investor.
For the most risky 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 95% 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 probably a scam.) Here's our investor kickstarter to get more of an idea of what results to expect.
Saving for the long-term is the easiest and hardest kind of saving. Hard because the goal is so far off and hazy to focus on. Easy in that your saving only needs to be little and long. Being automatic helps immensely too, which is why investment schemes like KiwiSaver are so effective. To reach long-term goals, your savings will need to be invested, since there is inflation to overcome (when our money buys less and less as time goes by). Here's more for when you're getting started saving and investing.
Great question! The cost of doing nothing is known as ‘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. Here's some help when you're getting started with investing.
Certainly not! It's never too late to get started on your investing journey and get your money growing towards your goals. That said, investing is not a get-rich-quick scheme, and there's a fair amount of ‘investing’ these days that's more like gambling and speculation. It helps to know the difference. Here are some questions to ask when you're getting started.
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. Here's more on what we need to know.