30 July 20
It’s easier than ever to get started buying shares, and many of us have recently begun investing beyond KiwiSaver. This is happening all over the world: in Australia, the number of new investors has increased more than threefold, and here trading activity rose so much that it crashed the NZX’s computer systems in April.
It’s great that we’re investing, since we all learn by doing. We can get a lot out of the investing experience and use it to get ahead for the future. It helps that we’re buying assets that can increase in value, instead of the usual stuff that tends to drain our pockets.
As you get going with shares, it’s useful to have a plan – a bit of strategy for your investing. This way the shares you buy will fit what you’re aiming to achieve with your money.
There are many reasons you might find yourself investing in shares, especially when it’s hard to get much interest back these days from savings accounts. We all have our favourite companies, products and brands to get in on. And it’s cool to have the flexibility to pick and choose, and not have the funds locked up for the long term like in KiwiSaver.
Investing platforms such as Sharesies, Hatch, InvestNow or Kernel have lowered the barriers to getting started with investing and buying shares. No longer do you need steep amounts of money just to begin. These days as little as $5 can get you started.
Someday you will want the money you are putting into shares back, ideally after it has grown in value. Any idea what you will use it for? If you can answer that question, it can guide you as you choose shares today.
For example, let’s say you’re aiming to sell your shares to buy a car in a few years. Or to use it for an OE. Or further down the line, for a house deposit. How much time is there before you need the money?
Whatever you’d like that money to be for, you can gauge whether your share investing will get you there. Since shares bounce up and down in value a fair bit, will the money be there for you when you need it?
With shares, the more time you have, the more likely that it will be. This is why shares are typically better for longer-term goals. And because of how they grow and compound over time – especially when you regularly put money in – you can take advantage.
As you buy shares and get in the sharemarket, you may find your focus turns to which company to buy (Amazon? Tesla?) or which industry (tech stocks? retail?) or which country (here? the US? Australia?).
One consideration as you go is how much of your investing should be in shares overall. Some of it? All of it? It’s important to decide how much you want to take on beforehand, so you’re buying just the right amount for you. (And you probably already own some shares in KiwiSaver, too.)
As you invest, your mix (your "asset allocation") is the most significant factor that will determine the results you get, including the ups and downs in value you will experience. It's important to set up the right mix for you.
Choosing a mix is a way of taking on more or less risk, depending on how many riskier assets like shares that you buy. The more risk you take on, the higher your returns potentially can be, although it’s no sure thing. That's what risk is all about.
To check out the most appropriate mix for you and your situation (often called your "risk profile"), see Sorted’s investor kickstarter.
Getting started investing is exciting. With the right plan you can ride the ups and downs and look forward to enjoying your gains in the future.