How to build your own investment portfolio
Investing is all about building a portfolio that helps you achieve your goals. This can be pretty straightforward if you’re just investing in one or more exchange-traded funds (ETFs) and managed funds—you make some big-picture choices, and the funds essentially build a portfolio for you.
Edit: Since publishing this article, we’ve launched access to US and Australian shares. Check out the investments now available on Sharesies.
But if you want, you can add companies to that mix too! Here’s how that works, and how you can build a portfolio that includes investments in both companies and funds.
You’re probably already invested in companies
First of all, remember that if you’re invested in any ETFs or managed funds, you’re probably already invested in shares in companies. Some of these invest based on a set of rules—like “invest in the top 50 public companies in New Zealand”, or “invest in this broad set of bonds”. These are called index funds.
Others have a person or team of people making decisions around where to invest. They’ll usually have broad goals and parameters, but they won’t have specific rules the way index funds do. For example, the Pathfinder Global Water Fund invests in lots of socially responsible companies involved in the water industry. They’ll have teams of people doing research, assessing water companies and making decisions around whether to invest in them.
All this is to highlight two things: one is that you already own shares in companies, and the other is that managed funds and ETFs may invest in companies by following rules, a strategy, or both.
Building your own portfolio
This is where your ability to invest in companies comes in. While ETFs and managed funds let you essentially “outsource” the process of building a portfolio, investing in companies lets you take control of this yourself. For example, your portfolio could include:
Electricity generation companies
Ports, airports and other transport infrastructure
New Zealand-based tech companies
Your portfolio can follow any structure you want. Think about what’s important to you, what kind of returns you want, and what kind of risk you want to take. You might want to invest in companies you particularly enjoy doing business with, or companies who you think are helping to create a better future.
This is not that different from the decisions you make when you invest in ETFs or managed funds. Even though ETFs and managed funds follow a set of rules or strategy, you still need to decide which ones you’re going to invest in. Do you want to be invested globally, or just in New Zealand? Do you want to be invested in shares, bonds, both, or something else? If you’ve been investing in managed funds and ETFs, you’ll be used to making decisions like this.
In fact, you can use your previous experience with ETFs and managed funds to inform the way you build your portfolio. Have you been enjoying regular dividends? Or are you more of a capital gain type of investor? Have you been investing in one region or industry over another? Investing in companies lets you “double down” on the preferences you’ve already developed—but at a more granular level. For example, rather than choosing which country you want to be invested in, you can choose what kind of company within that country you want to be invested in.
When you look at companies to invest in, you might be a bit overwhelmed by the number of choices available. But don’t worry! Just take your time, have a think about your approach, and read up on companies you’re thinking of investing in.
And remember that it’s not an all-or-nothing proposition. Some investors invest in ETFs, managed funds and companies. This is a great way to stay diversified. For example, let’s say you have 100% of your portfolio invested in ETFs. But you have some ideas around investments that you’d like to try out. So if you were investing $100 a week in ETFs and managed funds, you could start investing another $20 a week directly in companies. Around 20% of your year’s investments are testing your investment strategy through companies, and the other 80% or so in ETFs.
Learning by doing
So investing in companies is not actually that different from investing in managed funds and ETFs. In both cases, you need to think about what kind of returns you want, the level of risk you’re comfortable with, and what kind of future you want to help create.
The main difference is that companies are just another layer of choice available to you. They’re just another building block that you can use to create the portfolio that matches your values and investing goals. In other words, it’s all about choice!
Ok, now for the legal bit
Investing involves risk. You aren’t guaranteed to make money, and you might lose the money you start with. We don’t provide personalised advice or recommendations. Any information we provide is general only and current at the time written. You should consider seeking independent legal, financial, taxation or other advice when considering whether an investment is appropriate for your objectives, financial situation or needs.