Investing 101: how to start investing

So you want to start investing with Sharesies. The problem is, you have no idea what you’re doing. That’s okay! We’re here to help with this handy guide.

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Why invest in the first place?

A general rule of the thumb with investing is that to earn more, you need to risk more. Putting money in the bank is pretty low-risk, but you pay for that lower risk when you get a low interest rate. Investing in shares generally pays a higher return than putting money in the bank, but there is a higher likelihood that your shares will lose some of their value.

It may be tempting to just stick your money in a savings account. After all, you know you can get it whenever you need it, and you’ll get paid steady, but relatively low, interest rates.

This is probably a good approach if you’re intending on using the money soon—for example, for an emergency account. But if you’re saving for the long term, you can get away with taking a little bit more risk, and most likely, over the long run, you’ll get the higher returns.

Step #1: learn what’s out there

There are two main types of investments available through Sharesies at the moment: managed funds and exchange-traded funds (ETFs). These are great for new investors because they offer diversification. With ETFs and managed funds, instead of investing in one company at a time, these funds invest in “baskets” of other stuff, like bonds, shares or property.

Managed funds and ETFs are pretty similar. The value of the fund is based on the shares included in the fund itself. If shares go up, so does the value of your units. If they do down, your units go down too.

Step #2: make sure you’re comfortable

While it’s true that you can get higher returns by taking on more risk, you need to also invest in a way that you’re comfortable with. If you’re not comfortable taking risks, you’re more likely to panic and sell when your investment drops in value. This would leave you worse off than before!

A good way to find out what kind of investor you are is to take this quiz created by sorted.org. It will give you an idea of how much risk you’re comfortable with.

Step #3: choose the investments that are right for you

Once you’ve figured the type of investor you are, take a look at Sharesies and find some things that match your appetite for risk. If you are keen on big returns, and don’t mind taking some big risks to get there—you might want to choose something volatile like Australian Resources. If you invested $100 in Australian Resources a year ago, it would be worth $132 now! That looks good in hindsight, but it could well have gone the other way (it could be worth $70, or less now).

If you’re much more cautious, you could go with NZ Bond. It’s been worth pretty much the same amount for the last year, although it has paid out some dividends in the meantime. (Don’t know what dividends are? Don’t worry—we’ve got you covered.)

It’s all about what you’re comfortable with. If you invest in things you’re comfortable with, you’re probably going to be more likely to stick with investing. And the more you invest, the more comfortable you will get with the roller coaster ride of the markets and be more likely to invest in that more risky/returning stuff later on.

Step #4: choose an amount and get going

Okay, now that you’ve figured out the basics of investing, and what you want to invest in, it’s time to get started! We suggest you choose an amount per week, fortnight or whatever works for you, and just transfer that to Sharesies on a regular basis.

Choose an amount that’s high enough to make a difference, but low enough that you don’t constantly raid your Sharesies account when you want to go out for coffee/beers or anything else that would be tempting enough for you to hit the withdraw button!  At the moment we have customers investing cents each day through thousands a week! Could be $20, could be $500—it’s up to you.

Then just crack into it!

Step #5: reassess every now and then

It’s tempting to set and forget, but you don’t want to completely forget. As you get more comfortable with investing, your tolerance for risk may increase (or decrease!) Your income may change, or you may decide to change your spending habits. All these things flow into the amount you invest and what you invest in. So set a reminder to check up every few months. Make sure you’re happy with your investments, and make changes as you need to.

Now you’re ready to go! See you on the trading floor.

 

Ok, now for the legal bit.

Investing involves risk, including the potential loss of principal. The info provided above isn’t a recommendation to buy, sell or hold any financial products available through the Sharesies platform. Before investing, consider your investment objectives and read the information provided in the product disclosure statement carefully.