We recently teamed up with Smartshares to find out what Kiwis think about shares, investing and a bunch of other things. Check out the key insights and download the full report.
One thing we learned is there are a few misconceptions out there. With that in mind, we thought we’d use this blog post to smash a few myths into the ground, where they rightfully belong.
Myth #1: Investing in shares is too risky
62% of the Kiwis we surveyed agreed that investing in shares is risky. This is a tricky one, because it’s not actually a myth. Investing in shares is risky, just like every investment is risky. In fact, even not investing is risky, because the rising cost of living makes your money less valuable every day, even if it’s just sitting in a drawer.
But the real question is whether investing in shares is too risky. We don’t think it is—especially if you take a few steps to manage those risks.
The first step is to make sure you’re diversified. At Sharesies, we encourage investing in ETFs as a great way to do this, because one share in an ETF gives you access to a basket of different companies. For example, if you’re invested in the NZ Top 50 fund, you own a small chunk of 50 different companies. If one of those companies goes out of business, your investment in the other 49 companies should help you make up the difference. If you’re invested in the US 500 fund, you have 500 companies protecting one another!
Then, you can diversify even further by investing in multiple ETFs. If you invested in both the NZ Top 50 and the US 500, you would be diversified in two countries—so if something happened to the entire NZ economy, some of your money would be safe in the US fund. The same goes for if something happened to the US’s economy.
The other step is to make sure you have a long time frame. Shares do tend to move around a bit, certainly more than a bank account would. This means that your investment may lose some value in the next week, month, or even year! But it might also gain it back, and then some, in the time after that. It’s a bit of a rollercoaster, but over time, it tends to trend upwards—especially if you’re nice and diversified.
So investing in shares is risky. But it’s not too risky to be worthwhile.
Myth #2: Investing is only for people with lots of money
There’s a real stereotype of an “investor”—someone with a nice suit, sports car and at least 5 houses in 3 different countries. If you think of investing like this, it’s easy to convince yourself that it’s only for the very rich. That’s what 35% of the people we surveyed thought.
We’re pleased to say that this is not the case. Anyone can be an investor! Within reason, of course. If you have absolutely no money, and are struggling to buy your groceries, then investing may not be for you. But if you have even $5 to spare, you can invest that money and hopefully get some returns over time. In fact, 59% of the Kiwis we surveyed said that they could invest $5 a day without changing their spending habits!
The returns you might get aren’t trivial, either. Thanks to the magic of compound interest, investing an affordable amount, regularly, over a long period of time can give you some really solid returns. It’s kind of like planting a seed—it may not look like much when you plant it, but after a while, it becomes a tree that is large enough for you to sit under.
Myth #3: You need to know a lot to start investing
Investing used to involve all kinds of hoops to jump through—not to mention minimum investment amounts that would make your eyes water. This may have been what 34% of the people surveyed were thinking about when they said that their lack of knowledge is stopping them from investing.
But those days are over. Now, investing is easier than ever. On Sharesies, you can invest from as little as $5!
(Since this post was written, there is no longer a $5 minimum investment. You can invest as much, or as little as you can afford. Our post on fractional shares explains it all.)
If you were investing hundreds of dollars at once, you might feel more pressure to learn everything there is to know about your investment. But when you’re investing small amounts, you can learn as you go—you can learn what your risk tolerance is, how often you like to check your investments, and when you’re likely to buy or sell. It’s a lot less stressful to learn with $5 at stake, than it is to learn with $500 at stake!
What kind of investment myths have you heard?
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 fund’s product disclosure statement carefully. It contains the fund’s investment objectives, risks, charges and other information which should be considered carefully before investing.