You're a new investor. Congratulations. Investing can be exciting and rewarding even if you only have small sums of spare cash.
It's much easier to get started these days thanks to online platforms such as Hatch, Sharesies, InvestNow, SuperLife, Simplicity and from the middle of this year midyear Flint Wealth.
Sharesies alone has seen customer numbers balloon from 109,000 a year ago to 340,000 this week. Some of those new investors might not last long. For others, it's the beginning of a rewarding lifelong journey.
My best tips for new investors are both encouraging but also sound a note of warning. Just like the current generation of new investors, I started buying and selling shares in my late teens/early 20s, in the leadup to the 1987 stock market crash. It was an eye-opening time of boom followed by bust.
If you have a little cash that you can take a risk on, even if it's only $10 a week over and above your KiwiSaver, you can learn a lot by simply doing it. Hatch general manager Kristen Lunman has a similar tip and that's to start today. "Don't be afraid to start with small amounts," she says. "It adds up quickly."
But I need thousands of dollars
The barrier to entry is so much lower than when I started 40 years ago. Invest $100 and look at it as an investment in your financial education, says Lunman.
Don't count on one company
First-time investors often think they can pick the winners. Investing too much in one company will come back to bite you sooner or later. Lunman says: "Being a shareholder in one company means you're 100 per cent relying on it to thrive, and that's never guaranteed." Companies can have completely unexpectedly bad times, that can even send them into receivership slowly or suddenly. Just look at one-time darlings of the investing markets such as Blockbuster in the United States and Pumpkin Patch here. In 2017, Air New Zealand had what looked like a rosy future and was trading at $3.80. A year ago this week it was down to 80c and a bleak outlook.
All the online platforms offer funds, which reduce your risk significantly. Photo / 123RF
It doesn't have to be shares
If you join one of the big online discussion groups such as Hatch Investors Club or Sharesies' Share Club NZ you'll see members discussing individual companies a lot. There's nothing stopping you choosing a fund that spreads your money across many investments, not just one. All the online platforms offer funds, which reduce your risk significantly.
As Sharesies co-chief executive Brooke Roberts points out, you may only be investing spare money from pay day to pay day. But success is not timing the market (buying on the downs and selling on the ups), but time in the market. Typically your stockmarket-based investments will double every 10 years or so.
You can invest in businesses that align with your values
New investors have so much more choice than I did back in my day. You can choose to invest only in ethical companies or funds and Roberts says many Sharesies investors are choosing to do that.
Mind the hype
Too often investors are buying thanks to FOMO (fear of missing out), says Lunman. I always point out you're not Warren Buffet after choosing one or two investments that have done well in the short term. If you overrate your abilities, you'll nurse some wounds. Mistakes with small sums of money, however, are a great learning experience. Just remember your gut instinct does not put you ahead of professional investors.
KiwiSaver is essential
After a few early wins on shares you might consider that you can do better than KiwiSaver managers. The reality is that you get a 100 per cent instant return if your employer is matching your 3 per cent. Then you get another instant 50 per cent return from the government contribution on the first $1042. Having KiwiSaver building in the background gives you peace of mind.
