Investing is a smart choice for a successful future, but how do you know where to start? Expert advice can help. Photo / Getty Images
Investing for beginners and an inside guide to the key financial trends.
A fortnight in, you’ve probably blown most of your New Year’s resolutions already - if you got around to making any in the first place.
The past 12 months have been tough (“2023 is the worst year of my life” was a trending topic on social media) and for a lot of people, money worries topped the list. In one recent survey, nearly 80 per cent were concerned about their financial security and more than half didn’t have a long-term plan.
Navigating alarming news headlines and understanding how the sharemarket works can be a challenge, says Forsyth Barr’s head of wealth development, Chelsea Leadbetter, especially for first-time investors.
“One of the hardest things with investing is managing your emotions and trying to cut through some of the short-term volatility,” she says. “The ups and downs of the market feel quite heightened at the time that you’re in it.
“A tip I had early in my career was to turn off the noise, rather than reacting to it, so you can come back to your plan. What is your objective? When do you need your money by? That dictates how you respond and it’ll differ for everybody.”
Leadbetter is part of the advisory team behind Tempo, an investment app released late last year that provides personalised recommendations based on your risk profile and financial goals. Your investments are then regularly monitored to help keep you on track.
With the tide finally starting to turn on rising inflation and high interest rates, Leadbetter shares some insider tips on how to break into the investment market and key themes for the year ahead.
If you’re a complete novice, how do you know where to start?
There’s a lot of information out there, which means there’s also a lot to digest. I come back to the first principles of thinking about your money goals and what you are trying to achieve. Is there a certain objective you’re trying to reach, like a house deposit? That can help frame your time horizons and your appetite for risk.
It’s also about making it easy for yourself. Come up with some ways of automating [your investment payments] so it becomes more of a habit, letting your money work for you over time, rather than just thinking about it on a short-term horizon.
What strategies do you recommend for that?
One way is to pay yourself first. Have some understanding of your living expenses and what your regular requirements are for your money, then see if you can carve out a certain percentage of your pay that goes straight into your investing bank account or whatever your investing product may be. If you leave it till the end of the month, it becomes a bit harder [to stick to your budget] when someone wants to go out for dinner.
You can also think about how to reward yourself, even with something small, to celebrate the fact that you’ve stuck to your plan and feel good about it as a long-term investment in your future self, not a short-term win.
It’s easy to panic if you see the value of your investment dropping — should you avoid checking the balance too often?
We’re hardwired that way. But the issue with looking at a negative return from your investments is that if you sell them, that’s when you crystallise the loss.
Can you explain that a bit more? A lot of KiwiSaver funds took a huge hit during Covid.
If you look at the long-term history of, let’s say the US market, over 20 or 30 years, what you see is an upward positive trend. If you zoom in on a particular period like Covid, we did see a sharp short-term crash but then a reasonable bounce.
If you’d reacted and sold when we were at the bottom of the market or thereabouts, you would have recognised that loss, at that point in time, and wouldn’t have had the opportunity to benefit from any potential recovery.
How do you know when it’s time to cut your losses and run?
For me, the most obvious experience was through Covid and watching things change so quickly. Even with as many years of investing as I’ve had, trying to predict how the economy or how certain companies were going to fare was a really complex situation. Sometimes you just have to push pause and come back to your plan. However, sometimes things have meaningfully changed and you do have to step back and recognise you need to make a pivot or a hard choice here — you don’t want to chase a falling knife. But separating the rational brain from the emotional brain isn’t always the easiest thing to do.
New Zealanders still seem obsessed with putting their money into property rather than shares.
It definitely feels ingrained in the Kiwi culture, doesn’t it? But if investing in property is something you’re interested in, there are different ways to access that asset class other than buying a family home. Listed companies on the New Zealand Stock Exchange range from Vital Healthcare [which invests in healthcare real estate] to Kiwi Property, which owns shopping malls. So those are two quite different examples of listed assets where you can buy a share or percentage ownership and then someone else operates it for you, dealing with the tenancies and all of those types of things.
How do you balance paying off debt versus saving for the future, whether you have a student loan or are in midlife with a mortgage?
With investing, you don’t want to overextend yourself. It’s a real juggling act, trying to judge whether to put that extra dollar in a rainy-day fund to make sure you have some emergency savings if something happens.
Make sure you’re covering any debt payments and think about the interest rate on that debt; interest-free student loans are quite different to what you pay at the bank. If you do have a high-interest credit card debt, you might want to pay that off first before you start to think about other vehicles for investing in your future self.
Does having an ethical framework for investing mean settling for lower returns?
Ethical investing means different things to different people. It might be excluding certain companies or sectors, versus investing your money towards companies that are trying to make positive change. There are a lot of experts available and different types of funds and options. If ethical investing is important to you, talk through that trade-off of risk and return and how much of your portfolio you want to invest in specific things.
Financial markets are complex and difficult to predict — what’s the advantage of a human advisor over AI?
If you think about some of the examples we’ve seen with AI already, like the Pak’nSave recipe algorithm [where an AI bot came up with recipes using ingredients such as bleach and ammonia], you need to be able to look at what comes out of the data and provide some judgment on whether the information is relevant or accurate, and how you might want to fine-tune it to your personal circumstances.
If you think about a person who’s never invested before asking AI, “What stocks should I buy?” and they get a list of stocks coming back, what do they do then? In most industries, there’s a great role for AI in data interpretation, but at the end of the day, critical thinking is an important human component.
How were you raised in terms of learning how to handle money?
Mum was very big on helping me understand the value of money and the choices you have. This one or that one — we couldn’t have both. I was also an avid player of Monopoly as a kid, so that was a fun way of engaging. I’ve got a 2-year-old and I’m starting to already think about how I can do that for him.
Investing was something I started dabbling in at university. I did a psychology degree as well as a finance degree, and understanding that combination of behavioural factors as well as the earnings of a company — the mixing pot that influences how markets move — is very interesting.
Any major financial goals for you in 2024?
Every year in December or early January, I reassess my budget and where I’m at financially, then think about any changes or adjustments to reset for the year ahead. So I’ve made a few tweaks. I always round up, and I round up with a buffer. Over the last six to 12 months, as we’ve seen inflation start to creep up in many different bills, that’s been really helpful. It might not work for all people, but I like to end the year in a better position than I expected.
Source: Wealth Management Research, Forsyth Barr
Joanna Wane is an award-winning senior feature writer in the New Zealand Herald’s Lifestyle Premium team, with a special focus on social issues and the arts.
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