Ask An Expert: My Friend Told Me To Invest In A Company. Should I?

Katlyn Parker, an investment analyst at Milford, helps a reader decode a recommendation.

Q: My friend told me to invest in a company — how do I know if it’s a good idea?

A: Just because your friend recommended it, or a company is popular or offers great products, doesn’t mean that investing in their shares will be a good investment. Likewise, just because an investment has performed well in the past, doesn’t mean it will in the future.

Each investment should be researched and considered on a regular basis. Times change, markets change and companies that were once strong performers can fall on hard times.

Also, counterintuitively there can be times when good companies don’t make good investments — for example, if investors really pile into a trendy, popular company and drive its share price up to abnormally high levels, it can be difficult for that price to be maintained, even if the company continues to produce strong earnings for investors.

This is why researching and carefully choosing which companies to invest in and stay invested in, is so valuable. Sometimes the greatest return on your investment can come from investing in shares of companies most people have never heard of.

It’s important to carefully consider several factors before investing in any particular company — for instance, its financial health, management team, industry trends and the company’s valuation, to name just a few. At Milford we have an investment team of 40 people who spend all day, every day doing this specialist work.

It’s hard to replicate that as one individual person managing your own portfolio. You can be involved in the decision-making, however, because you do get to choose which fund you want to invest in.

This doesn’t have to be hard either. You can use our digital advice tools to help you work out the appropriate fund for you based on your risk tolerance and time frames — and then let Milford’s expert investment team do the heavy lifting and detailed work managing the portfolio on your behalf.

If you choose to invest in the Milford Active Growth Fund, your mix would be about 80 per cent in shares and property and about 20 per cent in fixed-income assets like bonds and cash.

These percentages do move around a bit depending on Milford’s view on markets. The decisions on which individual stocks and bonds are in the fund are the responsibility of Milford’s expert investment team.

Through our mobile app and client portal, we show very detailed reporting on your investment, including your top holdings.

It’s okay to experiment with DIY investing, as it’s a great place to learn, and DIY platforms do make it easier to buy and sell stocks.

However, building an appropriately diversified portfolio and then actively managing it in a way that can produce strong results is a lot of work and requires expertise.

Many people prefer to use a professional fund manager to do that for them. This allows you to invest like an expert, without having to be one yourself.

Katlyn Parker is an investment analyst from Milford.

This article does not take into account your investment needs or personal circumstances. It is not intended to be viewed as investment of financial advice. Past performance is not a reliable indicator of future performance. Investment involves risks and returns can be negative as well as positive. Milford Funds Limited is the issuer of the Milford KiwiSaver Plan and Milford Investment Funds. Please read the relevant Milford Product Disclosure Statement at Milfordasset.com.

Before investing you may wish to seek financial advice. The Disclosure Statements for all Milford Financial Advisers contain more information and are available on request, free of charge. See our Financial Advice Disclosure Statement at Milfordasset.com/getting-advice.

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