New to investing? These 10 commandments will set you on the right path.
1 Know yourself
Successful investing starts with knowing yourself. What do you want to achieve, how long do you have to achieve it, and how comfortable are you with risk?
Investing doesn’t have to be a rollercoaster ride, but usually you must take more risks to chase higher returns. Only you can find the sweet spot between making your money work harder for you and sleeping well at night.
2 Don’t put all your eggs in one basket
By spreading your money over the range of investments – known as diversifying – you can potentially reduce the risk of losing money.
If your investment portfolio has a mix of countries, companies, trends and asset classes, you should be in a good position to ride out the highs and lows of the share market.
3 Don’t be ruled by the fear of loss
It’s a weird fact of human nature that we hate to lose things more than we appreciate gaining them. The theory of loss aversion shows that we’d much rather not lose $10 than gain $10.
This fear of losing out can really work against us when investing. We might feel more comfortable spending rather than saving, or be tempted to hold onto losing stocks for longer than we should.
4 Don’t miss out on free money
Not many of us would say “no thanks” to $521.43, but that’s exactly what we’re doing if we don’t take advantage of the government’s annual contribution towards our KiwiSaver account.
If you meet the conditions, including putting in at least $1,042.86 before June 30 each year, you will get the full contribution. That’s a whopping 50% return on your investment.
5 Try to understand stocks and bonds
You might already know one thing about stocks and bonds: they sound boring. But it’s good to understand the difference between the two.
Put simply, your money is invested into two types of asset class: income assets, which include cash and bonds, and growth assets, which include stocks and shares. Choosing the right mix of income and growth assets is the start of a strong investment strategy.
6 Don’t panic!
Actually, it’s OK to panic – panic is a natural response to unwelcome news, like hearing that stock markets are falling. But once the initial panic’s over remind yourself that market ups and downs are normal over the long term.
7 Be true to yourself
You shouldn’t have to leave your personal values at the door when you start investing. While responsible investing means different things to different people, it makes sense to choose investment funds that align with your beliefs.
At Kiwi Wealth, our Responsible Investment Policy applies to every investment decision we make for all our products, from KiwiSaver to our Private Portfolio Service.
8 Make a plan
If your goal as an investor is to retire early or have a more comfortable retirement, you’re more likely to get there if you have a plan.
9 Don’t set and forget
Kiwis have traditionally considered term deposits to lock away money and earn a fixed rate of return. But with interest rates at record lows, it may be time to consider other types of investment.
One option might be managed funds, which give investors the potential to gain higher returns for a higher degree of risk – and the freedom to withdraw money whenever they need it.
10 Cut through the buzzwords
The finance industry is full of jargon, but you shouldn’t give up power over your money just because many experts refuse to speak in language that’s easy to understand.
Our jargon-free Investing Basics hub can help you worry less about money and get closer to achieving your goals in life.