Investing can be a great way to help further your goals in life. Boost your knowledge with these investing basics.
As the restrictions of life under lockdown in New Zealand continue to ease what’s on your wish list now and in the future? Are your goals in life the same or different and how will you fund them? There’s no time like the present to get started growing your wealth.
If your long-term plans need money to become reality then investing can be a great way to help make your dreams happen.
Whether you’re new to investing or picking up where you left off – here’s some key things to consider before putting your cash to work.
Have a goal
What do you want your investment to do? Is the end goal something tangible like a property or it is more about dipping your toe in the water to see what investing is like? Having an end goal in mind is a great motivator to stay on track. It also helps you decide the two fundamentals of investment: your risk tolerance and investment timeframe.
Know your risk tolerance
Consider this: If your investment is worth $10,000 today but is worth just $9,000 tomorrow, how would you feel? Sick to the stomach or relatively calm? Generally, with more risk, comes more reward – but if you’re losing sleep about your investment then it probably isn’t right for your risk tolerance.
If you’re not sure what your risk tolerance is, think about how you managed your KIwiSaver account over March and April during the impact of Covid-19. If you saw your balance drop but stayed the course and chose to do nothing, you’re likely to have a higher tolerance for risk.
Decide your investment timeframe
Ask yourself - how long until you want to cash out your investment? For shorter-term timeframes (less than 10 years), you might want to look at options such as conservative or balanced managed funds. Although they don’t have the potential to grow as much over the long-term as growth managed funds, they’re not as volatile so the journey on the way is likely to be less bumpy.
If you don’t expect to need your cash for at least 10 years, growth managed funds, stock trading or property may be more suitable investment options.
Have a plan
Are you investing as a one-off to see how your initial contribution grows – or planning to contribute more regularly? Both approaches are valid, but you should run a few calculations to make sure what you’re putting in is likely to make your goals a reality.
A tool like Sorted’s savings calculator lets you play with different rates of return, and additional contributions to give you a good feel for what you may come out with after a few years.
If 2020 has any lesson for investors, it’s to expect the unexpected. While, long-term, markets will eventually recover from the impact of Covid-19, there will always be volatility and new disruptions when it comes to investing.
However, if you’ve got your goal and plan in place (and stick to it), you’re more likely to come out of volatile periods on the right track.
If you’d like to start investing via Kiwi Wealth’s managed funds, click here to learn more.