Tips before investing

Shares? Bonds? Property? Term deposits?

How do we know which is right for us? And how much of each should we hold?

Knowing what type of investor we are helps us work out the mix of investments (and kinds of investments) we should consider – what to invest in and where to invest.

Sorted’s investor kickstarter can help with our investor type, give us a typical mix of investments for each investor profile and show us what we can expect when investing money.

Ways to invest

We can invest money ‘directly’ through a bank (term deposits), sharebroker (shares and bonds), real estate agent (property) or other brokers. If we invest directly in shares, bonds or property we’ll need to be well informed about the sharemarket, and the business or real estate scene.

Guide to term deposits

Guide to shares

Guide to property investing

We can also invest money ‘indirectly’ through a managed fund. In a managed fund (or unit trust) our money is pooled with that of other investors, and a professional fund manager invests it in a variety of investments on our behalf.

Guide to managed funds

Guide to KiwiSaver

Top tips for investing

Before leaping into any investment decision, there are some basic rules to follow:

Set goals: We need to decide what it is that we’re trying to achieve. Where do we want to be at some point in the future? What is the final outcome we want from our investments and what is our timeframe? Let’s think about any debt we’re carrying – is investing the right option right now? Would we be better off using our money to pay off high-interest debt (e.g. credit card, hire purchase), or to reduce our mortgage?
Know our investor type: We need to know what type of investor we are – essentially: How much time do we have? How much volatility (ups and downs in the value of our investment) can we tolerate? How much money are we willing to lose? Our investor kickstarter helps work this out.
Know how we want to invest our money: What mix of investments suits our investor type? Bonds, shares, property, bank deposits? Will we invest money directly ourselves or use managed funds? The investor kickstarter can help here too.
Do some homework: Research, compare and contrast the options – or we can get someone to do that for us. Read the business sections of the newspaper, go online, talk to an adviser, bank manager, or accountant. It’s also wise to read any documents relating to an investment we’re considering, such as the investment statement and/or prospectus.
Research different companies’ investment options: If we’re going to invest directly in a company, we need to find out which companies suit our type. Do they offer the kind of investments we’re after? What are the rates of return for each investment? What is the level of risk associated with the return?
Research the companies themselves: What does the company do? What markets is the company in? Who is running the company? Have they ever been declared bankrupt? Are they on the Financial Markets Authority’s warning list? How is the company run? Does the board have independent directors? How has the company performed in recent years – is there a steady performance over time?
Get the right advice: Shop around for an Authorised Financial Adviser (AFA). Authorised Financial Advisers must tell us (in a written disclosure statement) how they are paid and the impact that can have on the advice they give. Find out more about getting investment advice.
Spread the risk: As the saying goes, we shouldn’t put all our eggs in one basket. Distribute money around different options and different companies. For example, if we’re considering high-risk investments, we can balance the risk with other investments in lower risk areas, like cash and bonds.
Adapted from sorted