5 DOS AND DON’TS FOR ROOKIE INVESTORS
Craigs Investment Partners, 5 September 2018
We posted this article in support of Money Week 2018, to find out more visit the Money Week website.
So you’ve decided you’re ready to give investing a go. You’ve seen the rewards investing in the sharemarket can bring and want a piece of the action. Investing can be exciting (and we don’t mean in a Bitcoin-type rollercoaster way!), especially as you’re the one in control of your future.
Before you start, there are a few simple dos and don’ts we think you should consider so you can get the most from your new investing adventure.
- Do your research - You wouldn’t buy a house or a car without doing a lot of research beforehand, and the same is true for the shares you’re buying. When you buy shares in a company, you are buying a small (or large) piece of the business itself. This acts like a little vote of confidence, and helps fund their activities so you need to be sure you know what you are buying before you buy it.
- Don't try to time the market - You can’t. People try to make a living doing it and even they can get it wrong. The best time to act is usually now, by investing in regular instalments over time (in the investing world, we refer to this as dollar cost averaging). This gives your investments time to grow and pay you dividends, so don’t keep putting it off.
- Do have diversity in your investment portfolio - Diversity is not about having lots of investments, it’s having lots of different types of investments. With the help of an adviser you can build a portfolio of investments that has a good mix of industries in different countries. Also, don’t forget that cash is a type of investment, so it is wise to keep some of your money in a cash account earning interest so you can access it when you need to.
- Don't just do what your friends do - Your investment portfolio should be personal to you and is determined by lots of things – including your appetite for risk. Investment risk isn’t always a bad thing, depending on your tolerance. Your risk level is determined by two key factors. First, your ability to take on risk, which is determined by your age and how long you plan to invest. And your attitude to risk, which is how you feel about the possible rise and fall in the value of your investments. These are personal to you and form what we refer to as your risk profile, which may be different to your friends’ risk profiles.
- Don’t obsess about daily market movements - Shares will fluctuate and that is just part of investing. You mustn’t worry about this, it is the nature of the markets and your adviser should be able to help you through the tricky times. The graph below highlights numerous peaks and troughs for shares when compared to a bank deposit. However, over the long term investing in shares can offer higher returns.
As Warren Buffett has said “Games are won by players who focus on the playing field — not by those whose eyes are glued to the scoreboard.” So just enjoy the journey.
To sum up, if you have been thinking about investing for a month or so, that’s a months worth of returns you’ve potentially already missed out on. So get to it. And if you think you don’t know anything about investing, or that you’re not the type – chances are you have KiwiSaver, which is an investment. It doesn’t have to be scary or intimidating, and certainly isn’t just for the rich.