What kind of investor are you?

19 min read
1 October, 2021

During 2020 and 2021 we saw a huge uptake in the number of Kiwis getting involved in DIY investing. 

Research we published in June this year found 40% of Kiwis were using or planning to use these kinds of platforms.

The Financial Markets Authority (FMA) also did some really interesting research into the behaviours of Kiwis using these platforms, and as part of their campaign for 2021 World Investor Week are encouraging Kiwis to take a moment if we're experiencing investing FOMO (fear of missing out).

We thought who better to chat to about the topic of investing in challenging times. 

Watch the YouTube video or read the conversation below.

This episode was filmed in September 2021.

Important note:

This episode of Money and You contains some sensitive subject matter relating to economic harm and financial abuse. If these topics are triggering for you, we recommend you take a look at another episode, and return to this one if and when you feel ready. If you are looking for help, a list of resources and support helplines is listed at the end of this blog article and the video.

Tammy: Hi, I'm Tammy Peyper. I work with Michaela and Gillian at the FMA, specifically in the investor capability space. I've been involved in investor capability and wider consumer advocacy in the financial sector for well over a decade now and my investing journey is quite an interesting one because not only did I get into investing platforms with everybody else last year, in March, but I'm what I like to call 'a newly minted Kiwi.'

We came over to New Zealand within the last two years, which means I started my investing journey here quite late, learning all about products that I was not familiar with such as KiwiSaver, and really navigating a whole new world. Just shifting my mindset away from the country that I came from and investing there to a Kiwi mindset of investing. So my journey is quite multipronged. I've been investing in platforms for a year along with many, many other Kiwis. 

Gillian: Hi, I'm Gillian Boyes, and I head up our investor capability function here at FMA. I've been with the FMA on and off, actually, since it was the Securities Commission. And I've been in this current role for around six years.  

I'm of the generation that started investing sort of by default. So what I mean by that is, when I started my first job, everyone got called up by someone from the superannuation industry and sold a life insurance product that had some investing bits in it as well. So they were very much the old style products, you didn't have to think very much at all, it was all pretty much done for you, set and forget, You will put in a fund and that was pretty much it.

So when KiwiSaver came out, and I had a bit more choice, and I jumped into that, I was really keen to get the $1,000 from the government to kick start me off, which was brilliant. And then I was actually at that point working for a management company, so I really got into ministry funds.

My investing journey has really been about funds and being involved in funds rather than individual shares. Although, I would say that my husband is really into direct share investing, so I sort of am involved by default, because he's doing a lot of that with our family money. So yeah, that's my story. 

Michaela: I also work in the investor capability team with Gillian and Tammy, and my specialisation is around consumer behaviour. I have a background in market research and business consulting, and I really became interested in financial services and, on the side, using financial knowledge as a way to empower yourself and really improve your financial future.  

So I guess my investing journey ... I didn't consider myself an investor at the time but it would definitely be KiwiSaver. Also edged into starting that with my first job with the $1,000 kick start. I guess last year I got into doing it myself investing in ETFs and managed funds.

Thank you for those introductions, that's really interesting to see the different perspectives on investing and how you've all gotten into it.

Obviously, a lot of people got into it over the last year or so - we saw this huge rush of people just getting really into these platforms like Sharesies and Hatch - particularly younger people as well. Why do you think there was such a sudden interest in investing in shares, something that maybe young people hadn't previously thought about? 

Michaela: I think this happened for a number of reasons. COVID sort of created the perfect storm, there are a lot of people sitting at home with a lot more time on their hands, and investing platforms were really accessible at this time as well and were promoting to people.

There were also other macro factors going on, like the low interest rate environment, and young people looking to build wealth in a way that wasn't really getting into a home because that seems inaccessible to many. What we saw was the swift crash in the market and quite a quick recovery. And this sort of triggered FOMO in others because people have made a lot of returns, and I think that's a reason why a lot of people jumped into it. 

Tammy: I think a big thing that Michaela touched on was the whole idea around FOMO. And this was something that just came out of our research really clearly was 40% got interested because of other people, media, social media, and a third of our investors got into an investment in the last two years because they were afraid of missing out - that whole FOMO component coming in.

This has really led us to understand that what is driving people to invest and how people invest is really changing. Investing is becoming far more social, far more open. So yeah, just a dynamic change, which is really, really exciting. Our biggest influences are family and friends - not necessarily the best financial advisers - followed by blogs and social media. And underpinning all of this, obviously, is the desire for us to grow money and become more wealthy. 

On this whole idea of FOMO, I'm guessing that inspired this campaign for World Investor Week, which is all about encouraging people to take a moment before kind of just diving into things. I'm just wondering if you wanted to talk a little bit about that campaign and what it's all about.  

Gillian: So what the research showed us is actually, people are trying. So we were really encouraged because we thought maybe people were just kind of going crazy, and literally just investing in anything based on what their friends are saying. But in fact, what we found was that people were really trying to do the right thing. So they sort of knew about diversification, they knew about reading up on investments, etc.

There’s something like four to five sources of information are what people tend to look at, but when we asked them about which sources of information they looked at, often it was just what they were hearing in podcasts or reading in blogs or reading on social or what their friends and family were telling them. So they weren't really using the sources of information that are designed to protect people.  

We're a regulator, we make sure that companies offering regulated products issue proper disclosure information, annual reports, and those are designed in such a way that they have to tell you certain things about the investment. Unfortunately, they are a bit dull and boring, and I think pretty unapproachable for a lot of people, so I can really understand why people look at other sources instead.

We wanted to take the moment with this campaign to say, hey, look, it is really important, before you just dive off and do something on the basis of what you've heard someone say, to really be a little bit skeptical is one of the key messages for people. So if you hear something sort of think, oh, that's interesting. That sounds like a good thing. But now I just need to go and do my own research and to use some of those disclosure things to go through and actually really interrogate an offer and make sure it's going to be the right thing for you, for your goals and for what you're wanting to achieve.  

Tammy: So building on what Gillian said, we use this FOMO and people not necessarily doing intense due diligence around the types of information that they're sourcing to frame up our campaign, which this year is 'Investing FOMO, take a mo.'

What we've done is we've designed a campaign around the five Ds of DIY investing. These five Ds are do your due diligence, drip feed your investments, diversify, don't freak out if the markets go down, and - for the FSC - In doubt? Talk to a financial adviser. The daily Ds are going to be done one each day over the five days, and they will run across various media platforms such as radio stations, billboards, and social media.

I'm just wondering if maybe you want to delve into those five Ds a little bit more, and just explain to people watching what each of the main ones are.  

1. Do your due diligence

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Gillian: Well, I'll start with the do your due diligence. Basically, what it means is what I was talking about before, that really it's just about being a bit skeptical, rather than just reading the glossy brochure or listening to someone, and having a look at some different sources of information.

There are some great sources that are legally mandated. So one is a product disclosure statement, and that's always done in a standardised way, it spells out things like the risk of an investment. So that's one of the things you really want to have a look at and find out, you know, is it investing in a particular sector, but it's very narrow? And therefore, if that sector fell over, there's a risk there that your investment might won't deliver for you.

It also tells you who's involved in the company, and we know that's something that people like to read about. So you can ever think about well, are they experienced? Do they know what they're doing?

So there's that source of information and annual reports are the other one that are really important. Now, those, you know they terrify me, let's be fair! They're full of numbers, and they've never looked exciting. We've got a little guide on reading annual reports, which sort of says, here's the four things you should think about when you're reading the first part of it, which is the story of the company.

It's things like: did they deliver what they said they were going to deliver? Is there evidence of people coming and going all the time? What's the dream that they have? Does it look reasonable? And always just think about it from a common sense point of view, is the promise they're making about this company, actually something that I really think they could deliver. So that sort of thing.

And then the financials, we've got some guides to some of the key terms to look at. And we've tried to be quite practical and sort of, say things like, Hey, get your PDF up, do a search, if you find this word that's a red flag, just be a little bit cautious.

So we've tried to kind of break down these documents, because we know they can be a bit scary. It's really about looking at those sorts of things, and talking to some people. So that's where the advice comes in and we'll talk some more about that shortly. Even talking to other people who are investing and getting their perspective can be a really great start. So yeah, that's what do your due diligence is about. 

2. Drip feed your investments


Another one is drip feeding your investments, because unless you're my husband and absolutely love share investing and reading up on companies all the time, you'll get to a point where it's not so fun and so you sort of go “oh, God, now I've got to invest some money.” It becomes a bit of a chore almost. So the trick is just make your life easy with investing.  

Drip feeding makes your life easier. You just set up a regular amount, you set it up to go into the sectors or the shares or the funds that you've worked out in a diversification moment. So that will make your life easier, but it also has the added benefit of dollar cost averaging. Sometimes you'll buy high, and sometimes you'll buy low, but over time it'll average out. So that's a really great trick. 

3. Diversify


Michaela: I can jump in with diversification. So basically, with the D diversify, what we're really meaning here is not to put all of your eggs in one basket, and we encourage people to diversify. It's a risk management strategy. It mixes a wide range of investments within your portfolio. A diversified portfolio contains a mix of distinct asset types and investment vehicles, in an attempt to limit your exposure to any single asset or risk. So it's really important to take a look at your asset allocation, and industries you're invested in and seeing if there's a balance.  

So for example, think of the impact of COVID-19 on the share market. Broadly speaking, if you'd invested in both health and tourism, you would have seen a rise in your shares in the health industry maybe and a drop in your tourism shears due to borders closing all around the world. This diversification helps to ensure your portfolio's balanced out in attempts to balance your returns. So it's really important to do that as part of your DIY investing.  

4. Don't freak out if the markets go down


Tammy: Building on from diversification is the whole idea of don't freak out. Many people got into the markets just like I did with online platforms last year, when the markets were at a bottom. And we've seen the market has just gone up. Earlier this year, we saw the NZX have the highest take it had had, setting a record. So really, we've experienced an incredible bull market. And most of these investors that have got in, including myself, have not necessarily experienced a market downturn.

As we all know, markets cycle up and down, but if we look at the overall trend, we do see that markets do go up in the long term, they do flatten out and do go up. But central to that is for new investors when the markets do turn is to have a strategy that avoids you from making the knee jerk reaction of withdrawing from the market. We saw this last year with many people and KiwiSaver, who when they saw their KiwiSaver balances started going down switched from higher growth funds to more conservative funds, many times locking in losses, which do have an impact on your long term. 

So in terms of having that plan, it's important to understand what you're investing for. So are you in the right fund, if you're needing your money sooner, then later perhaps having a look at a fund that is a little bit more conservative, might be a better option for you. Remembering that this is a marathon and not a sprint, and having that plan and sticking to that plan and riding the wave is very important.

One of the things that often leave people with freaking out is always checking your portfolio non stop and see you know, a little bit up and a little bit down and, you know, if you space out checking your portfolio, you can see that it does flatten out over time.  

One of the things that you can do is the whole idea of set and forget. You do this to resist temptation to check your portfolio every day. Regular checking can heighten the perception of volatility. And some studies show us that the inevitable tinkering that follows leads to reduced returns over time, which is really counter to what we're trying to do when we invest which is to grow our money.  

So yeah, when the market does turn down, take a breath. Again speaking to avoiding FOMO just having a look at what's going on, reviewing your investment strategy and keeping the course.

5. In doubt? Talk to a financial adviser


Gillian: Then the other one is, and this is where the value of a financial adviser is, in particular, is we're not very good at interrogating ourselves and going "am I really honestly making a decision that's in my best interest?" Because with the best will in the world, sometimes you're busy or you're worried or just something happens, and you'll just make a substandard decision, frankly, whereas a financial adviser isn't emotionally invested in your money. It's not their money, it's your money, so they can step back and go, “hey, Gillian, I know that that looks like a really great investment opportunity, but you see it in your plan, you know, this. And so I think that's where you should stay.”  

Obviously, I can choose to take that advice or not. But just having someone doing it, take a minute, and will really help because you know, we do make these kind of rash decisions sometimes. So your adviser is your coach who can just help you and make sure that you're staying on track.  

Gillian, you were talking a bit about emotions and the kind of impact that emotion has on our investing behaviours. The research that you did looked at these different behaviours that people have, and I'm really curious to know a little bit more about that.  

Tammy: This builds on the second part of our research that we did, which was to try and identify different types of investors using online platforms.  

In order to do that, what we did was we had a look at those that have a significant investing strategy via online platforms, versus those that have it as a side wealth activity. And then we had a look at those that were timing the market and those that were looking at time in the market.  

What we did was we drew up four profiles that highlighted the behaviours and the risks around these different types of investors, because somebody said earlier that there's not necessarily an age category across all these investors. I know we default to say it's younger people, but our own research found that we had people right across the age band using these online platforms. The motivators could be a bit different.

So just in terms of the behaviours and the four profiles we came up with - and maybe people can listen in and see which one they actually more identify with - the biggest majority of investors that we have at the moment are what we call the planters. 

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So the planters are focused on growing their investments over the long term.

Planters prefer the safety of diversified ETFs and well-known companies or sectors they believe have a stronger future. They often display a more pragmatic approach, they see investing as a replacement for savings, preferring to see their money work harder for themselves and for the economy over the long term. So for our planters, the investing they’ve done via online platforms is a significant part of their wealth strategy, and they're in for the long term. 

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Then on the other side, you've got who we call the speculators, and this might resonate with others.

Speculators see investing as having a go and they let their investments take them on an emotional journey, and they believe that taking a risk is how you make money. They recognise that they are sometimes taking a gamble, often relying on instinct, but some do a bit of research to justify their choice. They will often switch direction in changing the investing choices depending on success or experience. And though this is a smaller group, it's 20% of our investors, these are typically younger investors, and they're really trying to time the market. They have smaller amounts invested and they see a significant part of the investing strategy using online platforms.  

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And then more to the other side, we have our opportunists. Opportunists believe that knowledge and expertise will allow them to make significant investing gains.

They will look to the long term, but adjust their investing and strategies frequently, they focus on building self-knowledge. This group of opportunists are more aligned to be timing the market, but they see it as a side activity, as opposed to speculators who are trying to time the market and seeing it as a significant investment strategy opportunists are saying okay, you know, we’re going to see what we can do, but really, this is a side activity. Many of our opportunists have more diversified portfolios. 

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Our dabblers (and I must say I identify as a dabbler) are investing in online platforms as a side wealth activity, and they’re in it for the long haul.

Dabblers typically have a lot of money, or their primary investing is KiwiSaver or other managed investments. So yeah, I identify as a dabbler, very controlled and cautious speaks to my risk averse nature! Dabblers use different investments using only a small portion of their overall wealth. They consider themselves good money managers and are looking for better returns on savings. Online platforms have opened up the stock market for them, and now they are becoming increasingly confident in making self investment decisions.  

So these are really the four types of investors and each of them has the own behaviours and how they're thinking about the market versus time and their wealth strategy. But I think underpinning all of this, it's important to say our research did show that the vast majority of investors are having a buy and hold strategy, so they're sitting in the market for the longer term. We're not seeing the amount of day trading that we were worried we were going to see. So we could almost say it’s a more responsible behaviour for our investors using online platforms, especially more of our newbies where I would fall into. So yeah, just this behaviour that we've seen, yeah very exciting. 

Is there anything that you would recommend that people could do to start their investing journey or to feel more confident? 

Tammy: Start your investing journey and start small. It is an exciting and daunting journey. So if you start with small amounts, and you know the money that you would be comfortable without start with that and see what works for you.  

And pick ETFs that resonate with you. I personally am a very ethically driven investor, so my little ETF portfolio is sourced from investments that align with my personal philosophies. But start small and start. It's great, just take that leap of faith.  

Always underpinning that is do your due diligence, but don't let that stop you, don't use that as an excuse not to start. Yeah, that would be my 10 cents worth. 

Gillian, what would what would you like to leave people with? 

Gillian: Yeah look, I think Tammy's really nailed it. And particularly, you know, we're a group a woman talking here, and women, in particular, are more risk averse generally, and I think we always think we need to have it exactly right, and we need to have done all our homework, and we need to make sure that we've considered everything. What that does is it delays the decision, and while you've not decided, you actually have made a decision because you've not invested actually!

So I always say to woman, you know, try and build your risk muscle a bit. Growth investments in a KiwiSaver fund, for instance, are really not that risky. They've got more volatility, but they're really well regulated, they're supervised to heaven, they're a fully diversified investment, so they are a really good option. If you can't afford to put in more money, if you just change to a growth fund, you will make so much more over the longer term. So you just have to get over the whole risk hesitation, and just learn a bit about it, build that risk muscle and try and pick something a little bit riskier than you think you might be able to do. As Tammy says, If you start small and get comfortable with it, that's a really great way to start, but just start, make the decision and get going with it. 

And last word to you, Michaela. 

Michaela: Both Tammy and Gillian have covered it off really well, and it's really easy to feel that analysis paralysis. That's the other side of having all this information online, you're like, “oh, what do I do”, it's really hard to actually take that action. What works for me is, first of all, having an emergency fund, making sure that's there. That can protect me if there's a sudden expense that comes up or anything else that might happen, I feel safe from that.

And then from there, I've got dollar cost averaging, I'm investing the same amount from my paycheck every fortnight when it comes through, and it's just kind of goes out automatically, and all happens automatically, because it can be set up that way. So I'm just sort of leaving it to go to stay there and do its thing, which I think is really good.  

Oh, fantastic. Thank you so much for all of that. There's a lot there I think for people to digest and think about and I know my brain’s sort of ticking away and taking it all in. All the best with the World Investor Week campaign.

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1 October 2021.   

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