It's World Investor Week, and we've partnered with the Financial Markets Authority (FMA) to help newbie investors know what they're getting into before taking the plunge.
What is World Investor Week?
World Investor Week is a global event run by the International Organization of Securities Commission (IOSCO). It's the fifth year the campaign has been run, and it's supported by regulators around the world, like our own Financial Markets Authority (FMA).
The idea of the week is to raise awareness of how important education is for investors. In recent times we've seen a huge surge in popularity of retail investing platforms (which our own research dove into).
While it's great to see more Kiwis getting involved in investing, all investments come with risk, which is why the FMA is keen to make sure everyone knows exactly what they're getting into.
FOMO is a key reason Kiwis are investing in retail platforms
The FMA's research found that almost one-third of Kiwi investors using online platforms had jumped into an investment in the last two years because they didn’t want to miss out.
The problem with this is a lot of people might jump into investing without an understanding of what they're getting into.
The theme of the FMA's World Investor Week campaign is 'Investing FOMO? Take a mo' and they have come up with the 5 Ds of DIY Investing to help newbie investors get their ducks in a row before jumping on the retail investing bandwagon.
We're getting involved in supporting the campaign to help encourage our community to think about these things, so we can all be better informed investors!
The 5 Ds of DIY Investing
1. Do your due diligence
Investing is a great way to build your wealth over time, but before you jump in, it’s important you understand how investments work and whether the shares you’re thinking of buying are a good investment for you.
Some questions you should ask yourself when you’re doing your due diligence, or research, include:
Will the investment earn an income?
Do you understand the company you’re investing in?
Investing a certain amount at regular intervals (for example automatically every pay day) saves you having to try to pick when it’s a good time to buy.
There are three advantages to drip feeding investments:
you don’t have to think about when to invest;
you create a habit;
you benefit from what is calleddollar cost averaging (putting the same amount of money regularly into a fund regardless of whether prices are high or low). When markets are down, you get more for your money, which helps balance out those times when prices are high.
Diversification means that you have a mix of different types of investments. This protects you from a single investment going wrong and causing you to lose a significant percentage (or even all!) of your money. You could diversify by:
having a mix of cash, bonds, property and shares;
having a mix of shares from different industries, sectors and countries;
including commercial and residential property in your portfolio;
Financial markets can be volatile with share prices based on demand which can fluctuate day to day, or even minute to minute.
History has shown that investments in the share market have grown more over the long term (10 years or more) than almost any other type of investment. Even severe market crashes associated with the GFC in 2007 or the Wall Street crash of 1929 were followed by periods of significant recovery in share prices. Providing you don’t need the money immediately, often the best course of action is to do nothing and wait for the market to recover over time.
Financial advice can help you identify what you need, what’s right for you, and make sure you’re aware of the risks of certain investments or different types of insurance protection. This is all about helping to set yourself up for the future.
Many people seek financial advice when they’re approaching a new stage in life, such as buying a home, starting a family or nearing retirement. Financial advisers can help you make good decisions on what is right for you.