Money Answers: How do I start investing?

BusinessDesk investments editor Frances Cook responds to emails from readers each week, answering questions about money. Below, you will find her expert advice. Send your questions to [email protected].

Hi Frances

I want to start investing, but I don’t know where to begin. I’m scared of doing the wrong thing and losing money or getting scammed. 

I want 2024 to be the year I become an investor. What do I do? 

Thanks,

A.

Hi A,

Great news, you’re probably already an investor. Doesn’t that take some of the pressure off? 

And I don’t mean in a wishy-washy, "you’ve invested in yourself by writing to this column" kind of way. I mean, you’re probably already investing in shares and building for your future. 

I’m talking about your KiwiSaver. It’s also the best place to start to make sure you’re starting your investing journey well. 

Optimising KiwiSaver

Done well, KiwiSaver is a powerful way to save and invest because your employer chips in 3% of your salary, and you get the government contribution. 

But you only get those things if you’re putting money in yourself, so make sure that you’re signed up and contributing. You can’t go back to get that money in future; you have to put something in each year to get it. 

They’re freebies that are well worth having. 

Then, you want to think about whether you’re in the right account for your life stage. 

Something like a growth, or even aggressive, account will mean more money going into shares and should earn the most for you over the long term. 

That doesn’t mean it’s right for everyone, though. 

As a general rule of thumb, a conservative account can be a good idea if you plan to use it in the next year or two, such as for a house deposit or retirement. 

If you’ve got five or more years before wanting to use it, then growth is often the better option. 

Confused? It’s time to make your KiwiSaver provider earn their keep. 

You pay them fees every year, and part of the deal is that they’re supposed to help you make decisions about your KiwiSaver account. This is not only free to you, you’ve prepaid, so get your money’s worth. 

Call or email them, talk to them about your situation, and see what they recommend. 

Learning is earning

You say that you’re scared to start investing, and the thing is, so is pretty much everyone at the beginning. 

The problem here is that none of us are born knowing about money. Some people are lucky enough to learn a bit from their parents; others might learn about it through their work, but most people end up having to figure it out for themselves as adults. 

Don’t waste time beating yourself up about this; get cracking. Pick up a book, find a podcast (dare I recommend my own, Cooking the Books), or even take a course.

Knowing more about how money works and the options you’ve got will make you feel more confident. 

Things always go wrong eventually; that’s just life. But when you understand what’s gone wrong and why, it’s much easier not to panic. You simply take your next steps and keep on moving. 

Investing on your own

You don’t want to pause investing forever though, while you wait to hit the "perfect" amount of knowledge. That’s what we call "analysis paralysis". 

There will always be more to learn, and you might tweak your investing strategy as you go. 

But learning by doing is also quite powerful. 

A strategy that I think makes a lot of sense for new investors is to put a small amount each week, into index funds. 

Many of the online share platforms let you invest for as little as $1 a pop, so you can make it an amount that fits your budget and doesn’t scare you. 

An index fund follows a simple rule, such as the NZX50, which follows the top 50 companies in New Zealand. Or the ASX200, the top 200 companies in Australia, or the classic choice of S&P500, the top 500 companies in the US. 

With hundreds of companies included from the beginning, you’re spreading your money around, which is known in the investing world as diversification. 

This is important because investing in just one company is quite risky – bad luck can hit the best of companies and send your investment downhill. 

But by investing in hundreds of companies at once, you’re basically betting on the entire economy, and that people generally will keep on making money, increasing the value of your investment. 

That’s something that history has shown us is pretty likely. 

Yes, it can be scary to start, but investing small amounts in this way gives you the time to figure out how it all works and get through the first few wobbles without losing your nerve. 

As you continue and increase your knowledge and confidence, you can increase the amount you invest.

Send questions to [email protected] if you want to be featured in the column. Emails should be about 200 words, and we won't publish your name. Unfortunately, Frances is not able to respond to every email received or offer individual financial advice. 

Information in this column is general in nature and should not be taken as individual financial advice. Frances Cook and BusinessDesk are not responsible for any loss a reader may suffer.