From Toby Allen
With the many options available to DIY investors, it’s tempting to jump right in.
Platforms like “Sharesies” and “Hatch” make investing in certain companies or funds much more accessible for everyone. But it’s still important to avoid knee-jerk decisions or get caught up in the hype.
This week is World Investor Week and the Financial Market Authority (FMA) – Te Mana Tātai Hokohoko – has issued some advice in time to keep your head when it comes to investing, even in the middle of a pandemic.
This year’s catchphrase “Investing FOMO? Take a mo… ‘is a timely approach to our financial decisions, taking three deep breaths at a time when we may already be feeling emotionally charged.
The focus of the FMA’s campaign is on the “5 Ds of DIY investments”. Let’s unpack them a little further.
A little knowledge goes a long way. The FMA promotes your due diligence. It is important to find out if the type of investment is right for you. Are you more comfortable with managed funds where most of the investment decisions are made for you, like KiwiSaver, or do you want to grit your teeth on investments that allow you to take the wheel?
If you look at a managed fund, look at its PDS (Product Disclosure Statement). This will give you an idea of the components of your investment, such as cash, stocks or real estate, and the level of risk.
Investing is personal and your own values play a role here: you may also be interested in aspects like sustainability practices and ethical investing.
When looking to buy shares in a particular company, the numbers are important, but so are the people behind them. It is a good idea to learn about the company’s leadership team, their experience, and their overall performance. Annual reports examining this issue will give you a sense of the company’s “flavors” and whether they fit well with your investment goals and are able to improve them.
A user-friendly aspect of a fund like KiwiSaver is its “set and forget” character, especially when it comes to contributions – these tick in the background every payday.
The FMA’s advice is that the drip feeding principle of your investments is a good idea, even for the investments where you are taking the wheel. By investing a lump sum in smaller lots on a regular basis, you spread your risk and make you less prone to sudden downturns.
Diversifying your portfolio also spreads your risk. This “eggs in different baskets” scenario means a mix of items like cash and bonds (lower returns, less risky) alongside real estate and stocks (riskier in the short term, but stronger gains over time).
It’s also important to keep an eye on the risk balance in your portfolio and adjust it to your needs over time. These factors usually depend on when you might need the money, such as buying a home or approaching retirement.
In addition to securing your winnings, it is important to make sure that you are not locking in your losses. This sometimes requires nerves of steel and the ability to think long term. Watching your investment go under is never good, but it’s better to ride the wave back up. Don’t freak out and reduce your losses. This usually means locking them on instead of allowing your investment to recover.
Your time frame for withdrawing funds should be paramount as you near this: if you need to access it soon, it is preferable to prepare for lower risk options and avoid sleepless nights.
It’s also okay to raise your hand and ask for help when in doubt. The FMA suggests that you can benefit from financial advice. Articulating your financial goals will help you understand your own relationship with money, and a skilled advisor will also provide you with personal tips and feedback.
You are also likely to notice aspects of your strategy that you have not considered before. As a bonus, you will likely find the best deals.
Enjoy the driver’s seat for investment, it’s a great place to be. But first stop, think, then take to the streets armed with knowledge.