When to Invest: A 5-Step Beginner’s Guide to Investing in Shares

If investing in shares is something you’re new to, it’s hard to know where to begin. Canstar shares five steps to tick off before you invest.

Investing is essentially about buying things that will put money back into your pocket. For those of you in KiwiSaver or with a bank term deposit, you’re already investors. 

Investing in shares means owning a piece of a business or corporation. Shares are units of equity in a company and are commonly known as stocks. They can rise and fall in value, so it can be a bit of a roller-coaster ride. For this reason, shares are better as a long-term investment, so you can ride out the ups and downs in the market.

With this kind of investment, your returns can come in the form of capital gains, when the value of your shares increase. You can also earn a portion of the company’s profits, or dividends, which are typically distributed to shareholders every three or six months, depending on the company.

In the short term, you can claim capital gains by selling your shares at a profit if they increase in value, but you can also play the long game, as historically many shares have increased in value at a higher rate than inflation. 

Like we mentioned, there are risks of loss, too, despite the potential for gains. This kind of investment is one of the most vulnerable to sudden price fluctuations, depending on the company’s performance and profitability. If a company fails, your shares can become worthless. Canstar has a full breakdown of shares and other vehicles of investing in our story: Cash, Property, Shares, or Bonds? An Easy Guide to Investing.

When to Invest: a 5-Step Checklist

1 Once you’re consumer debt free

The best return you’ll get on your money is to pay down any consumer debts you have first. Think credit card repayments, Afterpay or any personal loans – once you’re free from this debt, then you can consider investing. Canstar’s story on What Debts to Pay Off First: How to Prioritise Your Loan Repayments is worth a read.

2 Systematically, not sporadically

To ensure you’re investing strategically, consider an investment plan that takes you and your emotions out of the equation. Look at investing each month, or at your own predetermined frequency, to remove yourself from reacting to news of good or bad markets. If human emotions become involved, decisions can be made out of greed or desperation.

3 Ensure your income is consistent

Consider your spending habits and your current income. Are you earning enough to survive on with extra that you can afford save or invest? If you are living paycheck to paycheck, it’s time to be smart and make sure you have a buffer to get through any loss of income, rather than gambling on the share market.

4 Set up your emergency fund first

If there are any financial hiccups or drastic changes in your life (think COVID-19), having an emergency fund ensures you don’t need to sell down your investments to pay for your lifestyle and expenses until you’re out of the woods. You also may be selling investments at a time that is not great to sell. Think of your emergency fund as setting up base camp before starting the big climb.

5 Ensure you balance other goals

What is the purpose behind your investment? Are you in this for the long haul or looking to cash out in the short term? If you’re saving for a holiday or new car, is it worth investing only to withdraw in 18 months’ time? (Hint: the answer is no!)

How should I invest?

Don’t pick single stocks as a beginner

Go back to your strategy – are you trying to time the market and catch a falling knife, or are you investing for the long term? Look for diversification and cost. It’s better to spread investments in shares across different companies and industries, as well as buying other asset classes, such as bank deposits or property. Research exchange traded index funds (ETFs) as a starting point. The My Millennial Money podcast episode on investing has an in-depth conversation on this topic.

Find an investing platform

You’ll need to sign up to a trustworthy online investment platform to start investing. The best option is to find one that offers shares, funds and ETFs in which you’re interested in investing. You might consider Sharesies, Hatch, InvestNow, ASB Securities or Kernel, to name a few. Have a hunt around and do your research. Set an investment budget, too. Work out how much you can afford and set aside a fixed sum from your salary each month to direct to investing.

Be willing to be in it for the long haul

If you’re hoping to invest for fewer than five years, shares aren’t your best route, given the risk of losing your hard-earned money in a short period of time. Investing in term deposits might be a better alternative option for you, as the money you’re investing is protected and will earn interest. Or, alternatively, you could direct your extra funds to your KiwiSaver, which could make a big difference to your retirement savings. 

This is something that Canstar can help you with. Our free comparison tool allows you to compare funds, while our KiwiSaver report highlights providers that deliver outstanding value and customer satisfaction. For more information, just click on the button below:

Compare KiwiSaver providers for free with Canstar!

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