Investing 101

Most of us, while we may not think we have any money to invest, are actually 'investors' already.

If you have a super fund (nearly all working Australians do), KiwiSaver or bank account, then you’re an investor. And as an investor, you have the right and the power to choose how your money is invested, including asking questions about what is done with your money or by switching provider.

In the simplest terms, investing involves putting your money behind companies, projects,or organisations that you want to support. Some people invest purely for financial gain, while increasingly, people also want to ensure their investments are aligned with their values.

Investing doesn’t have to be complicated or scary. You can start small, and learn as you go.

Here’s a list of the basic ways you can invest your money:

Superannuation
Banking
Shares
Bonds
Property
Managed funds
KiwiSaver

A superannuation fund (or pension fund) is an investment that you add to regularly in order to fund your life in retirement. In Australia your ‘super’ is paid by your employer each payday.

A super fund will invest in a whole range of ‘asset classes’ on your behalf. This may include local and global shares, property, big infrastructure projects and bonds. Most of this involves investing in companies such as those listed on the stock exchange.

While its compulsory for your employer to make contributions to your super, you do have the freedom to choose which investment manager does the investing for you. It’s worth investigating which super fund your employer is sending your payments to.

If you didn’t choose your fund yourself when you started working, then you were probably signed-up to a ‘default’ fund. So, take a look to see how your money is being invested, and what fees you’re paying.

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You may not realise it, but the money in your bank account isn’t sitting in a vault.

Instead, the bank actually uses your money to make loans and other investments, to make more money. This is why they pay you interest, you’re actually doing them a service by choosing to park your money with them.

The question then becomes… what are they investing in? It could very well be that they’re investing in companies that are contributing to climate change or exploiting low-wage workers. The best way to find out is to ask and see what they’re doing with your savings.

Any company that’s listed on a stock exchange, meaning they’re a public company, will offer shares. Shares represent the ownership of the company, or the ‘equity’.

If a company has 100,000 shares, and you own 50,000 shares, then you own half the company. But more likely is that you’ll own far less. No matter how many shares you own, you will share in the profits of the company. And, if the value of the company goes up, then your shares will be worth more.

Buying shares is a relatively cheap and easy way to get started in investing, especially when compared to buying an asset like a house, where the transaction costs are far higher.

Bonds are a complicated, but basically, are a form of debt, like an IOU.

A company, or a government, may issue a bond if they want to raise money. For example, they may offer a $1 million bond, which essentially means they’re asking someone to give them $1 million now, and they will then return that money, along with some interest payments, in a set number of years.

On the whole, the returns from bonds are lower than for shares, but they also tend to be less risky than shares.

Most Australians and New Zealanders are pretty savvy about the property market. We understand that you can buy a house to live in, or, you can buy it as an investment, hoping that the price will go up and you can sell at a profit.

It may sound simple, but it becomes more complicated when you try to compare the financial returns from investing in property vs investing in other assets like the share market.

A fund is just a name for a collection of assets. It might be a bunch of shares from various companies, or it might be a collection of real estate properties, or, it could be a mixture of both.

A managed fund is put together by an investment team who use their skills and experience to choose a combination of assets that they think will offer good returns, while also matching the needs of their clients.

KiwiSaver is a voluntary savings scheme to help set up you up for when you retire. You can choose your own KiwiSaver provider, and make regular contributions from your pay or directly to your scheme provider.

People who don't choose a KiwiSaver fund when they start work and are not already a KiwiSaver member are automatically enrolled in a ‘default fund’.

These default funds are determined by the New Zealand Government and are not permitted to invest in fossil fuel production or illegal weapons.