Investor confidence is on the rise, according to the Financial Markets Authority’s (FMA) annual Investor Confidence Report, with 72% of 2021’s surveyed investors confident in the country’s financial markets (up from 66% in 2020). More Kiwis are now taking greater interest in their finances and investments following a significant rebound in financial market performance from COVID-19, as well as an increase in DIY investment platforms, such as Sharesies or Hatch.
One quarter of New Zealanders purchased new investments or increased their existing investments between June 2020 and June 2021 and of those who bought shares, 6 in 10 purchased them using online DIY investment platforms.
While positive, these findings coincide with the FMA’s retail investor research, highlighting the new wave of digitally-enabled and relatively inexperienced investors. 47% of respondents said their interest in online investment platforms stemmed from wanting to learn about investing.
So, here are 3 tips for new investors to remember.
We’ve all heard the saying, “Never put all your eggs in one basket.” The same applies to investing and ensuring you have a diversified investment portfolio. Having a diversified portfolio means you have lots of different investments, preferably of different types (for example shares, bonds and property), as well as different sectors of the economy (for example technology, healthcare and agriculture). This helps reduce your risks if there is a downturn in any one business or type of investment. Additionally, a portfolio made up of different kinds of investments will increase your chances of benefiting from an investment that outperforms the rest of the market.
At the very core of investing is the art of striking a balance between risk and returns. To achieve this balance, you need to know what the potential risks and opportunities are. Doing your research is one of the most important exercises when making investment decisions. If you’re considering investing in a technology company, for example, you need to make sure you understand how it’ll make money, which could be from advertising, services, or one-off sales. You also need to consider what factors might affect its profits in the future. Remember, every investment is different, so always read all the information provided before investing.
It’s easy to feel tempted by “day trading” and attempt to profit off short-term price movements. However, as the recent market volatility has shown, it’s important to take a long-term investment view, enabling short-term price fluctuations to smooth out. This is especially important if you’re a new investor, as you won’t yet have the knowledge or experience to read the market. Even professional investors still have a hard time trying to ‘time’ the market. For more on this, you can read our blog post on value trading.
If you’re new to investing and would like more information about how Catalist’s investment opportunities could be included in your investment portfolio, sign up for an account and make sure you opt in for our newsletter. We’ll let you know when we have investments in small and medium-sized businesses available, so you can add them to your portfolio to increase your investment diversity.
By Michelle Polglase