Investor confidence is on the rise, according to the recently released survey, “Attitudes towards New Zealand’s financial markets”, from the Financial Markets Authority (FMA). More Kiwis are now taking greater interest in their finances and investments.
Despite the majority (60%) of investors experiencing losses as a result of the COVID lockdown, most Kiwis (71%) are optimistic that markets will recover with time. Around half of New Zealand adults are in the market with the intention of making some form of new investment decision or change in the year ahead. This is most frequently through taking out a new investment or increasing an existing investment, which 23% plan to do. Of those planning to increase their investments in the near future, just over half plan to buy shares, and at least one-third plan to invest in a managed fund or a residential investment property.
While positive, these findings generally only reflect the behaviours of already fairly active and confident investors. Interestingly though, the survey also found that 4 in 10 “non-investors” are now open to making an investment in the next 12 months.
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