Finsol News
16/3/2022

Investing 101

Investing is often perceived as exhilarating, fast-moving, high-risk stock-picking. While this investing style does exist, we don't recommend gambling with your hard-earned money - not even the most successful investment advisers and managers can always pick winning stocks.

The truth is that effective, long-term, evidence-based investing is rather dull.

What you'll need:

  • A clear plan
  • An investment portfolio specific to your needs
  • Consistent contributions
  • Rebalancing and tweaks when needed
  • Patience and perseverance

The financial world is full or jargon, and investing is no different. Here are a few key points - explained in simple terms - to consider as you embark on your journey.

Your investment horizon (or timeline)

Your investment horizon is how long you plan to hold your investment - it could be retirement or until you reach a specific goal.

Your timeline and appetite for risk will dictate how you invest, and your adviser will take you through various options to align with your goals.

Dollar-cost averaging

Put simply, dollar-cost averaging means investing your money in equal amounts at regular intervals - for example, $350 per month for 12 months.

Investing consistently like this keeps you contributing regardless of what the market is doing and helps remove the temptation of trying to time the market (which no one can reliably do anyway).

This approach could be considered mechanical and boring, but it's effective.

The importance of diversification

"Don't look for the needle in the haystack. Just buy the haystack." - John C. Bogle

The adage "don't put your eggs all in one basket" applies here. Rather than trying to pick a winning stock or investing in shares alone, investing in a diversified investment portfolio or an exchange-traded fund gives you instant diversification.

Time in the market

"Time in the market beats timing the market" - Ken Fisher.

Once you have your timeline established, it's time to commit. This isn't a short-term dally - you need time in the game to see results.

The hardest part for many is leaving investments in place and avoiding the temptation to move things around. Which brings us to our final point.

Staying the course

Volatility in the market is a sure thing and cannot be avoided. However, staying the course is crucial even when the markets turn red - keep your long-term plan in mind here.

The graph above from Booster shows the clear upward trajectory of the investment markets from 1970 to 2020, despite the many small historical peaks and troughs. The main takeaway here? Focus on the bigger picture.

As part of your investment service with Finsol, we will meet once a year to assess your investment strategy and rebalance or tweak if needed. Other than that, we don't recommend checking your balance very often. 

The opinions conveyed in this article are for general educational purposes only to provide information about the financial services industry. 

This information is not intended to provide specific advice or recommendations for any particular insurance, home loan, or investment product. You should not use this article to make any financial decisions, as we cannot assess your situation without thorough consultation. We highly recommend seeking professional advice from one of our qualified financial advisers. Get in touch on 0800 346 765 or email finsol@finsol.co.nz

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