Investing 101
Investing is often seen as exciting, fast moving, high risk share picking. That style exists, but we don’t recommend gambling with your money. Even the most successful investment managers can’t always pick winners.
Effective, long term, evidence based investing is actually quite dull. You need:
- A clear plan
- An investment portfolio that suits your needs
- Consistent contributions
- Rebalancing and adjustments when needed
- Patience
The financial world is full of jargon. Here are the key ideas, explained simply.
Your investment timeline
Your timeline is how long you plan to stay invested, for example until retirement or until you reach a specific goal. Your timeline and your appetite for risk shape how you invest, and your adviser will take you through the options that fit your goals.
Regular contributions
Dollar cost averaging means investing equal amounts at regular intervals, for example $350 a month for 12 months. You keep contributing whatever the market is doing, which removes the temptation to time the market. Nobody can do that reliably.
It is mechanical and a little boring, but it works.
The importance of diversification
Don’t put all your eggs in one basket. Rather than trying to pick a winning share, a diversified portfolio or an exchange traded fund spreads your money across many investments at once.
As Vanguard founder John C. Bogle put it, don’t look for the needle in the haystack. Just buy the haystack.
Time in the market
Once your timeline is set, commit to it. Investing needs time to deliver results. The hardest part for many people is leaving investments alone and resisting the urge to move things around.
Time in the market beats timing the market.
Staying the course
Market volatility is certain and can’t be avoided. Staying the course matters most when markets fall, so keep your long term plan in mind.
The graph above from Booster shows the clear upward path of investment markets from 1970 to 2020, despite many peaks and troughs along the way. Focus on the bigger picture.
What this means in practice: set your plan, contribute regularly and avoid checking your balance too often.
How Finsol can help
As part of our investment service, we meet once a year to review your strategy and rebalance or adjust it if needed.
Call us on 0800 346 765 or book a free consultation.
Finsol is a financial advisory business founded in Hawke’s Bay in 2010, looking after more than 6,000 clients across New Zealand. This article is general information only and does not take your personal circumstances into account. Past performance is not a guide to future returns.
