What is Investments?

The action or process of investing money for profit.

Investing is all about buying things that put money back into your pocket. It may sound scary, but if you have a bank term deposit or are in KiwiSaver – you’re an investor.

You become an investor when you put your money into things that can earn income or grow in value. The general aim is to earn at least an after-tax return greater than the rate of inflation. Being an investor also involves a degree of risk. Generally, the higher the return, the higher the risk.

Top tips for investing

Before you leap into any investment decision, there are some important rules you should follow:

• Set your goals: Decide what it is that you are trying to achieve. Where do want to be at some point in the future? What is the final outcome that you want from your investments and what is your timeframe? Think about debt - is investing the right option for you right now? Would you be better off using your money to pay off high-interest debt (e.g. credit card, hire purchase), or to reduce your mortgage? 
• Know your risk profile: You need to know what type of investor you are – essentially, how much money are you willing to lose? How much volatility (ups and downs) can you tolerate?
• Know how you want to invest your money: What mix of investments suits your investor type? Bonds, shares, property, bank deposits? Will you invest directly yourself or use managed funds?
• Do your homework: Research, compare and contrast everything – or get someone to do that for you. Read the business sections of the newspaper, go online, talk to your adviser, bank manager, or accountant. We suggest you also read any documents, such as the investment statement and/or prospectus, relating to the investment you are considering.
• Research different companies’ investment options: If you are going to invest directly in a company, find out which companies suit your type. Do they offer the kind of investments you are after? What are the rates of return for each investment? What is the level of risk associated with the return?
• Research the companies themselves: What does the company do? What markets is the company in? Who is running the company? Have they ever been declared bankrupt? How is the company run? Does the board have independent directors? How has the company performed in recent years – is there a steady performance over time?
• Get the right advice: Shop around for an Authorised Financial Adviser (AFA) who you have confidence in. Authorised Financial Advisers must tell you (in a written disclosure statement) how they are paid and the impact that can have on the advice they give you. 
• Spread your risk: As the saying goes, don’t put all your eggs in one basket. Spread your risk around different options and different companies. For example, if you are considering high-risk investments, you can balance your risk with other investments in lower risk areas, like bank deposits or cash and bonds.