Lay a decent financial foundation
It’s a good idea to clear debts like credit cards, car loans, hire purchases or store cards before thinking about investing. Often the interest you’re being charged on those loans and products will be higher than the potential earnings from investments, so it makes sense to clear them first.
Next, it's a good idea to try and build up an emergency fund. Aim for around three months’ worth of expenses – so you aren’t thrown into financial disarray if your car breaks down or you’re made redundant.
Understand your comfort level
Before you start investing you also need to ask yourself how much risk you’re comfortable with.
Generally, the higher the risk that comes with an investment, the higher the potential returns. Some people are happy to accept more risk in order to get higher returns, while others are happy to pocket smaller returns for lower risk.
You can get help working out your risk profile with Sorted's Investor kickstarter tool.
Set goals and deadlines
Set concrete money goals – like buying a car, going on holiday, saving for a house deposit or setting yourself up for retirement.
Your goals will have different deadlines and timeframes and these timeframes will help determine what kind of investments you should consider and how much risk you might be willing to take on. Sorted defines short-term goals as one to three years, medium-term goals as four to nine years and long-term goals as 10 years-plus.
Don’t put all your eggs in one basket
Putting all your money into one investment is a risky idea, because if the investment goes belly up, you could lose all your money.
Get your head around the idea of diversification – spreading your money between different asset classes, like term deposits, property or shares. This spreads the risk, so if one investment goes under, you won’t lose everything.
Even if you don’t have a lot of money to invest, you can still achieve diversification through investments like managed funds or exchange traded funds, which both invest in a range of assets.
Only invest in things you understand
If you don’t understand how an investment works or where your money is going, don’t invest in it.
Investing might seem complicated, but don’t abdicate responsibility and leave things solely up to the experts. Make it your business to understand what’s going on.
That means asking questions if you don’t understand something and reading the product disclosure statements and paperwork that comes your way.
Don’t be embarrassed if you need an explanation and don’t feel like you’re wasting someone’s time. There’s no such thing as a dumb question when it comes to your hard-earned money. If your financial advisor or product provider can’t explain it to you, then they’re not doing it right.
Some basic questions could include: where and how your money is being invested, what the fees are – both upfront and ongoing – and if there are any performance fees or exit fees when you decide to cash in your investment. Ask how well the investment has performed relative to similar products over the last few years and what the possible tax implications could be of investing in that product.
Learn the language
Half the battle of getting your head around investing, is understanding the jargon.
You can help demystify things by reading websites like Sorted, which has a range of handy, plain English guides and explanations, or finding personal finance blogs or podcasts that communicate in way that makes sense to you.
A decent financial adviser should also be able to talk through your options in a way you can understand, and should be happy to help improve your financial knowledge.
There’s no such thing as a sure bet
It’s easy to forget this if someone is dangling the opportunity to make a lot of money in front of you, but If something sounds too good to be true, it probably is.
If someone approaches you about a supposedly amazing investment opportunity, alarm bells should start ringing. Legitimate product providers are highly unlikely to cold call you.
The same goes with pressure to rush into an investment. Don’t make quick decisions – a legitimate investment opportunity shouldn’t disappear just because you need a week or so to investigate or seek advice.
Plenty of smart people do fall for fraudsters, who run increasingly sophisticated scams. A few years ago, you might have easily seen through a badly written email, these days it’s not unusual for fraudsters to produce a slick website in an effort to look genuine.
The Financial Markets Authority’s website list scams that have been reported to it (note: this isn’t a comprehensive list, just because you don’t see the person or company you’re talking to on there, doesn’t mean they’re legitimate).
Kiwibank’s investment savings options
Notice Saver is our flexible investment option. You can add money whenever you like, then just give us 32 or 90 days’ notice to withdraw some or all of your funds.
Term Deposits earn a fixed rate of interest for a fixed term. There are no fees unless you break the term, and rates tend to be higher than those for standard savings accounts.
With an Online Call account you can withdraw money anytime you like, but you'll earn bonus interest if you don’t make any withdrawals in the calendar month.
Try our investment selector to see which one might suit you.