When it comes to the world of finance and economics, the word 'investing' often brings to mind one thing: stocks. These little pieces of companies can hold the key to your financial future, and understanding them is the first step on your investment journey.
So, what exactly are stocks, and how can you start investing in New Zealand?
1. Learn About Stocks
Before investing in stocks, you need to know what they are, how the stock market works, and common investment strategies.
You can use plenty of online and offline resources to educate yourself about the stock market.
Think of stocks as your ticket to becoming a part-owner of a company. The more stocks you own, the bigger your share of the company. It's like being a shareholder in a business, but without all the day-to-day responsibilities.
Companies can earn money from their usual activities and by selling shares. They do so on the stock market.
As part-owners in a company, shareholders or stockholders may be involved in company decisions or be paid dividends. Not all companies pay dividends to stockholders, though, as they may choose to reinvest profits back into the company.
There are different types of stocks and lots of caveats and technicalities to buying stocks, but to get started, remember that you're buying part of a company. If the company does well, the value of your part will increase, potentially leading to financial growth and security.
2. Choose a Brokerage
To buy shares, you typically need to go through a brokerage or trading platform. A brokerage is an intermediary that facilitates the buying and selling of stocks, bonds, mutual funds, and other investment products.
So what are they for, and how can you choose one?
A brokerage's primary role is to make trades. Its goal is to help its customers or clients make investments, which can involve buying and selling.
A brokerage can also offer investment advice to clients. After all, the brokerage's success will depend on the success of its clients and on whether the brokerage can ensure that its customers typically make wise investments.
Beyond advice, they typically conduct research and market analysis to provide their customers with better information they can use for their own research and advice.
In addition to facilitating orders, a brokerage typically holds onto assets for its clients. This can involve all the associated administrative tasks, including interest and dividend payments.
You'll need to choose one of these brokerages to invest in shares.
3. Open Your Account
In New Zealand, there are brokerages like Sharesies, NZX, Interactive Brokers, Saxo, Admirals, NinjaTrader, IG, Plus500, CMC Markets, Optimus Futures, tastytrade, and Alpaca Trading.
Opening a brokerage account may sound complex, but it's just a series of simple steps. It's a bit like signing up for a new website but with a few extra security measures.
You'll need more than just a username or email and a password.
Typically, you'll be expected to provide a lot of personal information to identify yourself, including name, address, date of birth, etc., and also verify this data.
Verification can typically be done online and involves providing a driver's license, passport, or other accepted form of identification.
You'll also need to link a bank account to send and receive funds. This will require checks and verifications.
4. Transfer Funds
To start buying and selling stocks through a brokerage, you'll need to add funds to your account.
Depending on your brokerage, this process may differ, but it's generally relatively easy.
Again, with larger amounts of money, you'll likely encounter more checks and verifications. These systems flag suspicious activity to combat fraud, theft, and money laundering.
Once you have funds in your accounts, you're technically ready to start buying stocks and investing, but you must first decide which ones to buy.
5. Research Stocks
Before you buy any stocks, you should carefully research them. You should consider factors like the company's business model, financial health, and growth prospects.
There are a few different resources you can use in your research, and we recommend the following:
Company Annual Reports
Company annual reports are a great way to make decisions about investing. Companies will publish information regularly to provide useful information to shareholders, investors, analysts, and stakeholders.
These typically include a letter to the shareholders about the company's significant achievements.
You'll also find an overview of the business here. This will detail the company's business model and how things are going regarding its products, services, and market position.
Importantly, these reports will include financial information and raw numbers to show how much money the company is making, what it's doing with it, and how it performed over the previous year.
There'll be plenty of other financial information and information from management, etc.
Financial News Websites
Money makes the world go around, so there are plenty of websites that cover financial news.
There are plenty of these, but we recommend looking to websites like Forbes, Financial Times, Wall Street Journal, MarketWatch, and Reuters for information.
Stock Market Analysis Tools
With so much research required and so much data to go through, the average person can only make sound investment decisions with the help of mathematical analysis.
Stock market analysis tools include Ally Invest, Charles Swab, E*Trade, Fidelity Investments, Interactive Brokers, Lightspeed, TradeStation, and Tradier.
There are more than just these; if you're getting started, it's worth looking at a few. Most financial tools and services charge a monthly subscription, and the prices vary quite wildly.
Brokerage Research Reports
As mentioned, the brokerage sites also offer reports, information, and analysis. Information is power in investing, so arm yourself with as much information as you can.
6. Buy Stocks
Once you've done your homework, you can review your options and look at potential investments.
You can pick the stocks you want to buy through the brokerage account. There are several ways to do this, but the three most common ways are:
- Market Order
- Limit Order
- Stop Order
A market order is when you buy the stock at the current market price. However, if you're waiting for a stock to reach a specific price, a limit order will buy the stock at a specified price or better.
A stop order buys the stock once it reaches a specific price.
It's always worth diversifying your portfolio, whether that's bonds or a cryptocurrency like Bitcoin.
7. Monitor Your Stocks
Once you have your stocks, you need to monitor them regularly. Investing always comes with risk, and stocks can increase or decrease in value.
You need to monitor your stocks and the markets and companies closely. Many factors can affect the price of a share, and you need to be aware of when it's worth taking a risk and holding onto shares and when it's better to sell a share.
8. Diversify Your Portfolio
Every share is at the behest of companies and the markets. For insurance, it's an excellent idea to diversify your investments.
Investing in a range of shares that aren't dependent on one another will help. The classic advice of "don't put all your eggs in one basket" is true here.
Understanding the risk associated with each investment and having a diverse portfolio of shares and financial investments can help you better protect them against downturns.
It's useful to invest in different industries, such as technology, healthcare, and finance, while also examining different types of assets, such as stocks, bonds, and ETFs.
You can also diversify geographically. While you may be in New Zealand, you can invest worldwide. Investing in international markets protects against the risk of anything happening to your domestic investments.
9. Reinvest Dividends
Stocks and shares can pay dividends, and you can use them to invest further. The better your investments perform, the more you can diversify your portfolio.
Over time, the more investments you have and the more varied your portfolio is, the more returns you could earn.
10. Talk to a Financial Advisor
Talk to a financial advisor to learn more about the best ways to invest. They can advise you on how investing works and tell you about different kinds of trading, where you stand in terms of taxes, and how to achieve your investment goals.
If you'd like to learn more about economics or finance, you can always find a private tutor on Superprof, too! Many tutors offer the first session for free, so why not try a few out before choosing the one that's right for you?
Search for "finance" or "economics" private tutors on our website today and browse the profiles of potential tutors from across New Zealand and worldwide! Thanks to online tutoring, you don't necessarily need to work with local tutors.
Enjoyed this article? Leave a rating!
Loading...
