An introduction to investing

If you’re new to investing, this article gives you an introduction to the basics, and offers a few suggestions on ways you can become an investor.

3 minute read

We all know that saving money is a good thing; some do it in a bank account, while others put it in a jar. No matter how we do it, the essential idea is the same: we are all saving for something in the future.

With investing, the idea is exactly the same: we are putting money away for something in the future, be that buying a house – or maybe your children’s education.

Over long periods of time, typically three years or more, investing usually grows your money more than just leaving it in a bank account. The longer you leave your money invested, the more chance it has to grow, while any market ups and downs will be smoothed out over time.

But, generally speaking, the longer your investment timeframe is, the more likelihood you have of weathering the ups and downs of investment returns.

Contrary to popular myths, investing really isn’t that hard or difficult and our aim is to give you all the information you need to get started.

What are ‘investment products’?

There are a wide variety of products you can use to grow your money and they range from lower to higher risk, and typically lower to higher potential returns in accordance with that risk. You can read more about risk here. 

Some of the more common investment products are:

Term deposits

A term deposit earns a fixed interest rate for a fixed period of time. They require you to lock your money away for a period of time.

Investment funds

Sometimes referred to as managed funds, or Managed Investment Schemes, investor’s money is pooled together with others and invested in various investments. The manager of the Scheme takes care of where this money is invested and charges a fee for this service.

You can read more about where your investment funds go.

KiwiSaver

This is a work-based savings scheme that helps you save for retirement. You may not be aware, but your KiwiSaver savings are held in an investment fund. KiwiSaver has some additional benefits like employer contributions, government contributions if you invest a certain amount each year and it can sometimes have lower fees than other investment funds.

There are also some extra restrictions; generally your money is locked in until you reach the age of eligibility for New Zealand Superannuation. There are some exceptions to this – for example, buying your first home. But essentially it’s a retirement savings product.

Shares

A share is a unit of ownership in a company. Buying one share of Apple means you own a tiny percentage of the company. When you purchase a share of a company and become an owner you generally get two rights:

1. The right to go to an Annual General Meeting and place your vote (the terms and conditions attached to the shares, and the company's constitution, may limit this right), and
2. The right to receive a payment of the company’s profits should the company decide this is the correct thing to do. This is called a dividend. (The right to a proportion of any dividend or distribution paid to shareholders, based on how many and what type of shares you own.)

If you hold a share in a company, that means you have an ownership stake in that company.  But it is important to understand that if you invest in a managed fund that invests in shares, you don’t own those shares personally. 

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This article is solely for information purposes and is not intended to be financial advice. If you need help, please contact BNZ or your financial adviser. Neither BNZ nor any person involved in the material accepts any liability for any direct or indirect loss or damage arising out of the use of, or reliance on, all or any part of the content.