In today’s environment of low interest rates and the need to have a substantial deposit to buy a home, young investors are looking to the share market to invest. We are seeing people coming out of university with a desire to save and are now looking at clever ways to get more than a puny 3.6% on their term deposits. Even worse, that 3.6% is before tax and inflation.
Starting isn’t as hard as one expects and it can be really profitable. What these young investors are doing is drip feeding into the Australasian share market and mostly buying companies that pay solid dividends.
The first thing an investor needs to do is set up a share broking account with a firm listed on the NZX. This normally takes a bit of time thanks to the AML/CFT legal requirements. This requires proof of identity and address.
The share purchases can be bought on a direct platform, normally run by a bank or via an adviser. I’m biased as I am an adviser and I believe advice is important. Why reinvent the wheel and make the same mistakes others have made in the past?
Once the share trading account is set up, I always recommend a separate bank account for the investments. This creates a paper trail and makes tracking things easy.
Often investors like to have an app on their phone to track their investments. These apps are great but only track the capital movements and don’t report on the dividends, hence can be slightly misleading. There are a number of investment strategies an investor can follow. It can be either looking for growth stocks or sticking to solid dividend producing companies. The strategy can also aim to benefit from currency movements between the New Zealand and Australian dollar. Either way, the shares are held in the investor’s name and the dividends can either be paid out to their bank account or reinvested in additional shares.
There is plenty of information available; probably too much! Who do you trust and what information is to be believed? I’m biased and I always suggest finding someone experienced who will mentor and provide quality (written) advice. Often this won’t even cost, as there are lots of advisers who will happily share their investment experiences; both good and bad.
We now have a number of our clients doing just this and can highly recommend the process. Investing isn’t only for the old and grey and can be fun and profitable.
If you are interested and would like to have a chat about how this works, give me a call and arrange a time.
John Barber
WealthDesign – a life well planned