How do I choose a 'good' investment?
Everything’s bigger in Texas, and the same could be said of the US share markets, which operate at a scale Kiwis don’t see every day. With Hatch, you can invest in over 4,700 companies and over 1,200+ exchange-traded funds (ETFs). Compare that with a total of 184 on the NZX. The US share market is the largest share market globally, and through it New Zealanders can invest in some of the world’s biggest and most innovative companies across tech to gaming to EVs, healthcare, cannabis and clean energy.
With so many options, how do you know what stock is good to buy? Reality is, unless you own a crystal ball, there’s no definitive answer. So, we can’t tell you what to choose, but we can share info to help with your confidence to make the right decision that suits you.
There’s no one ‘good’ investment
First, let go of the pressure to choose a ‘good’ investment, because without that crystal ball, no one knows what the future holds. Same with the ‘best’ investment, because, well, it doesn’t exist. There are potentially thousands of companies or ETFs that may suit what you’re looking to achieve with your investing. So help yourself out, and before you do anything, and let that ‘best investment’ idea go. Poof!
OK, but really, how do you choose?
Hollywood blockbusters paint the picture that analysts and researchers pore over complex charts, p/e ratios, and financial statements… Meanwhile, here in the real world, everyday investors tend to keep their research simpler. Real life isn’t quite like ‘The Wolf of Wall Street’, so how do you choose a company to invest in? Is there some sort of checklist to use before buying a stock? Here are common investing approaches we hear from Hatch investors:
Many start with brands they know and love
What products and services do you use every day? Are you a passionate gamer, a healthy lifestyle fanatic or lining up in your sleeping bag on Queen Street to buy the latest tech product year after year? You get it - you already know what you love where you choose to spend your hard-earned money.
You probably also know a lot more than you think about the companies you buy from. Do they keep innovating? Do they have quality products you want to own? Or services you need (or just really, really want)? Have they levelled up their online or instore experience? If you think your own experience suggests the company may have a great future ahead, you may consider becoming a part of their long term journey by backing what you believe and becoming a shareholder.
Look, listen and learn
Most of us carry a wealth of information at the touch of a button in our pocket or handbags, or we’re one ‘Hey Siri’ or ‘Hey Google’ away. Whether you use TikTok, Google, Safari, Bing or Ask Jeeves (LOL), ask 'should I buy [company name here] shares' and voilà, you’ll see a stream of answers flood your screen. Read a few headlines and you’ll be sweet, right? Wrong! When you delve into multiple sources from the options that show up, you may start to notice common themes. These can help you get an idea of what analysts are thinking, and you'll probably go down a few rabbit holes that'll teach you a thing or two along the way. If you like to do research, there are heaps of simple (and engaging) sources of information available, from books to podcasts and YouTube channels, there’s something out there for everyone.
Tap into your networks
After you make your first deposit into Hatch, you'll be invited to join Hatch's exclusive online community. Kiwis at every stage of investing - from beginner to long-timer - share their experience and approaches to investing in the Hatch Investor’s Club, and all questions are welcome. Of course, none of our friendly community (or anyone except a financial adviser) can guide you on what to do in your personal situation, but you might find it helpful to hear how others got started, what motivates them, and what they look for when buying a stock of a company they know.
And you don’t have to stop there.
It’s likely you already have friends and whānau who are keen investors, and who’d be up for a coffee and chat about the share markets. However, keep in mind that what investing method works for them may not work for you. And if you’re a beginner, sometimes the best-intentioned ‘experts’ can unintentionally shred your confidence while they show off their share market prowess. Yep, they may know all the acronyms (ETF, P/E, OMG!), have a sophisticated set of spreadsheets, and might have been successful in the past, but you need to be comfortable with an investment style that works for you.
Get excited about investor centres
When it comes to what information you should research before you invest, Investor Centres are a must-read for many investors. So what are they exactly? Every company listed on the share markets is required to provide investors and potential investors with info, and retail investors (that’s you!) can access this online. Hatch is super helpful and links to each company's investor centre when you click on their stocks in Hatch. These often make for engaging reading. Here are a couple of examples:
Not all investor centres are beautiful, but they do provide a breadth of information that may be helpful as you make any decisions on how to determine if a stock is a good buy for you.
You can put your money across many investments at once
Exchange traded funds (ETFs) can be a great way to spread your money across a whole bunch of investments at once, aka put your eggs in many baskets.
When people talk about the US share market returns, which have historically averaged about 10% a year, they’re typically referring to the average share price increase of the largest 500 companies in the world, known as the S&P 500 Index. Think Google, Amazon, Johnson & Johnson, Microsoft, and so on. They’re typically large global brands that many people know well. S&P 500 ETFs make it possible for anyone to spread their money across many companies at once by investing in a range of S&P 500 ETFs that track those top 500 companies in the world.
Another option for people who are looking for large, mature companies that pay dividends is an index called the dividend aristocrats. Dividend aristocrat ETFs spread money across around 40+ worldwide companies that have paid dividends to shareholders for the past 25 years or more. Established companies that pay dividends might not have the same growth potential and high returns as newer companies, but the prospect of regular dividends and less volatility can be appealing to some investors. Just keep in mind that while dividend aristocrats sound fancy (*tips hat*, M’Lady) it’s still not without risk. If you think you’ll need money in a hurry, quickly accessible cash in a bank account is still the reigning King.
ETFs may be a global phenomenon in investing circles, but if this is your first introduction to them, you can read more on the Hatch blog about the differences between companies and ETFs. And if you’re curious on how to find different companies and ETFs available on Hatch, we walk you through how to use search, step by step here.
Take it one step at a time
Investing can be one of the most empowering things you can do for your financial wellness. If you’re asking what should I know before investing in stocks, remember that you don’t need to know everything to get started, and you definitely don’t have to start with a lot of money. Investing is all about you, your goals and hopes, and creating a plan to help you get there. Don’t let analysis paralysis keep you from making a start. Consider taking one small step at a time to help you get towards hatching your tomorrow. 😉
We’re not financial advisors and Hatch news is for your information only. However dazzling our writing, none of it is a recommendation to invest in any of the companies or funds mentioned. If you want support before making any investment decisions, consider seeking financial advice from a licensed provider. We’ve done our best to ensure all information is current when we pushed ‘publish’ on this article. And of course, with investing, your money isn’t guaranteed to grow and there’s always a risk you might lose money.