We built Hatch for all investors, from the experienced to novices. We’re pretty excited to have so many ‘new to investing’ Kiwis join us. It can be a bit daunting when you’re just getting started, so we’ve put together some handy tips to help you get going.
Share Markets 101
Share markets are exchanges that allow people to buy and sell investments. You’ve likely heard of the New Zealand Stock Exchange (NZX), Japan’s stock exchange, the Nikkei, and the New York Stock Exchange (NYSE). Hatch offers access to buy shares in companies and exchange-traded funds listed on the NYSE and Nasdaq.
You’re probably aware that there is some risk involved with investing and with that risk can come reward. With any investment, you need to weigh the potential reward against the risk of that investment. There is no “right or wrong” amount of risk; it’s a very personal decision for each investor. Young investors can afford higher risk than older investors can because young investors have more time to recover if their investments tank. If you are five years away from retirement, you probably don’t want to be taking extraordinary risks with your retirement fund.
The most common type of risk is the danger that your investment will lose money. You can make investments that guarantee you won’t lose money (e.g. savings accounts, term deposits); however, the price for this safety is a low return on your investment. When you calculate the effects of inflation on your investment, they may return very little in real growth. If you need to access your money in a short time horizon, these types of investments make sense! But if you have time on your hands, you might want to consider other investments like shares (also known as stocks).
Shares aren’t like savings accounts or term deposits because their value rises and falls. If you don’t have the right information – or find it hard to keep your emotions in check during a dip – you can risk losing some or even all of your initial investment amount.
Some investing principles to manage risk include:
Before you invest, it’s a good idea to do your research to define your financial goals and investment strategies that are going to help you get there. The great thing is there’s a vast amount of information that’s easily accessible. Just choose your preferred mode of learning (books, podcasts, forums, online articles) and get started.
You can spread your risk out by investing in a variety of shares from different companies and industries. If one sector or company drops in value, you may still have other shares to balance out the losses. Diversification can also be applied more broadly to a wider investment portfolio (e.g. property, shares, bonds, savings, etc.).
Consider investing a fixed dollar amount into a given investment regularly, regardless of what is happening in the markets. As a result, when the price of the given investment declines, you can purchase more shares. When the price of the given investment rises, you’ll be able to buy fewer shares (but they’ll be worth more).
Long-term investing approach
Share prices can go up and down, and those that take a ‘buy and hold’ approach to investing are happy to ride the ups and downs. Rather than panic over an investment’s short-term movements, it’s better to track its big-picture trajectory. Have confidence in the research you’ve done and don’t be swayed by short-term dips.
Before you get into investing of any kind, it’s a good idea to check that you can afford to. If you’re working and earning an income, don’t have significant credit card debt, and have some disposable income, then investing could work out well for you!
“Research, research, research. Once you’ve bought, have a plan and don’t panic sell!” - Hatch investor
Investment options via Hatch
Exchange-traded funds (ETFs)
ETFs allow investors to buy a basket of shares through a single purchase. ETFs can track an index (S&P 500, Total Stock Market), a commodity (oil, gold), specific geographical markets (emerging, India) or a sector (technology, energy, healthcare). Unlike managed funds, ETFs trade on the share markets.
Sometimes referred to as passive investing, ETFs that track indexes invest in a broad market. For example, if you invest in an S&P 500 ETF, you are purchasing shares of the 500 companies in that index basket.
ETFs are a relatively easy way to automatically diversify your portfolio without having to have expertise in specific sectors or markets and pick all of the individual shares yourself. ETFs are getting more and more sophisticated, and some even use specific investing strategies.
Which ETF(s) do I choose?
This is where research can come in handy. Do you want to track an index? A commodity? Be exposed to a sector? Or are you looking to diversify geographically?
Start by looking at ETFs that have high assets under management. Narrowly traded ETFs cover niche areas of the market that may not be appropriate for novice investors because of their potential for higher swings in value.
Buying a share is like owning a very small part of a company. For example, it’ll cost you around $250 NZD (as at Feb 2019) to buy one Apple share. When you buy an Apple share, you’re betting that it’ll continue to grow over time and be worth more than $250 NZD in the future. With Hatch, you can also buy a fraction of a share which lets you invest as much or as little as you want – a handy way to easily diversify your portfolio! So, what does Apple do with your money? They use it to invest in their business in ways like opening new locations, hiring new staff, developing new products, marketing and more.
It’s common for beginners to invest in ETFs because they’re more “stable” than individual company shares. What you invest in is up to your strategy and goals, but you might want to consider investing a portion of your budget in individual company shares in the beginning as part of your learning process. It’s a great way to start out – just be prepared to lose some of your money. Treating any loss as ‘education’ is a good way to deal with dips in the market!
Shares are like a window into the world of investing and are a great way to start learning investment basics. Track the news and see how share prices respond! You’ll soon learn how macroeconomic, industry and firm-specific news affect share valuation. For example, US automakers like Tesla Inc’s share prices bore the brunt of trade tensions between the US and China in 2018.
How do I choose a company?
We think it’s best to start with a sector (companies in technology or healthcare) or a specific company that you know (think of the brands you buy). Then, consider the share price (the price you can buy it on the market) and the share’s valuation. Investors can determine the valuation (if it’s a good price) by looking at factors such as company earnings, market share, sales, financial ratios, and google reviews of analysts who follow and comment on the company.
Experienced investors often look for shares that are "cheap" or "undervalued." They evaluate the financial health of the company by digging into their financial reports and look for a consistent history of profitability and financial health. Fundamental analysis is the process of looking at a business at the most basic financial level to see if it’s a good investment.
View all companies available on Hatch. Use ‘Industry’ and ‘Filters’ to narrow your search.
“Learn to understand financial statements, and pick a share you think is a good buy now.” - Hatch investor
What are dividends?
One of the best things about shares is that they can offer an income through a payout of dividends. Sometimes companies retain so much net profit that they're able to reinvest in themselves and still have money left over. They might choose to issue dividends (cash payments) to shareholders from this leftover money.
Just get started!
Thanks to the internet there are so many fantastic investing resources, so just get reading/listening/watching, log in to your Hatch and get cracking (pun!). The best thing about self-directed investing is that you can learn by doing starting with small amounts, and take an active role in investing your hard-earned money.
Log in to Hatch and start to build a watchlist of the companies and ETFs you’re learning about and track how well they perform over time. To watchlist, browse investments and click on the heart icon to add them to your personal list. Voila!
“Diversify. Don't try and time the market. Stay away from [derivatives]. ETFs are a good starting point. Don't sell at the first sign of trouble.” - Hatch investor