The Best way to start your investment as beginner in New Zealand

(This is a repost from thesmartandlazy.com, published on May 31, 2017)

You may already know you need to start investing for your future, but you have no idea where to start. There are so many options out there like the sharemarket, investment property, P2P lending, the bond market, active and passive fund, etc. You have no idea which one is the best for you.

Well, I don’t know what is best for you because everyone’s situation is different. However, I think it’s better to start somewhere rather than sit here and do nothing. People say, “you need time in the market, not timing the market” or “The earlier you start the better”. I believe both of them are true. So, here is my suggestion on where to start your investment.

What you need to do before you start investing

Before you jump into the world of investing, you need to have a solid financial foundation. Here is what you should do.

  1. Pay off your consumer debt like credit card balances, personal loans, store credit, overdrafts and hire purchases. It doesn’t make sense to chase for 6-7% return on investment while paying 19-22% interest on your credit card debt.
  2. Join KiwiSaver. KiwiSaver is one of the best investments available in New Zealand because of the employer contribution and member tax credit. You will have an instant risk-free return on your investment.
  3. Set up an emergency fund for 3-6 months of living expenses. This fund will help you to deal with any unexpected situations, so you’re not forced to cash out your investment, especially during a market downturn
  4. Live on less than you make. Naturally, no one can become successful with their money without first learning how to live on less than they make. Where will you get the money to invest if you live paycheck to paycheck?

Better to start with a plan, however…

You should have a plan for your money before you start investing. Failing to plan is planning to fail, right? That why in my previous post I said the first thing you’ll need to work out is how long can you leave the money in the investment? Or how long before you will need to use that money?

On the other hand, I know how hard it is to come up with a plan when you don’t understand most of the investment terms. It’s hard to learn something from the outside when you don’t have personal experience. You may be afraid you will make a mistake and lose your hard-earned money.

I also understand how busy life is and how lazy we are (Well, at least how lazy I am). It took me six months to finally put down some cash into an investment. I kept making ‘plans’ and doing ‘research’ for my investments (actually I’ve been putting it off because I am lazy).

I started looking into investment strategies on the Internet in April, but I looked around without making any decisions for 4 months. I remember I found out about Smartshares and SuperLife and decided an index fund is the way to go in August, but it still took me two more months to pick which fund or ETF to invest in. Who knows if that is analysis paralysis or just laziness paralysis?

It may be just me, but I know lots of people are in the same boat, especially the beginners. You know you need it start investing, but you don’t have a complete plan yet. So you wait. To those people, hear me out!

If you don’t have a plan, just start without one.

Start small and start early

I am not talking about putting in your life saving without a plan. I suggest you dip your toe in the water.  Just put under $500 into an investment and get it started. TODAY!

That small amount of cash should not affect your financial situation (if that is a problem, you should make sure you have a solid financial foundation). You should be able to move it quickly to start a small investment. You may not even care if you lost it, so you don’t need a plan for that small initial investment. You can put it in almost any fund as the start of your investment.

The most important thing is to get you started on something. Once you dip your toe in the water, you’ll have a personal stake in the investment. Looking at the value go up or down will motivate you to know more about investment. It will help you put together a plan for your investment.

Best way to start – SuperLife

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SuperLife provides 40+ different passive investment fund to New Zealander. They also offer superannuation, KiwiSaver, and insurance solutions. They are great for beginner to start because:

  • No minimum investment requirement – You can invest by making regular or lump sum payments to the scheme at any time. There is no minimum contribution amount.
  • Passive Index Fund – All investment fund with SuperLife are passive index funds. They either invest in a fund designed to track an index or in a number of assets for the long term. It is a cost-effective and diversified investment opinion with a proven result.
  • Low cost – The annual admin fee is $12/year (or $30/year if you want paper documents) which covers all fund in SuperLife. The management cost on each fund is around 0.39% – 0.94%, fees for the most popular funds is around 0.49%.  SuperLife’s fees are relatively low in New Zealand standard(2nd lowest in the country), and some aggressive funds and sector funds have the lowest cost in New Zealand. There is no joining fee, exit fee, and no cost for you add/close/or switch funds.
  • Flexible – SuperLife provides 40 different investment products on managed fund, sector fund and ETF. An investor can invest in a single fund or multiple funds with their own asset allocation. You can switch fund allocation on SuperLife website.
  • Web Site and App – Investors can log onto SuperLife website to check the performance and value of their holding. They’ve also got an iOS and Android App for that.
  • Simple Tax – SuperLife’s investment fund is a portfolio investment entity (PIE). The amount of tax you pay is based on your prescribed investor rate (PIR). SuperLife will pay the tax from your holding, and you don’t need to manage your tax return.
  • Lots of functions – Investors can make lump sum investments or regular contributions with direct debit from their bank account. You can organise your portfolio and allocation your contribution into different funds based on your preferred percentage. SuperLife can auto rebalance your portfolio, which is a great tool for the investor who wants to build a portfolio with their own asset allocation. It can also reinvest your dividends.
  • Owned by New Zealand Stock Exchange –  NZX is New Zealand stock market operator. They 100% own SuperLife. In my opinion, this makes SuperLife a very safe company.

Start with Index Fund

For those who don’t have a plan and want to start small and test it out, here are a couple Funds/ETF in Superlife I think are ideal for beginners.
SuperLife Age Step: This is a managed portfolio invested in multiple Vanguard ETF in both income and growth assets. The ratio between income and growth assets depends on your age. When you are young, over 90% of that portfolio is invested in growth assets (shares and property). It will increase the ratio of income assets (Bond and fixed income assets) as you age. If you join at 28 years old, 80% will be in growth assets, and 20% will be in income assets. On the other hand, if you join at 58, 60.5% will be in growth assets, 30% in income assets and 9.5% in cash.  This is a great fund to start especially if you aim for retirement. You can basically set it up and forget about it for decades. The management fees are 0.45%-0.52%.
NZ Top 50 ETF: This growth asset ETF is the same as FNZ from SmartShares. They invest in financial products listed on the NZX Main Board and is designed to track the return on the S&P/NZX 50 Portfolio Index. You are basically investing in the 50 biggest companies on New Zealand Stock Market. The concept is simple and easy to understand, so this is a great starting point for beginners. One disadvantage is this ETF is not as diversified as others because it is only invested in 50 companies in one country while other funds invest in between 100 to 7000+ companies all over the world. On the other hand, investors can take the tax advantage on local investing. You only need to pay tax on dividends and no tax on capital gain. The management fee is 0.49%.
Overseas Shares (Currency Hedged) Fund: This growth asset fund invests in shares in major stock markets all over the world via the Vanguard ETF. The number of companies included is over 7000. This fund is currency hedged, which reduces the currency fluctuations and exchange rate risk on the fund. The management fee is 0.48%.

Conclusion

  • Make sure you have a good financial foundation before you start investing. Clear your consumer debt, Join KiwiSaver, have an Emergency Fund and live on less than you make.
  • Best to start with a plan
  • If you don’t have a plan, start small while you make your plan.
  • The hardest part is getting started. By starting small, you make the first step so much easier.
  • SuperLife is the best place to start your investment in my opinion because there is no initial requirement, and it is diversified, low-cost, flexible and straightforward.
  • If you have no idea what fund to invest in, consider SuperLife Age Step, NZ top 50 ETF and Overseas Shares (Currency Hedged) Fund
  • Start small and START NOW!

Email thesmartandlazy@gmail.com or follow me on Twitter @thesmartandlazy if you have any questions.