I’ve spent some time over the last few weeks getting new people set up on Sharesies. As a fan of the platform, it’s been my pleasure to see people lift off on their investment journey. So where to begin?
I won’t go into all the platform comparisons as Moneyhub have done a great job on that, but I will tell you where you could start. I’m just sharing my experience so please seek independent financial advice as there is always a risk with investing. There is also a risk you might lose your job or get struck by lightning but people get funny about investments. Disclosure.
Buy an ETF
An exchange traded fund or index is the easiest, safest and most cost effective way for a new investor to sow into a market. Warren Buffet has advised new investors for decades to buy index funds and continue to add money to them to harness the power of compounding. Picking stocks is challenging and not for the novice investor. (I do pick stocks with the help of a paid stock picking service but I’ll explain that in another post).
An exchange traded fund or ETF is a basket of securities that trades on an exchange. If that’s confusing stay with me, I’ll explain with an example. Register a new Sharesies account. You’ll need ID such as a driver’s licence or passport to ensure you’re not an evil money launderer.
Go into Sharesies Invest and press ‘ETFs’
You’ll see a whole list of symbols come up with names like Vanguard, Ark, iShares and Schwab.
So which one to choose? After reading ‘The Little Book of Common Sense Investing’ by John Bogle (the creator of index funds) I decided to go with Vanguard (his company) and an ETF called VTI or Vanguard Total Stock Market Index. VTI follows an indexing approach which represents 99.5% or more of the total market of all the common stocks traded on the New York and American Stock exchanges.
Wow. So what does that mean? It means that it’s an extremely diversified fund with over 3500 stocks in the basket. The three biggest holdings are Microsoft, Apple and Amazon so you can tell your friends you have shares in Apple! The other big advantage of a Vanguard index fund is the low fees structure. So instead of paying fund managers millions, you pay a small percent (0.03%) and that’s it. I have other ETFs as well but my biggest holding is in VTI.
So I drop all my savings in there?
No. Always have an emergency fund of about 6 months living expenses. If you are saving for something like a house deposit you may be better off with a bank term deposit (I know, stink interest) but ETFs are a medium to long term investment and you don’t want to have to sell on a dip. You can start with smaller amounts and even set up and auto-invest on Sharesies like an automatic payment to keep adding to your ETF. Because my example is US, I need to convert my money to US dollars first in the Sharesies wallet. Then I can put a Buy order on. If you’re not sure about this part just try a Market Buy and start with a small amount to test, say a couple of hundred dollars.
How much money do I make?
Returns on my example, VTI have been around 7.12% since it started in 2001. So as you can see, much better than a term deposit in a bank and a great way to learn about investing.
Can I buy a New Zealand ETF?
Yes. There are over 30 Kiwi ETFs on Sharesies if you want to invest locally.
Now what do I do?
Because the ETFs are traded, you can monitor performance on an app like Yahoo Finance or in your Sharesies dashboard. Just add the symbol (e.g. VTI) and you can see how your seed is growing. Don’t touch it! Try to leave it for as long as you can (years not months) and add to it with regular contributions.
Congratulations. You’ve taken the Buffet/Bogle path of wisdom and invested in an index fund to compound your money. Welcome to the markets.