Starting out in investing may seem a bit daunting, but it’s also an exciting adventure! Imagine your money not just sitting idle but actually growing and working towards your future dreams.
Let's break it down and talk about the why of investing (and how!)
What’s Your Investing Why?
- To Make Money: You might invest to grow your money without a specific goal in mind.
- To Feel Good: You might put your money into companies you love or believe in to support them.
- To Get Closer To A Future Goal: Whether dreaming of financial freedom, owning your own home, or paying for education, investing can help you get there.
The Basics of Investing in New Zealand
When you’re surfing the investing wave, there are four main types of investments you could include on the ride:
- Cash: It’s safe but it also grows quite slowly and over the long run the return is likely to be less than the cost of other stuff rising (inflation).
- Fixed Interest: These are like bonds, which are loans to companies or the government. These can go up and down but in the long run grow your money faster than cash.
- Property: Renting out a house or building – with big risks (like flooding, tenants not paying or building maintenance) and higher expected long-term growth to go with it.
- Shares: Which is owning part of a company, with potential for big ups and downs but also with a higher expected still long run return to go with it.
As each type has its own risks and rewards, the right mix for you will depend on when you need your savings in the future and how comfortable you are with the size of the ups and downs your money is experiencing.
Should You Just Use a Savings Account?
Nope! While it’s good to have some savings for emergencies, investing is key to growing your wealth. Keeping money in the share market helps you earn compound interest – that's money making more money!
Start Early, Reap More
The earlier you start investing, the more your money can grow. Check out this graph to see how starting young can really pay off.
Wrap Up
This image beautifully illustrates the power of starting early when it comes to investing. Investor 1, who begins investing at age 25 and stops after just 10 years, ends up with significantly more wealth by age 65 compared to Investor 2, who starts at 35 and contributes consistently for 30 years. The message is clear: the earlier you start, the better your chances of maximizing compounding returns, even if you invest for a shorter period. It's all about letting time and compound interest do the heavy lifting.