The world of investing can feel mysterious. It’s easy to assume you need lots of money to begin or a special ability to read complicated spreadsheets. 

This article is part of our new series Finance Explained, sponsored by BNZ.

However, BNZ private banker Paul Cho – whose job involves giving people advice on how to invest – says “starting small is perfectly fine”.

To demystify the world of investing and prove it’s not just for finance nerds and the rich, we enlisted Paul to answer your investing questions.

This is part one of two, covering basics like how to build a strong foundation so you’re ready to start investing. 

I hear people talking about investing all the time but I have no idea where to start.

Before jumping into investing, Paul always advises his clients to first understand their money personality and nail down their budget.

Understand your money personality:

“Over the years working with clients, I could see a strong relationship with emotions and their finances.

Paul says that by gaining a deep understanding of how you react in different financial situations – in other words, your “money personality” – you can avoid pitfalls that you might be prone to.

Online quizzes such as this one from Sorted can help you get started.

Build a budget you can sustain:

It feels basic and not as exciting as diving into stocks and shares, but it needs to be done.

Paul says it can be tough, but he always tells clients to try and live below their means.

“If you're living paycheck to paycheck, it might be worthwhile to open up an Excel spreadsheet and start creating a budget that works for you.

“Remember, it's not about how much money you make; it's about how much money you keep to save and invest.”

What financial position should I be in to consider investing? Can I start if I mostly live week-to-week?

The first thing to tick off before you consider investing is to have an emergency fund. This should be enough to cover any unexpected bills, says Paul.

He adds that a common approach is to start investing once you have around three months worth of expenses set aside.

You should also pay off any high interest debt you have, such as credit cards or personal loans, and make sure you have no outstanding Buy Now Pay Later payments.

Once you’ve tackled those, Paul says you can start to do your research and consider investing, even with a “modest income”.

“The key is to invest money that you don't need for immediate expenses, money you can set aside for the long term.

“Investing $5 or $10 regularly can still be effective.”

Start small, and as you learn more and your financial situation improves, you can gradually increase your contributions to your investments, Paul says.

It’s scary and I don’t trust anyone. Where do you find trusted places to invest?

It can be scary out there and these days “scams have gone through the roof,” Paul says.

He adds that anything promising crazy returns is a red flag.

Stick to well-established investment platforms and companies with strong track records, Paul advises.

He suggests starting your research on the Sorted website (which is run by the government-funded independent agency Te Ara Ahunga Ora Retirement Commission), and then looking on Mindful Money (a charity that shares information about ethical investments) and Morningstar (an investment research company offering analysis, ratings, tools and data) for insights and evaluations of the investment options out there.

Would you recommend investing apps?

Paul says there are lots of investing platforms online such as Sharesies, Hatch and InvestNow that make investing more accessible.

You can also check out managed funds offered by your bank as many of these can be opened online within your banking app. Managed funds offer another way to get started with a diversified portfolio of assets (more on this below!). 

Can you explain the difference between shares, managed funds, ETFs and index funds?

Shares - “Owning a small piece of a company. If the company does well, the value of your shares might go up. If not, vice versa. ‘Stock’ is more or less another word for shares.”

Managed funds - “A pool of money from investors. Behind the scenes, a fund manager uses these funds to buy a variety of investments depending on how the fund is set up. You buy into the fund and the fund manager makes the investment decisions for you.”

ETFs or exchange-traded funds - “Very similar to managed funds, but they trade on stock exchanges… Think of it like a big basket that holds a bunch of different investments, and you can buy and sell this basket on the stock market, just like you would with stocks or shares.”

Index funds - Both managed funds and ETFs can be index funds, which means they track an index like the S&P 500 which is made up of 500 of the largest companies in the US. Paul says this “gives you a way to invest in a broad market or sector”.

So which one of those options is best for me? Come back later this week for part two of our investing AMA with Paul where he answers that, and your questions on ethical investing and risk.

This article contains general information only, not financial or professional advice. BNZ is not liable for any losses resulting from this article.

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