After reading part one of our investing explainer, you hopefully now have an understanding of what a ‘stock’ and ‘share’ is. 

Here in part two, finance expert and BNZ private banker Paul Cho is back to answer the rest of your questions.

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

Paul shares his steps for picking the right investment when you’re new to investing, and how you can boost your investments even more once you get going.

What kinds of investments should I start with?

First, Paul says you need to understand your risk tolerance.

“At the end of the day, you want to ensure you can sleep at night, right?”

This quiz from Sorted (which is run by the government-funded independent agency Te Ara Ahunga Ora Retirement Commission) can help you figure out your risk profile based on things like how regularly you need income from your investments, and whether you can tolerate ups and downs in your investments.

Paul says a managed fund or ETF might be a good starting place for someone with a lower risk tolerance or a new investor.

“When you're buying shares in individual companies, you're putting your money into just a few businesses. So if one of them doesn't do well, it can hurt your investments quite a bit. 

“ETFs or managed funds offer a simpler way to invest, especially if you're just starting out. They help reduce risk and save you from having to become an expert right away.”

Paul says the added benefit of managed funds is that “professionals handle the heavy lifting, so you don't need to worry about monitoring the markets.”

While investing in individual companies can be rewarding if you’ve done your homework and are lucky, Paul says to remember investing is “not about trying to time the market perfectly – which no one can do or we'd all be billionaires.”

“It’s about having time in the market, so generally the longer you stay invested, the more you may benefit from returns on your investment.”

How do I avoid losing everything in a huge crash like you see in the movies?

First, diversify your investments, Paul says. This means not just investing in one thing, because if that goes wrong, you had all your eggs in that one basket.

Second, think about the long term.

“Markets will go up and down, but with historic data, [the market] usually grows over time. So by investing for the long haul, you give your money a chance to recover from crashes and grow.”

Third, have an emergency fund as detailed in part one.

Lastly, stick to your plan and “don't make sudden changes based on short term market volatility.”

How do I find out if it is an ethical investment? I’m worried my money could be going to weapons companies or things that are bad for the environment.

Paul recommends the Mindful Money website as a starting point for your research for independent information on both individual companies and funds, which is run by a charity that shares information about ethical investments.

And keep asking questions.

“Don't be shy about asking your fund manager or provider directly.”

You can also keep a lookout for “ESG funds”.

“ESG stands for environmental, social and governance. These types of funds are designed to be more ethical and often avoid harmful industries.”

I currently have some money invested in ETFs and invest each week. What more can I do to invest better? 

(Don’t know what an ETF is? Read part one of this explainer.)

Making a regular contribution into an ETF is already a great start, Paul says.

To improve your investing strategy, Paul has these tips.

Diversify more

“Try investing in different kinds of ETFs, like ones that focus on different industries such as technology, healthcare, or across international markets.”

Check whether your investments align with your goals

“Think about what you're saving for. Maybe it's retirement or simply to grow your money and feel more financial freedom. Make sure the ETFs you pick help you move closer to these goals. Some ETFs are better for longer term return, while others might give you more steady income.”

Watch out for the fees

“Every ETF has a fee. So it's a good idea to compare fees between similar ETFs to make sure you're not paying too much.”

Keep learning

“Always try to educate yourself along your financial journey to be on top of the game and make necessary adjustments for your investments as needed.”

As you progress in your investing journey, Paul’s parting words are to keep on top of his initial advice from part one.

Know your money personality and master your budget – because “you can’t build a house on sand”.

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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