I have some money I want to invest. What do I need to know?
There are many different ways you can invest your money, including property, the share market, commodities (e.g. gold), interest bearing savings accounts, and term deposits. How you decide to invest your money will ultimately depend on:
- how much money you have to invest
- how long you will invest it for
- whether you want to earn income from your investment or grow your investment
- whether you want to be able to get money out easily
- how much risk (of losing your investment) you can accept
You might also want to think about whether you prefer ethical investments i.e. in companies which aim to be environmentally or socially conscious.
For general advice and tips on choosing a suitable way to invest your money, you will find free and independent information in the Sorted guide to investment or the Financial Markets Authority web pages.
For more personalised advice you could look for a financial adviser. A specialist financial adviser can give you information and advice on investments you may be interested in. Financial advisers include financial planners, insurance companies, sharebrokers, banks, asset managers, independent advisers and some lawyers and accountants. You should shop around until you find a financial adviser that you feel comfortable with, who knows about the particular area in which you would like to invest. Read the next two questions for more information about financial advisers.
Does a financial adviser have to be qualified, or can anyone do it?
Many financial services organisations, e.g. banks, financial advisers, share brokers, accountants, insurance companies, and some law firms, have investment advisers who can help you invest your money.
Under the Financial Service Providers Act, everyone who provides, or offers to provide, a financial service is required to register on the Financial Service Providers Register (FSPR) as a Financial Service Provider.
The Act only allows for certain people to provide financial advice services, and there are different disclosure and conduct requirements according to the complexity of, and risk posed by, the advice given. Nobody can offer financial advice unless they are on the Financial Service Providers Register or are exempt under the Act.
There are three main types of financial advisers:
- Authorised Financial Advisers can advise you on complex investment products and offer to manage or plan your investment portfolio. Their licence sets out what types of products and services they may offer.
- Registered Financial Advisers can tell you about simple investments such as bank term deposits.
- Qualify Financial Entity advisers are people employed by a Qualifying Financial Entity to provide advice about the investment products which they are employed to tell you about e.g. insurance, bank term deposits, mortgages.
What should I look for when choosing a financial adviser?
First of all, if the adviser, is not on the register of Financial Service Providers (see the previous question), then move on to the next one.
When you approach a financial adviser they must provide you with a printed Disclosure Statement before they start to give you any advice.
The Disclosure Statement will tell you their contact details, describe the services they offer, provide a general description of how they are paid and provide other information about their obligations. The document will also tell you about their complaints procedure.
If you are using an Authorised Financial Advisor they must also give you disclosure about the exact service they are going to provide for you including what it will cost, and how you will be charged. They also need to tell you about any commission or other incentives they receive and anything else which might influence the advice they give you, or the products they recommend.
More advice on choosing a financial adviser is on this Financial Markets Authority web page and this Sorted page.
If you have a complaint to make about a financial adviser, see our Financial Services Complaints page.
How do I go about buying and selling shares? Do I need to go through a stock broker?
If you own shares in a company then you own part of the company. If the company makes a profit you’ll be paid a portion of the profits (this is called dividends). You can also earn money by selling your shares for more than you paid for them (or lose money by selling them for less!).
If you want to buy or sell shares listed on a stock exchange (whether it’s the New Zealand one, the Australian one, or that of another country) you generally need to do so through a registered share broker. There is a list of these on the NZX (New Zealand Stock Exchange) website. You can also look in the Yellow Pages or check with your bank.
Share brokers charge you a fee for buying or selling shares on your behalf (called a brokerage). Once you have signed up with a share broker, they can set you up with an account, and you will be able to buy and sell by phone or Internet. Some brokers offer advice and recommendations (though they may charge a higher brokerage), so if you’re a “newbie” in the stock market you might want to consider finding such a broker.
I received a letter – out of the blue - from someone offering to buy my shares – but they are offering less than what they’re worth. Should I take them up on their offer?
Some companies or organisations use this method to obtain shares cheaply from people who either don’t realise they are underselling their shares, or who could do with the money and like the fact that they won’t have to go through a share broker. These offers to buy your shares at low prices are called “low-ball” offers and the Financial Markets Authority has a brochure about it which you can download from their website.
It isn’t illegal for companies to do this, but think carefully before taking them up on the offer – if you don’t need the funds right now, you may as well wait to sell them at a better price through a share broker.
I’ve been putting money into a managed fund for years, and it seems to be worth less now than five years ago. What can I do?
When you invest in a managed fund, your money is combined with that of other investors and a fund manager puts it into a range of investments. This lets you spread the risk of your investments more widely than if you just invested in a property or one or two companies.
Fund managers charge regular fees for this service, and these will vary depending on the fund manager and the type of managed fund you sign up for. KiwiSaver is a type of managed fund.
If your managed fund isn’t performing as well as you’d hoped, it can be tempting to withdraw your funds and take it elsewhere. It would pay to check the terms of your investment contract though, because there might be restrictions about whether you can withdraw funds and how much you are allowed to withdraw. If you are able to withdraw your funds, they may charge you fees for doing so.
You should also remember that some investments may lose money over the short or medium term, but gain in the longer term.
It’s best to talk to your fund manager about your concerns and to discuss your options. If you have a financial adviser, they can also help you decide how to proceed.