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Financial Markets Authority encourages retail investors to follow the '5 D’s of DIY investing' as part of world investor week push

Personal Finance
Financial Markets Authority encourages retail investors to follow the '5 D’s of DIY investing' as part of world investor week push

By Toby Allen

With many options available for DIY investors, it’s tempting to jump right in.

Platforms like ‘Sharesies’ and ‘Hatch’ make investing in specific companies or funds much more accessible for everyone. But it’s still important to avoid knee jerk decisions or getting caught up in the hype.

This week is world investor week and the Financial Markets Authority (FMA) - Te Mana Tātai Hokohoko - has put out some timely advice to keep your head screwed on when it comes to investing, even in the middle of a pandemic.

This year’s catchphrase ‘Investing FOMO? Take a mo…’ is a timely three deep breaths approach to our financial decisions at a time when we might already be feeling emotionally charged.

The FMA’s campaign focuses on the ‘5 D’s of DIY investing.’ Let’s unpack those a bit further.

A little knowledge goes a long way. The FMA promotes doing your due diligence. It is important to figure out if the investment type is right for you. Are you more comfortable with managed funds where most of the investment decisions are made for you, like KiwiSaver, or are you keen to cut your teeth on investments that allow you to take the wheel?

If you’re looking at a managed fund, check out its PDS (product disclosure statement). This will give you an idea of the components of the investment, such as cash, shares or property, and the level of risk.

Investments are personal and your own values do come into play here: you might also be interested in looking into aspects like sustainability practices and ethical investment.

If you’re looking at buying shares in a specific company, the numbers are important but so are the people behind them. It’s a good idea to get clued up on the company’s leadership team, the experience they bring and their general performance. Using annual reports to investigate this aspect gives you a sense of the ‘flavour’ of the company and whether they’re a good fit for your investment goals and in a position to enhance them.

One user friendly aspect of a fund like KiwiSaver is its ‘set and forget’ nature, particularly when it comes to contributions – these tick away in the background each payday.

The advice of the FMA is that the principle of drip feeding your investments is a good idea, even for the investments where you’re taking the wheel. Investing a lump sum in smaller lots at regular intervals means you’re spreading your risk and makes you less susceptible to a sudden downturn.

Diversifying your portfolio spreads your risk too. This ‘eggs in different baskets’ scenario means having a mix of elements like cash and bonds (lower returns, less risky) alongside property and shares (riskier in the short term but stronger gains over time).

It’s also important to keep an eye on the balance of risk in your portfolio and adjust it according to your needs over time. These factors usually align with when you may need the money, perhaps for purchasing a home or for approaching retirement.

As well as locking in your gains, it’s important to ensure you don’t lock in your losses. This one requires nerves of steel at times, along with the ability to think long-term. Seeing your investment take a dive is never a good feeling, but it’s better to ride the wave back up. Don’t freak out and cut your losses. Doing this usually means locking them in rather than giving your investment the opportunity to recover.

Your timeframe on withdrawing the money should be front of mind as you approach this one: if you need to access it soon, it’s preferable to adjust to a lower risk options and avoid those sleepless nights.

It’s also OK to put your hand up and ask for help if you’re in doubt. The FMA suggests you may benefit from financial advice. Articulating your financial goals helps you understand your own relationship with money and an experienced advisor will also give you personalised tips and feedback.

They’re also likely to notice aspects of your strategy you hadn’t considered before. As a bonus, they’ll probably find you the best deals.

Enjoy that investment driver’s seat, it’s a great place to be. But first pause, reflect then hit the road armed with knowledge.

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