Investing – it’s an intimidating-sounding term that, for some reason, women have historically been apprehensive about doing. But if you’re like us at Capsule and you’re keen to make 2022 the year you begin your financial freedom journey, then here’s your beginner’s guide to investing!
Capsule spoke to co-founder of New Zealand’s #1 business podcast Girls That Invest Simran Kaur and asked the basic questions – so you don’t have to!
From how much money you need at the start, what platform to use and how to actually decide on what to invest in, here’s your beginner’s guide to investing, sorted!
(Note: all specific financial advice is based upon the article’s original release date, which is January 2022)
So, you want to start investing – where do you start?
The first step when it comes to investing is getting your money in order. It’s a bit of a pain but it’s not advised to begin investing if you have high consumer debt, such as a large credit card bill that is overdue. Once that is sorted it’s worth looking at how much you make and where your money is going. When we have a better idea of our finances we understand how much we can actually put aside to save and how much to put aside to invest.
Once the foundational stuff is out of the way, the first question to ask yourself is, ‘What kind of risk profile do I have as an investor?’ And then, ask yourself if you ok with your stocks going up and down a lot (where it’s high risk and high reward) or would you prefer to see less risk and less rewards? This risk profile will help determine what investments you should begin with.
The next step is deciding how long you want to invest for. Most investors put money into the stock market with the impression that they’ll leave it there until retirement. Some people invest for more shorter term goals like their children’s college fund or home deposit.
A rule of thumb is that you don’t want to put money into the stock market, you need three to five years as the market can be volatile in the short term, but in the longer term this often smooths out, hence why many people invest for greater lengths of time.
Do you recommend a particular investing platform?
In New Zealand we are so spoilt for choice when it comes to investing; Sharesies, Hatch, Stake & Kernel are a few of the newest investing platforms on the block and they’ve made investing more accessible than ever.
All of the above allow you to invest in the US share market, which is where you’ll find the world’s biggest brands or funds.
To answer your question, the best platform depends on how often you’re planning to invest and what you deicide to invest in. For example a platform, with $3 fee every time you invest may not be a good option if you only invest $10 a week, and you’re probably better off with a platform that takes a percentage fee instead. However, if you’re investing larger amounts then the $3 flat fee makes more sense – it really depends!
One of the most common issues our listeners run into is deciding which platform to choose – at the end of the day getting started is more important than choosing the best platform.
For the average person, what’s the best amount of money to begin with? And is it worth getting started with small amounts on these platforms?
Back in the day you may have heard of the $10,000 amount being thrown around. In the past to invest in a mutual fund (a basket filled with lots of different companies, e.g like a basket of tech companies like Apple, Amazon, Google etc) you needed at least a few thousand to access the mutual fund.
Now, you can invest with as little as a $1 as you can buy fractional shares (a percentage of a share). However many of our community members ask if this is the best idea. If you invest $10 into Facebook and the fee to invest is $3, your stock needs to make $3 just to break even. As a result, it’s ideal for beginners to start off with at least $100-500 to overcome the cost of fees.
Should you diversify straight away?
Absolutely – you’d hate to be the person who only had airline and hotel stocks in 2020 when Covid hit, but you wouldn’t be so upset if you also had Zoom and Microsoft stocks!
Diversifying stocks doesn’t have to be a difficult task, in fact it’s one of the most easiest strategies to adopt when you begin investing. Rather than trying to buy lots of individual stocks to diversify your pool of stocks, most investors hold ETFS or Exchange Traded Funds. These are baskets of funds that contain 20 through to thousands of stocks across many different sectors.
ETFs that follow index funds are a cult classic, and the Estee Lauder Double Wear Foundation (ie the old faithful) of the ETF world is the S&P500. These are the top 500 companies in the US all within one fund. So when you buy 1 ETF of the S&P500 you are instantly getting a small part of all 500 companies, thus giving you significant diversification within the US market.
If you had $5,000 to invest, what would you do with it?
My investing risk appetite might be a bit higher than average, but I would split it as follows:
85% I would put into the Vanguard S&P500 (VOO)
10% I would split across individual companies after I’ve done my research, like looking at their balance, cash flow & income statements. Some companies I have my eyes on (but may not be good investments at this moment in time) currently include Shopify, Square, Tesla & Disney.
5% I would put in more speculative investments, such as cryptocurrency. I don’t have much faith in alternative coins such as Dogecoin, but I do see a future for Bitcoin and Ethereum to become useful in the future, and thus have some level of intrinsic value.
Should you invest in things you feel passionate about?
There is a fine line between investing in what you’re passionate in, and then accidentally investing too much of your portfolio into certain sectors and not diversifying enough.
For example I love tech; it’s my guilty pleasure. However if I only invested in tech I would be in a lot of trouble if for some reason the tech sector dropped down in value. It would be wise to invest some of my money in tech but to also spread it across other sectors like education, energy, banking, healthcare and real estate.
Should investing in companies who align with your values be a priority?
This is such a good question; it is important to invest in companies you believe in and those that align with your morals and values. This is called ESG investing, which stands for Environmental, Social and Governance investing. Companies have an ESG score (usually ranging from 1-100) where you can see if they meet your values or not. It’s a bit like an ethical scale for clothing manufacturers.
Back in the day ESG was considered a bit of a fad, but now it’s a legitimate investment strategy.
How do you know if you’re investing in an ethical company?
There are a number of ways to check if a company is ethical or not, one of the easiest ways is to search the company on Yahoo’s finance website and look at the sustainability tab. For example Amazon, a highly controversial company, only has a rating of 31/100 – and a 3/5 scale for being controversial.
Yahoo Finance also lets you know if the company is involved in a number of unethical practises such as animal testing, controversial weapons, palm oil, for example.
What is something most people don’t know about investing that you wish they did?
I wish more people knew just how underwhelming and simple it is. I take about one or two hours a month to go over my investments, and there’s not a lot of research that is involved after you get the initial foundational knowledge down. So many of our masterclass students have spoken about just how simple investing concepts are once they’re explained well and without the jargon and intimidation!
What are some exciting companies you think people should look into when it comes to investing?
There are a few IPO’s coming out next year which we are all really looking forward to seeing. An IPO is when a company goes from a private company (like your local café) to a public one whose shares you can buy and sell. These don’t mean we think they’re a great investment, but definitely worth doing your research on:
a) Stripe is one we’ve been keeping an eye on. If you’ve shopped online you’ve probably used stripes software to input your credit card details.
b) Airtable is hoping to IPO in 2022. Founded in 2012 it’s a cloud-based organisation software that many companies are picking up, especially with the use of remote work (I use it myself!. It’s used by large companies including Netflix & Shopify.
c) Discord is another IPO we have our eyes on, valued at $15b after only being live for six years, it has more than 150 million active users a month and will definitely be interesting to watch.
What’s the biggest mistake people make when investing?
There is only one mistake women are making when it comes to investing, and that is not starting soon enough. Money media has made investing seem so difficult and so overwhelming, but it couldn’t be more untrue. I find motivating myself to go for a run more difficult than investing in the stock market!
We really need more attention given to women and their money, there have been many systemic disadvantages women have faced, where only a few decades ago we couldn’t open a bank account or get a mortgage in our own names. Times have rapidly changed, but it’s important for us to not be hard on ourselves and our financial literacy (or lack thereof). All we can do is acknowledge the past and work towards empowering ourselves and our future generations through financial education.
The above is the opinion of Girls That Invest, and not necessarily those of Capsule and are not intended to replace those of your personal financial advisor. As always with investing, do your research and make informed decisions!