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MoneyOctober 5, 2021

How to put safety first when DIY investing


Personal investing can be fun, but do your research, says Gillian Boyes from the Financial Markets Authority.

Investors have traditionally been viewed as those who’ve already got ahead, bought that first house and now have extra cash to invest. But this has all changed over the past few years with technology and innovation disrupting the old system and bringing us online investment platforms that enable fractionalised investments for as little as a few dollars. The growth and success of KiwiSaver also means millions of New Zealanders of all ages and incomes have experienced how investing works.

This is great to see, but investing via online platforms does come with some risks. Capable, confident and well-informed investors are an essential part of healthy financial markets, and it’s our job at the Financial Markets Authority (FMA) – Te Mana Tātai Hokohoko to help investors build this capability. This week is World Investor Week and the theme for New Zealand is “Investing FOMO? Take a Mo.”

It’s born out of FMA research looking at the impact of these new investing platforms. We found that many new investors were doing the right things: not risking too much, drip feeding their investments and taking a long-term approach to building wealth. Social media and new investing platforms are opening up investment opportunities like never before, which is also great for building wealth and knowledge across all our communities and age groups. They’re offering easy ways to connect, encourage and share ideas.

But dished up with all that inspiration and community is also a huge serving of memes, crazes, fads and hype. Extra time spent researching and carefully considering where to invest could end up earning you a lot more than jumping on the latest social media-powered investment bandwagon.

Most investors are making sensible decisions – they’re diversifying their portfolios and they’re doing their research. However, some are jumping into investments because they have a fear of missing out and some are jumping in without fully understanding what it is they are committing to.

We found 31% of investors said they jumped into an investment in the last two years because they didn’t want to miss out and 27% said they’d invested based on a recommendation from someone they know without doing their own research.

More generally, particularly for those more engaged in their investing lifestyle, the role of emotion came to the fore through the visceral enjoyment of the ups (and downs) in a way that was less present for less engaged investors. In some cases, the feeling of the gain was as important, if not more so, that the monetary value of the gain itself.

For the most part, people consider themselves rational investors. But they also realise that (in life, as in investing) emotions can sometimes get the better of them. Some of the newer investors in our online forum research acknowledged they’d been swayed by emotions in their investment choices (particularly in crypto and GameStop) – and their actions had cost them money.

It’s great that so many new people are getting into investing, particularly more women and the young. Now that more of us are plugged into these new platforms, let’s remember to take a moment, and check things out before putting your money into that latest attraction.

How to spend that extra time? We’ve come up with the “Five D’s of DIY Investing” that might help.

Do your due diligence, by researching the investment and making sure you understand what you’re investing in.

Drip feed your investments by adding a small amount each week or pay day rather than a lump sum to help you smooth out price fluctuations.

Diversify by investing in different things to spread the risk.

Don’t freak out when markets go down, it’s often best to stay the course.

And lastly if you’re in doubt, talk to a financial adviser who can help you choose the best option based on your own circumstances.

Keep going!