How to Invest in Shares: A Step-by-Step for Beginners

The hardest part of growing your wealth is making the first investment. Our guide walks you through the process, step-by-step, to give you the confidence to make regular investments.

Investing doesn't need to be complicated. To help you out we've listed the most commonly asked questions for someone looking to start investing. 

Yes! Investing with a small amount of money can usually mean you can’t diversify and therefore your risk is higher. Thankfully, New Zealand offers some fantastic platforms which have very low minimum investments. Popular and well-regarded options include InvestNow ($250 minimum), Sharesies (no minimum), Hatch (no minimum) and Kernel ($10 per fund minimum). 

The funds offered by these platforms solve the diversification issue, and therefore offer lower risk, because they hold many different shares within a single fund.

Yes, but you’ll need to understand upfront that shares are a long-term investment. This means that you’ll need to be comfortable leaving your money for at least five years. Share markets go up and down all the time, but five years is a significant time for any negative returns to be balanced out by positive share market performance.

​Yes – but doing so is time-consuming and often expensive by way of brokerage fees. You’ll need to research countless companies and make a decision about whether or not to invest. You’ll need to follow the market overall, looking for undervalued opportunities. And you’ll need to make a lot of decisions – when to buy, when to sell etc.
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For the reasons stated, an index fund or ETF follow the market, and if a company underperforms, its share price will drop, and the index fund or ETF will sell down its holding. This means the investment will hold more ‘performing’ shares and minimise the ‘underperforming’ shares, without you having to decide to buy or sell.

There are two critical questions - how long do you want to invest for, and how much do you want to risk? If you’re looking to invest for less than five years, shares are not suitable given the risk of losing money in a relatively short space of time. A better alternative would be investing in term deposits or bank call accounts. This way, the money you invest will be protected, earn interest and be there when you need it.

If you’re investing for your retirement, most KiwiSaver schemes and investment managers will suggest you invest the majority of your money in the share market. This is because the share market is historically proven to provide the best long-term returns. Anyone investing on their own is likely to follow this approach.

​In terms of risk, the share market goes up and down. Between 2014 and 2019 the NZX 50 index doubled from around 5,500 to 11,000, meaning anyone investing over that period would have doubled their money. However, past performance is no indication of future returns, and share markets can quickly drop 10%, 20% or even more if there is a market event.

​While we don’t offer financial advice, and we can’t publish recommendations of any particular companies, diversification is arguably the best way to invest. This includes buying shares through an index fund or ETF – for example, an NZX50 fund that holds all the shares in the NZX 50. You can buy into one fund or a number of funds to give greater diversity.

If you’re determined to pick shares one by one, you’ll unlikely see consistent profits unless you’re an experienced investor. If you want to test your share trading skills, many financial journalists suggest allocating 10% (or less) of your investment portfolio to individual shares will protect you from shares which don’t deliver.

• To find out which shares have performed well recently, visit Trading View’s NZX Best Performers (click on ‘Performance’) to see which shares have risen the most in the last six months.
• Remember – past performance (i.e. increases in a share price) is no guarantee of future returns.

​We believe shares are an excellent investment for beginners, but ‘trading’ is usually not appropriate for anyone who isn’t experienced. Buying and holding shares in well-respected companies, exchange-traded funds like Smartshares and/or investment funds like Simplicity Investments is likely to deliver the best returns in the long run.

Share trading, on the other hand, is something that requires complete dedication and ongoing research. Share traders regularly buy shares they see as undervalued and hold them to sell them at a profit later. They actively research the market looking for opportunities.

Know this first

• The goal of share market investing is, for most people, to buy low and sell high.
• Picking one share to do this is high risk, while investment diversification is a proven way to achieve positive returns.
• History has proven that a portfolio of shares in several companies held for the long term is one of the best ways to invest.