Frances Cook: Investing a little in shares is a matter of small simple steps

Keen to invest some cash but don't know where to start? Here are four simple steps for beginners. By Frances Cook

If your New Year’s resolution is to finally become an investor, you’re not alone.

Every year, countless people pledge to get their finances in order, only to stumble at the starting line.

After all, investing can seem a bit mysterious if you’ve never done it before. Surely it’s for dudes in suits, or those who are already rich, and want to become even richer?

The good news is that investing is accessible to more people than ever before, and is actually a key way to create wealth and financial stability in the first place.

You do, however, need a few key guardrails in order to get started successfully.

Before you even think about which stocks to buy or which fund to invest in, make sure your financial base is rock-solid.

Investing, at its core, is a long-term game. It’s best for money that will stay put, working hard for you, for 5-10 years or more.

The worst thing you can do is get involved in the markets and then suddenly need to pull out your money because your car broke down or you lost your job. Emergencies happen, and you don’t want to sabotage your investments by tapping into them at the wrong time.

Start by paying off any high-interest debt – credit cards, car loans, payday loans.

These debts, often with double-digit interest rates, are a millstone around your neck that can drag you down. Clearing them is a double win, as it frees up money that you can eventually funnel into your investments.

Next, build an emergency fund with at least three to six months’ worth of essential living expenses tucked away in a safe, easy-to-access savings account.

This isn’t about making a profit; it’s about having a safety net so you don’t have to derail your investment plans if life throws you a curveball.

Sorting out your financial foundations means you can put your best foot forward to invest, without immediately stubbing your toe.

It’s true that knowledge is power. Understanding the basics can help you stay confident and on track, even as life takes its normal unexpected twists and turns.

But in reality, investing isn’t too complicated, and trying to feel perfectly ready could mean waiting on the sidelines forever, a victim of analysis paralysis.

Pick some legitimate information sources, such as a couple of books from the library or a podcast to give yourself a regular dose of knowledge and motivation.

If you find it’s a year later, and you still haven’t made any actual moves, give yourself a prod.

You don’t expect yourself to become an absolute authority on other areas before you start, so give yourself the same permission with your money.

Starting small and imperfect, is fine. You can keep learning as you go. But you do want to get going.

One of the secrets of the money world is that the simplest tactics tend to work the best.

Getting complicated feels like you’re doing more, and should get you ahead faster, but usually it just backfires instead.

I advise people to make the most of the KiwiSaver system (so you get the free government and employer contributions). Its name is misleading – KiwiSaver is really an investment.

And then, if you want to look at investing beyond that, a reliable strategy is “dollar-cost averaging,” which is just a fancy term for investing a fixed amount of money at regular intervals, regardless of what’s going on in the market or economy.

Set up an autopayment of whatever amount you can regularly afford, for the day after you’re paid. It doesn’t matter whether it’s $10, $20, or $50. What matters is that it’s an amount you can stick to.

Then put that into investments each time, like clockwork. Money builds up surprisingly quickly with this method, and it stops you from falling into the trap of trying to figure out if the sharemarket is going to go up or down. Generally, it doesn’t matter over the long run (it’s usually a waiting game until it goes back up again). But it does matter if you spook yourself, don’t put anything in at all, and miss out entirely.

This approach also helps you build something even more powerful: a habit. You’re steadily adding to your investments, watching them grow, and learning how markets behave, all without the stress of second-guessing your every move.

Consistency over perfection.

You’ll often hear financial gurus talking about the importance of “diversification”. All that means is, don’t put all your eggs in one basket. It’s a core rule of investing, and here’s why.

Putting money into the share market is really just about buying up a piece of a business. You give them money, become part owner, and in return get a little piece of the profit they make in the course of business.

But of course, business can be tough. Businesses can, and do, fail. Does the entire economy keel over at once, though? No.

So it’s smart to make sure you’ve got your money spread across hundreds of companies, working in different types of businesses, maybe even in different countries.

One or two may, sadly, be sniped out. The rest keep soldiering on, and making money for you.

What’s an easy way to do spread your money like that? A fund.

Something like an index fund can invest you into the top companies around the world, or the top 50 in New Zealand, or the top 200 in Australia, and all for very low fees.

They’re a smart way to get started, and reduce your risk from the start.

Information in this column is general in nature and should not be taken as individual financial advice.