Intro

This lesson looks at the types of people who are best suited for investing in shares. It covers:
- investing in shares
- investing in funds
- how much you need to invest
- questions to consider before investing in a companyIt takes about 10 minutes to complete.

The legal bit

The information on this website is a starting point - we've linked to more information (and how to contact professional advisors) throughout the lessons if you need to know more.This is not investment, financial or tax advice.We try to make sure that information on the website is accurate and free from errors. However, to the maximum extent provided by law (but subject to your rights under the Consumer Guarantees Act), Aptitude and its personnel:
- Do not make any representations, or give any warranties, that the information is accurate, free from errors or is suitable for you.
- Do not accept any liability to you whatsoever (and however arising) for any loss or damage you incur in connection with the contents of, or your use of any of information contained in, the website.Aptitude is the trading name of Ninja Orange Ltd in relation to these lessons.

• Start

Investing directly in shares

Before you make any investment, it’s important to consider your personal situation and why you’re investing. Investing directly in shares could be an option if you:- want to invest in individual companies
- have time to do research – including initial research to decide what to buy, and follow up research to keep an eye on performance (for example, through following your investments in the news, reading their annual reports and attending their annual meetings)
- understand the risk – shares are higher risk than other types of investment and there is no guarantee you will make money, and you may lose money.Investing directly gives you greater control of your investments, but also requires more effort to keep aware of news and updates.

• Next

Investing in a fund

Over the long term, diversified portfolios (spreading your investments around, not all in one thing) of investments may outperform other types of investment. Prices can fluctuate significantly and suddenly drop in value, which means you may not get the price you want at the time you need to sell.If you want to invest in shares, but don’t have time or interest in doing your own research, managed funds or Exchange Traded Funds (ETFs) are another option.When you invest in a managed fund or ETF, your money is pooled with other investors' and the fund manager chooses the shares (and other assets) on your behalf. If you’re in KiwiSaver, you’re likely already in a managed fund.If you invest in a fund, you buy units, rather than shares. These units do not come with the same rights as being a shareholder directly.

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How much do you need to invest?

Typically when you invest in a company directly you have to buy a minimum number of shares. But you don’t have to invest a lot to get started – Sharesies advertises opportunities to start investing for as little as $5.Some people start by just putting a small amount of money into one or two companies they’re familiar with. This can give you experience investing in shares while limiting the risk of investing larger amounts.

If you want to receive a regular dividend from your shares you need to check the company’s policy for this – not all companies pay dividends, even when they are doing well.You can find this type of information in the product disclosure statement (if there is one available) and on the company’s website. It’s useful to balance this by getting independent information from other sources, like online searches.Learn more about product disclosure statements in the Financial Markets Authority info on product disclosure statements here.

• Next

Three questions

This section looks at three questions to consider before investing in a company.

1. Do you understand the company and its strategy?

Before you invest, it's a good idea to learn what the company does and how it makes money, what its strategy is, and the experience of its leadership team.Things you may want to check about the leadership team include:- Do they have a good mix of skills?
- Are their qualifications and experience relevant for the role?
- Have they been involved in any company failures?
- How are they paid?
- Do they own shares in the company?

2. How is the company performing?

It is important to understand a company’s finances before you invest in a new share offer. Companies making a regulated offer must give you a product disclosure statement.This explains how the investment works, gives an overview of the company, warns you of the risks and enables you to make an informed decision. Before you invest in a new share offer, read our guide to selected financial information.

3. Is the share price reasonable?

If you’re choosing between two or more shares and want to work out which is better value for money, valuation ratios and multiples can be handy if used carefully. Learn about ratios in in the FMA's guide here. These ratios are published in newspapers’ business pages, analyst reports and product disclosure statements.While ratios are important, they only measure share prices relative to earnings or dividends at a particular point in time and shouldn’t be the only information you rely on. Consider the long-term prospects of the company as well.

• Next

1. Owning shares guarantees that you'll make money.

• No, there is always risk
• Yes! I'll make heaps

2. Having this type of investment means you can vote for directors

• Shares in a company
• Units of a fund

3. Having this type of investment means someone else makes investment decisions on your behalf.

• Shares in a company
• Units of a fund
• Neither shares nor units

You're all done

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Well done!

Well done on completing this lesson, we hope you enjoyed it!Ready for the next one?