When I talk about investing, normally people think shares, stocks and The Wolf of Wall Street. While these methods are what I am going to mostly focus on, there are a million other ways that you can make your money work for you, instead of working for your money. Buying a second house to rent out is one, vending machines are another. The basic idea is the same – secure an income while you sleep or do other things.
Typically, people tend to take a portion of their salary and squirrel it away in a savings account. This is still a good idea, and if you don’t have a savings account yet, I suggest you get one. Normally this savings account should be your runway – 6 months to a year of your expenses. The only issue with savings accounts is the return. Your money is sitting and earning a meagre 2% interest at best and then being taxed as well.
Investing is also a gamble on the future. You’re doing something now that you believe will pay off in the future. This ability of looking to the future and being able to plan for multiple outcomes is one of the things that separates us from the animals, and allowed us to conquer the world.
But why do I invest? And why shares?
My reason is a simple one. I believe that at the end of the day, time is all we have. We sell our time day-by-day to earn money that allows us to dictate what we do with the time left over. We work for 40 hours a week so that in our spare time we can trade spent time for something yummy. We’re not completely free until we have the freedom to dictate our time. And we’re not really wealthy if we’re still trading 1 unit of time for 1 unit of currency. True wealth comes when 1 unit of currency earns 2 units of currency. And that is what shares are – money making money. Or look at it like assets increasing in value.
So I invest to secure my financial future and to one day be the master of my own schedule. But why shares? With a million other things to invest in, shares seem extra risky.
The answer is simple. And I can show you in a few graphs… First here is the NZSE 50 – the 50 biggest companies of New Zealand – over the last year. That big dip there, thats the effects of Covid. It looks pretty big right? It certainly shook a lot of people and made everyone’s Kiwi-Saver dip. In fact, we’re still to feel the full effects of this dip, but its coming.
Now lets look at the NZSE 50 over the course of 5 years… That scary Covid dip is still rather large – a testement to what shutting down the econemy looks like – but over all, the graph has still gone up. Things will take a while to bounce back to normal, this is a given. But just look – how ever quickly the dip came, look at how quickly it bounced back…
And that’s the rub. That’s the secret sauce (in most cases). The stock market will always trend upwards. And always quicker than inflation. Of course, there are risky shares that never recover, as I’ll show you when I get to talking about my portfolio.
And now, lets look at the whole New Zealand market compared to the NZSE 50. The NZSE 50 is the blue, and it’s an indication of the biggest and best performing companies in New Zealand. The red line is the S&P NZX All Gross – pretty much the entire New Zealand stock market aggregated. Firstly the 1-year graph. Covid looks big and scary, doesn’t it?
And now the 5 year graph… Covid is still looking scary, but not nearly as terrible. Its still showing its impact though, and this scar will run deep for at least the next 2 years…
Bit lets go back further – here is the 20 year graph. January 2001 to March 2020. You can see the global financial crises in 2008 and the bounce back from that recession.
What I am saying is that the stock market always goes up. It always has and always will. I don’t know why or how, but not knowing why the game is played doesn’t mean you still can’t play the game.
And that is why shares. Its money making money. From money increasing (and decreasing if you make silly decisions) in value, to dividends paid out and reinvestments, stocks are a great way to secure your financial future, even when it doesn’t look like it can.
If you have any questions, I’d love to answer them. I look forward to going into more in-depth in the next one. I’ll show you how I invest – the tools, the site and what I look for. And maybe even explain some jargon.
And now I must put this in for the legal reasons…
I am not a financial advisor. All advice is taken with this in mind. I do not benefit from you using the same platform I do, or using a different one. I do not have any insider knowledge of any company listed. Everything I will talk about – from the tools to the news – will be as available to me as it is to you. Again: I am not a financial advisor and never will be.
