Buying shares in 27 minutes...
I have to be honest here. I had absolutely no idea at all how to invest in shares up until a few short years ago. Now, I consider myself to be of reasonable intelligence. Basic maths I can do and for the rest I am clever enough to reach for a calculator. I can understand cumulative interest and the concept of money making money. I understand that when I buy a share I am buying a ‘share’ of that company and that if they do well, so do I and if they do poorly, well sucks to be me! I had been doing a fair amount of reading about investing in shares in New Zealand and knew the time had come to push the ‘go’ button and buy some. But I had no idea at all how to go about it. Are you like me? Interested but unsure where to begin. If so, I think this blog is going to be helpful for you today.
My journey started with “which company should I invest in”? Following along with the principal of ‘only invest in what you know about’ I bought shares in Meridian Energy when the company floated on the NZX a few years back. I became one of John Key’s ‘Mum and Dad investors’ that he kept banging on about. Having been a customer of Meridian for years I liked their renewable energy stance and when I turn on the lights at home the (energy efficient) bulbs light up. WOW, I know SO MUCH about the energy sector huh! From everything I have since learned that is not quite enough to really understand the company I am buying into. I think I might class myself as an Inguesstor (a guessing investor)!
Based on my superior knowledge of the energy sector I soon started to search around for something else to invest in but I was drawing a blank. As my everyday acquaintances and friends are not likely to discuss their share portfolios over the water cooler I was not really picking up any top tips. I’m just not being exposed to up and coming sure to succeed companies in Central Otago. What to do, what to do?
That was when I started to hear about Warren Buffett and his “Million Dollar experiment”. He has a 10 year wager on the table that the S&P (Standard and Poor’s) 500 Index fund (an index fund of 500 stocks listed on the US stock exchange the NASDAQ or NYSE) he has invested in will out perform New York money managers Protege Partner’s who, using a team of stock picking experts, has invested in extremely closely and carefully managed funds. They have both invested the same amount but whereas Buffett has invested in an unmanaged, broad-market, low fee Index fund and essentially just sits back and lets it happen the other guy is really actively managing his investments. They are in their seventh year and Buffett’s investment is up 63% and Protege is up 19%. At the end of the experiment the winner has a charity of choice that will receive $1 million (or more).
These Index Funds sounded like a way for me to get involved without reading and god forbid understanding the annual reports of every company involved. The good advice I heard was to not spend every waking hour following a company (like Protege Partner’s do) and then attempting to buy at the right time. I’m busy enough without doing that. And it’s impossible to know when ‘the right time’ actually is. That is why we have the word hindsight right? So, I reached out to find out what I could about Index Funds in New Zealand. Among other articles I discovered Elizabeth Kerr who is an excellent ‘plain English’ writer for Interest.co.nz. She did a couple of articles on investing in Index Funds which I completely understood and she mentioned a product called Smartshares. So, I looked them up and got very excited!
It basically works like this. Instead of buying 50 shares in an individual company such as Meridian Energy you buy 50 shares in a 50 different companies, thereby creating an Index Fund. So, instead of putting all of your eggs in one basket, you put an egg in 50 baskets etc. With each basket representing a different company and leading to your investment being much more diversified. Without any help from brokers you can invest in what the market calls a “Passive Exchange Traded Fund” or ETF for short. Your money is spread across a group of companies with one single purchase. Your investment is adjusted according to adjustments in the index. If the individual companies stocks rises or falls then so does your investment but as it is a collective you are far less exposed.
Smartshares launched in 1996 with a single fund (TNZ) and has since grown to 23 Exchange Traded Funds (ETF’s) that are listed on the NZX (New Zealand Stock Exchange). The funds all vary but are made up of cash, bonds, shares or property. You don’t need an authorised financial advisor (AFA) to buy them, you can buy directly so you limit the fees you pay. Each of the funds has a breakdown of what they are invested in or you can find additional information on www.nzx.com and look under their ticker code (e.g. TNZ). Currently I’m invested in the FNZ fund but what I like about it is that I can invest in funds around the world more easily if I wanted to. Investing around the world has always been possible but it needed a level of expertise that I didn’t have and with the current world volatility I don’t think I want to at the moment anyway.
I carefully read about all of the funds, some have more historical information that others because they have been around longer. I get up really early but my husband does not. I would charge myself up on coffee, read all the pro’s and con’s of various ETF’s and give him a fascinating and detailed synopsis on them when he staggered out of bed. Safe to say he said “just do whatever you like” as he headed for the coffee pot!
After my initial enthusiasm reached fever pitch and I began the process to buy I didn’t have a good experience at all. I almost gave up and bought a house in Auckland as an investment instead as that seems the only investing we Kiwi’s understand right? At the time of buying my first Smartshares it was complicated, lengthy, required some of the application on line, the rest by mail. I gave up a few times but eventually went back. I eventually got my shares but the notes I took in the hope of sharing in a blog to help others don’t make good reading.
HOWEVER, YOU WILL BE PLEASED TO HEAR that things have improved greatly since I signed up. I wanted to sign up from scratch again so I could record the process but as I’m already in the system I could not. But Mr Saver is not an investor… so I’m going to sign him up instead.
But it is a gorgeous Central Otago day, we had snow on the hills over the weekend and now the weak sun and blue sky is calling me to go outside. My dog is staring at me through the window indicating he wants another walk. I’m a busy person and I’m sure you are too. So my plan is to see HOW FAST I can sign Mr Saver up to become an investor in shares.
Right! Start the clock. Here we go, let’s do this!
- Go to www.smartshares.co.nz
- Have his IRD number and New Zealand Driver’s Licence ready
- Click on “Invest Now”
- Click “Apply Online”
- Follow the prompts and fill out the form. Mr Saver does not have a CSN (common shareholder number) so I’m leaving it blank. This will be allocated once the application is complete. They will also send a FIN (faster identification number) which is similar to the four digit pin you use with your bank
- He will reinvest dividend payouts to buy more shares
- Today he has decided to buy into MDZ fund and to start with an initial investment of only $500. This is the minimum. http://smartshares.co.nz/types-of-funds/smartmedium/mdz
- At about this point he received an email from Smartshares with an investment statement for the MDZ fund he has applied for along with a unique code needed to complete the application (the code will be valid for seven days)
- Enter all of his details as they ask for them
- Paste the code they emailed into the correct box and review the document he has created
10.27am... Application complete and sent online! Boom!
They received it and immediately confirmed his application in an email also outlining that a CSN number is yet to be allocated. They also pointed out who to contact should he wish to start monthly direct debits (as I do with my Smartshares) so he can have a regular savings plan. Minimum monthly investment is $50. They process these DD on (or about) the 20th of each month and the units will be allocated on or about the 1st of the new month. The new investment will show up on or about the 3rd of the new month. It also pointed to where he can view his current holdings once he has received his CSN and FIN numbers: http://investorcentre.linkmarketservices.co.nz/Login
I gave Smartshares a quick call to ask when his CSN number will be sent and they explained it will be emailed (along with the FIN identification code) when his units are allocated.
BUT WAIT! The one hitch in this super speedy plan is that because he has applied after the 20th of the month (July), his units won’t be allocated until beginning of September and they will be based on the end of month unit price. If you are always in a hurry as I generally am just make sure you apply PRIOR to the 20th of the month in order to get things cracking at the start of the next month. You have to take a punt that the price will be favourable on the day the units are issued!
All done in 27 minutes and this included making a coffee and zipping out to throw some scraps to my chickens (two eggs today, yay!) AND explaining what I have just done for Mr Saver.
After buying shares in Meridian I found Smartshares to be an excellent opportunity to get me into regular share investing. From everything I have listened to and read I think that sticking with Index Funds is actually the far better strategy for someone such as myself. Maybe if I took the time to learn more I could pick individual companies better but for now I’m happy to follow how they are performing on the NZX and my regular monthly investments into the fund have created another long term savings avenue for my whanau.
In a future blog I will be turning around and selling Mr Saver’s shares as that is something I have never done and I’m really keen to work out how to go about it. They promise me it is as easy as buying them and based on today’s experiment I’m feeling pretty confident. I also intend to talk more about share investing in general in the coming months. Enjoy your day, I’m off to walk the dog now.
Since writing this a subscriber has let me know that he had to take an additional step. Because he did not have a NZ passport or drivers licence he had to get himself authenticated by a Justice of the Peace (JP) and send that signed paperwork to Smartshares. That would have been enough to get me to throw my hands up in the air in frustration and give up, but he persevered and has now completed the process and is buying shares. It took him a bit longer to sign up so good on him!
Berkshire Hathaway (Warren Buffett) letter to shareholders. It is really long so start from Page 17.
A brief (10 minute) outline of Index Funds. Two years old now but still clear, concise and relevant:
Planet Money Episode 657: The Tale Of The Onion King