Share investing can be easy

Finance Minister Michael Cullen wants more people to buy shares. Here's how you go about it.

Q: What are shares?

A: When you buy a share you get a small slice of a company such as Telecom NZ. As a result of your ownership you are usually paid a portion of the profits as dividends. If the share price goes up, you can also benefit from a capital gain when you sell.

Q: What is the difference between shares and funds?

A: A fund pools your money with that of other people and invests it across a range of companies. You can choose to invest in managed funds that concentrate on a certain sector, geographical region or style of investing, or passive funds, which aim to track the ups and downs of a stock exchange index by holding the same numbers of each share as the index they are tracking.

Q: How do I buy shares and managed funds?

A: You can buy shares listed on the NZX through a stockbroker. Passive or "Exchange Traded Funds" such as the FONZ and MOZY can be bought in the same way as ordinary shares. To buy a managed fund you can do this through a financial planner, direct from the fund provider such as Liontamer or Fisher Funds or buy via websites such as FundSource (see link below).

Q: What does it cost?

A: ASB Securities' online share dealing services - one of the cheapest around - costs $29.45 per trade including a stock exchange fee. If you wanted to speak to a real live stockbroker at a firm such as First NZ Capital you would pay around 1 per cent for your trade, subject to a $50 minimum and the $5 stock exchange fee. Managed funds typically charge an up-front fee, which can be around 5 per cent and also an annual management fee. These charges can eat into the long-term growth.

Q: Do I need to have a lot of money to invest in shares?

A: You can spend as little as a few hundred dollars on a parcel of shares. However, the dealing charges and stock market charge makes it more economic to buy larger parcels of shares and funds.

Q: Are shares risky?

A: Unless you buy a capital guaranteed fund, you risk losing some or all of the money you invest in the stock market. Companies' share prices can crash, profits and consequently dividends can suffer and companies can go bankrupt. As a general rule of thumb, the higher the return, the higher the risk. But providing you spread your investments wisely, the risk can be managed.

Q: Isn't it safer to put my money in the bank?

A: If you deposit money in term deposits or savings accounts you're unlikely to lose it. Nor will it keep pace with inflation. Over the long term, the stock exchange is seen as providing a better return.

Q: Can I invest in overseas shares?

A: Diversifying some of your investments out of the New Zealand market can help spread the risk. You can buy overseas shares through stockbrokers here - but the charges can be unpalatable. If you prefer, you can open an account with a share trading service in the country you wish to buy shares in. You may find it easier to buy units in a NZ-based managed fund that invests overseas.

Q: How do I learn more about shares?

A: Read books, follow online discussions at websites such as Sharechat (see link below), attend seminars and take an interest in the news published in the business section of the Herald and other publications.

* Diana Clement is a freelance journalist who writes regularly for the the Weekend Herald's money section.