The world of investing is a big one. And for many of us it goes into the “too hard” basket. It also doesn’t help that the field is filled with jargon and confusing concepts.
However, there are some basics that are handy for everyone to know – given most of us are already investing regularly as a member of a KiwiSaver scheme like SBS Wealth.
What is investing
Investing is, in the simplest terms, a method of building your wealth and savings so you can achieve your financial goals and get the most out of life. But instead of putting your money into a savings account in the bank (which grows slowly), you buy assets that grow in value (like a share in company) or earn income over time (like a bond issued by a company).
Shares
A share in a company represents a proportion of ownership in that company. While the share does not automatically entitle you to a proportion of the net assets and profits of that company, it is usually tradeable, and you will be entitled to your proportion of any dividends declared by the company in respect of that class of shares. Some years company profit is really good, some years it may be less so – therefore the earning potential can be high but so can be the risks. Higher earnings generated by the company usually means that your share will be more valuable. Growth funds, such as our SBS Wealth High Growth Fund, tend to invest in stocks for this reason.
Bonds
Bonds on the other hand are loans made by an investor to a borrower such as a company or government. They’re used to help finance projects that organisations and governments would not otherwise have the money for, such as new projects, maintaining ongoing operations, or refinancing existing debts. In return for this, the borrower promises to pay back the investment, with interest, over a certain period of time. The earning potential of bonds are generally higher than bank term deposits and lower than stocks, but so are the risks with this type of investment – the SBS Wealth Income Fund invests in bonds for this reason.
Returns
The change in price and value of these assets over time is called a return. The aim is to earn a return that is greater than what you spent on the asset originally, as well as the return being greater than any fees, taxes, and inflation over the period you hold the investment. Through this, you can grow your wealth to meet your financial goals.
But investing isn’t completely risk free. The general rule of thumb is the greater the desired return, the greater the risk that you may lose some or even all your initial investment.
- The Team at SBS Wealth
Disclaimer
SBS Wealth Limited ("SBS Wealth") is a wholly owned subsidiary of Southland Building Society, operating as "SBS Bank" and is the issuer and manager of the SBS Wealth KiwiSaver Scheme and SBS Wealth Investment Funds (collectively the Funds). SBS Wealth is a Class 2 Financial Advice Provider. A copy of our Financial Advice Provider Disclosure Statement is available at www.sbswealth.co.nz. Investments in the Scheme do not represent deposits or liabilities of SBS Wealth or its parent SBS Bank (or any other member of the SBS Bank group) and are subject to investment risk. The investment risk includes possible delays in repayment and loss of income or contributions invested. Historical returns are no guarantee of future performance. The principal and returns of the Scheme (including its capital value and performance) are not guaranteed or secured in any way by SBS Wealth or by its parent SBS Bank (or any other member of the SBS Bank group), the Government, or any other person. You can find information about our complaints and dispute resolution process and our regulatory duties in our disclosure statement here. Our Privacy Policy can be found here. This information is of a general nature only. It has not been prepared with regard to the individual needs of any member and does not constitute financial advice.
