How to decide what shares to buy

Investing in shares can seem daunting at first. However, it doesn’t need to be. With a little know-how and the right resources, you can make informed decisions about what shares might be right for you.
This guide will walk you through a way you can approach buying and selling shares and some of the things to think about on the way.

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Shares as an investment

Investments generally fall into four asset classes: Cash, Bonds, Property and Shares. Each have their advantages and risks, and they can all play a part in an investment strategy.

Long-term growth or short-term gain? You decide

Some investors think shares are best suited to long-term investing. That’s because while share prices do go up and down regularly, the historical trend has been upward over time. Other traders choose to actively monitor the market and trade often in hope of a short-term gain.

It’s important to remember that while shares may produce a profit, they could also return a loss. Understanding your investor profile and how you feel about risk can help you determine your approach to share trading.

Spreading your investments to help manage risk

Diversifying’ is a way of managing risk and smoothing out the overall ups and downs. The intention of diversification is that the positive performance of some investments can help offset negative or lesser performance of other assets, therefore aiming to give a more positive overall return.

Within shares, you can further diversify between different industries, countries and companies. This gives you even more ways to manage your risk within your investment strategy.

Start planning by looking at your goals

Deciding whether share trading is right for you starts with understanding what’s important to you. If you know what you want to achieve, it can make choosing which shares to consider easier. So begin by asking these five questions:

1. What are my financial goals?

Are you looking to grow your wealth over time, create an income for today, or make some short term gains? If you want to do a bit of everything, what would be the right balance for you?

Understanding your goals will influence what shares you might invest in. It could also guide which strategies you use, such as buy and hold.

2. What are my personal circumstances?

Are you saving for a child’s education or looking towards your retirement? What’s happening in your life can help shape what shares you might buy, and when you might sell them.

3. What’s my timeframe?

How long do you plan to invest for? Shares are generally better suited for investing over the long-term. However, some investors have a shorter timeframe and may choose to actively monitor the market and trade often, in hope of a short-term gain.

4. How much risk am I comfortable with?

All investments carry risk. When investing in shares, you may need to accept more risk than some other options like a term investment, but you may be able to access greater returns as well. Taking on risk means you’ll need to be prepared for a profit or loss. You can get a better idea of your risk appetite by working out your investor profile.

5. Do I need advice?

If you feel you need advice, you can always talk to an Authorised Financial Adviser. They will work with you to understand what you are hoping to achieve, and provide advice on the right investments for you. You may also wish to seek advice from legal or tax specialists about the best way to organise your investments.

Choosing what shares to buy

To make life easier, start by looking at companies you’re familiar with. If you know what business they’re in and how they make money, you’ll have a better idea of what shares might be a good investment for you.

Use these insights to create a shortlist and start building your knowledge from there:

  • Follow the latest business news

    Staying up to date with business news is a great way to learn more about the companies and industries you’re interested in. You can also learn about what events affect them. We offer a range of business, economic and market news which you can subscribe to receive by email.

  • Make the most of online tools and resources

    Start by doing some research on the companies you are interested in. Within Online Share Trading, you can access company information, announcements, charts, independent market research and expert analysis.

  • Look at how the company is performing as a business

    Review a company's published reports, such as the annual report, profit and loss statement and balance sheet. You’ll normally find these lodged with the Companies Office.

    Understanding these documents will help you recognise how a company is performing, its financial position or outlook and how the entity is governed and managed. You can use this information to help you decide if you want to invest, or continue investing, in this company.

  • Track how a company’s shares are performing

    Create a watchlist of companies you are interested in with ASB Securities to monitor how they’re tracking and develop an idea of what price would be right for you to invest at.

How to compare shares

To compare share performance look at things that are important to your goals. For instance, you might want to consider the company’s financial position or if they have the potential to expand their business. Some of the things you can look at include:

  • Earnings per share
    This helps you work out how much income the company generates per issued share.
  • Price Earnings ratio or P/E
    This lets you see how much of the share price is backed up by earnings.
  • Dividend yield
    This is a measure of the cash flow you’re getting back for the money you’re investing. This might be key if your investment goal is to supplement your income.
  • Return on equity
    This measure shows how well a company is making a return on their investments.

You’ll find this information and more available in the Morningstar reports, which you can access through Online Share Trading. This information can be used in a variety of ways and because each trader has different goals, you will need to form your own opinion on what’s important to you and why. A good place to start is by doing a Google search on the terms above or visiting a site like the Financial Markets Authority.

Map out your investment plan

With your goals set and your research done, you’re ready to prepare your share investment strategy.

Mapping out your investment strategy, and writing it down, can help you stay focused and guide your decisions. Some things you might want to define include:

  • What shares to buy?
  • How much to invest?
  • What price to buy at?
  • What price to sell at if a share goes above or below a certain price?

Having a written strategy will help review your investments. This is something you’ll want to do regularly to ensure it reflects your current approach to investing.

Next steps

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ASB Securities Limited is an NZX firm. When you trade on the NZX markets through ASB Securities you must comply with NZX rules as outlined in the ASB Securities Trading Conduct for Online Share trading. ASB Securities terms and conditions apply. Pricing data supplied by ASX and/or NZX. ASB Cash Management Account, ASB Foreign Currency Account, ASB Margin Lending and ASB Term Deposits are provided by ASB Bank Limited. ASB term's apply. Rates and fees may change. Refer to asb.co.nz for other fees and charges. This page does not have regard to the financial situation or needs of any reader. As individual circumstances differ, you should seek appropriate professional advice. See the ASB Securities glossary for share trading and investment terms or Morningstar for research terms. 

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