Teach me about investing... the very basics

[Smokering]

DH and I aren't exactly financially savvy. We don't have any debt, he makes a decent income and we're not huge spenders (although we do seem to spend a lot on food!). But we've been married for four years and haven't really managed to save anything for a house, except for a tiny amount in DH's KiwiSaver account (a government retirement scheme thing - you're only allowed to withdraw the money once before retirement, for buying your first house). We now have a few spare thousands in the bank, with the likelihood of more coming now that DH's home business is flourishing, and DH mentioned that we should probably invest it. Which sounds both fun and scarily adult. :p And I have absolutely no idea where to start.

So.

1. How much money is needed to make a worthwhile investment? $1000? $5000? $10,000? More?

2. What the heck do we invest in???

I don't want to invest in big evil companies of the Walmart variety. I like the idea of investing in trees for lumber, but I have no idea if it's financially viable or just a pleasingly pastoral idea. I've heard of buying gold bullion, but I don't know anything about that either.

Can anyone give me a very basic rundown of investments, or point me to a good online resource on the subject?

Thanks! :)

ETA: Ooh, what about Pixar? I like Pixar. Although they're now linked to Disney, about which I have extremely mixed feelings. Could one buy shares in Pixar that were unrelated to Disney?

[gumshoegirl007]

Well, the first three things to think about is what do you want to put this money aside for, when do you need it and how risk tolerant are you (if you lose it all, will you be okay without it).

For example, if you were putting money aside for an emergency fund, this is cash that you're not planning on spending, but may need it at any time if the need arises.  You want this to remain liquid, and you don't want to risk losing any of it.  So, you may put it in a high interest savings account or a GIC.  There's no risk associated with the principal (the initial amount you invest) and there's no cost to you for this investment.  However, as interest rates are so low, you will only earn modest interest.  That's okay because your main goal is to keep the cash safe and easily accessible.

If this was investment money that you were putting aside for retirement, you'd likely take a different approach since you need this money to grow for when you retire in 20 or 30 years.  You'd need to balance how much you're comfortable losing against your probable gains.  This is way more complicated than I make it seem here, but essentially you want to build a portfolio balanced against your needs that has a cash, income and equity components (ie, my retirement portfolio is 10% cash, 15% bonds, 75% national and international equity).  I've opted to invest in ETFs, as opposed to mutual funds and individuals stocks because of the high management expense fees on mutual funds and brokerage fees on individual stocks and my lack of knowledge on being able to successfully pick out good stocks that will give me broad market exposure.  Since this is a long-term investment, I can currently tolerate losing money because I think in 30 years from now when I need this cash, I'll be ahead.  IN 2008, most of us lost 30-60% of the value of our portfolios.

You can invest any amount (usually need $500 for basic investments), but I'd suggest figuring out how much you have to invest, the purpose for this money and when you plan on needing it.  For the individual investor, jumping right into stocks is a pretty risky move in my opinion.

Note:  I'm a Canadian, so all my product knowledge is in Canadian terms.  I don't know what the New Zealand equivalents are.

[Smokering]

Hrmm. OK. Well, we'd like to keep some for retirement, and also maybe build up some money to use in a few years' time, for buying a house. I guess we'll save for a deposit by putting the money into the KiwiSaver, which does invest, but in a pretty low-risk, low-return way (although we could change that - they give you low-, medium- and high-risk options). But if there were a kind of investment which would give us a bit of extra money in 3-5 years or so, that'd be awesome too.

Can you tell me about ETFs? Like... what they are? :p I did some Googling, but this is all way over my head, honestly. We probably won't be investing for several months yet anyway, so I have time to learn... I'm just a bit lost as to where to begin! DH suggested I ring up the investment advisor from our bank - is that a good idea?

[RainbowTurtle]

ETFs are Exchange-Traded Funds.  They're funds (like baskets) that hold a variety of stocks and they are bought and sold on exchange.  So instead of gambling on one or two stocks, you get to hold a variety of them in one single fund, making ETFs much less risky than the stock market.

[Smokering]

Interesting! So it's like a pick-and-mix basket... some of them might be duds, but you'll probably get a few good ones? How does one go about buying those?

[gumshoegirl007]

ETFs track an entire market or sector.  You can buy bond ETFs, gold ETFs, stock exchange ETFs, real estate ETFs etc.  I don't know what you have in New Zealand, but in Canada the two biggest providers are iShares and Claymore.  Usually you have to set up a brokerage account in order to trade. 

With respect to the bank, since you're so new to investing, meeting with a financial advisor would be to your benefit.  They should be able to give you a good grasp of the basics and help you come up with a simple plan.  Just note that that banks typically will only sell you their investment products.  You can also hire a advisor to work on your behalf.  Some of these take a percentage of your portfolio and others provide flat fee service.