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How to invest in the S&P/NZX 50 Index
There are multiple ways to invest in New Zealand’s S&P/NZX 50 Index. That’s why we’ve compiled this page to help you learn more about the index and guide you through how to invest in it.
Where can I buy into the S&P/NZX 50 Index?
What is the S&P/NZX 50 Index?
It is the benchmark stock market index of New Zealand. Introduced in 2003, the index consists of the 50 biggest stocks listed on the New Zealand Stock Market, as measured by market capitalisation. The companies tracked by the index include real estate investment trusts, air freight firms, health care equipment makers, and electric utilities providers.
Is it a good investment?
That’s up to you to decide, but it does offer some interesting potential benefits for investors. New Zealand has a fast-growing economy, and this index offers an opportunity to invest in the country’s 50 biggest stocks and benefit from this growth.
Granted, the market capitalisation of the entire 50-stock index is a relatively modest NZ$170 billion, so the index doesn’t approach the Dow Jones Industrial Average or FTSE 100 in terms of size or impact. Instead, it is best thought of as a good option for investors looking to reap the rewards of linking their investment to an economy with a lot of growth potential in the coming years.
How do I invest in the S&P/NZX 50 Index?
Here are three steps that will get you going as you prepare to invest:
- Choose an investment type
- Use our top tips to succeed
- Choose a platform to invest with
1. Choose investment type
The investment type you choose should match up with your personal investment goals. Here’s a look at the different methods you can use to invest:
An ETF (exchange-traded fund) is an investment fund that can be traded on a stock exchange during regular trading hours. This means they can be traded like an individual stock, but instead are composed of a more diverse range of assets. The NZX 50 ETF will include all the stocks from he index. Usually, ETFs contain a group of assets such as numerous commodities or bonds. ETFs are inexpensive to trade, a plus for investors of all stripes.
You can also choose to buy lots of individual stocks within the index in separate trades, either investing in all 50 of them or at least a large number of them. The goal would then be to sell the worst-performing stocks one by one until you’re left with a smaller group of top holdings. Of course, this investing method takes more time, and will also incur some extra costs as the number of trades rack up. Unless you’re very selective and can afford to spend a lot of time and money, you can probably do better using a different approach.
Mutual funds are managed by a fund manager and pool money from a variety of investors in order to invest money in everyone’s best interest, such as following the index. You can buy a mutual fund (also called an index fund) through either a broker or the company that administers the fund. Keep in mind that mutual funds can only be bought and sold at the end of the stock market’s trading day, and they cost more to trade and to own than ETFs do. With this in mind, it’s best to use an ETF if you’re planning on trading in the short term, but mutual funds make sense if you’re looking to buy and hold for a long time.
2. Use our top tips to be a successful investor
Check out our top tips on how to become a successful investor. Bear these in mind to give you the best chance of success when investing.
- Do your research. Becoming a highly successful investor takes lots of patience, and study. Start by studying how the index has performed both recently and historically, then compare how investing in this particular index stacks up to other investments. After that, you’ll have an idea of whether it’s right for you and you can map out your personal investment plan. Having a plan ahead of time will help you keep your cool even when market conditions become volatile.
- Set a budget. Before you invest, you need to figure out your personal risk tolerance, as well as the amount of money you can afford to lose. To manage your risk, set a stop-loss order after you make your investment. That way you can limit the size of your potential loss if your investment doesn’t work out and the index plummets into a bear market.
- Select the right platform. The investing platform you pick should match up with your personal investment goals. If getting the lowest transaction fees is the most important factor, you should probably choose an online broker. If you want lots of hand-holding throughout the investment process, consider going with a financial advisor.
- Grow your investments gradually. Every investor makes mistakes, and beginners tend to make the most mistakes. So start slowly by investing just a small amount of money at first. You can raise the size of your bets as you get better and more experienced at investing.
- Think long-term. When thinking long-term, a buy-and-hold approach could be your best bet. Stick to investing during bull markets, as a buy-and-hold strategy tends to fail during bear markets, as indices usually take a tumble at these times.
3. Choose a platform to invest with
You have multiple options when it comes to choosing trading platforms. The most popular places to invest in the index are detailed below:
- Brokers & trading platforms. When trading with an online broker, you get access to a suite of easy-to-use investing tools that allow you to trade seamlessly and inexpensively. If you’re a less independent investor who wants more help, you could try a different approach, because online brokers don’t typically provide customised investment advice.
- Robo advisors. Robo advisors execute trades automatically, through the use of algorithms. Some robo advisors will also allow you to discuss investment strategy with a human being to help you craft the best possible strategy. Another positive is that it’s usually fairly inexpensive to trade through a robo advisor – but the fees are still likely to be higher than you’ll find on a broker. Robo advisors don’t offer the same level of investment guidance that a top financial advisor does, though.
- Financial advisors. Financial advisors offer the most hands-on investment advice. They’ll go over your financial goals, explain the pros and cons of different investment options, and help you build an investment plan that makes sense for you. Financial advisors charge a premium for this high level of service, however. That extra cost can sometimes be worth it, but considering that investing in any index nowadays is pretty simple, you can probably choose a cheaper option instead.
- Banks. Investing with your bank gives you the convenience of keeping all of your financial ventures (such as your checking account, savings account, mortgage, line of credit, and investments) with one financial institution. The problem is that banks tend to charge high fees, and that for these extra charges you really only get the convenience of having everything in one place, without access to the levels of advice you’ll get from a financial advisor. So unless convenience is your most important consideration, you can probably save money investing somewhere else.
Ready? Here’s our top recommended broker
What should I do now?
If you’re ready to invest in the S&P/NZX 50, it’s simple. Log into your chosen platform’s website, select the type of investment you want to use to invest, then click the buy button.
Try some of our investment courses for beginners
Not quite there yet? Don’t sweat it. You can improve your investing skills by reading the easy-to-understand investing courses and informative news updates offered here at Invezz.com.
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Fact-checking & references
Our editors fact-check all content to ensure compliance with our strict editorial policy. The information in this article is supported by the following reliable sources.
Invezz is a place where people can find reliable, unbiased information about finance, trading, and investing – but we do not offer financial advice and users should always carry out their own research. The assets covered on this website, including stocks, cryptocurrencies, and commodities can be highly volatile and new investors often lose money. Success in the financial markets is not guaranteed, and users should never invest more than they can afford to lose. You should consider your own personal circumstances and take the time to explore all your options before making any investment. Read our risk disclaimer >