If you’re looking for ways to grow your wealth, you may be considering buying shares on the New Zealand Stock Exchange (NZX). But if you’re just getting started, working out how to trade on the NZX can be a little daunting.
This guide explores what the NZX is, the difference between trading and investing, and the ways you can invest in the NZX.
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What is the NZX?
The NZX is the New Zealand Stock Exchange. There are more than 180 securities listed on the exchange, including some of New Zealand’s largest businesses as well as many from overseas.
What is the NZX 50?
The main index for the NZX is the NZX 50. Also known as the NZ50, this index tracks the performance of the top 50 companies listed on the NZX by market capitalisation. It includes companies like Fletcher Building, Fisher & Paykel, Air New Zealand and Spark New Zealand.
The value of the NZX 50 is influenced by a range of factors, including:
- Fluctuations in the value of shares in individual companies included in the index
- Economic conditions and investor sentiment. For example, the COVID-19 pandemic has had a huge impact on share markets around the world
- Company financial results, which are released every six months
- The performance of the NZ dollar
- Falling or rising interest rates
Should I trade or invest on the NZX?
Before you spend any money, you’ll need to answer one important question: Am I an investor or a trader? While these two terms sound similar, they’re actually quite different.
Investing is a long-term strategy. The aim is to buy shares now and sell them for a profit at a later date, riding out any market ups and downs along the way. For example, let’s say you bought 1,000 Air New Zealand shares at $1.45 each in June 2005, spending $1,450. If you then sold them in June 2015 at $2.55 a share, you would have made a profit of $1,100 (excluding brokerage fees).
Trading involves buying and selling shares over a much smaller time period. The aim is basically to make frequent buy and sell trades to take advantage of short-term price movements. For example, a trader might buy a stock and then sell it within the same day, perhaps even in the space of minutes.
Each approach has its pros and cons, so you’ll need to consider the potential rewards on offer and the risks involved before trading or investing.
|Long-term profit||Short-term profit|
|Buy and hold for an extended period||Buy and sell frequently|
|Lower risk||Higher risk|
Buying and selling shares on the NZX
The simplest and most common way to trade or invest on the NZX is to buy and sell shares. You can do this by opening an account with an online share trading platform that offers access to the NZX.
You can make your first share trade by completing the following steps:
- Choose a share trading platform and open an account.
- Select the company in which you want to buy shares.
- Enter the number of shares you want to buy — you can buy at the best price currently available, or set up an order that will execute when the price you want becomes available.
- Pay for the transaction. This will include paying brokerage fees to the share trading platform.
- Monitor the performance of your shares based on your trading or investment strategy.
For a detailed breakdown of the steps involved, check out our guide on how to buy shares online.
Other ways to invest on the NZX
There are other ways to include NZX investments in your portfolio than buying shares in a company.
Exchange traded funds (ETFs)
An ETF is an investment fund that can be bought and sold on stock exchanges like the NZX. The fund features a basket of securities, such as stocks, and are designed to track the performance of a specific index (such as the NZX 50) or commodity (such as gold).
Take the Smartshares NZ Top 50 ETF as an example. This fund is designed to track the value of the S&P/NZX 50 Portfolio Index.
Investing in ETFs is just as easy as buying shares in a company. Once you’ve found an ETF that meets your investment goals, you can buy units through an online share trading platform or broker.
Another way to gain exposure to companies listed on the NZX is to invest in a managed fund. If you choose this approach, your money will be combined with that of other investors and invested on your behalf by the fund manager.
There are many investment companies offering managed funds that invest in shares listed on the NZX. You can access a fund directly through the investment company or through online investing platforms like Kernel Wealth and Sharesies.
If you’ve got a KiwiSaver account, it’s likely that some of your money is invested in the NZX. However, under this voluntary savings scheme, the portion of your balance that’s invested in the NZX depends on the fund you choose. This will in turn depend on your risk profile and your investment goals.
If you’re an NZ resident and an employee, you’ll most likely be automatically signed up for a KiwiSaver account when you start a new job. Self-employed and unemployed people can sign up by getting in touch with a KiwiSaver provider.
It’s pretty simple and straightforward to buy and sell shares on the NZX, while ETFs and managed funds also offer exposure to companies listed on the exchange.
But before you part with any money, make sure you’ve settled on a trading or investment strategy and that you’re aware of the risks involved.
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