Can’t Buy A House? Here's How To Invest

Financial journalist Frances Cook maps out a plan for financial security that doesn’t involve an unattainable home deposit

Photo / Babiche Martens

As house prices soar ever-higher, you could be forgiven for giving up entirely and thinking your financial future is doomed. But our ridiculous housing market doesn’t have to mean you give up on having financial security. Far from it. In fact, I would argue that a house isn’t even the best way to look after your money.

There are other ways to build financial independence that are simpler, easier to get started and give you more options as you go through life.

My favourite has to be investing in shares. Shares are fabulous because you can start with as little as $5, your money starts growing straight away, and the best investing tactic is to simply leave it alone.

Rather than scrimping and saving to pull together a $100,000 deposit, only to find that you now need $200,000, shares let you start with what you can afford today. Then they start making money for you.

Rocketing house prices have grabbed headlines over the past few years because of deposit requirements, and our nation’s property obsession. But shares have been quietly beavering away in the background, and over the past 10 years, they actually made more money than property. When you invest in shares, you’ve become a business owner. You have bought a little piece of the business, your “share” of it.

Now you’re entitled to a little piece of the profits (in the form of dividends, given out twice a year), and your share could also become more valuable as the business itself grows and becomes more valuable. Two ways to make money, which is twice as nice for your wallet.

Shares and a house?
I’ve called shares the first-home buyer’s saviour before and I meant it. They give you options so you can build the type of future you’re after, whether that includes a house or not. You can use them to either help you into your first home, or to give you the stability to rent forever, without the financial stress.

If you’re happy to rent forever, you can invest your money into shares instead. They’ll grow in value, and give you a nest egg to live off in the future, including retirement. If you change your mind at a certain point, and would like to buy a house, shares will let you do that too.

As I mentioned before, shares have actually grown in value more than housing over the past few years. So rather than saving cash and feeling like you can never keep up, shares will keep growing your money, and could even catch you up to deposit requirements over a few years.

The power of women investing
The mental image of share trading for many of us is an older white man, who monitors his spreadsheets every day, occasionally shouting into a phone as he gives orders to buy and sell. Although that works to make an exciting movie scene, the reality is entirely different.

What works for most people is to pick a certain amount they can afford to invest after each pay, set up an autopayment to a shares account, and then leave it alone for at least five to 10 years. While it’s tempting to think that you’ll do better by shifting money around constantly, buying and selling to get the best price, it turns out that even the professionals aren’t very good at this.

You get charged extra fees every time you buy and sell, which eats into your profits, and we’ll often make those selling decisions based on emotion, rather than the cold, hard, facts we convince ourselves we’re operating on.
So in fact, you’re better to just put it in, and leave it alone. It also turns out that women are better at investing in shares than men.

Because women tend to learn the above rules, and then stick to them. There have been lots of different studies, and most of them confirm that women are less likely to invest, but when they do, they’re better at it.

Some even put women as making 10-15 per cent higher profits than men each year, just because women are more willing to put their money into shares and then leave them alone.

It feels wrong that doing less earns you more money, but there it is. The hardest part is convincing yourself just to do it, and stick to it. No spending your profits on the fees for extra buying and selling. No trying to beat the market by constantly shuffling your investments around. Just an autopayment with each pay, that goes in and stays in, is what helps women make more money when they invest.

Warning signs
This isn’t to claim everything is roses. There are some pitfalls to avoid, as always. One is to understand that the sharemarket goes up and down — and that this is a feature, not a bug. You’re buying a piece of a business, and businesses can go through good times and bad times.

In fact, the whole economy can go through good and bad times. It doesn’t mean that everything is falling apart, just that some things have changed. And actually, you can make quite a lot of money if you stick around through both.

Shares have been around for decades on decades now, which means we can pretty confidently say that they go up in value for seven years out of 10. But oof, those three years when they go down can feel nasty. You usually don’t want to sell once they’ve dipped. They’ve already lost their value, which means you’ll be selling them cheaply.

If you lived in a house when suddenly the housing market went backwards, would you hurriedly sell it? No, you would grit your teeth, continue living there, and wait for things to go back to normal.

It’s the same with shares. You just have to remind yourself that this happens from time to time, and wait it out. That’s why, if you don’t have 5-10 years up your sleeve, shares might not be for you. A market dip can happen, quite unexpectedly, at any time. The Covid-19 panic in March of 2020, anyone?

Values plummeted overnight. Yet only a few months later not only had they recovered, many were more profitable than ever.

The last pitfall to avoid is . . . you
Emotions can make us do funny things, whether it’s analysis paralysis that stops you from ever getting started, or panic that makes you want to yank your money out when the market dips, even though you know that’s perfectly normal.

Take the time to educate yourself by listening to a couple of money podcasts, or reading a book about money management. You can find some great ones that won’t talk down to you, and arm you with the knowledge to dip your first toe in the water for investing. Once you start, you won’t want to go back.

How to start investing
Go online. When you’re first getting going, an online platform can be an easy way to invest using small amounts of money. Sharesies, Hatch, and InvestNow are some of the biggest platforms in New Zealand, and will let you invest for as little as $5 a pop.

Start small. It takes a while to get confidence when you start anything new, and shares are no exception. You might be worried about investing in the wrong thing, or prone to panic if a share doesn’t perform how you expected. That’s why it’s often a good idea to start with a small amount that you’re comfortable with at first. If you’ve only built up $200 when something goes wrong, you’re much more likely to stay calm than if it was $20,000.

Index funds and ETFs are your friend. Look for funds that are labelled as index funds or ETFs, especially when you’re getting started. They’re low fee, so you don’t lose all of your profit to a middle man overcharging you (I personally like a fee that’s under 0.5 per cent). They also invest you into a lot of different companies at once, anywhere from 50 to 500, depending on the fund.

This is a really important part, as you never want to invest in just one thing. Individual companies can surprise you by going bust at any time. But if you’re invested in 500 of them at the same time, it’s not a problem.

Be consistent, and don’t panic. Emotions are your biggest enemy for anything to do with your money. One of the best ways to fight that is to automate everything you can. Once you’ve decided how much you’re willing to put in each time you’re paid, set up an autopayment. That means you’ll still be investing when the market is up, and when the market is down, without being sucked into the panic that can come with normal market changes.

• Frances Cook is the host of the personal finance podcast Cooking the Books, and author of money guide 'Tales From A Financial Hot Mess', available in print, ebook, and audiobook. This feature is general information only, not individual financial advice.

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