What do you want? “Only buy something that you'd be perfectly happy to hold if the market shut down for 10 years.” Warren Buffett There are a number of things you should consider before you make that first trade. These are your ultimate goals, your appetite for risk and your timeframe. 1. Do you want growth or income? If you are looking for growth (capital gain) you should look for securities that are likely to increase in price over time. If you want income from your investment, you need to look for securities that pay a regular income. 2. What risks are you prepared to take? The risks in securities investing are closely linked to the uncertainties that exist around businesses and their profitability, now and in the future. Some businesses, especially those with established customers and steady profits from year to year, involve less risk than others, although returns tend to be lower as well. 3. What is your timeframe? From August 1998 to August 2008 there were periods where the NZSX All Index on the New Zealand Stock Exchange dropped as well as periods where it increased. However, the index has grown overall. The message is to invest long term and live with volatility. You increase your risk of loss with shorter investment timeframes. NZSX All Index - Growth over 10 years* Figures as at August 2008, despite volatile market conditions. August 1998 : 1,272 points August 2003 : 2,238 points : 76% growth over 5 years August 2008 : 3,340 points : 49% growth over 5 years : 163% growth over 10 years *Includes 2008 drop of 19.29% within the index Source: New Zealand Exchange (NZX) << DIY Home << Part 1: Your investment decisions >> Part 3: Dividend Yields
