Why invest in companies?
On Sharesies, you can buy shares in companies with recognisable names like Air New Zealand, Xero, Tesla, and Apple. Let’s look at some of the reasons why you might invest your money in a company.
Of course, you don’t have to invest in companies—there are exchange-traded funds (ETFs) and managed funds too!
More choice
Choice is one of the main reasons people invest in companies. When you invest in companies, you can control your portfolio, right down to the individual share. This gives you a lot more control over what kind of investment choices you make.
This means you can create the exact portfolio that matches your risk tolerance, preferences, and values. If you had $100 to invest, you could put $1 in each of 100 companies, $2 in each of 50 companies, $90 in one company and $1 in each of 10 other companies—it’s completely up to you.
For example, you might have a higher risk/higher reward appetite—so you put all your money in one company and nothing else! This is a risky move, because you have a lot to lose if that company doesn’t do as well as you expected, but if it does as well, or better, you’ll end up pretty happy.
Or you might be on the other end of the spectrum. You can already invest in a broad range of shares in the NZX through the Smartshares NZ Top 50 exchange-traded fund (ETF). But some of those might be a bit too risky for your blood! By investing in individual shares, you can choose a smaller number of well-established companies that are less risky, and forget about the newer, higher-risk companies in the NZ Top 50.
If you’re a more advanced investor, you can use this flexibility and control to test new strategies. For example, you could do some research and find some companies that you think are going to perform really well in the future. Then you can put your money where your mouth is by investing in these companies. If your investment does better than an index like the NZ Top 50, then great work! Your strategy beat the market—and you probably learned something along the way as well. Unfortunately, this has been proven to be very tricky!
At the same time, remember that investing in companies and investing through ETFs and managed funds aren’t mutually exclusive. You can invest in ETFs and managed funds, then invest in individual companies on top of that, in order to tailor your portfolio more specifically to your goals.
Live your values
Lots of people have companies that they really like. And just as many (if not more) people have companies that they really don’t like. Maybe you think one company is doing great work every year, and you’re still mad at another company for the way they handled your customer service enquiry in 2010.
Either way, if you love a company and want to see it going strong in the future, you can send that message by investing in it. And if a company’s values don’t align with yours, you can send it an equally strong message by declining to invest in it.
This is great for things like sustainability, a company’s approach to climate change, and other issues that have a significant effect on what the world is going to look like in the future. You can contribute towards these issues by investing in companies that you think are going to contribute towards resolving them. This is a great way to invest for more than a financial return!
Get involved!
Owning shares in a company does more than give you a return, or help support a company that you like. You might remember what a share is at its core—it’s shared ownership of a company. You really do own part of the company that you’re investing in.
If you band together with other shareholders, you can become a real force to be reckoned with. There are lots of organisations and individuals who do exactly this—they band together, and use their ownership power to force companies to change their behaviour. Owning individual shares lets you get involved in this kind of thing, again working to create a better world.
Wrapping up
Investing in companies is a great way to fine-tune your portfolio to help meet your goals. Of course, they’re not the only way to meet your goals. If you’re happy with funds, feel free to stick with them!
But at the same time, you can add some investments in companies to your existing ETF and managed fund investments, and more precisely direct your money towards the outcome you want—whether that’s a financial outcome for yourself, an outcome for a company by sending a message, or an outcome for society in general. Your goals and way of getting there are up to you—investing in companies are just another tool to help you make it happen!
Ok, now for the legal bit
Investing involves risk. You aren’t guaranteed to make money, and you might lose the money you start with. We don’t provide personalised advice or recommendations. Any information we provide is general only and current at the time written. You should consider seeking independent legal, financial, taxation or other advice when considering whether an investment is appropriate for your objectives, financial situation or needs.
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