I took $50 and invested it: Here's what I learnt

Wednesday, 24 July 2019

Investing on the stock market has become more accessible through online platforms.

OPINION: Investing in the stock market is no longer exclusive to the golf-playing, yacht-sailing elite and their hedge fund protected rich kids.

Online investments services have made it easier and cheaper to invest your money yourself.

So last month I made a series of $50 investments in a variety of asset classes ranging from the volatile stockmarket to the even more erratic cryptomarket, to see which would bring me the best returns in the short term.

Full disclosure, I'm clearly no financial guru. I mean, I put money in bitcoin. I'm just a millennial figuring out what the best investment funds out there are.

**READ MORE:

Stuff business reporter Anuja Nadkarni tries her hand at online investing.

* Five tools that will help you get your finances sorted

* Term deposit interest rates 'should be higher'

* Millennial Money: Is bitcoin the new tulips?

* Kiwi Wealth unveils Fintech start-up Hatch**

* Budget Buster: Bonus Bonds are for suckers

The five online investment services were rated on their accessibility, usability and the return the investments delivered.

Bank deposit 4/5

Term deposits offer interest on a lump sum of money over a pre-determined time period that ranges between one and five years.

Banks usually require a minimum deposit of $5000 on which you earn interest either weekly, monthly or yearly. The interest rate sits between 2 per cent and 4 per cent.

The risk is lower than the sharemarket because the value of your bank account does not stumble when the markets do.

About a year ago I set up a bonus saver account , which rewards me with 'bonus' interest every month so long as I don't make any withdrawals.

For this story I added an extra $50 deposit three months ago taking the total balance of the account to about $3500.

As I had been saving for sometime I earned about $4 in bonus interest in addition to 20 cents of interest on $3500 for the month of May. Bear in mind the bonus interest depends on how much money you save and for how long you restrain from withdrawing.

Accessibility wise, apart from the minimum deposit, it was as easy as opening an additional bank account online.

Compounding interest is one of the cool things about term deposits. If you leave that interest sitting in the account, it starts attracting interest all of its own.

Money guru from Sorted Tom Hartmann says term deposits are a safe bet for a short term goal as you are less likely to lose money.

But for the long term, say four to nine years or longer, investing is more powerful, he says.

'The biggest reason term deposits aren't ideal for long term investments is because of inflation. Over time our money is continuously able to buy less. That's why we need to be investing for the long term.

'Over the long term you have time to ride out any ups and downs in the market you should be able to receive better returns than you would if you kept it in a term deposit,' Hartmann said.

Sharesies 3.5/5

Sharesies offers investment in several funds including Australian, United States and New Zealand index funds. Recently Sharesies also brought in a new feature allowing you to buy shares in NZX listed companies.

There are 26 funds, each with a risk scale.

The website is super easy to use even on your phone. Making an account also takes little time.

Sorted magazine editor Tom Hartmann says investing in the sharemarket is a long-term game.

Withdrawals are free. But read the fine print of each of the funds because a some charge a 0.05 per cent brokerage fee for buying and selling share.

Sharesies charges a monthly subscription fee if your portfolio is worth more than $50. Below that it is free.

I split my $50 high risk funds and made minuscule returns. I got a whole $1.41 richer.

Since my initial investment for this story I have invested more money through Sharesies, partly because it's a great way to get a feel for how the sharemarket works, but also because its fun.

With a $5 minimum Sharesies is probably best for small investments and to learn how the sharemarket works as there are next to no fees for small portfolios.

Hatch 4/5

Bonus Bonds have been around since 1970, the allure is every month, a lucky punter becomes a millionaire.

Hatch goes a step further than Sharesies by offering direct shares in companies listed on the New York Nasdaq index, such as Apple, Tesla and Google.

Owned by Kiwi Wealth, Hatch has no minimum investment. But buying a whole share in Amazon could set you back about $3000.

Signing up to Hatch takes a little longer than Sharesies because the platform has to create your US tax form to give you access to the big dogs on Wall Street.

Also because you are investing on the Nasdaq your currency is changed to US dollars. So my NZ$50 investment gave me about US$32 to work with.

Hatch seems more serious than Sharesies.

When you're putting money into anything you should be serious about it, but with Hatch because your investment buys you shares directly in a company, it pays to have a deeper understanding of the company or industry.

There's lots of material to read through, 2900 companies and 500 funds to choose from, but all are categorised by investor's interests – such as high dividends, industries, biggest losers since markets opened – making it easy to navigate.

Before making my investment I shortlisted several companies in financial technology and biotechnology and read up extensively.

Saving through a bank deposit could help you save for the short term.

I chose Natera, a genetic testing company focusing on reproductive health, oncology, and organ transplantation. Although the company has been growing rapidly, its profits have been growing steadily every quarter for the past 18 months. Earlier this year its share price spiked by 24.7 per cent in one day following the announcement of a US$50m partnership with Chinese genetic testing company BGI.

It definitely took more effort than a term deposit or investing in index funds and while the process of reading up about different companies started out exciting, it turned tedious quickly.

Hatch also has brokerage fees, which means you pay US$3 every time you buy or sell a fraction of a share and US$8 per whole share up to 400 shares. An additional US2 cents is charged per share beyond this.

There is a currency exchange fee and a one-off US$1.50 fee to process that US tax form. A US50c fee is also charged to process it each year.

Hatch would probably be more useful for an experienced investor who can invest large sums to make the most of the fees.

Sharesies chief executive and co-founder Brooke Roberts started the online investment platform to offer shares for as little as $5.

In a month I made US$4 (NZ$6) return, an increase of 18.42 per cent on my investment in a biotechnology company.

Hatch is one I will most definitely revisit, but when I have more money to make a substantial investment and time to manage my investments.

Bitcoin 2/5

My fourth 'investment' was bitcoin. It was actually more speculative than an investment.

Sharesies interface is bright, colourful and 'gamified' to make investing not only easy, but fun.

Bitcoin works on a cloud database called the blockchain, which houses all transactions ever made.

A number of startups offer cryptocurrency but I went with New Zealand's Vimba. There is no minimum deposit, but Vimba does have a weekly maximum of $1900.

One bitcoin is worth about $13,000 at the time of writing.

With bitcoin being so new in terms of currency, and unlike the stock market, which history has taught people to read its patterns, you don't know what you're going to get.

Bitcoin surged in value from US$900 a coin to nearly US$20,000. But in January it dropped to US$3606. After slowly rising again in following months, at the beginning of June it began wildly fluctuating between US$8000 and US$7000.

Want to buy a Tesla but can't afford it? You could invest in the company instead.

Setting up my Vimba account was a little tedious to do on my phone because of several authentication steps. Don't get me wrong, I don't want to get hacked. But it took longer than I thought it would considering it's internet money.

To me bitcoin is a bit of a gamble, because of the fluctuations.

After losing some milibits at the beginning of June, my $50 investment went up by about 5 per cent to $52.64 at the time of writing this article.

I will only speculate as much as I can afford to lose. I don't think I will bet any more on bitcoin anytime soon.

Bonus bonds 1/5

Bonus Bonds by far took the most effort. By effort I mean physically getting off my computer, into a car and driving to the bank.

ANZ runs the Bonus Bonds scheme, which pools all investors' money in fixed interest assets and cash.

However, instead of earning interest or receiving returns, each eligible Bonus Bond gives the holder the chance to win a share of thousands of cash prizes each month.

There is a minimum investment of $20 which would equal 20 bonds.

After a major tumble in January bitcoin is back on the rise.

Hartman says Bonus Bonds works more like the lotto than an investment.

'You're not investing, you're placing a bet,' he says.

How Bitcoin works.

He's right. I got nothing from my $50 'investment' in the scheme.

In addition to this, every year you don't win, inflation eats away at the value of your bonds.

Every year Bonus Bonds also takes a 1.28 per cent cut for management fees.

It's a no from me.

Lessons

The only way to really know whether an investment is working for you is to have goals.

Hartmann says depending on whether you have a short term goal or a long term one you will invest or speculate differently.

I didn't have any set goals going into this investment. I, like most people, just want to be able to keep up with rising costs in the future.

For something long-term like a house or even further down the line like retirement, there is always your old friend KiwiSaver.

I've been investing in KiwiSaver for about six years. My generation will probably be the biggest beneficiaries of KiwiSaver, because the earlier you start to invest the longer you have to 'ride out any bumps' as Hartmann says.

Hartmann says with KiwiSaver it might not even be appropriate to invest through other platforms.

To conclude, there is no get rich quick scheme with investment. At least not within a month.

For quick results you would need to take a gamble rather than make an investment.

*An earlier version of this article incorrectly stated the interest earned on the bank deposit. More context has also been provided about that investment.