How to decide what shares to buy

Investing in shares can seem daunting at first. However, it doesn’t need to be. With a little know-how and the right resources, you can make informed decisions about what shares might be right for you.
This guide will walk you through a way you can approach buying and selling shares and some of the things to think about on the way.

Investments generally fall into four asset classes: Cash, Bonds, Property and Shares. Each have their advantages and risks, and they can all play a part in an investment strategy.

Long-term growth or short-term gain? You decide

Some investors think shares are best suited to long-term investing. That’s because while share prices do go up and down regularly, the historical trend has been upward over time. Other traders choose to actively monitor the market and trade often in hope of a short-term gain.

It’s important to remember that while shares may produce a profit, they could also return a loss. Understanding your investor profile and how you feel about risk can help you determine your approach to share trading.

Spreading your investments to help manage risk

‘Diversifying’ is a way of managing risk and smoothing out the overall ups and downs. The intention of diversification is that the positive performance of some investments can help offset negative or lesser performance of other assets, therefore aiming to give a more positive overall return.

Within shares, you can further diversify between different industries, countries and companies. This gives you even more ways to manage your risk within your investment strategy.

To make life easier, start by looking at companies you’re familiar with. If you know what business they’re in and how they make money, you’ll have a better idea of what shares might be a good investment for you.

Use these insights to create a shortlist and start building your knowledge from there:

• Follow the latest business news

  Staying up to date with business news is a great way to learn more about the companies and industries you’re interested in. You can also learn about what events affect them. We offer a range of business, economic and market news which you can subscribe to receive by email.

• Make the most of online tools and resources

  Start by doing some research on the companies you are interested in. Within Online Share Trading, you can access company information, announcements, charts, independent market research and expert analysis.

• Look at how the company is performing as a business

  Review a company's published reports, such as the annual report, profit and loss statement and balance sheet. You’ll normally find these lodged with the Companies Office.

  Understanding these documents will help you recognise how a company is performing, its financial position or outlook and how the entity is governed and managed. You can use this information to help you decide if you want to invest, or continue investing, in this company.

• Track how a company’s shares are performing

  Create a watchlist of companies you are interested in with ASB Securities to monitor how they’re tracking and develop an idea of what price would be right for you to invest at.

With your goals set and your research done, you’re ready to prepare your share investment strategy.

Mapping out your investment strategy, and writing it down, can help you stay focused and guide your decisions. Some things you might want to define include:

• What shares to buy?
• How much to invest?
• What price to buy at?
• What price to sell at if a share goes above or below a certain price?

Having a written strategy will help review your investments. This is something you’ll want to do regularly to ensure it reflects your current approach to investing.