Money Moves: Investing Made Simple

They say investing is the key to unlocking financial success, but for most ordinary people, terms like bonds, stocks and equities sound like little more than a list of buzzwords. Things like investing are rarely taught in schools. We sat down with Ellen Hine, an analyst at Stefnir Asset Management Company, to get some beginner-friendly investment tips.

GV: What are some of the investment opportunities available to beginners?

When looking at investments, it can be good to look at risk versus potential return. People think, “I want to take more risk to get more reward.” However, that’s not how it works. When taking more risk, there’s also more chance of losing money. For a beginner, the first step to invest is to open up a custody account. You can do that with your bank. Then you can buy stocks or funds. My number one thing to do would be to start now.

Many people see the first steps as such an obstacle, but it has been made simple for everyone. It’s very accessible. If you’re starting your investment journey, I recommend investing in something other than individual stocks since that requires you to know much more about the sector, the company, the general stock market, the management team and so forth.

Most people don’t have time to read all the income statements in the balance sheets, trying to find out how the company will do in the future. That’s the job of a portfolio manager. When you’re beginning, mutual funds can be a great option because they offer a portfolio manager who is an expert. They can take the wheel – they’re making decisions and you get exposure to many things in one investment.

“Time is your friend when it comes to investments.”

Which type of mutual fund? That’s another question – and it brings us back to the risk versus the return. Fund management companies have three main mutual funds: equities, fixed-income and money market funds. That’s in the order from higher to lower risk.

If you have some extra money, you could put it into something riskier or something you have an interest in. It can be fun to try. For instance, if you like Apple and are passionate about its products and vision, you could try to put a little money into it. But you have to accept that that money might not grow or you might lose some. The words “fun” and “investments” don’t often go together – you have to be careful.

GV: What are some key factors that beginner investors should consider?

Before you start investing, it’s good to ask yourself three questions. When will I need the money again? That’s going to have a huge impact on your decision. If you’re saving to buy a house in ten years, you could do an equity fund, which is stock. Stock is riskier, but that’s a long-term investment. Perhaps, you’re saving up to build a new patio next summer, then it’d be better to go for a money market fund, which is historically a more steady type of fund. You have to think – when do I need the money? Can I tolerate a long-term investment with fluctuations? Or am I making a short-term investment? The second question is, why do I want to invest? Am I saving for a trip to Tenerife next year? Then I obviously would like to keep it in a less risky fund – I don’t want those funds to fluctuate much.

The third question is: can I handle fluctuations? This is much more important than you think. If you’re worrying about it a lot and thinking, “Oh, God, it decreased by 5% in value,” it’s probably not right for you to invest in equities. Maybe you’re very risk-averse as a person. You must also consider that, as it’ll translate into your investment strategies.

GV: What about mistakes to avoid?

“The words “fun” and “investments” don’t often go together.”

If you are a beginner and not very well equipped with information about the market or particular sectors, investing in a singular stock may not be the best idea. The second thing to avoid is just listening to advice from social media or getting all your information from one source. Many people and entities have hidden agendas, so try to gather information from multiple sources. For example, YouTubers like Logan Paul are being criticised for potential crypto scams. Thousands of ordinary people watch Logan Paul, partake in these things and lose money.

Another mistake is waiting too long. Avoid waiting, just go for it. Don’t look at it as an obstacle, look at it as an opportunity.

GV: Is there a minimum amount of money you need to start investment?

No, there isn’t. You could start with something as little as a 5.000 ISK monthly subscription in funds. Luckily, more young people are interested in investment opportunities. We’ve had many things happen that have sparked interest with the younger people in Iceland. For example, in 2021, we had a lot of IPOs, which sounds like something that will make investments and people like bankers would know about. But many young people were taking part in IPOs.

Time is your friend when it comes to investments. Let’s say you started investing at 30 – you’re going to wish you started at age 20.