The advice is part of the FMA’s contribution to World Investor Week.

Recent FMA research into online investing platforms found 31% of all online DIY investors jumped into an investment in the last two years because they didn’t want to miss out.

Additionally, 27% said they invested based on a recommendation from someone they know without doing their own research.

The FMA’s campaign is urging investors to follow the “five D’s of DIY investing”:

• do due diligence
• drip feed investments
• diversify your portfolio
• don’t freak out when markets go down
• and if in doubt, talk to a financial adviser.

One particular DIY investor type the FMA is focused on is the “planter investor” identified in the research.

Planters make up 42% of DIY investors, with the others being opportunists 19%, speculators 20% and dabblers 19%.

Planters

Gillian Boyes, FMA investor capability manager, says planters tend to be comparatively younger with a female skew, and see DIY investing as a significant part of their financial strategy.

“Our research shows planters have 52% of their investment portfolio in online investing platforms.

“This suggests they are putting a large portion of their income into DIY platforms and may have more to lose in a market downturn, with larger portfolios and less time to recover.”

Boyes says planters have good intentions around investing but don’t always research potential investments thoroughly, such as making decisions based on whether a company is well-known.

“As part of their due diligence, we’re encouraging planters to ask themselves some important questions before making an investment.

• Will the investment earn an income?
• Do I understand the company I’m thinking of investing in?
• Is the share price reasonable?
• What fees or costs are involved?
• How can I get my money back?
• Is it a legitimate offer?”

Drip feeding

The FMA says by drip feeding an investment investors benefit from what is called dollar cost averaging.

This means putting the same amount of money regularly into a fund – regardless of whether prices are high or low.

If markets are down, you get more for your money. This helps balance out those times when prices are high.

Investors also don’t have to think about when to invest and they create a habit.

Diversifying

Boyes says diversifying a portfolio is essential.

“Diversification might sound complicated, but it’s really just a fancy way of describing having a mix of different types of investments.

“This protects investors from a single investment going wrong and causing them to lose a significant percentage – or even all – of their money.”

The right way to diversify is to have a mix of cash, bonds, property and shares.

Asset classes such as property and shares have higher long-term returns, but in the short term they can be quite volatile.

Cash and bonds have lower returns but tend to perform more steadily, which helps to offset some volatility risk and smooth out returns.

Markets for different assets tend to peak at different times. Having a mix of assets minimises the effect of highs and lows.

The FMA recommends having short-term and longer-term cash deposits and bonds; commercial as well as residential property; shares from different industries, sectors and countries.

Having this mix means if something goes wrong in one industry or country, the impact on the overall value of your investments will be contained.

Don’t panic

If parts of an investor’s portfolio do go into the red the FMA says don’t panic.

Having an emotional reaction and a desire to do something – anything – to stop the fall is actually hard-wired into our brains as humans.

It’s called loss aversion, and behavioural scientists have run experiments showing people are almost twice as likely to fear losses as they are to enjoy gains.

Financial markets can be volatile with share prices based on demand which can fluctuate day to day, or even minute to minute.

When investing, be clear about when you need the money.

The FMA’s research shows most people have a fairly generalised goal – “to grow my money” – when it comes to investing.

It’s helpful to think about what you need the money for and when.

If you don’t need the money straight away, you can afford to wait out any market dips and wait for your investment to recover. If your goal is shorter-term, you might want to think about lower-risk investments with lower volatility.

Remember, says the FMA, it’s time in the market that matters.

History has shown that investments in the sharemarket have grown more over the long term – 10 years or more – than almost any other type of investment.

Even severe market crashes associated with the GFC in 2007 or the Wall Street crash of 1929 were followed by periods of significant recovery in share prices.

Providing investors don’t need the money immediately, often the best course of action is to do nothing and wait for the market to recover over time.