Where can I get information about investments?
Plenty of information is available about investing. Some of this is from the people who offer the investment (the issuers), some comes from independent people (other sources).
Information from the issuer
Investment statement
The first place to go for information about an investment is the investment statement. This has key information to help non-expert investors decide whether or not to invest.It is prepared by the issuer and must be given to you before you pay any money. You should read it.
Every investment statement is set out the same way, with 11 questions. This makes it easier to compare one investment with another. The answers will help you decide whether an investment is right for you.
The questions are:
- What sort of investment is this?
- Who is involved in providing it to me?
- How much do I pay?
- What are the charges?
- What returns will I get?
- What are my risks?
- Can the investment be altered?
- How do I cash in my investment?
- Who do I contact with inquiries about my investment?
- Is there anyone I can complain to if I have a problem with the investment?
- What other information is available about this investment?
Read more about what the issuer should explain in the answers to these questions.
The answers to the questions should tell you the most important things about the investment.
Read the investment statement before you commit to an investment. If you don't you may not be aware of important factors that could strongly affect your decision on whether or not to invest.
If you can't understand the investment statement an investment adviser may be able to help you.
Prospectus
The prospectus has detailed information, including financial and legal information, about the investment.
It also has information that is not in the investment statement, for example:
- what the people behind the investment stand to gain from it, and any conflicts of interest they may have;
- important commitments the company may have (e.g. long term leases on buildings, key contracts, and any court proceedings it is involved in);
- the company's most recent financial information, and in some cases, financial information for the previous five years;
- the key points in any trust deed or participation deed. These deeds are important legal documents. They cover things like how the trustee or statutory supervisor can protect investors, any financial limits imposed on the trust, and whether other people could be ahead of you in the line up of creditors - meaning they'd be paid out before you, should the company go bust.
Registered banks do not have to have a prospectus because they must have a general disclosure statement and issue regular key information summaries.
If a financial adviser recommends the investment they should have read the prospectus. Ask them to explain the most important points.
You can ask the issuer (the person or company offering the investment) to send you a prospectus free of charge. They must send it within 5 days of receiving your request. The prospectus must be registered with the Companies Office, where the public can view it. Prospectuses can be viewed at www.companies.govt.nz.
Annual financial statements
All issuers must prepare and register annual audited financial statements. You will most likely receive these with the annual report.
Annual reports of listed companies also have information on how the company is doing and the environment it is operating in, details of the directors, and how the entity is governed and managed.
As shareholder you are entitled to these reports. Often you can view them on company websites.
Reading these reports gives you the chance to see how the company is doing and whether you want to continue your investment with them.
Information from other sources
Credit ratings
A credit rating is a useful indicator to help you assess the risks of a particular investment, especially fixed interest securities. The generally accepted ratings are issued by international credit rating agencies. The best known of these are Fitch, Moody's and Standard & Poors (S&P).
Ratings use letters and numbers to indicate risk. The ratings scale is not simple like A, B, C ratings in a school report. In particular, the risk of an investment increases rapidly as the rating goes down. Risk also increases as the investment time increases.
A good credit rating doesn't mean the investment is risk-free. It simply means the agency has given current opinion of the relative future credit worthiness of the issuer and its ability to meet its obligations.
A credit rating is an agency's assessment of a company's probability of default and/or the likelihood that investors will lose money if the company defaults.
How ratings reflect risk can be seen in the tables of past failure rates of companies with various ratings. For example, a company with a BB rating by Fitch would have had a 1.24% chance of failing within one year or a 5.78% chance of failing in the next 3 years.
Ratings by three international ratings agencies that are active in New Zealand are set out below.
Fitch
Global Corporate Finance Average Cumulative Default Rates: 1990 - 2006 (%)
Year 1 Year 2 Year 3 Year 4 Year 5 AAA 0.00 0.00 0.00 0.00 0.00 AA 0.00 0.00 0.00 0.03 0.06 A 0.03 0.16 0.32 0.48 0.73 BBB 0.26 0.87 1.61 2.53 3.47 BB 1.24 3.64 5.78 7.82 9.84 B 1.47 3.66 6.16 8.59 11.16 CCC to C 22.93 30.72 35.64 41.63 43.41
Moody's
Average Cumulative Credit Loss Rates by Letter Rating, 1982-2006* (%)
Rating Year 1 Year 2 Year 3 Year 4 Year 5 Aaa 0.000 0.000 0.000 0.001 0.034 Aa 0.000 0.008 0.033 0.050 0.106 A 0.012 0.047 0.121 0.197 0.264 Baa 0.107 0.302 0.534 0.870 1.166 Ba 0.744 2.081 3.691 4.960 6.371 B 3.317 7.328 10.829 13.630 15.737 Caa-C 13.216 20.889 25.825 28.622 34.602 * Data in percent based on issuer-weighted average default rate and on issuer-weighted average senior unsecured bond recovery rates.
Standard & Poor's
Cumulative Average Default Rates (1981-2006) (%)
Rating Year 1 Year 2 Year 3 Year 4 Year 5 AAA 0.00 0.00 0.09 0.19 0.29 AA 0.01 0.05 0.10 0.20 0.32 A 0.06 0.17 0.31 0.47 0.68 BBB 0.24 0.71 1.23 1.92 2.61 BB 1.07 3.14 5.61 7.97 10.10 B 4.99 10.92 15.90 19.76 22.55 CCC/C 26.29 34.73 39.96 43.19 46.22 Source: Standard & Poor's Global Fixed Income Research and Standard & Poor's CreditPro©
Other rating systems
Ratings and rankings are also issued by some investment advisers and financial planners. They can be a useful guide, but should be treated with caution because it's often unclear whether those involved have access to the information that's needed to do a rating properly, or the ability to analyse it.
No credit rating?
Just because there's no credit rating doesn't necessarily mean you should avoid the investment. However, you should take extra care to assess the risk when there is no credit rating. You could ask an investment adviser why there is no credit rating.
Investment Advisers
You may be happy to make your own decisions about investing, or you may prefer to get help. Many people - investment advisers, financial planners, asset managers and some lawyers and accountants - give investment advice. Read more about what you should expect from an investment adviser.
Commentators and analysts
Various financial institutions, stockbrokers and investment advisers provide commentary and analysis on the investment markets. When you deal with any of these agencies you can be put on mailing lists or email groups to receive regular information about their views of the markets. Many investment advisers send clients regular newsletters with market information and recommendations.
Financial media
Specialist financial newspapers in New Zealand include the weekly Independent Financial Review and National Business Review. Daily newspapers and the Sunday papers have business sections. There are also magazines which specialise in business and investment. For example:
Consumer often has surveys and articles on financial planning and wise investing, eg. "Finance company blues" Consumer, 14-17, October 2007
The Headliner - Published by MG Publications (Mercantile Gazette Marketing Limited), Christchurch.
New Zealand Investor - Published by Equity Investment Advisers & Sharebrokers Limited, Newmarket, Auckland.
New Zealand ASSET - Published by Tarawera Publishing Limited, Rotorua.
New Zealand Investment Yearbook - Investment Research Group Limited, Auckland.
Internet
The internet has vast numbers of sites about investing. It is always wise to check who is the owner or author of the site. If there are no names or proper contact details treat the site with caution.
It is very unwise to send money to anyone known to you only via the internet or telephone. Do not give personal information over the internet. Many scams are run by telephone and emails. See www.sharescams.org.nz and www.scamwatch.co.nz.
Some websites about investing are:
Books on investing
Your public library will have many books about investment, including books written specifically for New Zealanders.
