Hi, and welcome to this week's episode of Money with Alpha. This week, I'm going to be talking about investing. It's something that I think is still a little bit of a black hole for a lot of people. It's a lack of understanding and even where there's a certain amount of understanding, there's also this fear about, "Well, what if I get in at the height of the market and things drop?" Or, "What if I put my money in the wrong thing?" Or, "I don't know what to put my money," 'cause there's so many choices, like, "What, what do I do?" So I thought I would spend this episode going through what I do and how I've come to be at peace, I suppose, with what I do, 'cause I have a tendency to go down these, like, research rabbit holes and kind of question and go, "Is this the right thing?" And like a lot of us, we don't want to, you know, we've worked hard for the money that we have. We don't want to, like, lose it and sometimes investing can feel a little bit like gambling, I suppose. But it doesn't have to be, and there's lots of different ways to do it, and there's no one right way. Investing is just something that we all should do, but how you do it, there are still choices that you can make and there's things to be aware of as well, and that's also what I'm going to go through. Just kind of play you through my thinking process and the research that I've done and how I've come to make the decisions that I've made, any changes that I've made over time, and what I'm currently doing and what I plan to continue doing just so that you can kind of hear a real person's journey and take. And even though I'm a money person I'm not a, you know, I haven't come from a financial markets background. I've come more from an accounting background and sort of worked in, like, sort of data analysis, financial analysis kinds of things, but not necessarily in investing. So I've had to figure this out myself is basically what I'm saying. And I've done this by looking and researching and listening and reading and talking to people and going to conferences and going to seminars and things like that as well. So and that's, there's a, in a previous episode, I've sort of talked about the kind of rabbit hole I dived into last year and where I ended up as a result of that. So, but before I dive into all of that, I'll just sort of go through largely the areas I'm going to talk about today. The first one is looking at the difference between income and capital return, 'cause I think they often get confused or blended. Risk profile and what that is and how you can start to consider that for yourself, what diversification actually means, then how do you build a portfolio for you based on that and based on everything else prior to that as well, like your risk profile, and then timing. And timing is one of the biggest ones that we try and manage when we have very little influence over anything except what we are physically doing. So yeah, so I guess where this all really kicked off was, I mean, and we don't necessarily think about this a lot when we're younger 'cause we don't have any money to do anything with. These days, however, even just micro amounts, which is why there's micro-investing, makes a big difference. Like, I still remember when I was growing up and the idea of investing just seemed so, like, out of reach, you know. You needed a minimum of $50,000 to invest in, like, one thing. Then you had to take on debt to buy a property, and did you buy a home first or a rental property first? And there was just, it was just so much bigger and heavier and felt so much more significant, and the impact of failing felt heavier as well because there was just so much more money at stake. The playing field has changed quite a lot. There's a lot of things now that as retail investors, which is just everyday people like you and me we can get access to that we never used to be able to before. and I mean even though ETFs have been around since the '70s, they haven't necessarily been as easily accessible and available to individuals, and even then, you used to have to go through a broker to trade or to buy them or even if when the platform started to come out and you could buy them yourself, there were still platform fees, and a lot of those things have fallen away. Micro-investing has really changed the playing field and that's been maybe almost a decade, I suppose, that we've had access to micro-investing in Australia. I was, rather unusually, an early adopter with micro-investing. I'm not normally an early adopter of anything just FYI. I'm a bit more of a conservative observer who likes to sit back and see how things play out before I dive in but micro-investing just felt like, "Oh my goodness, I just need to get started. I want to see what this is about. How's this work? Like, I'm literally cents on the dollar. how is this?" 'Cause the concept of pooled investing, which is a lot of what micro-investing relies on, it's not something we're very exposed to or familiar with in Australia but it's becoming more and more relevant and more and more acceptable because everything is just so much more expensive as well, especially in the property space. So being able to just buy even a commercial property as an individual, even with like finance backing has become almost prohibitive. So you do get a lot of, you know, pooled investments and syndicates, they're called as well in places like in the United States and they're, you know, they might sound a bit dodgy, like a syndicate. You're like, "Huh, does that sound? that work?" But there are legitimate ones. Obviously, there are those that aren't, so you do have to be careful but then now there's also people can get access to the private credit space. So it really just depends. So before I dive into too much of the how and the what, I will explain a little bit more about what I'm talking about.So the first thing I wanted to talk about is income and capital in terms of returns. So a lot of the time when we hear returns, like our percentage return, it's purely the capital side that's being spoken about. Sometimes it might be an like it might be income and capital together, but when they're like, "Oh, you know, this index has gone up this and this many points," or, "There was this and this return when I bought and sold," m-most people are talking about just the pure capital. Like you, say you bought it for $5, you sold it for $10, you made $5. Okay. Yeah. That's just nominally what you make. You then also have to look at the time value of money. I'm not gonna go into that inflation and concepts and all of that and then the tax aspect. So I'm just I'm I'm not even gonna touch those things. So we're just gonna talk in just nominal terms. So which, again, is just, like, the actual numbers. Nominal number terms. Not real terms, which is where it would be adjusted for inflation. So what what did $5 buy you 20 years ago versus now? A heck of a lot more than it does now. When you look as a child, I even noticed inflation, became very acutely aware of it because, you know, I used to be able to go to the, you know, the corner store with a dollar and buy some lollies. Then later and later you're like, "Oh, I can't. I need, like, $5" or $2 or $5 from mum. Going to ... If you're in Brisbane and you go to the Ekka, you used to be able to get, you know, a $2 Bertie Beetle bag. These days, I think you can still get it, but there's significantly less in there. And you can't really get away with you know ... Some of the show bags are horrendous now. They're, you know, upwards of $35, $40. Anyway, I digress. So when we look at income and capital, so we're not just talking about what you bought it for, what you sold it for. If it's something that pays dividends or some sort of an income return, you have to factor that in as well. If you have reinvested the income and sort of worked on the compounding concept, then that can be factored into the buy and sell, but if you've taken that income out during the period, then you also need to factor that in. So it's then also looking at what do you invest in and what are you wanting? Do you want purely capital growth and you don't really care about the income side? Or are you kind of approaching your, you know, you're in your 50s possibly, you know, mid to late 50s, you're thinking about retirement, you want to make sure that you're investing in things that also pay an income. Because when you retire, you can't just live off capital where you have to keep selling things in order to survive. You want to be able to have income from your investments so that you actually have money to live. So hopefully you'll have paid off your home, so you at least have a home to live in that you don't have to pay anything extra for. But you still need groceries transport, phones, electricity, rates, repairs, insurances, holidays, gifts. Like there's so many other aspects to our life. Obviously the scale of that will shrink a bit because, well, you know, you don't have the same level of income as if you're, you know, earning your salary or your your business was running But it's still something to consider when you're actually purchasing as well. Then you can purchase individual stocks that have dividends built into them or you can then focus on ETFs, which is your exchange traded funds, which is a bundle of shares in that ETF. And you can have shares in there that pay dividends so that you are then entitled to a portion of those dividends, and they get paid out. Most pay out quarterly, some pay monthly, some pay six monthly, some pay annually. It really depends on the company that's or companies that are included in that ETF bundle. So just something to kind of keep in the back of your mind when you're making your decisions, but I'll I'll go through some of that when I talk about what I invest in and why So the next thing is your risk profile, and this is important to understand because we are all unique individuals. We all have different experiences, fears, filters, biases lenses that we look through the world, expectations. There's so so much that goes into it. And there are some things that you you can sort of look at more numerically, like how old are you? When do you want to retire? So then how many years into retirement are you? But there's still personality things that come into that, that you really need to understand yourself a bit more. I also often, when I have this conversation with clients, we'll be talking about things like, all right, so say for instance you invested in something a share, property, ETF, whatever it happens to be. And when you're investing in shares and ETFs, the pricing can be a bit more volatile. Property happens a bit slower typically, not always, but typically. So say for instance you buy something and then you go and have a look at your portfolio a week later and it's gone down. How do you feel? Do you panic and sell or do you panic and hold or do you go, "Yeah, well, stuff happens, I'll just ... You know, this is part of my strategy and I'll just keep on going"? Or do you just not look? So it's then, if you do look ... I I remember having a lady come up to me at an event once and she said "Oh, I'm really stressed because I keep looking at my superannuation balance. And it keeps going down. And I'm like, "Okay, so how often do you look at your superannuation balance?" She says, "Oh, every day." And I said, "Okay. One thing I probably suggest trying is don't look every day. Just maybe look, to start with, once a month and maybe push that out to once a quarter." And so I said to her, I said, "Do you need that money right now?" And she's like, "Well, no." And I said, "Well then, just, you know, things will change." You know, life... so much can happen in a day or a week, really. So you can look too much sometimes. Having data is great, but when it's overused it can make us nuts. I've been there, trust me. So your risk profile needs to look at a whole number of things. It also needs to look at, like, liquidity, like how, how easy it is for you to sell something in order to get cash. And this is where we flow on then into diversification, which is keeping your risk profile in mind. How diversified do you want to be? Like I, you know, living in Australia there's a real push on property. It's been the, sort of a large, a large portion of the population has been able to build wealth through property. Whether that's going to continue to be the case, considering the property prices are increasing quite dramatically and our interest rates are still, you know, relatively low comparative to... You know, when I was growing up, I I still remember interest rates being up at around the 16, 18% mark. And now they get up, they hit 5% and people start panicking. It's like, well, you know, our cost of living obviously has gone up as well and salaries generally haven't kept up either. So there, there are other circumstances that contribute to that feeling. But understanding that having a portfolio or having your, your, yeah, having a portfolio, which we'll still talk about, as just property, that's not diversified. And quite often people who buy property will buy property in areas that they know, which often means that you've got multiple properties in the same suburb or next, neighboring suburbs. So that is definitely not diversification. So understanding what diversification actually means and then how to use that concept to build your portfolio is actually, actually becomes quite important. So just as, just sort of an example in terms of, like, me, I have chosen not to go down the path of property investing like that. I invest through, like, ETFs and things like that, but as, like, direct holding, I, I don't want the hassle. I, I don't want the... You know, and, and to a certain extent I've, I've... You know, there's, there's a part of me that's like, "I want people to have the opportunity to buy a home." I don't... I have one. I don't need more than one. You know, if I rent... I mean, yes, then there's, you know, rental stock and so forth, so we do need investors who rent out too, so everyone's perspective has validity. Provided they're doing it for the right reasons and it serves the purpose of what their lifestyle needs as well and they're not putting themselves under undue pressure. I've just been around property as an investment through my parents and my grandparents and, oh my goodness, it was a big headache. And even making a return on it was actually quite hard. Like, to make... I can make a much more decent return in the share market than in property. The only advantage property property really gives you is the debt leverage component where you borrow money to service the asset and you buy it earlier than if you would have to have saved that money up. So that's really the main area that gives property its, its advantage. There are at the moment some tax benefits to it as well in, in the form of negative gearing And you can use equity to purchase properties as well, provided you've got enough. That however changes if you start to use self-managed super funds. You can't do that anymore, but then there's other benefits too, like... Anyway, so this is where you do need to consult professionals before you do something so that you can set things up in the correct structure. So you can talk to a financial advisor, an accountant and a lawyer, and make sure they're all talking together because each one of them will be looking at something from a different perspective. And you don't want to have a really great structure but then find out that it's not tax-effective. Or make a decision that looks sort of good on paper in terms of having a financial plan, but again it's not tax-effective and the structure's not right. Or the lawyer's like, "Oh, that's too complex, you don't need that struc-"... You know. So it's, they all have to be working together, so it's important to, to understand that. And it is really important to do all of that before you launch into something. Especially if you've got some family dynamics and complexity there, you may need to look at trust structure. From an estate plan you might need to look at a testamentary trust, so you need to make sure that you're talking to an estate lawyer when you're making those sorts of decisions. So it's... There, are still things that you need to consider, but I really don't want those things to, like, completely hamstring, string you? Yeah. From actually doing something. Therefore more like the bigger structural type things, but you can still start doing some basic investing even at a micro level to start with, just to get yourself going until you build up enough momentum and confidence and, to be honest capital to be able to actually do something more with it. And you can move assets sometimes, depending on how they're set up in the first place. Again, you need to seek advice that to, to make sure it suits your circumstances So that's to think about with diversification, so don't just go, "Oh, I'm familiar with property, I'm just going to do property." Have a look at other options as well, just to diversify depending on what happens then at least you're covered if one market goes down you've got something somewhere else. And just start to, to consider that. So then your portfolio is where you put everything in terms of, you know, the, the old-fashioned terms which are still quite valid really looking at something that's defensive, something that protects your money, and then investments that grow your money. So you've got, like, defensive versus growthThere's stuff in the middle now as well like there's, you it's... Anyway, but yeah. But largely, there's still the main two kind of buckets. I've always kept my portfolio at a, you know, 70% growth, 30% defensive. And so... and that's even quite conservative for someone, you know. I've had that, that perspective. I only really started investing in my late 20s. So to have that, that kind of in my 30s, I could have probably gone a little bit more growth oriented, but I've kept that. I'm still at that 70/30 but I'm gonna be, you know, approaching my 50s in the next few years and that might start to become 60/40. You know, where you know, a bit more on the defensive side than growth. It really sort of depends what's going on in the world, you know, what I've got in my portfolio at that given moment and how my profile kind of... 'Cause we do change a little bit. I've gotten a bit more comfortable with risk as I've gotten older probably because there's some confidence that's grown, and knowledge, and experience as well, so your risk profile can change. So that's the other thing to consider too. So in terms of portfolio, when we talk about defensive... So the things that I've got my money in is just some high interest bank accounts and some of them are where you have certain conditions that you need to meet. So like putting in a certain amount each month or having the balance higher at the end of the month than it was at the beginning and little things like that. I try and find financial a financial institution that has limited conditions. I was with one that had started to creep in more and more conditions and it got to the point where was too many, so I switched to one that was simpler, and even that one has started to creep in some more conditions, so I may have to rethink that one as well. So you you do have to kind of consider what is it that you want to achieve. So I I have money sitting in those sorts of accounts. I run my money pie in my high interest bank account as well, so I've got like a number of accounts in there. So I found a bank that... And if you've got a mortgage still, if you've got a financial institution, and a lot of them do this now, if you've got an offset account you can have multiple offsets. So you can have your savings sitting in there but still offsetting the interest of your loan, so you just need to check with your the holder of your loan if they're able to do that. And if not, you could chat to a mortgage broker about changing 'cause it is a good way to manage your money having it separated 'cause then you know what it's for but it's still actually doing something useful, as in reducing the interest payments. But then I've also got things in sort of like... I've just opened up an account with TermPlus which they do sort of private credit and it's more income and they have... What they're targeting is I think it's about 3% above whatever the current cash rate is so the official cash rate plus 3%. I think it's 3%. As another way to kind of diversify the cash side of things there's still a bit more risk in that than just having it in a bank account However, again, like I said, my risk profile has developed a bit over the years, so I'm comfortable to do that with a portion of my portfolio. Then comes the growth side, and this this is where you can really overthink it. I subscribe to The Barefoot Investor when he was still running his membership years ago, and I'd already done a lot of my own research and had come up with three ETFs that I was in and I was really excited when he came out with his final kind of portfolio and two of the ETFs that I was in he had on his list, and I was like, "Yes, I got two out of the three right." And the third one was very similar. It was just a different like ticker or like a different code. so I'm a big Vanguard fan. I I I like their approach and their sort of customer-centricity and how they've kept their fees, like they've they came in to disrupt the market essentially, to try and make investing cheaper and a lot more acceptable or accessible, that's the word I'm looking for for the individual. So it wasn't all just like the big bankers at the heavy end of town, you know, reaping in all of these commissions and everything, you know. Like they were like, "You know what? We're gonna let you have access to all of this and we're only going to charge you like 0.25%." I remember when I had a financial planner when I first started out 'cause I had no idea what I was doing at the time, and I was paying about 3.2% in fees When I think back to that I was like, "Oh my gosh," the level that that compounds and eats away into your investments, like I was paying little fees upon fees upon fees literally, and I remember confronting this financial planner. was like, "I'm sorry, but what are you actually doing for that money? Like you just chucked me in these funds. Those funds can go up or down, you still get paid based on the balance that's in there. So, you know, if they go down, you still get paid. They go up, you get paid more. But you still get paid regardless and you don't actually do anything." So I remember the look on his face just kind of like, oh my gosh, it just like hit him in the chest thinking, "Who's the system... ... the system what's the system set up for? And then that's really what set me on my, on my path. So I now just do it myself. I mean, you can, of course. I mean, and there's access. There's certain investment setups that, that financial planners can set up for you that are not going to charge you that, that level of fees that can hold your hand through the process. And there is, you just have to find the right planners or advisors. But there, there's still validity to that. I just didn't have a great experience with mine. And so I, over time what's happened is I have a tendency to get bored with things the same. I don't even like driving the same route to things all the time. So even when I drive my daughter to school, sometimes I'll turn right at an intersection, and sometimes I'll turn left because I've turned right for the last week, and now I wanna turn left. So I'm just pre-cursoring that with a little bit of where my brain goes. And you don't need to add this level of complexity to it. You could just stick with the three ETFs. So the, the ones, one was an Australian one. So one of the most popular Australian ETFs is VAS, which is Vanguard Australian Shares. So it invests in Australian companies. And I'm just looking at the tickets to make sure get the, the right ones. And then the other one was VEU, which is all of the world except the US. I'm also quite partial to another one called VHY, which is high yield, which means it pays a lot of dividends. Or not a lot, but it's, it's higher dividend yield as well. So I quite like that one. So I, added that one in after a while too 'cause I, yeah, I liked it. And then the other one was VTS, which is just the US. So that was VAS, VEU, and VTS were the, the three that that I'm in. And then I've also got some that are just Europe, so I have VEQ as well. And then, like I said, I've then now, I've added a few other ones in there too over time 'cause like, "Ooh, that sounds really interesting." I like being... There's one that's got innovation in there, so I was like, "Ooh, I wanna be, I wanna, I wanna invest in things that are a bit more innovative." And then there's others that invest just in the Asian market 'cause I see some, some growth possibilities there. And then there's others. Yeah. So there's, there's a few more that I've added because I, I got a little bit bored with just doing the same ones over and over. Not for any reason, they were all still working well, they still paid dividends, you know, they, they were growing. I just wanted to, like, do something extra. And I have... And the other great thing about Vanguard is I have an automatic investment possibility so that you can set up a direct debit every month, whatever day of the month you want, it'll automatically take it in there. You tell them which ETFs you want to buy and in what kind of percentage. So I have the same amount going every month, tell it to buy these three ETFs, it just keeps doing it on. And then you can also suggest, you can also request dividend reinvestment as well, so that every time it pays a dividend, it just goes back into the, the pot to buy more of the same thing. So it really simplifies it. But like I said, with simplification, for me, came boredom. So that's why I started adding a few more in there. So now I'm like, "Ooh, and now I can track a few more." So my, I have more than the three that I initially started out with. Now I've got about think about eight. So but, like I said, you don't have to do that. I would just suggest to get exposure to the whole world is Australia America, or US, and then rest of world. There may be a couple of double-ups in there potentially, but not really, but, well, not much. But then at least you get sort of exposure to the top companies. And this is, this is, because it's an ETF, and it's a bundle, it's going to take whomever is the biggest at that time. So the, the makeup may change if any of that list changes. But you still stay invested in that. And don't have to pick individual stocks. I started to do... Well, I, I went down the path of learning how to do that. And then just looking at candlestick charts and all the stuff, so I was just like, "This, no." And then I thought, "Well, maybe I should just hire broker to help me with that." And I was like, "No. If I don't really understand it, I don't want to invest in it." Whereas I understand ETFs and understand what I'm investing in and how to access it. And the platforms themselves are, make it easier too. And then I've, I've got, now I've added in Betashares. I actually really like their app. It's very easy to use. I can get access to more ETFs than I actually can on the, the Vanguard, including Vanguard ones on there. There's actually one Vanguard one that I can't access on the Vanguard platform, but I can on the Betashares one, which is VTS. And they don't charge fees either. So yeah. So I now have two trading, well, it's three trading platforms 'cause when I first started, I was using Bell Direct. And I just found that a little bit clunky after a while, for me. Again, a lot of these things, there's different providers out there. And same with the micro-investing. I've, my account is with Raiz because they're the ones that's, they were like the, the incumbents into the market, or the first ones in the market. They started out being called Acorns, and I joined them then. So that's, that's when, that's the early adopter. And then now there's others. Like there's Perla, which is really good. In Raiz, I like how I can do roundups, and I can also have a child subaccount. So I have a child subaccount for my daughter and invest regularly in there. So there's like this other little, and there's even an avatar, and my daughter looked at it once. She's like, "Mama, I don't look like that." I was "It's just, just an avatar." And then we had to have a whole discussion about what avatars mean. Anyway, but you can do that. And you can do that with a few different apps as well. I'm pretty sure Perla does that too. They're really focusing on children and helping children understand how to invest. And then the danger then overcomes is that you don't want them to look at it too regularly and become like traders. Unless they want, unless, you know, you're comfortable with them becoming traders. Investors is where you buy and hold. I was literally just listening to a, a podcast talking about Warren Buffett and his, his sort of methodology and how he's, you know, one of the greatest investors, long term, of all time. And he, he buys and holds. He rarely sells. Mainly just buys to hold. That's my philosophy as well. I just buy and hold. I just keep buying. Just keep buying, little by little. And it's I'm not talking about huge chunks, like I'm not buying, you know, hundreds of thousands of dollars or even tens of thousands of dollars in one go. I have like a, you know, the micro-investing, I literally add $10 a month on top of the roundups, and then I have $50 a month that goes into my daughter's, and then I have another micro-investing account that does fixed interest, which adds another $50 a month that goes in there. And little by little, the stuff just all kind of builds up without you even noticing. And that is the really important part, is to make this as painless or as stress-free as possible, and to just do it. Like literally, that micro-investing account that I was an early adopter in now has, I think just over 12, or close to 12, it fluctuates a little bit, around $12,000. I've done seemingly nothing to build that. And now it's there, which is, you know, it'll just keep ticking away. My daughter's now has about $900 in it. So I'm like, and that's on top of the 12. So it's just, and I've had hers in there now for maybe 18 months. So it's just, there is, there is no excuse, is, is, is my very direct way of saying, "Just get started." And then have a look at some of these, like have a look through sort of some of the product statements and, and things and the, and the, the returns, and of course past returns is no guarantee of future returns, and investments by nature are volatile and a bit riskier. I'm seeing a lot of volatility at the moment. There's a lot going on in the world which is driving that. So I think that's just going to be the way we're gonna live now, and we've just got to get used to it. So yeah, just keep doing it. And that's where the concept of timing the market versus time in the market becomes really important. So over time, that, like dollar cost averaging is what they call it has proven to outperform active timing the market time and again. If you look at charts over time, just regularly, there's actually an entire book that I've got called Keep Buying and he has a lot of charts, which I have to admit, after a while I started to flick past because I was going, "Yep, I get it, I get it, yep, I get it, yep." So many would say Right, more, another chart. Wow, more data, okay." But essentially what he's saying is, is that over time, just consistently buying regularly over years and years and years, and not trying to time the market produced a better result. And to be honest, it's a more peaceful way of operating too. Rather than if you'd known, because of course we never do, what the dip is, and buying in the dip, so even, even with hindsight, it was still not enough to, to meet the returns of dollar cost averaging or just consistently buying. So it's it's a good, it's a good lesson I suppose to, to take heed of and it's certainly one that I have, and that, that's my approach So I hope that has helped clarify a little bit. I'll just sort of round all that back up again. So looking at your income versus capital returns just to keep that in mind. Also keep in mind what your risk profile is and what your appetite is for things fluctuating. And then how diversified you either currently are or would like to be, and then as a result, what's in your portfolio that's going to help protect your protect some money but then also grow it so that you don't have everything in growth or everything in protected. Make sure that there's some, some level of balance in that, whether it's 80/20, 30/70, 60/40, 50/50, and then it will shift and adjust as you get older too, and there are portfolios now that actually allow that adjustment especially in the superannuation space. And then I went through a number of different ETFs that that I'm in, and, and what I do in terms of micro-investing as well. And then that timing, just consistently, little by little, doesn't have to be huge amounts, just keep it going over time and then you will, you'll start to see results. But it won't happen... What's the, what's that saying? It won't happen overnight, but it will happen. And that's, yeah, like everything it's, there's nothing absolutely certain in, in our futures, but one of the, one thing is for certain is that if we do nothing, then you won't have, yeah, if you, if you don't invest at all, then you won't have any investments in the future That, that part is, that part's it. So yeah, so if you have any questions, please reach out. If there's anything particular you'd like me to go into more detail in on an episode, then let me know and I'm happy to do that. But I hope that's given you some food for thought, and maybe a little bit more of a nudge or confidence or information to be able to work forward with to actually take action. Okay. Have a wonderful week, and I will catch you next episode
