Announcer: This series is brought to you by L& G, helping
Announcer: you build a future that's a little bit richer.
Iona Bain: Hello. I'm Iona Bain, and welcome to A Little Bit
Iona Bain: Richer, brought to you by Legal & General. This is part two
Iona Bain: of our investing series, where we're moving from mindset into
Iona Bain: mechanics. So if you listened to the last episode and thought, "
Iona Bain: Yep, I'm in, what do I do next," this one's
Iona Bain: for you. Today we're going to be breaking down the
Iona Bain: practical side of investing. We're going to be looking at
Iona Bain: the different ways to invest, common mistakes people make, and
Iona Bain: how to review your investments over time without panicking every
Iona Bain: moment the market moves. And to get under the bonnet
Iona Bain: of all of this, let's welcome back founder of Vestpod
Iona Bain: and host of The Wallet podcast, Emilie Bellet. Hi, Emilie.
Emilie Bellet: Hi, Iona.
Iona Bain: Welcome back. Now, we're going to ask you to do
Iona Bain: another 30- second summary for us, since the last one
Iona Bain: you did was so good. So in 30 seconds or
Iona Bain: less, what is an investing portfolio and why does it
Iona Bain: matter? Go.
Emilie Bellet: An investment portfolio is simply your baskets of investment. Inside
Emilie Bellet: it, you will find a mix of equities, pieces of
Emilie Bellet: companies. You will find bonds, which are loans to companies
Emilie Bellet: and governments, cash, real estate, and sometimes also other asset
Emilie Bellet: classes. You know that investments can go up and down,
Emilie Bellet: so that's important that you spread your risk, and that's
Emilie Bellet: why instead of picking just one investment, you're building a portfolio.
Iona Bain: Spot on, I would say. Can you talk us through
Iona Bain: the different components of investing, i. e. the different steps
Iona Bain: that you go through in order to become an investor?
Emilie Bellet: So when you start investing, first thing, you need to
Emilie Bellet: have a plan. We talked about this also in the
Emilie Bellet: first episode. You need to have an emergency fund. You
Emilie Bellet: don't want to have a lot of debts that are
Emilie Bellet: very costly. You have a plan why you are investing, for your
Emilie Bellet: investing for the medium term, for the long term, maybe for
Emilie Bellet: retirement. Once you have your plan, you will need to
Emilie Bellet: pick a platform. This can be quite overwhelming. The platforms
Emilie Bellet: are a little bit like a shop where you will be
Emilie Bellet: able to buy your investments. If you're a complete beginner,
Emilie Bellet: I will look at a platform that will manage your
Emilie Bellet: investments on your behalf. You may have heard of robo-
Emilie Bellet: investing, for example, of robo- advice, also some maybe ready-
Emilie Bellet: made portfolios that could be managed for you. So basically
Emilie Bellet: the platform will look at your goals and they will
Emilie Bellet: suggest a portfolio for you that will have a mix of
Emilie Bellet: equities, that will have a mix of bonds and a
Emilie Bellet: little bit of cash. And by investing, there's a lot
Emilie Bellet: of investors like you, and you're going to be put
Emilie Bellet: into one of these portfolios. So that's a very easy way to
Emilie Bellet: get started with a minimum knowledge. If you are a more advanced
Emilie Bellet: investor, you may want to customize this portfolio. You may think, "
Emilie Bellet: Oh, I really like this industry. I like these funds.
Emilie Bellet: I want to follow the market." So you can look
Emilie Bellet: at buying yourself, investing via funds or maybe via individual
Emilie Bellet: investments, even if it's usually a lot more riskier to
Emilie Bellet: buy single stocks than buying by funds. So this is the platform,
Emilie Bellet: so you can look at either something that's managed for
Emilie Bellet: you, a robo or a DIY platform. Once you're on this
Emilie Bellet: platform, the first thing you need is some kind of an
Emilie Bellet: umbrella. We call it an account. And when you invest,
Emilie Bellet: you can look at two different accounts usually that are
Emilie Bellet: tax efficient. It's very important to look at tax efficiency,
Emilie Bellet: so using your allowance first maybe for your pension. You
Emilie Bellet: may have a workplace pension, but you could also have
Emilie Bellet: a personal pension or SIPP, self- invested personal pension, and
Emilie Bellet: the other account is a Stocks and Shares ISA. So
Emilie Bellet: there's different accounts that you can look into. Once you've
Emilie Bellet: chosen this account, it's a matter of you putting some
Emilie Bellet: money into your account, and then this money will be
Emilie Bellet: invested in the stock market. With the robo, that's going
Emilie Bellet: to be made automatically for you in a selection of
Emilie Bellet: funds. And if you're investing with a DIY platform, then
Emilie Bellet: you'll have to pick your investments. So that could be
Emilie Bellet: a little bit tricky, so maybe you start with the
Emilie Bellet: robo and later on you can move to a DIY
Emilie Bellet: investment platform. With the DIY investment platform, this is a
Emilie Bellet: little bit like a supermarket. And you'll have a lot,
Emilie Bellet: like tens of thousands of funds and stocks. So you
Emilie Bellet: will need a little bit more knowledge, but at least
Emilie Bellet: it's a little bit more flexible.
Iona Bain: So that gives people a really good idea of what
Iona Bain: they need to think about if they're getting started. How
Iona Bain: would you go about building your portfolio step by step,
Iona Bain: and what does good investing look like in practice?
Emilie Bellet: I think there's not one way to invest, but you
Emilie Bellet: have to really remind yourself. Why are you investing money? You're
Emilie Bellet: investing money because you want to grow your money over
Emilie Bellet: time, you want to achieve your goals, you want to
Emilie Bellet: beat inflation. So once you have your cash savings and
Emilie Bellet: you're looking at investing a little bit of your money,
Emilie Bellet: how do you start picking your portfolio? I think there's
Emilie Bellet: this notion of risk that's introduced when you talk about
Emilie Bellet: investments that you didn't necessarily have with cash savings. So
Emilie Bellet: what does it mean to actually take risk? That can
Emilie Bellet: scare people, and especially women in the investment community say, " But
Emilie Bellet: I don't want to lose money." So risk is not
Emilie Bellet: about losing money. I'd love to reframe risk a little
Emilie Bellet: bit. And for me, risk is also an opportunity. When
Emilie Bellet: you have money in a cash savings, you're not getting a
Emilie Bellet: lot of interest for your money. So when you move
Emilie Bellet: your money into investing, it's because you think you could
Emilie Bellet: get a higher rate of return ... nothing is guaranteed, of
Emilie Bellet: course ... but with taking a little bit more risk. So
Emilie Bellet: that's important when you build up your portfolio, that you
Emilie Bellet: understand the relationship between risk and what you actually put
Emilie Bellet: into your portfolio. So if we look at the components
Emilie Bellet: on a typical stock market portfolio, you will have the
Emilie Bellet: first category that we call stocks. So stocks are little
Emilie Bellet: pieces of companies. So when you buy a stock, you
Emilie Bellet: own a small part of a company. And how do
Emilie Bellet: you make money? Maybe these companies grow, they hire amazing
Emilie Bellet: managers, they make great decisions. People have a very positive
Emilie Bellet: view about the company. The value of the companies grows,
Emilie Bellet: the stock price goes up, and that's one way to
Emilie Bellet: make money. Companies may also generate a lot of cash
Emilie Bellet: and they can start paying what we call dividends, so you also
Emilie Bellet: get some income. So that's how stock works. Now, you
Emilie Bellet: don't need to invest in individual stocks, but you can
Emilie Bellet: find funds. So instead of buying stock into one company,
Emilie Bellet: you invest via a fund and you will get like hundreds
Emilie Bellet: of different companies, 500 companies, and that's going to be
Emilie Bellet: an amazing way to diversify. So again, putting your money
Emilie Bellet: into a lot of different things. So if this one
Emilie Bellet: company I invest in fails, then I have like 499
Emilie Bellet: other companies that will support my portfolio, so that's your
Emilie Bellet: first category, shares. The second one is bonds, and bonds
Emilie Bellet: are loans to companies or government, and they're usually here
Emilie Bellet: in your portfolio for a little bit more stability. So
Emilie Bellet: they will react differently to market fluctuation, so that's why
Emilie Bellet: it's important that in your portfolio you have shares that
Emilie Bellet: will grow quicker, or potentially, but they are also more risky, and bonds,
Emilie Bellet: that tend to be a bit less risky with a
Emilie Bellet: slightly lower growth. So when people put together a portfolio ... and
Emilie Bellet: that could be on robo- advisors, that could be yourself ...
Emilie Bellet: you're trying to have the proportion of shares, of equities,
Emilie Bellet: and of bonds in your portfolio. The portfolio have a
Emilie Bellet: higher risk when there's more equities, and you could see
Emilie Bellet: portfolios that are 100% equities. They tend to be very
Emilie Bellet: risky, and portfolios that have a mix of bonds and
Emilie Bellet: equities and the more bonds, there's less risk. It lowers
Emilie Bellet: your risk. Also you could have cash in portfolios, and
Emilie Bellet: that will lower your risk. So when you're trying to
Emilie Bellet: find out the level of risk, it's really trying to
Emilie Bellet: find the right portfolio. So if I'm quite young, I
Emilie Bellet: can usually take more risk. Why is that? Because if
Emilie Bellet: there are market fluctuations, I will have more time for
Emilie Bellet: my money to recover until I need the money, if
Emilie Bellet: we're talking about retirement, for example. So if you're in your
Emilie Bellet: 20s, you could probably take a little bit more risk
Emilie Bellet: than someone who is in their 50s or 60s, who
Emilie Bellet: sees retirement very close and needs to change their portfolio
Emilie Bellet: to have maybe a lower allocation to equities, maybe bigger
Emilie Bellet: on bonds and cash, because they want more certainty. So
Emilie Bellet: that's going to be the main thing when you look
Emilie Bellet: at building a portfolio. And whether you do it yourself,
Emilie Bellet: whether you use a robo- advisor, it's really trying to
Emilie Bellet: keep in mind how I build these portfolios.
Iona Bain: And can you just explain, for anyone who doesn't know
Iona Bain: what equities are?
Emilie Bellet: So the term equities means that we're looking at buying
Emilie Bellet: small pieces of companies. You will sometimes hear the term
Emilie Bellet: shares or stock, so this is really looking at buying companies.
Iona Bain: And people might have heard vaguely of this idea of
Iona Bain: active investing versus passive investing. Could you just unpack what
Iona Bain: those mean and why you need to understand the difference
Iona Bain: between them?
Emilie Bellet: So when you invest, there's two ways to build these
Emilie Bellet: portfolios and to invest. So if you're a passive investor,
Emilie Bellet: it means that you just want to follow the market.
Emilie Bellet: And the market is a collection of companies in different
Emilie Bellet: industries, in different geographies, and you're trying to get the
Emilie Bellet: market return. So when you're a passive investor, you can
Emilie Bellet: invest into a selection of funds or you could have
Emilie Bellet: a very broad multi- asset fund, index funds. Ideally, it's
Emilie Bellet: a low- cost fund also that doesn't cost you a
Emilie Bellet: lot of money. And then this way, you're going to
Emilie Bellet: invest in the whole market, and you're not necessarily going
Emilie Bellet: to adjust your investment when something happens. Now, you could
Emilie Bellet: also be a more active investor, and someone who's an
Emilie Bellet: active investor means they're going to pick and choose what
Emilie Bellet: they want in their portfolio. So they won't necessarily try
Emilie Bellet: to get the market return, but they will try to
Emilie Bellet: beat the market. It's not always going to be the
Emilie Bellet: case, because as we know, when we want to become
Emilie Bellet: active investors, it's going to take us so much time
Emilie Bellet: to research. Some people, it's their full- time job to
Emilie Bellet: actually be active investors. So I would recommend from anyone
Emilie Bellet: who's a beginner, who's starting to invest, or also who's
Emilie Bellet: been investing for a little while, the passive approach is
Emilie Bellet: actually really helpful in terms of also not reacting to
Emilie Bellet: market fluctuation, having a long- term approach, and letting your
Emilie Bellet: investments actually do the work over a longer period of time.
Iona Bain: And in the past 10 or 20 years, we've seen a lot
Iona Bain: of passive investment funds, like index funds and exchange- traded
Iona Bain: funds, become a lot more popular, especially with beginner investors.
Iona Bain: Why is that?
Emilie Bellet: So I think investing via funds, it's such a great
Emilie Bellet: way to get what we want, is this diversification also.
Emilie Bellet: So not having just one investment into one stock or
Emilie Bellet: one bond, but actually buying a collection of investments. That's
Emilie Bellet: what you want for your portfolio, is making sure you
Emilie Bellet: have a little bit of everything of every asset classes.
Emilie Bellet: So these types of funds are now widely available on
Emilie Bellet: platforms and you could find index funds that will track
Emilie Bellet: the whole market, but you could also find funds that
Emilie Bellet: will track just a specific industry or will track a
Emilie Bellet: specific geography. So that's really interesting in terms of you
Emilie Bellet: trying to get exposed to these industries via funds, and
Emilie Bellet: you won't have just one investment, but you will have a
Emilie Bellet: lot of investments. So again, these funds will always try
Emilie Bellet: to take the best in their markets or the top
Emilie Bellet: performance in their market. Some index funds will look at
Emilie Bellet: the biggest companies.
Iona Bain: Could we just explain what an index is, in case
Iona Bain: people aren't sure?
Emilie Bellet: So an index is just a way to follow maybe
Emilie Bellet: the top companies in the market. And this way, when
Emilie Bellet: you invest via an index fund, for example, or via an ETF,
Emilie Bellet: you're getting a collection of a lot of investments of
Emilie Bellet: a lot of companies instead of just going and buying
Emilie Bellet: one company. And that gives you something that's going to
Emilie Bellet: help your investment return over a longer period of time,
Emilie Bellet: which is diversification. That's going to help manage your risk,
Emilie Bellet: because your investments will be spread into a lot of
Emilie Bellet: different smaller investments.
Iona Bain: So the FTSE 100, for example, is an index that people
Iona Bain: could follow if they wanted to. And you do hear
Iona Bain: about people making a lot of money by investing just
Iona Bain: in five or ten really hot companies. And I think
Iona Bain: back to the 2010s and the FANGs, Facebook, Amazon, Netflix,
Iona Bain: Google, and the idea that these companies are all you
Iona Bain: ever need for your investment portfolio because they just do
Iona Bain: so well, why would you invest anywhere else? What's your
Iona Bain: thinking today on investing in hot companies like that, and
Iona Bain: not maybe looking at the wider market and seeing what
Iona Bain: else there is to offer?
Emilie Bellet: So I mean, I've made this mistake myself of trying
Emilie Bellet: to pick individual companies, and that's actually really risky. So you're
Emilie Bellet: hoping for higher return, but it's quite concentrated. And with
Emilie Bellet: being more concentrated, you also increase your level of risk.
Emilie Bellet: So if you just have three, four companies, one of them
Emilie Bellet: fails, then that's a big part of your portfolio. Then
Emilie Bellet: you have to know that some of the big tech
Emilie Bellet: companies, for example, today, they make most of the larger
Emilie Bellet: index funds and markets. So even when you invest into
Emilie Bellet: these index funds, you're going to get exposure to this
Emilie Bellet: company. If there's some companies you really want to invest
Emilie Bellet: in, either you look at some indices that will hold
Emilie Bellet: these companies ... they will have them as a holding, and
Emilie Bellet: then by investing into the whole fund, you will have
Emilie Bellet: exposure to these companies ... or otherwise you keep it maybe
Emilie Bellet: as a small portion of your overall portfolio. So you
Emilie Bellet: still get the exposure, but that's not going to be
Emilie Bellet: 100% of your exposure into a selection of companies.
Iona Bain: That's really good advice. So let's just talk about reviewing
Iona Bain: our investments and pensions and how often we should do
Iona Bain: that, whether we should think about rebalancing at certain points
Iona Bain: in our life, how we can rebalance without panicking or
Iona Bain: harming our returns.
Emilie Bellet: So rebalancing is quite interesting, is when you've built your
Emilie Bellet: initial portfolio, remember that you had equities and you had
Emilie Bellet: bonds in your portfolio. Because stocks, equities ... we can use
Emilie Bellet: the same term ... they tend to grow faster, over a
Emilie Bellet: slightly long period of time, you will see that your
Emilie Bellet: allocation is changing. So if you add maybe 50% of
Emilie Bellet: equities and 50% of bonds, you'll see that maybe this
Emilie Bellet: 50% is now 60% or 70%. And what you want
Emilie Bellet: to do with rebalancing, it means that you have to
Emilie Bellet: sell some of these stocks, equities, and add more bonds,
Emilie Bellet: so basically come back to the original allocation. If you want to do that, if it's
Emilie Bellet: still in line with your goals, so this is why
Emilie Bellet: we rebalance portfolios, so that's the term. If you're investing
Emilie Bellet: with a robo- advisor or something that's managed for you,
Emilie Bellet: this rebalancing is automatically done for you.
Iona Bain: That's clever.
Emilie Bellet: That's clever. And now if you're doing it on your
Emilie Bellet: own, you have to check that you're still in line
Emilie Bellet: and you have to rebalance yourself. In terms of reviewing your
Emilie Bellet: investments, this is really personal, but I would say don't
Emilie Bellet: check every day, maybe not every week, but maybe once
Emilie Bellet: a year, twice a year, really sit down, look at
Emilie Bellet: your investments. I think it's really important that you check
Emilie Bellet: your pensions. You check that your contributions have been going
Emilie Bellet: in, you check the type of funds you're investing in. Is
Emilie Bellet: it the default funds, or are you actually allocating your money
Emilie Bellet: yourself? Reviewing your strategy, reviewing also the fees on all
Emilie Bellet: of these platforms. Unfortunately, investing is never free, so you
Emilie Bellet: have to check how much money you're paying, and sometimes
Emilie Bellet: you need to adjust your investments or you need to
Emilie Bellet: adjust maybe the platform, how much money you're actually putting into
Emilie Bellet: your investment pots. And the other thing is looking at
Emilie Bellet: personal goals. Do you have any major change in your
Emilie Bellet: life? Are you getting married? Do you have kids? Have
Emilie Bellet: you changed job? Are you now an entrepreneur? This will
Emilie Bellet: all have an impact on how much money you make,
Emilie Bellet: how much money you save, and you may want to
Emilie Bellet: change your allocation. Maybe your goals have changed. So that's
Emilie Bellet: really important, to take the time and look at your
Emilie Bellet: investments and look at your whole financial life. At Vestpod,
Emilie Bellet: we love the term of having a little money date
Emilie Bellet: with yourself, so maybe once a month, taking the time.
Emilie Bellet: It could be different things. It could be listening to
Emilie Bellet: a podcast about money and investing, but it could also
Emilie Bellet: be looking at your investments, looking at your pension, calculating
Emilie Bellet: your net worth, looking at your budget, but really having
Emilie Bellet: in your calendar this time to review regularly your investments.
Iona Bain: Money dates won't feel as romantic as real dates, but
Iona Bain: you will feel a hell of a lot better after
Iona Bain: you've had a money date, that's for sure. So what tools or
Iona Bain: approaches do you like personally from managing investments?
Emilie Bellet: I think that could be quite simple. Your investment app
Emilie Bellet: or your investment platform is already doing a lot of
Emilie Bellet: this for you, so I think what you need to
Emilie Bellet: check is that you're still matching your goals. That's really
Emilie Bellet: important. You need to check the performance of your investments.
Emilie Bellet: We've said, and we're going to say it again and
Emilie Bellet: again, that investments go up and down over time and that
Emilie Bellet: your capital could be at risk, so it's really checking
Emilie Bellet: what has been performing, what has been underperforming, and trying
Emilie Bellet: to think about, " Okay, what do I do going forward
Emilie Bellet: with these investments?" It's the diversification, so checking what have
Emilie Bellet: you been investing in sometimes. You can also check the
Emilie Bellet: diversification. So sometimes we've been investing in funds and we
Emilie Bellet: start adding maybe a few stocks, and then we realize
Emilie Bellet: that we have maybe the same investments in two different
Emilie Bellet: pockets or in two different vehicles, so it's making sure
Emilie Bellet: we're still happy with that. Looking at the fees, how
Emilie Bellet: much have you been paying to the platform or how
Emilie Bellet: much are you paying to buy and sell your investments,
Emilie Bellet: and looking for duplicate investments. So I would say it's
Emilie Bellet: really about declaratory sometimes, because as you add up and maybe a
Emilie Bellet: lot of your investments are automated, you may not realize
Emilie Bellet: that you're adding a little bit of complexity in your portfolio.
Emilie Bellet: So it's maybe taking a step back and cleaning a
Emilie Bellet: little bit your portfolios.
Iona Bain: So lots to think about there. And again, people will
Iona Bain: probably want to digest all of this over a cup
Iona Bain: of tea or coffee. So what's one quick thing that
Iona Bain: people could do whilst they wait for their cuppa to boil?
Emilie Bellet: If you have a little bit of time, you should
Emilie Bellet: think about automating your investments. Boring investing is actually quite
Emilie Bellet: good, and knowing that every month there's a little bit
Emilie Bellet: of money going into a saving account and an investing
Emilie Bellet: account for your future self is actually super valuable.
Iona Bain: Yeah. So start that process today and ...
Emilie Bellet: Start small.
Iona Bain: ... reap the benefits. Yeah. Start small. Absolutely. Thank you so
Iona Bain: much, Emilie.
Emilie Bellet: Thank you very much.
Iona Bain: Well, that brings us to the end of our investing
Iona Bain: series. I hope it's empowered you to make that next
Iona Bain: step in your investing journey, and to remember it's all
Iona Bain: about creating wealth for future you. Of course, your investments
Iona Bain: can go up as well as down and there are
Iona Bain: risks involved. Thank you so much for listening to A
Iona Bain: Little Bit Richer. If you find this helpful, feel free
Iona Bain: to share it with someone who might need a boost
Iona Bain: in their investing confidence. This podcast is brought to you
Iona Bain: by L& G. You can keep up with the show
Iona Bain: on YouTube, TikTok, and Instagram @ legalandgeneral. If you have a
Iona Bain: question or a topic that you would like answered on
Iona Bain: the show, then you can get in touch on our
Iona Bain: socials. Until next time, see you soon, and thank you
Iona Bain: for watching and listening.