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Speaker 1: Welcome to Ask Fear and Greed, where we answer questions

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Speaker 1: about business, investing, economics, politics and more. I'm Adam Langan, Hello,

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Speaker 1: Sean Alma.

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Speaker 2: Hello Adam Sean.

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Speaker 1: Today's question is a really interesting one, particularly now I

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Speaker 1: think is there a risk of being overinvested in Australian equities?

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Speaker 2: Oh? Absolutely, I mean the huge risk of being So

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Speaker 2: in a sense, I suppose if you think of it,

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Speaker 2: what are the risks of being overinvested in Australian equities? Sure,

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Speaker 2: it's interesting because the IX two hundred, it's had three

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Speaker 2: financial years of pretty strong returns. So you could say,

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Speaker 2: well that, you know why not the main reason if

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Speaker 2: you look elsewhere there's been even better returns. So Wall

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Speaker 2: Street has done better returns. But let's just take a

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Speaker 2: step back. Diversification really matters in financial markets now. From

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Speaker 2: figures there are a couple of years old, about eighteen

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Speaker 2: months old, it was an AX Australian Investors study that

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Speaker 2: said that among retail investors, sixty percent of investors held

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Speaker 2: Australian shares and only sixteen percent held international stocks. That's

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Speaker 2: more retail. If you go to institutional side, all in

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Speaker 2: STOs hold international stocks, right, because they're spreading. They're spreading

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Speaker 2: the risk. And it's really important that when you have

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Speaker 2: a portfolio of shares, you need to spread the risk.

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Speaker 2: And by getting buying international stocks then you were spreading,

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Speaker 2: you were diversifying and therefore spreading the risk. I mean,

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Speaker 2: we have spoken in the last twenty four hours about

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Speaker 2: Nvidia hitting four trillion US dollars. Incredible, it's now seven

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Speaker 2: and a half percent of the S and P five hundred.

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Speaker 2: If you had gotten onto that in the beginning of

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Speaker 2: twenty twenty three and you'd put one dollar in video,

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Speaker 2: it'd now be worth one hundred dollars at this point.

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Speaker 1: It's extraordinary.

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Speaker 2: Yeah, it is, so you would have missed out big time.

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Speaker 2: So broadly it's a diversification argument. Now if you'd say, well, okay,

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Speaker 2: but you know, we're just going to go on an

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Speaker 2: etre for an Australian market. One of the big problems

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Speaker 2: with the Australian market it is so dominated by financials.

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Speaker 2: I mean, I think financial is about thirty two percent

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Speaker 2: of the market. So that might have stood you in

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Speaker 2: great steed in the last twelve months when the Commonwealth

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Speaker 2: Bank was up you know forty five fifty percent and

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Speaker 2: the other big banks were up kind of twenty percent

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Speaker 2: or thereabouts. What about this next financial year if you're

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Speaker 2: just following the ASX two hundred only and the financials

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Speaker 2: don't do so well. What if the financials and the

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Speaker 2: miners don't do so well, then you are in all sorts.

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Speaker 2: So even if you kind of think, well, I just

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Speaker 2: don't want to spend my money overseas, I just want

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Speaker 2: to invest locally. The problem with the local market it

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Speaker 2: is it's just so concentrated. I mean, by SSL you

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Speaker 2: can buy the big retailers, where's farmers, some of the

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Speaker 2: tech stocks, But really, if you're just being following the market,

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Speaker 2: you just overweight financials and Sean.

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Speaker 1: I think it's true to say too. I mean, we

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Speaker 1: love this country, we live here, but in truth it

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Speaker 1: is not the biggest economy in the world, and thereby

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Speaker 1: the diversification you can get here is a fraction of

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Speaker 1: that available worldwide.

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Speaker 2: Yeah, I mean exactly right, And institutional investors look at

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Speaker 2: stocks from all over the world, you know, and I

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Speaker 2: think retail investors should do that. Now we're not an

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Speaker 2: investing podcast, so go and get financial advice before you

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Speaker 2: go and do it. The other thing is a lot

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Speaker 2: of returns from your super fund, because most we all

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Speaker 2: have super funds. You talk about returns from that. Most

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Speaker 2: that's actually about asset allocation as opposed to particular stocks,

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Speaker 2: and so we always talk about equities here, But if

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Speaker 2: you're investing in Australia, you can invest in a lot

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Speaker 2: of things beyond the ASEX two hundred. You can invest

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Speaker 2: in managed funds that go into private credit. You can

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Speaker 2: get into managed funds that go into unlisted real assets

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Speaker 2: like unlisted property, unlisted infrastructure. You can invest in bonds.

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Speaker 2: As borings a may sound, they are actually a great

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Speaker 2: diversification play for your portfolio. So there's a big risk

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Speaker 2: in only investing in the ASEX two hundred and one.

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Speaker 2: If you're in equities investor only, you're missing out potentially

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Speaker 2: on a lot of other potent companies like Nvidia that

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Speaker 2: have done really well, and you need to diversify your portfolio.

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Speaker 2: And the second part is if you think about asset allocation,

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Speaker 2: maybe it shouldn't just be equities. Maybe it should be

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Speaker 2: bonds and alternates and those sorts of things. Now again

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Speaker 2: I stress we are not an investment podcasts. Go and

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Speaker 2: speak to a financial advisor about what you want to.

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Speaker 1: Do, Sean, You've got an express. The trend is your friend.

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Speaker 1: Can I can I propose an addendum to it?

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Speaker 2: Please? Please?

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Speaker 1: The trend is your friend, but diversification is family.

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Speaker 2: Well, I mean I like it, but it doesn't sort

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Speaker 2: of flow. Trend is your friend. Diverse think diverse is

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Speaker 2: anti perverse because diverse is actually good. I don't know,

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Speaker 2: work in progress on that one.

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Speaker 1: Thank you very much, Sean.

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Speaker 2: Thanks Adam.

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Speaker 1: If you have your own question for fear and Greed,

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Speaker 1: jump onto the website Fearinggreed dot com dot au or

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Speaker 1: send it through on any of the social media platforms.

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Speaker 1: I'm Adam Lang, and this is ask Fear and Greed