1 00:00:01,040 --> 00:00:03,680 Speaker 1: You're listening to a Sheersise podcast. 2 00:00:04,320 --> 00:00:06,600 Speaker 2: How do people make sure they are truly diversified? What 3 00:00:06,640 --> 00:00:07,680 Speaker 2: does it even mean? 4 00:00:08,320 --> 00:00:12,559 Speaker 1: Diversification in its most simple form, I suppose, is just 5 00:00:12,680 --> 00:00:14,680 Speaker 1: making sure that you don't have all your eggs in 6 00:00:14,680 --> 00:00:18,480 Speaker 1: one basket. Like that's the most common example, right that 7 00:00:18,520 --> 00:00:22,880 Speaker 1: our industry uses, and it's not It's going to mean 8 00:00:22,880 --> 00:00:25,520 Speaker 1: something different to other people. Like if you are talking 9 00:00:25,560 --> 00:00:29,880 Speaker 1: about diversification and you're a direct share investor. Historically, when 10 00:00:29,920 --> 00:00:33,479 Speaker 1: I was putting together direct share portfolios four people, we 11 00:00:33,560 --> 00:00:36,479 Speaker 1: would have between seven and maybe twelve shares, and like 12 00:00:36,520 --> 00:00:39,760 Speaker 1: twelve felt like a lot in that but every single 13 00:00:40,000 --> 00:00:43,400 Speaker 1: share that they held was in a different industry, and 14 00:00:43,479 --> 00:00:46,400 Speaker 1: we would, you know, hold maybe one that's probably a lie. 15 00:00:46,479 --> 00:00:48,960 Speaker 1: We maybe hold two banks, like one or two banks 16 00:00:49,280 --> 00:00:51,720 Speaker 1: and see what was going on. We'd never hold all 17 00:00:51,760 --> 00:00:53,640 Speaker 1: of them, but we'd make a decision at the time 18 00:00:53,680 --> 00:00:57,120 Speaker 1: of investing as to which bank in that sector was 19 00:00:57,320 --> 00:00:59,600 Speaker 1: performing well enough and was a good investment and was 20 00:00:59,600 --> 00:01:02,800 Speaker 1: an over valued or underperforming or whatnot to put it 21 00:01:02,880 --> 00:01:09,600 Speaker 1: into their portfolio. So diversification in that aspect is something 22 00:01:09,600 --> 00:01:14,040 Speaker 1: that you have to manage ongoing, whereas diversification can be instant. 23 00:01:14,080 --> 00:01:17,200 Speaker 1: Like in that situation, these people that I was putting 24 00:01:17,240 --> 00:01:21,240 Speaker 1: portfolios together for, they were paying a lot of money 25 00:01:21,280 --> 00:01:24,440 Speaker 1: to have me manage those portfolios on a monthly basis, 26 00:01:24,520 --> 00:01:26,560 Speaker 1: and I mean every three months, I'd go in and 27 00:01:26,800 --> 00:01:30,000 Speaker 1: make adjustments and you know, take some profit off some 28 00:01:30,200 --> 00:01:32,320 Speaker 1: and put it back into another one, because you know, 29 00:01:32,480 --> 00:01:35,200 Speaker 1: you wanted to make sure that you always were consistent 30 00:01:35,480 --> 00:01:38,600 Speaker 1: and met their risk profile as well. But on the 31 00:01:38,640 --> 00:01:42,720 Speaker 1: flip side, we talk about instant diversification inside an ETF, 32 00:01:42,760 --> 00:01:45,200 Speaker 1: and that's because you've got a portfolio manager or a 33 00:01:45,240 --> 00:01:49,600 Speaker 1: fund manager making sure that everything inside that asset that 34 00:01:49,600 --> 00:01:53,000 Speaker 1: you're purchasing is okay and looked after. But essentially it's 35 00:01:53,040 --> 00:01:57,160 Speaker 1: making sure that if one industry is not doing so well. 36 00:01:57,240 --> 00:02:00,960 Speaker 1: Another is if you've got twelve different investment and over 37 00:02:01,240 --> 00:02:05,680 Speaker 1: that twelve one is actually down like thirty percent, that's terrifying. 38 00:02:06,000 --> 00:02:07,920 Speaker 1: Like if you said to me, hey, Ve, would you 39 00:02:07,920 --> 00:02:11,560 Speaker 1: be comfortable with your portfolio being down thirty percent? Be like, 40 00:02:11,600 --> 00:02:14,760 Speaker 1: absolutely not, Sonya not willing to take the risk. But 41 00:02:14,960 --> 00:02:18,040 Speaker 1: last year, if I look at my share portfolio, there 42 00:02:18,240 --> 00:02:21,760 Speaker 1: was an asset in my portfolio that returned negative thirty 43 00:02:21,919 --> 00:02:25,600 Speaker 1: two percent. It made me feel sick. But if I 44 00:02:25,680 --> 00:02:28,600 Speaker 1: look at my portfolio as a whole, because everything else 45 00:02:28,680 --> 00:02:31,520 Speaker 1: kind of held it up. My portfolio returned about fourteen 46 00:02:31,520 --> 00:02:35,040 Speaker 1: and a half percent, which is very sexy, but that 47 00:02:35,200 --> 00:02:37,640 Speaker 1: means that I wasn't all in on one asset. So 48 00:02:37,720 --> 00:02:40,800 Speaker 1: if one's doing really well, something else is usually just 49 00:02:40,840 --> 00:02:43,760 Speaker 1: slugging along. You need the guys that are going to 50 00:02:43,840 --> 00:02:47,200 Speaker 1: carry the team. Like the team work together. And I 51 00:02:47,240 --> 00:02:50,959 Speaker 1: think that that's really important to remember because you might 52 00:02:51,000 --> 00:02:53,919 Speaker 1: see my portfolio and go, oh, v that's a really 53 00:02:54,000 --> 00:02:57,360 Speaker 1: good return. But then in isolation, i'd never invest in 54 00:02:57,360 --> 00:02:59,960 Speaker 1: that particular share and they share that I'm talking about 55 00:03:00,080 --> 00:03:02,880 Speaker 1: out it did really well for the three years before that, 56 00:03:03,160 --> 00:03:04,800 Speaker 1: Like that was one of the things that was really 57 00:03:04,840 --> 00:03:08,040 Speaker 1: propping up my portfolio's returns. So when it was not 58 00:03:08,160 --> 00:03:10,440 Speaker 1: performing well, I was a bit sulty at it. But 59 00:03:10,560 --> 00:03:15,080 Speaker 1: that's the beauty of diversification. My personal wealth and my 60 00:03:15,120 --> 00:03:18,760 Speaker 1: wealth creation journey was not impacted by the performance of 61 00:03:18,800 --> 00:03:20,760 Speaker 1: that one share. So we need to make sure that 62 00:03:20,960 --> 00:03:22,760 Speaker 1: not all our eggs are in one basket, because if 63 00:03:22,760 --> 00:03:25,480 Speaker 1: you trip over, you've broken all your eggs. 64 00:03:26,480 --> 00:03:30,760 Speaker 2: And so once you have built this investment, portfolio and 65 00:03:30,800 --> 00:03:34,720 Speaker 2: it's taking me along. It's not just you know, sit 66 00:03:34,760 --> 00:03:37,320 Speaker 2: and forget forever. How should people be checking in on 67 00:03:37,360 --> 00:03:40,800 Speaker 2: their portfolio once it's running, and as well, how should 68 00:03:40,800 --> 00:03:43,360 Speaker 2: people stay informed about the things that are in the airport. 69 00:03:43,400 --> 00:03:46,840 Speaker 1: You've got the big questions today. I appreciate it. So 70 00:03:47,440 --> 00:03:50,880 Speaker 1: going back a little bit, this diversification is really important 71 00:03:50,920 --> 00:03:53,560 Speaker 1: for you understand. So if you're a direct share investor 72 00:03:54,240 --> 00:03:56,840 Speaker 1: versus like an ETF investor, or even let's pretend you 73 00:03:56,840 --> 00:03:59,240 Speaker 1: have two ETFs. You've got an international ETF and you've 74 00:03:59,240 --> 00:04:03,600 Speaker 1: got an Australian and maybe because of your risk profile, 75 00:04:03,640 --> 00:04:05,720 Speaker 1: which is essential for you to understand. And if you 76 00:04:05,720 --> 00:04:08,360 Speaker 1: don't understand your risk profile, there is so much content 77 00:04:08,400 --> 00:04:11,160 Speaker 1: on your website about it. So your risk profile, I 78 00:04:11,280 --> 00:04:13,880 Speaker 1: was explaining it earlier today to somebody. It's kind of 79 00:04:13,920 --> 00:04:16,240 Speaker 1: like a pie and you cut up your pie in 80 00:04:16,320 --> 00:04:19,400 Speaker 1: different amounts and some people say, I'm not that hungry, Victoria, 81 00:04:19,480 --> 00:04:21,440 Speaker 1: I only want a little bit of pie, or someone 82 00:04:21,480 --> 00:04:23,599 Speaker 1: will be like, I am ravenous, I need the whole thing. 83 00:04:23,960 --> 00:04:27,120 Speaker 1: And that's where your portfolio is going to differ from 84 00:04:27,120 --> 00:04:29,839 Speaker 1: one person to another. So if you're like a conservative person, 85 00:04:29,880 --> 00:04:31,720 Speaker 1: you probably asked for a small amount of pie, and 86 00:04:32,120 --> 00:04:35,640 Speaker 1: not all of your assets are invested in the share market. 87 00:04:35,640 --> 00:04:37,599 Speaker 1: Whereas if you are like me and pie is on 88 00:04:37,680 --> 00:04:40,040 Speaker 1: the table, like most of my assets are in the 89 00:04:40,040 --> 00:04:42,839 Speaker 1: share market. So if most of my assets are in 90 00:04:42,880 --> 00:04:45,920 Speaker 1: the share market, and I know that of my portfolio, 91 00:04:46,120 --> 00:04:48,279 Speaker 1: let's say ninety five percent of my money is inside 92 00:04:48,320 --> 00:04:51,200 Speaker 1: the share market, of that money, I would have then 93 00:04:51,240 --> 00:04:54,000 Speaker 1: broken it up. I would have then gone okay. So 94 00:04:54,080 --> 00:04:56,160 Speaker 1: some of it needs to be exposed to the Australian 95 00:04:56,200 --> 00:04:58,280 Speaker 1: share market, and some of it needs to be exposed 96 00:04:58,360 --> 00:05:02,760 Speaker 1: to the international market. And let's pretend I've spent five 97 00:05:02,839 --> 00:05:05,400 Speaker 1: hundred dollars on an Australian ETF and five hundred dollars 98 00:05:05,480 --> 00:05:10,160 Speaker 1: on an international you cannot expect them to perform identically 99 00:05:10,279 --> 00:05:13,520 Speaker 1: over twelve months. So in twelve months time, we go 100 00:05:13,600 --> 00:05:16,279 Speaker 1: back and check, and let's pretend ones at seven hundred 101 00:05:16,279 --> 00:05:19,120 Speaker 1: and fifty dollars and ones at five hundred and fifty dollars. 102 00:05:19,440 --> 00:05:21,640 Speaker 1: At that point, we want to kind of rebalance our 103 00:05:21,680 --> 00:05:24,560 Speaker 1: portfolio and go, well, one did better. Should I take 104 00:05:24,640 --> 00:05:27,320 Speaker 1: some of the money off the table and redivide it 105 00:05:27,400 --> 00:05:30,600 Speaker 1: across my portfolio? So I e. We maybe sell down 106 00:05:30,600 --> 00:05:33,840 Speaker 1: some of our Australian and put it back into the international, 107 00:05:34,080 --> 00:05:37,240 Speaker 1: so we always maintain about fifty percent. And this happens 108 00:05:37,600 --> 00:05:39,880 Speaker 1: across the board, so even if you were a direct 109 00:05:40,000 --> 00:05:43,120 Speaker 1: share investor, you might do that across a number of 110 00:05:43,160 --> 00:05:46,960 Speaker 1: different options. And I mean an example of that is 111 00:05:47,080 --> 00:05:48,760 Speaker 1: you know, I was telling you about my portfolio and 112 00:05:48,800 --> 00:05:51,320 Speaker 1: it was down twenty two percent. I'm still salty on that, 113 00:05:51,520 --> 00:05:54,839 Speaker 1: but there was another asset that did the same but 114 00:05:54,960 --> 00:05:57,640 Speaker 1: in opposite so it was like up twenty eight percent. 115 00:05:58,000 --> 00:05:59,839 Speaker 1: And at the end of the year, because I like 116 00:06:00,080 --> 00:06:02,160 Speaker 1: that reminders in my calendar. I don't know if everybody 117 00:06:02,160 --> 00:06:04,080 Speaker 1: else does this, but remind us in my calendar, and 118 00:06:04,080 --> 00:06:06,080 Speaker 1: I'm like, I get a wine in a rebalance time. 119 00:06:06,640 --> 00:06:09,560 Speaker 1: And so I look at my portfolio and I looked 120 00:06:09,560 --> 00:06:12,680 Speaker 1: at that asset and I thought, wow, that's up twenty 121 00:06:12,760 --> 00:06:15,920 Speaker 1: eight percent and that's not that reflective of the market. 122 00:06:16,040 --> 00:06:18,440 Speaker 1: So I made the decision to sell down some of 123 00:06:18,440 --> 00:06:22,240 Speaker 1: that asset to redistribute across my portfolio. And over time, 124 00:06:22,360 --> 00:06:25,320 Speaker 1: investments are going to perform differently, so we need to 125 00:06:25,360 --> 00:06:28,720 Speaker 1: make sure that we kind of sell down something or 126 00:06:28,760 --> 00:06:31,120 Speaker 1: maybe we the next month tip a little bit more 127 00:06:31,120 --> 00:06:33,440 Speaker 1: money into the other one to get it back to 128 00:06:33,520 --> 00:06:37,880 Speaker 1: that balance. And that's where diversification is really really important. 129 00:06:38,080 --> 00:06:41,279 Speaker 1: But also rebalancing is going to mean that that diversification 130 00:06:41,440 --> 00:06:43,159 Speaker 1: doesn't completely go out of whack. 131 00:06:44,279 --> 00:06:46,480 Speaker 2: Yeah, I love the old wine and a rebalance? 132 00:06:47,360 --> 00:06:48,839 Speaker 1: Is that a cult? Not everyone. 133 00:06:48,920 --> 00:06:49,919 Speaker 2: I haven't heard of it before. 134 00:06:49,880 --> 00:06:51,880 Speaker 1: I understood it on my own. I locked myself in 135 00:06:51,920 --> 00:06:54,520 Speaker 1: my office. I'm like, I deserve this, it's me time. 136 00:06:55,160 --> 00:06:57,800 Speaker 2: Investing involves the risk you might lose the money you 137 00:06:57,800 --> 00:07:01,080 Speaker 2: start with. We recommend talking to a licens financial advisor. 138 00:07:01,800 --> 00:07:05,679 Speaker 2: We also recommend reading product disclosure documents before deciding to invest. 139 00:07:05,920 --> 00:07:08,279 Speaker 2: Everything you're about to see and hear is current at 140 00:07:08,320 --> 00:07:09,160 Speaker 2: the time of recording.