Speaker 1: You're listening to a Sheersise podcast.
Speaker 2: How do people make sure they are truly diversified? What
Speaker 2: does it even mean?
Speaker 1: Diversification in its most simple form, I suppose, is just
Speaker 1: making sure that you don't have all your eggs in
Speaker 1: one basket. Like that's the most common example, right that
Speaker 1: our industry uses, and it's not It's going to mean
Speaker 1: something different to other people. Like if you are talking
Speaker 1: about diversification and you're a direct share investor. Historically, when
Speaker 1: I was putting together direct share portfolios four people, we
Speaker 1: would have between seven and maybe twelve shares, and like
Speaker 1: twelve felt like a lot in that but every single
Speaker 1: share that they held was in a different industry, and
Speaker 1: we would, you know, hold maybe one that's probably a lie.
Speaker 1: We maybe hold two banks, like one or two banks
Speaker 1: and see what was going on. We'd never hold all
Speaker 1: of them, but we'd make a decision at the time
Speaker 1: of investing as to which bank in that sector was
Speaker 1: performing well enough and was a good investment and was
Speaker 1: an over valued or underperforming or whatnot to put it
Speaker 1: into their portfolio. So diversification in that aspect is something
Speaker 1: that you have to manage ongoing, whereas diversification can be instant.
Speaker 1: Like in that situation, these people that I was putting
Speaker 1: portfolios together for, they were paying a lot of money
Speaker 1: to have me manage those portfolios on a monthly basis,
Speaker 1: and I mean every three months, I'd go in and
Speaker 1: make adjustments and you know, take some profit off some
Speaker 1: and put it back into another one, because you know,
Speaker 1: you wanted to make sure that you always were consistent
Speaker 1: and met their risk profile as well. But on the
Speaker 1: flip side, we talk about instant diversification inside an ETF,
Speaker 1: and that's because you've got a portfolio manager or a
Speaker 1: fund manager making sure that everything inside that asset that
Speaker 1: you're purchasing is okay and looked after. But essentially it's
Speaker 1: making sure that if one industry is not doing so well.
Speaker 1: Another is if you've got twelve different investment and over
Speaker 1: that twelve one is actually down like thirty percent, that's terrifying.
Speaker 1: Like if you said to me, hey, Ve, would you
Speaker 1: be comfortable with your portfolio being down thirty percent? Be like,
Speaker 1: absolutely not, Sonya not willing to take the risk. But
Speaker 1: last year, if I look at my share portfolio, there
Speaker 1: was an asset in my portfolio that returned negative thirty
Speaker 1: two percent. It made me feel sick. But if I
Speaker 1: look at my portfolio as a whole, because everything else
Speaker 1: kind of held it up. My portfolio returned about fourteen
Speaker 1: and a half percent, which is very sexy, but that
Speaker 1: means that I wasn't all in on one asset. So
Speaker 1: if one's doing really well, something else is usually just
Speaker 1: slugging along. You need the guys that are going to
Speaker 1: carry the team. Like the team work together. And I
Speaker 1: think that that's really important to remember because you might
Speaker 1: see my portfolio and go, oh, v that's a really
Speaker 1: good return. But then in isolation, i'd never invest in
Speaker 1: that particular share and they share that I'm talking about
Speaker 1: out it did really well for the three years before that,
Speaker 1: Like that was one of the things that was really
Speaker 1: propping up my portfolio's returns. So when it was not
Speaker 1: performing well, I was a bit sulty at it. But
Speaker 1: that's the beauty of diversification. My personal wealth and my
Speaker 1: wealth creation journey was not impacted by the performance of
Speaker 1: that one share. So we need to make sure that
Speaker 1: not all our eggs are in one basket, because if
Speaker 1: you trip over, you've broken all your eggs.
Speaker 2: And so once you have built this investment, portfolio and
Speaker 2: it's taking me along. It's not just you know, sit
Speaker 2: and forget forever. How should people be checking in on
Speaker 2: their portfolio once it's running, and as well, how should
Speaker 2: people stay informed about the things that are in the airport.
Speaker 1: You've got the big questions today. I appreciate it. So
Speaker 1: going back a little bit, this diversification is really important
Speaker 1: for you understand. So if you're a direct share investor
Speaker 1: versus like an ETF investor, or even let's pretend you
Speaker 1: have two ETFs. You've got an international ETF and you've
Speaker 1: got an Australian and maybe because of your risk profile,
Speaker 1: which is essential for you to understand. And if you
Speaker 1: don't understand your risk profile, there is so much content
Speaker 1: on your website about it. So your risk profile, I
Speaker 1: was explaining it earlier today to somebody. It's kind of
Speaker 1: like a pie and you cut up your pie in
Speaker 1: different amounts and some people say, I'm not that hungry, Victoria,
Speaker 1: I only want a little bit of pie, or someone
Speaker 1: will be like, I am ravenous, I need the whole thing.
Speaker 1: And that's where your portfolio is going to differ from
Speaker 1: one person to another. So if you're like a conservative person,
Speaker 1: you probably asked for a small amount of pie, and
Speaker 1: not all of your assets are invested in the share market.
Speaker 1: Whereas if you are like me and pie is on
Speaker 1: the table, like most of my assets are in the
Speaker 1: share market. So if most of my assets are in
Speaker 1: the share market, and I know that of my portfolio,
Speaker 1: let's say ninety five percent of my money is inside
Speaker 1: the share market, of that money, I would have then
Speaker 1: broken it up. I would have then gone okay. So
Speaker 1: some of it needs to be exposed to the Australian
Speaker 1: share market, and some of it needs to be exposed
Speaker 1: to the international market. And let's pretend I've spent five
Speaker 1: hundred dollars on an Australian ETF and five hundred dollars
Speaker 1: on an international you cannot expect them to perform identically
Speaker 1: over twelve months. So in twelve months time, we go
Speaker 1: back and check, and let's pretend ones at seven hundred
Speaker 1: and fifty dollars and ones at five hundred and fifty dollars.
Speaker 1: At that point, we want to kind of rebalance our
Speaker 1: portfolio and go, well, one did better. Should I take
Speaker 1: some of the money off the table and redivide it
Speaker 1: across my portfolio? So I e. We maybe sell down
Speaker 1: some of our Australian and put it back into the international,
Speaker 1: so we always maintain about fifty percent. And this happens
Speaker 1: across the board, so even if you were a direct
Speaker 1: share investor, you might do that across a number of
Speaker 1: different options. And I mean an example of that is
Speaker 1: you know, I was telling you about my portfolio and
Speaker 1: it was down twenty two percent. I'm still salty on that,
Speaker 1: but there was another asset that did the same but
Speaker 1: in opposite so it was like up twenty eight percent.
Speaker 1: And at the end of the year, because I like
Speaker 1: that reminders in my calendar. I don't know if everybody
Speaker 1: else does this, but remind us in my calendar, and
Speaker 1: I'm like, I get a wine in a rebalance time.
Speaker 1: And so I look at my portfolio and I looked
Speaker 1: at that asset and I thought, wow, that's up twenty
Speaker 1: eight percent and that's not that reflective of the market.
Speaker 1: So I made the decision to sell down some of
Speaker 1: that asset to redistribute across my portfolio. And over time,
Speaker 1: investments are going to perform differently, so we need to
Speaker 1: make sure that we kind of sell down something or
Speaker 1: maybe we the next month tip a little bit more
Speaker 1: money into the other one to get it back to
Speaker 1: that balance. And that's where diversification is really really important.
Speaker 1: But also rebalancing is going to mean that that diversification
Speaker 1: doesn't completely go out of whack.
Speaker 2: Yeah, I love the old wine and a rebalance?
Speaker 1: Is that a cult? Not everyone.
Speaker 2: I haven't heard of it before.
Speaker 1: I understood it on my own. I locked myself in
Speaker 1: my office. I'm like, I deserve this, it's me time.
Speaker 2: Investing involves the risk you might lose the money you
Speaker 2: start with. We recommend talking to a licens financial advisor.
Speaker 2: We also recommend reading product disclosure documents before deciding to invest.
Speaker 2: Everything you're about to see and hear is current at
Speaker 2: the time of recording.