WEBVTT - Quick Bite: Wine & rebalance? Diversification with Victoria Devine

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<v Speaker 1>You're listening to a Sheersise podcast.

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<v Speaker 2>How do people make sure they are truly diversified? What

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<v Speaker 2>does it even mean?

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<v Speaker 1>Diversification in its most simple form, I suppose, is just

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<v Speaker 1>making sure that you don't have all your eggs in

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<v Speaker 1>one basket. Like that's the most common example, right that

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<v Speaker 1>our industry uses, and it's not It's going to mean

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<v Speaker 1>something different to other people. Like if you are talking

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<v Speaker 1>about diversification and you're a direct share investor. Historically, when

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<v Speaker 1>I was putting together direct share portfolios four people, we

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<v Speaker 1>would have between seven and maybe twelve shares, and like

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<v Speaker 1>twelve felt like a lot in that but every single

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<v Speaker 1>share that they held was in a different industry, and

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<v Speaker 1>we would, you know, hold maybe one that's probably a lie.

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<v Speaker 1>We maybe hold two banks, like one or two banks

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<v Speaker 1>and see what was going on. We'd never hold all

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<v Speaker 1>of them, but we'd make a decision at the time

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<v Speaker 1>of investing as to which bank in that sector was

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<v Speaker 1>performing well enough and was a good investment and was

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<v Speaker 1>an over valued or underperforming or whatnot to put it

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<v Speaker 1>into their portfolio. So diversification in that aspect is something

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<v Speaker 1>that you have to manage ongoing, whereas diversification can be instant.

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<v Speaker 1>Like in that situation, these people that I was putting

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<v Speaker 1>portfolios together for, they were paying a lot of money

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<v Speaker 1>to have me manage those portfolios on a monthly basis,

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<v Speaker 1>and I mean every three months, I'd go in and

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<v Speaker 1>make adjustments and you know, take some profit off some

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<v Speaker 1>and put it back into another one, because you know,

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<v Speaker 1>you wanted to make sure that you always were consistent

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<v Speaker 1>and met their risk profile as well. But on the

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<v Speaker 1>flip side, we talk about instant diversification inside an ETF,

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<v Speaker 1>and that's because you've got a portfolio manager or a

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<v Speaker 1>fund manager making sure that everything inside that asset that

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<v Speaker 1>you're purchasing is okay and looked after. But essentially it's

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<v Speaker 1>making sure that if one industry is not doing so well.

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<v Speaker 1>Another is if you've got twelve different investment and over

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<v Speaker 1>that twelve one is actually down like thirty percent, that's terrifying.

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<v Speaker 1>Like if you said to me, hey, Ve, would you

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<v Speaker 1>be comfortable with your portfolio being down thirty percent? Be like,

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<v Speaker 1>absolutely not, Sonya not willing to take the risk. But

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<v Speaker 1>last year, if I look at my share portfolio, there

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<v Speaker 1>was an asset in my portfolio that returned negative thirty

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<v Speaker 1>two percent. It made me feel sick. But if I

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<v Speaker 1>look at my portfolio as a whole, because everything else

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<v Speaker 1>kind of held it up. My portfolio returned about fourteen

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<v Speaker 1>and a half percent, which is very sexy, but that

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<v Speaker 1>means that I wasn't all in on one asset. So

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<v Speaker 1>if one's doing really well, something else is usually just

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<v Speaker 1>slugging along. You need the guys that are going to

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<v Speaker 1>carry the team. Like the team work together. And I

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<v Speaker 1>think that that's really important to remember because you might

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<v Speaker 1>see my portfolio and go, oh, v that's a really

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<v Speaker 1>good return. But then in isolation, i'd never invest in

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<v Speaker 1>that particular share and they share that I'm talking about

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<v Speaker 1>out it did really well for the three years before that,

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<v Speaker 1>Like that was one of the things that was really

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<v Speaker 1>propping up my portfolio's returns. So when it was not

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<v Speaker 1>performing well, I was a bit sulty at it. But

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<v Speaker 1>that's the beauty of diversification. My personal wealth and my

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<v Speaker 1>wealth creation journey was not impacted by the performance of

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<v Speaker 1>that one share. So we need to make sure that

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<v Speaker 1>not all our eggs are in one basket, because if

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<v Speaker 1>you trip over, you've broken all your eggs.

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<v Speaker 2>And so once you have built this investment, portfolio and

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<v Speaker 2>it's taking me along. It's not just you know, sit

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<v Speaker 2>and forget forever. How should people be checking in on

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<v Speaker 2>their portfolio once it's running, and as well, how should

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<v Speaker 2>people stay informed about the things that are in the airport.

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<v Speaker 1>You've got the big questions today. I appreciate it. So

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<v Speaker 1>going back a little bit, this diversification is really important

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<v Speaker 1>for you understand. So if you're a direct share investor

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<v Speaker 1>versus like an ETF investor, or even let's pretend you

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<v Speaker 1>have two ETFs. You've got an international ETF and you've

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<v Speaker 1>got an Australian and maybe because of your risk profile,

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<v Speaker 1>which is essential for you to understand. And if you

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<v Speaker 1>don't understand your risk profile, there is so much content

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<v Speaker 1>on your website about it. So your risk profile, I

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<v Speaker 1>was explaining it earlier today to somebody. It's kind of

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<v Speaker 1>like a pie and you cut up your pie in

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<v Speaker 1>different amounts and some people say, I'm not that hungry, Victoria,

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<v Speaker 1>I only want a little bit of pie, or someone

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<v Speaker 1>will be like, I am ravenous, I need the whole thing.

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<v Speaker 1>And that's where your portfolio is going to differ from

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<v Speaker 1>one person to another. So if you're like a conservative person,

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<v Speaker 1>you probably asked for a small amount of pie, and

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<v Speaker 1>not all of your assets are invested in the share market.

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<v Speaker 1>Whereas if you are like me and pie is on

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<v Speaker 1>the table, like most of my assets are in the

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<v Speaker 1>share market. So if most of my assets are in

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<v Speaker 1>the share market, and I know that of my portfolio,

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<v Speaker 1>let's say ninety five percent of my money is inside

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<v Speaker 1>the share market, of that money, I would have then

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<v Speaker 1>broken it up. I would have then gone okay. So

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<v Speaker 1>some of it needs to be exposed to the Australian

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<v Speaker 1>share market, and some of it needs to be exposed

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<v Speaker 1>to the international market. And let's pretend I've spent five

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<v Speaker 1>hundred dollars on an Australian ETF and five hundred dollars

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<v Speaker 1>on an international you cannot expect them to perform identically

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<v Speaker 1>over twelve months. So in twelve months time, we go

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<v Speaker 1>back and check, and let's pretend ones at seven hundred

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<v Speaker 1>and fifty dollars and ones at five hundred and fifty dollars.

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<v Speaker 1>At that point, we want to kind of rebalance our

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<v Speaker 1>portfolio and go, well, one did better. Should I take

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<v Speaker 1>some of the money off the table and redivide it

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<v Speaker 1>across my portfolio? So I e. We maybe sell down

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<v Speaker 1>some of our Australian and put it back into the international,

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<v Speaker 1>so we always maintain about fifty percent. And this happens

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<v Speaker 1>across the board, so even if you were a direct

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<v Speaker 1>share investor, you might do that across a number of

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<v Speaker 1>different options. And I mean an example of that is

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<v Speaker 1>you know, I was telling you about my portfolio and

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<v Speaker 1>it was down twenty two percent. I'm still salty on that,

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<v Speaker 1>but there was another asset that did the same but

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<v Speaker 1>in opposite so it was like up twenty eight percent.

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<v Speaker 1>And at the end of the year, because I like

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<v Speaker 1>that reminders in my calendar. I don't know if everybody

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<v Speaker 1>else does this, but remind us in my calendar, and

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<v Speaker 1>I'm like, I get a wine in a rebalance time.

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<v Speaker 1>And so I look at my portfolio and I looked

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<v Speaker 1>at that asset and I thought, wow, that's up twenty

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<v Speaker 1>eight percent and that's not that reflective of the market.

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<v Speaker 1>So I made the decision to sell down some of

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<v Speaker 1>that asset to redistribute across my portfolio. And over time,

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<v Speaker 1>investments are going to perform differently, so we need to

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<v Speaker 1>make sure that we kind of sell down something or

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<v Speaker 1>maybe we the next month tip a little bit more

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<v Speaker 1>money into the other one to get it back to

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<v Speaker 1>that balance. And that's where diversification is really really important.

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<v Speaker 1>But also rebalancing is going to mean that that diversification

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<v Speaker 1>doesn't completely go out of whack.

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<v Speaker 2>Yeah, I love the old wine and a rebalance?

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<v Speaker 1>Is that a cult? Not everyone.

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<v Speaker 2>I haven't heard of it before.

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<v Speaker 1>I understood it on my own. I locked myself in

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<v Speaker 1>my office. I'm like, I deserve this, it's me time.

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<v Speaker 2>Investing involves the risk you might lose the money you

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<v Speaker 2>start with. We recommend talking to a licens financial advisor.

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<v Speaker 2>We also recommend reading product disclosure documents before deciding to invest.

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<v Speaker 2>Everything you're about to see and hear is current at

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<v Speaker 2>the time of recording.