Speaker 1: Hello, my name's Santasha Nabananga Bamblet. I'm a proud yr
Speaker 1: the Order Kernie Whoalbury and a waddery woman. And before
Speaker 1: we get started on She's on the Money podcast, I
Speaker 1: would like to acknowledge the traditional custodians of the land
Speaker 1: of which this podcast is recorded on a wondery country,
Speaker 1: acknowledging the elders, the ancestors and the next generation coming
Speaker 1: through as this podcast is about connecting, empowering, knowledge sharing
Speaker 1: and the storytelling of you to make a difference for
Speaker 1: today and lasting impact for tomorrow.
Speaker 2: Let's get into it.
Speaker 3: She's on the Money, She's on the Money.
Speaker 4: Hello, and welcome to She's on the Mune, the podcast
Speaker 4: for millennials who want financial freedom. Today, we're chatting all
Speaker 4: about passive investing, an extremely popular investing method which is
Speaker 4: famous for its laid back approach and gradual returns over
Speaker 4: the long term. But what do we need to be
Speaker 4: mindful of and how exactly does it compare to its
Speaker 4: exact opposite method of active investing. My name is Georgia
Speaker 4: King and joining me is Victoria devine Phi. We spoke
Speaker 4: about passive and active investing fairly recently a few monpular
Speaker 4: very popular topic for anyone who did miss that episode
Speaker 4: or who can't remember who might be a little bit
Speaker 4: like me. Can you please remind us exactly what passive
Speaker 4: investing looks like?
Speaker 2: Do you reckon you were a goldfish in a past life?
Speaker 4: I think maybe? Yeah?
Speaker 5: No, no, like in the most endearing way. I don't
Speaker 5: know goldfish was really mean. I'm sorry, but it's kind
Speaker 5: of true. Sometimes I'm like, yeah, so this is a
Speaker 5: good idea, and you're like, never heard of it, and
Speaker 5: I'm literally told you yesterday. But okay, so let's recap this.
Speaker 5: But I all, so, I think it's really important to
Speaker 5: always start an episode on exactly the same page, because
Speaker 5: if you haven't listened to it, like, you'll be on
Speaker 5: the back foot.
Speaker 2: I'm on that.
Speaker 5: So passive investing in a nutshell is a buy and
Speaker 5: hold investment strategy. So we buy our shares and then
Speaker 5: we hold onto them for a long time, with very
Speaker 5: little trading along the way. It's, from my perspective, a
Speaker 5: very slow and steady approach to investing. And because we
Speaker 5: are buying and holding, there are fewer fees involved. Money
Speaker 5: win because you aren't selling and trading and being really
Speaker 5: active all the time. It's the opposite of active investing, George,
Speaker 5: which is far more involved and is ultimately over the
Speaker 5: long term. It is great for people who have time
Speaker 5: on their side, so not time when it comes to trading.
Speaker 5: But we're talking about time in the market, because that's
Speaker 5: way better than timing the market, Georgia King.
Speaker 2: So if you're looking to invest over a.
Speaker 5: Long period of time instead of just a few short years,
Speaker 5: the aim isn't actually, when it comes to passive investing,
Speaker 5: to beat the market, but actually just to ride the
Speaker 5: ebbs and the flows of the market and experience consistent
Speaker 5: gains along that investment journey. People who invest passively also
Speaker 5: generally have a lower risk tolerance, especially when you compare
Speaker 5: them to active investors who tend to take bigger swings
Speaker 5: along the way.
Speaker 4: Yep, okay, you mentioned it just their VD active investing.
Speaker 4: It's the opposite of passive investing, and we did speak
Speaker 4: about it on that episode. But just so I have
Speaker 4: it really clear in my head, what actually is active investing.
Speaker 2: So active investors, as you said, the opposite.
Speaker 5: Well, passive investors adopted buy and hold strategy and they
Speaker 5: don't trade often. Active investors they're there to try and
Speaker 5: beat the market. They're chasing shorter term gains. They're selling
Speaker 5: things when they're up, buying things when they're down, and
Speaker 5: trying to be really good traders, which in theory sounds
Speaker 5: like a good method. Yes, but the performance doesn't vary
Speaker 5: over the long term that much. Surprisingly, Okay, Active investors
Speaker 5: are far more hands on and therefore usually need to
Speaker 5: be a little bit more experienced, and it is a
Speaker 5: bit more of an expensive method, especially if you have
Speaker 5: a fund manager helping you, because they are additional fees
Speaker 5: and charges involved. But it honestly it can yield higher
Speaker 5: short term returns. So it's up to you what you
Speaker 5: find best for your situation.
Speaker 4: Ryan, Okay, so active sounds exhausting, passive a little more relaxing.
Speaker 2: I would agree with the more agree more Georgia King Vie.
Speaker 4: When I was reading ahead of today's episode, because we
Speaker 4: like to be prepared, we're reading my new book I
Speaker 4: actually want it's good. Guys can confirm.
Speaker 2: I'm like, this feels familiar these words you've put in this.
Speaker 4: Stum So index investing was something that came up time
Speaker 4: and time again as the most common form of passive investing.
Speaker 4: Once again, I'm sure we've spoken about it before, but
Speaker 4: what does index investing mean and why is that the
Speaker 4: best way to invest passively?
Speaker 5: So we've explained index investing before that from my perspective,
Speaker 5: it's the average of the average, like you're just chasing
Speaker 5: the average of the average. Index investing is all about
Speaker 5: emulating the returns of the benchmark financial index, which sounds
Speaker 5: really complicated, but but I promise it is not. It's
Speaker 5: basically just going, all right, we're going to take these
Speaker 5: top two hundred shares and then we are going to
Speaker 5: put them all in one basket, and then you're going
Speaker 5: to get the average returns of those top two hundred shares.
Speaker 5: So say one is up ten percent, one's down ten percent,
Speaker 5: and one's up two percent and one's down one percent.
Speaker 5: You end up with an average, so you don't feel
Speaker 5: the super highs and you don't feel the super lows.
Speaker 5: You end up with an average return across the market.
Speaker 5: And that's why I say it's the average of the average,
Speaker 5: because you're not looking for like, oh my gosh, I
Speaker 5: just want these, you know, specific shares, and the top
Speaker 5: ten in this area. You're usually taking a bigger basket,
Speaker 5: so that you can track the index, and the index
Speaker 5: is basically the average.
Speaker 2: Does that make sense?
Speaker 4: Makes sense?
Speaker 2: I hope it makes sense.
Speaker 5: It can be achieved by using so many different investment funds,
Speaker 5: including managed funds, super funds, sometimes ETFs or exchange traded
Speaker 5: funds as they're very commonly known in our community. Index
Speaker 5: funds are comprised of. As I mentioned before, various stocks
Speaker 5: make up an index. So another example of this, you
Speaker 5: know how I said before, you might take the top
Speaker 5: two hundred stocks. There's literally the ASX three hundred, which
Speaker 5: is Australia's top three hundred companies. Or you might have
Speaker 5: heard of the all odds. I feel like they talk
Speaker 5: about that on the news basically every night at six pm.
Speaker 5: They're like, and the all Lords. That's just a white
Speaker 5: male being like, oh my gosh, look at this. If
Speaker 5: we just go all odds, people would think it's really fancy,
Speaker 5: but it's actually just the top five hundred Australia. Yeah,
Speaker 5: there's nothing that complicated about it.
Speaker 4: No, that's good to know. I feel like when I
Speaker 4: hear all odds, I think of like the national rugby
Speaker 4: team or something.
Speaker 2: I do all Lords.
Speaker 5: I don't know, Oh, I just don't remember when I
Speaker 5: was younger, and I would watch the news and be
Speaker 5: really confused and basically zone out when they're like, oh,
Speaker 5: the stock market today, and then they'd like put this
Speaker 5: chart up and they'd have like the green arrow up
Speaker 5: and sometimes the red arrow down and then be like
Speaker 5: the all Lords is trending xyzer, and you'd just be like,
Speaker 5: what are you talking about? But if you hear it
Speaker 5: on the news, the all Odds just means the top
Speaker 5: five hundred companies in Australia and it's the average, and
Speaker 5: the all Oords is seen as a pretty good indicator
Speaker 5: of the health of our country, right because five hundred
Speaker 5: companies in Australia is a lot of companies, right, like
Speaker 5: the top five hundred. We're not a massive country at
Speaker 5: the end.
Speaker 2: Of the day.
Speaker 5: So if the all Odds is down, that means the
Speaker 5: economy is a little bit down. It's an indicator of
Speaker 5: how we're doing as a society, right, So if the
Speaker 5: all Odds is up, the economy must be doing pretty well.
Speaker 5: If things are happening in Australia in their negative like COVID,
Speaker 5: it would be expected that the all ords might be down. Sure,
Speaker 5: So it's an indicator of the economy and how it's
Speaker 5: performing today is basically what I would see it as.
Speaker 4: Okay, that's quite hot.
Speaker 2: You can also buy it.
Speaker 4: So how do you buy it?
Speaker 5: Though?
Speaker 4: So is that when we're buying into an index fund,
Speaker 4: are we buying a small portion of five hundred companies?
Speaker 2: Yes and no.
Speaker 5: So in ETF, I mean sidetrack, we've done a whole
Speaker 5: investment series. Please go back and listen to that.
Speaker 2: I mean you were on it, so I hope you
Speaker 2: remember it.
Speaker 5: But when it comes to an ETF, that is actually
Speaker 5: bought and sold in exactly the same way as share was.
Speaker 5: So say you want to buy a Wooly's share and
Speaker 5: you go on to your platform. You might pick as
Speaker 5: shares is or a superhero, or you might be going
Speaker 5: to a self well, because it doesn't matter. You're on
Speaker 5: a trading platform and you've decided to buy a share.
Speaker 5: You go and you go to that profile you pick
Speaker 5: I would like to buy one share of Woolies, right,
Speaker 5: So you've done that. Transaction to buy an ETF is
Speaker 5: exactly the same because ETFs actually listed in exactly the
Speaker 5: same way as share is on the share market. However,
Speaker 5: an exchange traded fund is basically just this big bucket
Speaker 5: of shares, So instead of purchasing a Wooly's share directly,
Speaker 5: you would be like, all right, well, a ETF is
Speaker 5: more in line with my goals and values at this
Speaker 5: point in time, and I would like some more diversification
Speaker 5: because if you bought that one Wooly's share, you're just
Speaker 5: buying into that one company. And you know how we're
Speaker 5: talking about ebbs and flows of the market. If Woollies
Speaker 5: goes down five percent, you're going to feel that entire
Speaker 5: five percent. If it goes up ten percent, you're going
Speaker 5: to feel that. But you also don't have any exposure
Speaker 5: to any area of the market, right, So an ETF
Speaker 5: is a good way of getting instant diversification. And when
Speaker 5: we say diversification, women not putting our eggs in one basket.
Speaker 5: So you're getting instantly a range of different share options.
Speaker 5: So you'd be getting maybe some Woolies, but you'd also
Speaker 5: be getting some other areas. So you might be getting
Speaker 5: some mining depending on what you're up to. You might
Speaker 5: be getting some infrastructure, you might be getting some clothing businesses,
Speaker 5: so you're not just picking one.
Speaker 2: Area of the market.
Speaker 5: But when you buy an ETF, you're actually putting your
Speaker 5: money into a big bucket, and then that bucket buys shares,
Speaker 5: because obviously a share can be quite expensive, like some
Speaker 5: shares and more than one hundred dollars, some are less
Speaker 5: than a dollar, and across the market, these are ebbed
Speaker 5: and flowed. And if you've got five bucks and you're
Speaker 5: putting it into an ETF, that doesn't necessarily mean that
Speaker 5: you'd be able to buy the shares directly. So it's basically,
Speaker 5: in a way, fractional investing, but you're just getting bits
Speaker 5: of the entire market and it gives you one better diversify.
Speaker 5: But it also means that you don't have to be
Speaker 5: as active in your strategy, and they are, in our
Speaker 5: shees on the money community a very popular way of
Speaker 5: getting into the market and picking an asset that you
Speaker 5: go I'm really comfortable with this because I'm not the
Speaker 5: one always calling the shots.
Speaker 2: Now, does that make sense? Yeah?
Speaker 5: Yeah, A bit of a side track because I know
Speaker 5: that none of that was in our script for today.
Speaker 5: I feel like it's important to talk about this stuff,
Speaker 5: and I know we've talked about it before, but to
Speaker 5: be honest, you guys need to hear it over and
Speaker 5: over again, so it really reiterates and you become really
Speaker 5: comfortable with it, and it kind of just becomes second nature.
Speaker 4: And that's the point of what we do, right. Yeah,
Speaker 4: I couldn't agree more so. Beyond that, though, are all
Speaker 4: index funds ETFs or not?
Speaker 1: Not?
Speaker 4: Necessarily tell me mom.
Speaker 5: So no at the end of the day, but I
Speaker 5: feel like people in our community are often using them interchangeably.
Speaker 5: But not all ETF funds, and not all index funds
Speaker 5: are ETF but most of them are in Australia.
Speaker 4: Okay.
Speaker 5: The key difference between the two is that in ETF,
Speaker 5: as I mentioned before, can be traded on the share
Speaker 5: market like a stock, but an index fund can only
Speaker 5: be bought or sold at the end of a trading day,
Speaker 5: so it can only be bought or sold once a day.
Speaker 5: So not all indfs are index funds, but most index
Speaker 5: funds are ETFs.
Speaker 2: Does that make sense?
Speaker 1: It does?
Speaker 2: It doesn't, It does, it doesn't.
Speaker 5: So basically, an ETF could be a plethora of things,
Speaker 5: and ETF is an exchange traded fund, as I said before,
Speaker 5: a bucket. In that bucket, it could be an index
Speaker 5: of just the top five hundred or the ETF might
Speaker 5: be a bit more active and it could actually have
Speaker 5: you know, a different sector of the market in it,
Speaker 5: where it just has ten stocks of you know, tech
Speaker 5: companies that you want to invest in, and they might
Speaker 5: not just be the top there might be a certain
Speaker 5: select few that you want to purchase. I've mentioned it
Speaker 5: before on the podcast. There's also an ETF you can buy.
Speaker 5: I just think it's really cool because the world is wild,
Speaker 5: or I think the world is wild, and I obviously
Speaker 5: love investing, but there's literally an ETF George that you
Speaker 5: can buy that only has women on the board of
Speaker 5: the companies that you're investing in.
Speaker 2: Really, isn't it cool?
Speaker 5: So even if you are a passive investor, I feel
Speaker 5: like in twenty twenty two, you can still find ETFs
Speaker 5: and passive investments that align to your personal values, Whereas
Speaker 5: historically and when I started in the industry, like these
Speaker 5: things weren't as accessible. I remember sitting down with clients
Speaker 5: and being like, well, if you want your values upheld,
Speaker 5: we actually need an erect investment portfolio and that small
Speaker 5: time energy effort money like it's much harder to do,
Speaker 5: whereas nowadays it's like, all right, well, g And I've
Speaker 5: explained this on the podcast before, about doing your values
Speaker 5: first and then working out what type of strategy works
Speaker 5: for you and whittling it down kind of like an
Speaker 5: upside down pyramid so that you actually end up at
Speaker 5: one solution. And my new book, not to promote it
Speaker 5: too much, but my new book literally takes you down
Speaker 5: the garden path of doing that because I'm like, all right, well,
Speaker 5: what's your risk tolerance, what are your values?
Speaker 2: How does this work?
Speaker 5: Because I think that especially as women, we get really
Speaker 5: overwhelmed and we get analysis paralysis, and I know you
Speaker 5: get this in particular where I'm like, gee, like start
Speaker 5: investing you like I don't know what.
Speaker 2: To pick, Like I don't know how to do it.
Speaker 5: And to be honest, we need to be reverse engineering
Speaker 5: it in a way where it's not like, Gee, don't
Speaker 5: tell me you don't know what to pick, because if
Speaker 5: you've done your process, it will actually tell you what
Speaker 5: to pick. Like you'll go through the process and you'll
Speaker 5: answer questions like, g do you want to be really involved?
Speaker 5: And you'll be like, no, all right, well maybe a
Speaker 5: passive portfolio is better for you. Let's look at passive options.
Speaker 5: Whereas if I put them all on the table, You're
Speaker 5: gonna be like, oh my gosh, I'm so overwhelmed.
Speaker 2: Do I go direct? Or do I not?
Speaker 5: Whereas if your friend is saying, oh, I'm actually a
Speaker 5: passive investor, you know, really low risk tolerance. If they're
Speaker 5: then saying, oh, I went and bought all these direct shares,
Speaker 5: you'd be like, wait, what that doesn't actually align to
Speaker 5: what your strategy should be based on your personal values. Right, anyway,
Speaker 5: let's not go on and on. This is all about
Speaker 5: passive investment. Yeah, not how to shut together an investment
Speaker 5: portfolio in general. That's covered in my.
Speaker 4: Book exactly right, which you could pick up at dimmis
Speaker 4: nineteen ninety and I don't know how much it is,
Speaker 4: but thank you.
Speaker 2: You know what I think. On Amazon it goes down
Speaker 2: to nineteen dollars.
Speaker 5: Get it onside it.
Speaker 4: Whin What would you say the main goal of passive
Speaker 4: investing is? Is it just to get rich?
Speaker 5: Get rich, get rich, retire? From my perspective, it's genuinely
Speaker 5: just wealth creation, Like it is long term sustainable wealth creation.
Speaker 5: We know that not investing is a choice. Like it's
Speaker 5: actually quite funny when people are like, oh, like I'm
Speaker 5: not ready. I don't want to do it, but I
Speaker 5: think you need to actually take the plunge into investing
Speaker 5: if it makes sense for you, because having money in
Speaker 5: cash is actually going to put you backwards. And I
Speaker 5: did a little comparison while I was on the plane
Speaker 5: coming back from America, because this is the kind of
Speaker 5: stuff I get up to when I'm bored or just shop,
Speaker 5: and I was like, I wonder what ten grand invested
Speaker 5: ten years ago would look like compared to keeping it
Speaker 5: in a savings account, Like the current value of a dollar,
Speaker 5: so we know that a dollar today is not worth
Speaker 5: what a dollar tomorrow is worth because obviously, when it
Speaker 5: comes to inflation and CPI and the rising cost of living,
Speaker 5: what a dollar can buy me today is not what
Speaker 5: a dollar can buy me tomorrow. It's usually less. So
Speaker 5: I don't have the exact stats in front of me,
Speaker 5: which I absolutely should, But ten thousand dollars ten years
Speaker 5: ago invested, I think was worth eighteen thousand dollars, and
Speaker 5: ten thousand dollars just in a savings account was worth
Speaker 5: six and a half thousand. So you're literally losing money.
Speaker 5: And I'm not saying that you wouldn't still have that
Speaker 5: ten thousand dollars in your heads. You're probably like the
Speaker 5: if I put ten thousand dollars in an account ten
Speaker 5: years ago and didn't touch it, ten thousand dollars should
Speaker 5: still be there. Yes, but it will not buy you
Speaker 5: as much as it would have ten years ago. So
Speaker 5: ten years ago, you know, you would have gone to
Speaker 5: the supermarket and filled up a grocery tolley with one
Speaker 5: hundred dollars worth of groceries. It would be far more
Speaker 5: full than it would be today. Does that make answer?
Speaker 5: It's all about inflation. It's not necessarily change g You
Speaker 5: will lose money, Like, no one's going to come and
Speaker 5: take money out of your account put in the bin
Speaker 5: because you have it in savings. It's gonna stay there.
Speaker 5: But ten thousand dollars loses value. And I'm not talking
Speaker 5: monetary value. I'm talking about the power of what it
Speaker 5: can buy you. So it's actually putting you behind by
Speaker 5: not investing. At the end of the day. It's really powerful,
Speaker 5: but it's also really sad when we, you know, come
Speaker 5: down to it, because at the end of the day,
Speaker 5: you're putting yourself behind by not putting investing as a priority.
Speaker 4: Yeah, well, that has blown my mind. It's crazy talking
Speaker 4: about that.
Speaker 5: We are talking about you are not a podcasts, but
Speaker 5: it's crazy to think what that means. And it's also,
Speaker 5: like I've spoken about this on the podcast before. When
Speaker 5: it comes to human behavior, humans are literally wired in
Speaker 5: a linear way. So to you, one plus one equals
Speaker 5: to two plus two equals four. Right, But if I
Speaker 5: talk to you about compounding interest on paper, it looks
Speaker 5: really sexy, but your mind doesn't work that way. Your
Speaker 5: mind goes in a really straight line slowly up, whereas
Speaker 5: compounding interest it kind of goes in that really straight
Speaker 5: line going up and then it starts to peak as
Speaker 5: compounding really takes power. And that's something that it's not
Speaker 5: because we're silly. It's because of the way our brains
Speaker 5: are wired that we can't really comprehend or harness that,
Speaker 5: so it takes us a while to actually go hold
Speaker 5: on the power of that is actually wild and this
Speaker 5: is how it works, and this is how it impacts me.
Speaker 5: It's not because we're not explaining it clearly enough. It's
Speaker 5: because our brains are literally wired to not properly understand that.
Speaker 5: Because at the end of the day, we're creatures who
Speaker 5: are just trying to survive, and surviving is very different
Speaker 5: to thriving. Thriving is a choice. Thriving is something you
Speaker 5: actually have to put active energy into doing, and investing
Speaker 5: is part of that journey. Does that make sense?
Speaker 4: That does make sense. I wonder if maybe all the
Speaker 4: shees on the money listeners in one hundred years time
Speaker 4: we check back in, most of us will be dead.
Speaker 4: Our brains might have changed, though, and maybe we'll grasp
Speaker 4: it better anyway.
Speaker 2: I hope so.
Speaker 5: But get essentially summary of that question that you asked me. Yes,
Speaker 5: it is to create wealth, but it is also really
Speaker 5: important to make sure that you're on that journey because
Speaker 5: investing is a priority. And we're not saying that passive
Speaker 5: investing is the way, We're just saying here's another way
Speaker 5: to do it. Because at the end of the day,
Speaker 5: t l DA investing is really important and if you
Speaker 5: have a job and a super account, you're already an investor.
Speaker 2: Georgia King, beautiful V.
Speaker 4: I think now is probably the right time to take
Speaker 4: a little break. Let that a little break in, but
Speaker 4: on the other side, to give me be chatting about
Speaker 4: the best parts of passive investing. What the returns really
Speaker 4: look like, and how you can actually set yourself up
Speaker 4: with one. So please don't go anywhere. What a time,
Speaker 4: let's dive back in v tell me what the returns
Speaker 4: actually look like when we're investing this way, because my
Speaker 4: mind would say, surely active investing, because it's so much
Speaker 4: more involved, we're trying to beat the trends of the market.
Speaker 4: Surely that is going to yield better returns. But is
Speaker 4: that the case?
Speaker 1: All right?
Speaker 5: Good question, Georgia King, because so many times it comes
Speaker 5: up in our community. Should I be active? Should be passive?
Speaker 5: Should I buy an ETA? Should I buy direct shares?
Speaker 5: What's the difference? Should it be chess sponsored? Does chess
Speaker 5: sponsorship matter? Tild I No, But it's one of those
Speaker 5: things where the debate has spawned side arguments like whether
Speaker 5: some passive funds are actually really active management in disguise,
Speaker 5: or whether they should be debated as reframing along high
Speaker 5: cost versus low cost funds. I get's a pickle of
Speaker 5: a topic because you know, the deeper you get into it,
Speaker 5: the more meaning it has. But at the end of
Speaker 5: the day, the good news is one you don't have
Speaker 5: to be active or passive. You can be active and passive.
Speaker 5: I think I've discussed before. As much as I'm not
Speaker 5: allowed to tell you what I own legally, I can
Speaker 5: tell you that I have a mainly passive approach, and
Speaker 5: then I'm active in some areas because it interests me.
Speaker 5: And you could do something similar. You could be like,
Speaker 5: all right, well, my core portfolio is passive and then
Speaker 5: I can be a little bit active when it comes
Speaker 5: to the returns, though, which I think is people's main priority,
Speaker 5: right They're like, well, if i'm gonna win best, I
Speaker 5: want the highest returns. Ever, with more risk comes more return.
Speaker 5: But often from my perspective, it's about making hey, while
Speaker 5: the sun is shining, and if the sun is shining
Speaker 5: and we are able to create consistent returns, From my perspective,
Speaker 5: I much prefer consistent returns over the highest returns that
Speaker 5: are maybe possible because nothing's guaranteed.
Speaker 1: Right.
Speaker 5: But according to Vanguard's matrix on active versus passive based
Speaker 5: on ten years worth of data, obviously, the more risk
Speaker 5: averse the investor is, the more difficulty they have choosing
Speaker 5: low cost options because they are far more expensive. And
Speaker 5: when it all comes out in the wash, the difference
Speaker 5: is minuscule. Like you look at some articles and some graphs,
Speaker 5: and I'm currently on Barons dot com. They have a
Speaker 5: really cute graph of active versus passive portfolios, and to
Speaker 5: be honest, the difference is less than one percent over
Speaker 5: a ten year period. And I find that really interesting
Speaker 5: because obviously we could compare so many different things, but
Speaker 5: it's not comparing apples with apples. So if I go, hey, Georgia,
Speaker 5: you've got this really high risk portfolio that is currently
Speaker 5: returning you know, fifteen percent or something along the lines,
Speaker 5: and your passive portfolio, it's one not apples with apples.
Speaker 5: But we also need to remember the different risk profiles
Speaker 5: associated and someone who has a different risk profile and is,
Speaker 5: you know, maybe more of a moderate growth than a
Speaker 5: high growth investor, they're actually chasing lower returns anyway. So
Speaker 5: it's not which is better, it's which is going to
Speaker 5: serve you better in the long term. And from my perspective,
Speaker 5: as I've said before, I am more of a passive investor.
Speaker 5: But I'm more passive because I just don't want to
Speaker 5: stress every night, Like I'm so lucky that I am
Speaker 5: so young and got to start so early, and as
Speaker 5: much as I'm wildly passionate about this investing space. I'm
Speaker 5: also acutely aware that I can't time the market. So
Speaker 5: what I'm going to do is make sure I have
Speaker 5: the most time in the market so that I am
Speaker 5: just investing consistently over the long term. Because even if
Speaker 5: you look at it right, like in the investment world,
Speaker 5: you know people obviously chasing sick returns and we want
Speaker 5: like the highest ever and all all of this other stuff.
Speaker 5: And we know that the Australian share market over I
Speaker 5: think it's the last twenty two years or something, has
Speaker 5: returned eleven percent.
Speaker 2: That's pretty sexy, I reckon.
Speaker 5: But when I do my calculations with my clients and
Speaker 5: I sit down and I say, all right, Georgia, like,
Speaker 5: what what returns you looking for, You're going to go,
Speaker 5: all right, well, I just want to average return. I
Speaker 5: just want to make sure I'm okay. I usually either
Speaker 5: use five percent as a guide or seven and a
Speaker 5: half percent. I'm never looking at that eleven even though
Speaker 5: it's the average, because I would rather underpromise, over deliver
Speaker 5: and make sure that we achieve our financial goals instead
Speaker 5: of putting you in a position where we're expecting the
Speaker 5: world and then I can't put it on the platter
Speaker 5: for you. So I think it's all about under calculating
Speaker 5: performance and then being impressed later down the track. It
Speaker 5: means that you're not as disappointed when there are dips
Speaker 5: in the market because you can obviously go, all right, well,
Speaker 5: last year my performance was eleven percent. Like I remember,
Speaker 5: back in twenty nineteen before covid G, we were talking
Speaker 5: about my investment portfolio, you know, privately, and I can
Speaker 5: say this now because it's not current, and my investment
Speaker 5: portfolio that year returns seventeen percent WOOFED and it was
Speaker 5: doing really well, and I was really stoked. I was
Speaker 5: like this, you know, obviously isn't what was planned, but
Speaker 5: the assets that I'm holding are doing really well. And
Speaker 5: that's just one year in isolation, Like that doesn't mean
Speaker 5: that that's perfect. My clients were stoked, George, because I
Speaker 5: had seventeen percent. I had some of my clients where
Speaker 5: their entire portfolio had returned twenty two to twenty five percent.
Speaker 2: Holy, Like what, that's amazing.
Speaker 5: And every time I had a conversation with a client,
Speaker 5: as much as I was super excited about it, I
Speaker 5: was also like all right, but take this with a
Speaker 5: grain of salt. I know it's looking really sexy. This
Speaker 5: is going to make up for the years in the
Speaker 5: future that we might have a little bit of an
Speaker 5: air but or the market might be a bit down,
Speaker 5: and they'd always be like, yeah, yeah, bab we get it.
Speaker 5: Don't worry, don't worry. Obviously, I had no idea that
Speaker 5: COVID would then come. Yeah, COVID then came, and some
Speaker 5: of my clients had underperforming portfolios or stocks, and I
Speaker 5: was as a financial advisor, who you know. I graduated
Speaker 5: in two thousand and nine, and obviously the Global Financial
Speaker 5: Crisis was the last big financial crisis that financial advisors
Speaker 5: had to go through, so I didn't experience that, but
Speaker 5: I heard all about it, and I was like, oh
Speaker 5: my gosh, this is the first time I'm really going
Speaker 5: to have to sit down a client and be like
Speaker 5: Georgia King, I am so sorry because your performance isn't
Speaker 5: where it should be. And I was so anxious, and
Speaker 5: I did way more research than I usually would like.
Speaker 2: If a client had a.
Speaker 5: Direct portfolio, I was going through obviously I do this anyway,
Speaker 5: but I was going through annual reports. If they're holding
Speaker 5: with a far finer tooth than I was before, trying
Speaker 5: to find every reason why this had happened. So if
Speaker 5: my clients mentioned anything, I'd be like, all right, well, Georgia,
Speaker 5: this is what this means.
Speaker 2: Don't worry.
Speaker 5: I'm completely on top of it. I wanted my clients
Speaker 5: to feel safe. Every meeting I went to with clients,
Speaker 5: They're like, yeah, no worries. I was like, what They're like,
Speaker 5: you said this would happen, Like you set our expectations
Speaker 5: that market would at some point go down. We had
Speaker 5: a really good couple of years, but like, we're just
Speaker 5: gonna write it out, and I.
Speaker 2: Was like, I've wasted so much time research.
Speaker 5: I mean, I don't regret it, but I think it's
Speaker 5: really important to talk about this stuff as well, so
Speaker 5: that you guys understand that, you know, over the last
Speaker 5: few years my portfolio has been doing really badly. Makes
Speaker 5: me feel really sick. I actually hate logging in and
Speaker 5: seeing it. But at the same time, I always tell
Speaker 5: you guys, it's about looking at it as if the
Speaker 5: shares are on sale and going all right, well, the
Speaker 5: shares are on sale. If I buy more now, I'm
Speaker 5: getting better value, which is a money win.
Speaker 3: Right.
Speaker 5: So I think when it comes to passive investing, it's
Speaker 5: not really about the performance. Like, if you're chasing performance
Speaker 5: and you're really wanting the highest of the higher, then yeah,
Speaker 5: you're probably more of an active investor. Passive investment strategies
Speaker 5: are the slow and steady steed that are arguably going
Speaker 5: to win the race, and you might not end up
Speaker 5: with millions upon millions of dollars, but like that was
Speaker 5: always going to be a risk.
Speaker 2: Does that make sense?
Speaker 4: Yeah?
Speaker 5: And when I use that example which I've used on
Speaker 5: the podcast a million times that we've talked about five
Speaker 5: hundred dollars each and every single month from the age
Speaker 5: of twenty one up until retirement. If you had saved
Speaker 5: that money, it would be two hundred and forty thousand dollars.
Speaker 5: If you had invested that money, it would be one
Speaker 5: point two million ECHE dollars in an investment portfolio money win.
Speaker 5: That generates a passive income stream of about sixty thousand dollars.
Speaker 5: But gee, that's calculated a seven and a half percent return,
Speaker 5: and we know that the market has performed higher than
Speaker 5: that over the.
Speaker 2: Last few years. Does that make sense?
Speaker 5: So when we give examples, I'm always trying to under
Speaker 5: promise over deliver, and I think you should do that
Speaker 5: for yourself as well. So when you're looking at is
Speaker 5: an active portfolio better returning or is a passive portfolio
Speaker 5: better returning, I don't think it's about that. I actually
Speaker 5: think it's about picking something that will get you to
Speaker 5: your goal safely.
Speaker 4: Yeah, does that make sense? It does make sense. Sorry, Ranch, No, No,
Speaker 4: I loved I absorbed at all just on that v
Speaker 4: The one thing you didn't touch on there was the
Speaker 4: difference in expense between servicing a passive folio versus an
Speaker 4: active folio. I'm assuming active will be more expensive, especially
Speaker 4: if you're paying for a fund manager, because it's more
Speaker 4: hands on. Can you talk through that different as well?
Speaker 5: Absolutely, So when it comes to active, there's usually more
Speaker 5: hands involved, there's usually more people in the mix, and
Speaker 5: usually when it comes to investing, those people are very expensive.
Speaker 5: So that could be a financial advisor, it could be
Speaker 5: a fund manager if you're picking an active fund, it
Speaker 5: could be anybody. But essentially, an ETF just baskets everything
Speaker 5: into a fund. Yeah, there'll be a manager that looks
Speaker 5: after that ETF or an ETF manager, but they won't
Speaker 5: be as actively trying to chase returns as a fund
Speaker 5: manager in an active portfolio, you do pay for it.
Speaker 5: But that's why I said it's hard to compare apples
Speaker 5: with apples, because funds have different prices in different returns,
Speaker 5: and then things that are more active sometimes come out
Speaker 5: in the wash exactly the same.
Speaker 2: So, to be honest, it really boils down to.
Speaker 5: What are your values. G what's gonna you know, spark
Speaker 5: joy in you? And I know that sounds so lame sometimes,
Speaker 5: but if you're like, yeah, I just want to invest
Speaker 5: to put myself in the best possible financial position in
Speaker 5: the future, then maybe passive is for you. But if
Speaker 5: you're like, oh my gosh, I'm so excited. I love investing.
Speaker 5: I want to be a part of it. I want
Speaker 5: to be trading. Oh my gosh, I've been doing this
Speaker 5: research on this fund manager and I'd really like to
Speaker 5: follow their portfolio, then great, maybe that is for you.
Speaker 5: But different strategies can also be chopped and changed. As
Speaker 5: I've said before, I mix strategies for me personally because
Speaker 5: I am really passionate, but I'm also really passionate about
Speaker 5: that you know, tried and true steady Steed, who's going
Speaker 5: to hopefully win the race for me. And so that's
Speaker 5: where passive comes into it. So it really really depends
Speaker 5: on what your values are as a person. But yes,
Speaker 5: active is more expensive in general because usually you're paying
Speaker 5: for a fund manager across the board. In the financial
Speaker 5: advice industry, I find that financial advisors scoff a little
Speaker 5: bit when you say that an ETF costs more than
Speaker 5: one percent of your funds under management. I might use
Speaker 5: terms like basis points, but basis points can basically be
Speaker 5: you know, converted straight into a percentage. So less than
Speaker 5: one percent I think is fair for an ETF that
Speaker 5: doesn't have an active fund manager. But you can pay
Speaker 5: way more than that when it comes to having an
Speaker 5: active person on your portfolio, because they need to pay
Speaker 5: the bills.
Speaker 4: Yeah, okay, perfect. They talk me through the very best
Speaker 4: parts of passive investing, apart from like the hands off approach,
Speaker 4: which I'm very drawn to personally.
Speaker 5: I haven't sold you on it yet, You're like, I
Speaker 5: want more more, is there, Victoria? You need to pitch
Speaker 5: this harder, all right. So obviously very low maintenance, more
Speaker 5: of a hands off approach, less responsibility on you, which,
Speaker 5: to be honest, I find real sexy, but passive investing
Speaker 5: is really just like as I said before, setting and
Speaker 5: forgetting and not having the constant angst or exhaustion of
Speaker 5: monitoring the market, and can be quite freeing. From my understanding.
Speaker 5: It doesn't mean you don't need a financial advisor though
Speaker 5: contrary to popular belief, as much as you can absolutely
Speaker 5: go and do it yourself. It's funny because I actually
Speaker 5: have a whole heap of clients that have passive investment strategies,
Speaker 5: and I mainly work with them individually on goal setting
Speaker 5: and actually budgeting and cash flow because they're the things
Speaker 5: they struggle with, and they're the things they see value
Speaker 5: in me in and it's not actually investing. So we're like, yeap,
Speaker 5: let's set up a passive portfolio. We'll put that over
Speaker 5: to the side. It'll tick along do its thing, and
Speaker 5: we'll focus on these things. Whereas I then have other
Speaker 5: clients and this is where I usually play a little
Speaker 5: bit more actively, where they have direct share portfolios and
Speaker 5: I'm far more active in that and they're like V,
Speaker 5: I don't care about my budgeting cash flow. They're either
Speaker 5: really reached or they're on top of it, and they
Speaker 5: don't need my help when it comes to budgeting cash flow.
Speaker 5: So each financial advice relationship is actually going to be
Speaker 5: really different based on how you frame it with your advisors.
Speaker 5: So I don't want you guys thinking, oh, if it's passive,
Speaker 5: you just do it yourself, you don't need an advisor.
Speaker 5: It will really depend on what your goals are for
Speaker 5: seeking financial advice. Everyone's is different, right Obviously, as we
Speaker 5: mentioned before, it's cheaper if you've got someone investing on
Speaker 5: your behalf and looking at your portfolio, their fees obviously
Speaker 5: are likely to be higher because it's active investment, as
Speaker 5: we said before, so much more involved. So cheaper is
Speaker 5: a nice thing, a bit of a money win. Capital
Speaker 5: gains tax is also avoided sometimes because you're not selling
Speaker 5: when you hit a profit. So often with the more
Speaker 5: active investing, you're selling and buying and selling and buying,
Speaker 5: and you really need to take into consideration capital gains tax.
Speaker 5: So that's a tax you pay on the profit you
Speaker 5: make from the asset you sold. Say you had a share, George,
Speaker 5: and it was a dollar when you bought it, and
Speaker 5: then it was two dollars when you sold it. You
Speaker 5: now have to pay tax on that one dollar that
Speaker 5: you made and if you sell it within twelve months,
Speaker 5: so in under twelve months, you're actually going to be
Speaker 5: slapped with a fifty percent capital gains tax, so that
Speaker 5: takes your profit down to just fifty cents, so.
Speaker 2: It really strips it away.
Speaker 5: Otherwise, it is taxed at your marginal tax rate, which
Speaker 5: is really fair because we pay tax on money we earn,
Speaker 5: and basically, if you're earning it in the share market,
Speaker 5: you are earning that money and it needs to be taxed.
Speaker 5: Totally fair, totally understandable, but people don't seem to understand that.
Speaker 5: Whereas with a passive portfolio, you're just buying holding, buying holding,
Speaker 5: and capital gains tax isn't something you would have to
Speaker 5: play with too often because the whole plan is to
Speaker 5: buy and hold. Yes, no buy and sell, and you're
Speaker 5: not trading often. When it comes to passive investing, and
Speaker 5: to be honest, this is across the board, there's usually
Speaker 5: a really good level of transparency in what you're invested
Speaker 5: in because it's expected. It's twenty twenty two. There's not
Speaker 5: a lot of things you can't disclose like you have
Speaker 5: to be these are the holdings. This is why we
Speaker 5: have the holdings. These are the percentages, and even ETFs
Speaker 5: nowadays are a lot more transparent than they used to be.
Speaker 4: Okay, so they're the pros, vikid, but can you talk
Speaker 4: me through any potential considerations we need to think about
Speaker 4: any negatives or downsites?
Speaker 2: Yeah, of course.
Speaker 5: So obviously with every pro there's usually a con associated
Speaker 5: in every aspect of life. Passive investing is subject to
Speaker 5: total market risk. So when the overall stock market falls
Speaker 5: or when a bond price takes a little bit of
Speaker 5: a dip and slide, so too will index funds. But
Speaker 5: that's as we said before. You know how we're talking
Speaker 5: about the odds and it's like a good indicator.
Speaker 2: Of the market. Yes, that's just going to.
Speaker 5: Happen because if the market is going down, obviously, if
Speaker 5: you're holding a really big part of the market, your
Speaker 5: shares are going to go down to So it makes
Speaker 5: sense part of the journey though, So don't stress when
Speaker 5: this happens. It's obviously not as flexible as active investing
Speaker 5: because you're not hand picking individual stocks and being completely
Speaker 5: in control of it. In saying that, that's why we
Speaker 5: want to take a little bit more time to pick
Speaker 5: the right ETF or right passive investment strategy for you,
Speaker 5: because I'm sure that there is one that comprises of
Speaker 5: things that all align to your values. Am I just
Speaker 5: take a little bit more time being like, all right,
Speaker 5: well it has to be ethinic, all, it has to
Speaker 5: be women has to be this, has to be that,
Speaker 5: and that's okay.
Speaker 2: We just need to find it. And you might not get.
Speaker 5: Above market returns because obviously with an ETF, the goal
Speaker 5: is to mimic the average of what the market in
Speaker 5: general is returning. You're not trying to pick, oh, the
Speaker 5: next up and coming text stocks or the next up
Speaker 5: and coming xyz. You're literally going, I'm going to buy
Speaker 5: a basket of shares and I hope to get the
Speaker 5: average return from the sense.
Speaker 4: That makes sense, It makes sense. I'm on board passive
Speaker 4: investing me.
Speaker 2: Well, let's get you started.
Speaker 4: Well that leads me to my final question for today.
Speaker 4: How do we actually set ourselves up with a passive
Speaker 4: investment folio. I'm assuming we're just calling the big guns
Speaker 4: getting some help.
Speaker 5: I'll just call a big financial advisor, send all your
Speaker 5: money their way, pay an exorbitant amount of money, and
Speaker 5: you be right. No, there's heaps of waste Honestly, that
Speaker 5: is not true. Do not take that. You can obviously
Speaker 5: do it via fund manager, you can do it via broker,
Speaker 5: you can do it via an online share trading platform.
Speaker 5: You can literally just log into an app like shares
Speaker 5: Use and buy an ETF and bam, you're a passive investor.
Speaker 5: Like what a dream. It is actually so easy. Before
Speaker 5: you do, though, there are a couple of things to
Speaker 5: keep in mind. So the first is to really ask
Speaker 5: yourself what your personal strategy is, what your values are,
Speaker 5: and what you're hoping to get out of your investment experience.
Speaker 5: If you're chasing those really high highs and you're really
Speaker 5: keen on having a hands on investing experience, well perhaps
Speaker 5: active investing is a better option for you.
Speaker 2: Understand it. Honestly.
Speaker 5: I think the other thing I would really say here
Speaker 5: is trust yourself because I think as women in particular,
Speaker 5: and I keep saying this because it's an investing piece
Speaker 5: of content, but we really doubt ourselves and our ability
Speaker 5: to make a good decision, and often we get analysis paralysis,
Speaker 5: and that stops us from even getting into the market.
Speaker 5: I'm not asking you to put every single dollar of
Speaker 5: your life savings on the line even if it means
Speaker 5: you go and spend ten dollars on an ETF to
Speaker 5: get in the market and start watching it plod along
Speaker 5: and feel comfortable with it. That is literally better than
Speaker 5: not getting in at all. So I think it's all
Speaker 5: about being in the market to get an experience, because
Speaker 5: how many times, Gee, and I've said this to you
Speaker 5: a million times, people like, Oh, I went to Union
Speaker 5: and I studied marketing for four years and I did
Speaker 5: my honors, and then I went to work and all
Speaker 5: of that went out the window. All my research, yeah,
Speaker 5: went out the window, and I learned on the job. Yep,
Speaker 5: same thing can happen in the investment world.
Speaker 4: That's a good way of looking at it.
Speaker 2: I think it's a good place to leave it to.
Speaker 4: Yeah, a perfect VD. Also, I'm going to throw a
Speaker 4: shameless plug out there if anyone wants to know more
Speaker 4: about investing in general or passive investing specifically. Vicki D's
Speaker 4: book is out. It's thriving, its fabulous, so well, she.
Speaker 5: Looks really esthetic on your book pop her beside the bed.
Speaker 2: People think you're really impressive.
Speaker 4: Exactly, So definitely check that out, guys. But for now, VD,
Speaker 4: can you please wrap the boring but important stuff.
Speaker 2: Of course I can.
Speaker 5: The advice shared on She's on the Money is general
Speaker 5: in nature and does not consider your individual circumstances. She's
Speaker 5: on the Money exists purely for educational purposes and should
Speaker 5: not be relied upon to make an investment or financial decision.
Speaker 5: If you do choose to buy a financial product, read
Speaker 5: the PDS TMD and obtain appropriate financial advice tailored towards
Speaker 5: your needs. Victoria Divine and She's on the Money are
Speaker 5: authorized representatives of money. Sheper pty Ltd ABN three two
Speaker 5: one IS six four nine two seven seven zero eight
Speaker 5: AFSL four five one two eight ninet