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The Secret to Investing Like a Pro · A Little Bit Richer

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  Announcer: This series is brought to you by L& G, helping
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  Announcer: you build a future that's a little bit richer.
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  Iona Bain: Hello. I'm Iona Bain, and welcome to A Little Bit
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  Iona Bain: Richer, brought to you by Legal & General. This is part two
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  Iona Bain: of our investing series, where we're moving from mindset into
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  Iona Bain: mechanics. So if you listened to the last episode and thought, "
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  Iona Bain: Yep, I'm in, what do I do next," this one's
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  Iona Bain: for you. Today we're going to be breaking down the
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  Iona Bain: practical side of investing. We're going to be looking at
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  Iona Bain: the different ways to invest, common mistakes people make, and
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  Iona Bain: how to review your investments over time without panicking every
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  Iona Bain: moment the market moves. And to get under the bonnet
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  Iona Bain: of all of this, let's welcome back founder of Vestpod
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  Iona Bain: and host of The Wallet podcast, Emilie Bellet. Hi, Emilie.
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  Emilie Bellet: Hi, Iona.
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  Iona Bain: Welcome back. Now, we're going to ask you to do
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  Iona Bain: another 30- second summary for us, since the last one
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  Iona Bain: you did was so good. So in 30 seconds or
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  Iona Bain: less, what is an investing portfolio and why does it
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  Iona Bain: matter? Go.
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  Emilie Bellet: An investment portfolio is simply your baskets of investment. Inside
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  Emilie Bellet: it, you will find a mix of equities, pieces of
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  Emilie Bellet: companies. You will find bonds, which are loans to companies
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  Emilie Bellet: and governments, cash, real estate, and sometimes also other asset
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  Emilie Bellet: classes. You know that investments can go up and down,
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  Emilie Bellet: so that's important that you spread your risk, and that's
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  Emilie Bellet: why instead of picking just one investment, you're building a portfolio.
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  Iona Bain: Spot on, I would say. Can you talk us through
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  Iona Bain: the different components of investing, i. e. the different steps
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  Iona Bain: that you go through in order to become an investor?
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  Emilie Bellet: So when you start investing, first thing, you need to
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  Emilie Bellet: have a plan. We talked about this also in the
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  Emilie Bellet: first episode. You need to have an emergency fund. You
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  Emilie Bellet: don't want to have a lot of debts that are
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  Emilie Bellet: very costly. You have a plan why you are investing, for your
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  Emilie Bellet: investing for the medium term, for the long term, maybe for
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  Emilie Bellet: retirement. Once you have your plan, you will need to
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  Emilie Bellet: pick a platform. This can be quite overwhelming. The platforms
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  Emilie Bellet: are a little bit like a shop where you will be
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  Emilie Bellet: able to buy your investments. If you're a complete beginner,
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  Emilie Bellet: I will look at a platform that will manage your
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  Emilie Bellet: investments on your behalf. You may have heard of robo-
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  Emilie Bellet: investing, for example, of robo- advice, also some maybe ready-
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  Emilie Bellet: made portfolios that could be managed for you. So basically
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  Emilie Bellet: the platform will look at your goals and they will
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  Emilie Bellet: suggest a portfolio for you that will have a mix of
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  Emilie Bellet: equities, that will have a mix of bonds and a
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  Emilie Bellet: little bit of cash. And by investing, there's a lot
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  Emilie Bellet: of investors like you, and you're going to be put
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  Emilie Bellet: into one of these portfolios. So that's a very easy way to
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  Emilie Bellet: get started with a minimum knowledge. If you are a more advanced
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  Emilie Bellet: investor, you may want to customize this portfolio. You may think, "
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  Emilie Bellet: Oh, I really like this industry. I like these funds.
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  Emilie Bellet: I want to follow the market." So you can look
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  Emilie Bellet: at buying yourself, investing via funds or maybe via individual
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  Emilie Bellet: investments, even if it's usually a lot more riskier to
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  Emilie Bellet: buy single stocks than buying by funds. So this is the platform,
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  Emilie Bellet: so you can look at either something that's managed for
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  Emilie Bellet: you, a robo or a DIY platform. Once you're on this
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  Emilie Bellet: platform, the first thing you need is some kind of an
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  Emilie Bellet: umbrella. We call it an account. And when you invest,
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  Emilie Bellet: you can look at two different accounts usually that are
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  Emilie Bellet: tax efficient. It's very important to look at tax efficiency,
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  Emilie Bellet: so using your allowance first maybe for your pension. You
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  Emilie Bellet: may have a workplace pension, but you could also have
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  Emilie Bellet: a personal pension or SIPP, self- invested personal pension, and
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  Emilie Bellet: the other account is a Stocks and Shares ISA. So
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  Emilie Bellet: there's different accounts that you can look into. Once you've
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  Emilie Bellet: chosen this account, it's a matter of you putting some
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  Emilie Bellet: money into your account, and then this money will be
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  Emilie Bellet: invested in the stock market. With the robo, that's going
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  Emilie Bellet: to be made automatically for you in a selection of
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  Emilie Bellet: funds. And if you're investing with a DIY platform, then
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  Emilie Bellet: you'll have to pick your investments. So that could be
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  Emilie Bellet: a little bit tricky, so maybe you start with the
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  Emilie Bellet: robo and later on you can move to a DIY
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  Emilie Bellet: investment platform. With the DIY investment platform, this is a
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  Emilie Bellet: little bit like a supermarket. And you'll have a lot,
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  Emilie Bellet: like tens of thousands of funds and stocks. So you
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  Emilie Bellet: will need a little bit more knowledge, but at least
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  Emilie Bellet: it's a little bit more flexible.
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  Iona Bain: So that gives people a really good idea of what
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  Iona Bain: they need to think about if they're getting started. How
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  Iona Bain: would you go about building your portfolio step by step,
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  Iona Bain: and what does good investing look like in practice?
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  Emilie Bellet: I think there's not one way to invest, but you
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  Emilie Bellet: have to really remind yourself. Why are you investing money? You're
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  Emilie Bellet: investing money because you want to grow your money over
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  Emilie Bellet: time, you want to achieve your goals, you want to
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  Emilie Bellet: beat inflation. So once you have your cash savings and
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  Emilie Bellet: you're looking at investing a little bit of your money,
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  Emilie Bellet: how do you start picking your portfolio? I think there's
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  Emilie Bellet: this notion of risk that's introduced when you talk about
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  Emilie Bellet: investments that you didn't necessarily have with cash savings. So
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  Emilie Bellet: what does it mean to actually take risk? That can
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  Emilie Bellet: scare people, and especially women in the investment community say, " But
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  Emilie Bellet: I don't want to lose money." So risk is not
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  Emilie Bellet: about losing money. I'd love to reframe risk a little
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  Emilie Bellet: bit. And for me, risk is also an opportunity. When
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  Emilie Bellet: you have money in a cash savings, you're not getting a
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  Emilie Bellet: lot of interest for your money. So when you move
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  Emilie Bellet: your money into investing, it's because you think you could
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  Emilie Bellet: get a higher rate of return ... nothing is guaranteed, of
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  Emilie Bellet: course ... but with taking a little bit more risk. So
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  Emilie Bellet: that's important when you build up your portfolio, that you
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  Emilie Bellet: understand the relationship between risk and what you actually put
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  Emilie Bellet: into your portfolio. So if we look at the components
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  Emilie Bellet: on a typical stock market portfolio, you will have the
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  Emilie Bellet: first category that we call stocks. So stocks are little
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  Emilie Bellet: pieces of companies. So when you buy a stock, you
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  Emilie Bellet: own a small part of a company. And how do
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  Emilie Bellet: you make money? Maybe these companies grow, they hire amazing
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  Emilie Bellet: managers, they make great decisions. People have a very positive
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  Emilie Bellet: view about the company. The value of the companies grows,
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  Emilie Bellet: the stock price goes up, and that's one way to
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  Emilie Bellet: make money. Companies may also generate a lot of cash
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  Emilie Bellet: and they can start paying what we call dividends, so you also
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  Emilie Bellet: get some income. So that's how stock works. Now, you
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  Emilie Bellet: don't need to invest in individual stocks, but you can
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  Emilie Bellet: find funds. So instead of buying stock into one company,
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  Emilie Bellet: you invest via a fund and you will get like hundreds
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  Emilie Bellet: of different companies, 500 companies, and that's going to be
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  Emilie Bellet: an amazing way to diversify. So again, putting your money
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  Emilie Bellet: into a lot of different things. So if this one
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  Emilie Bellet: company I invest in fails, then I have like 499
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  Emilie Bellet: other companies that will support my portfolio, so that's your
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  Emilie Bellet: first category, shares. The second one is bonds, and bonds
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  Emilie Bellet: are loans to companies or government, and they're usually here
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  Emilie Bellet: in your portfolio for a little bit more stability. So
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  Emilie Bellet: they will react differently to market fluctuation, so that's why
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  Emilie Bellet: it's important that in your portfolio you have shares that
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  Emilie Bellet: will grow quicker, or potentially, but they are also more risky, and bonds,
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  Emilie Bellet: that tend to be a bit less risky with a
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  Emilie Bellet: slightly lower growth. So when people put together a portfolio ... and
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  Emilie Bellet: that could be on robo- advisors, that could be yourself ...
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  Emilie Bellet: you're trying to have the proportion of shares, of equities,
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  Emilie Bellet: and of bonds in your portfolio. The portfolio have a
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  Emilie Bellet: higher risk when there's more equities, and you could see
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  Emilie Bellet: portfolios that are 100% equities. They tend to be very
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  Emilie Bellet: risky, and portfolios that have a mix of bonds and
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  Emilie Bellet: equities and the more bonds, there's less risk. It lowers
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  Emilie Bellet: your risk. Also you could have cash in portfolios, and
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  Emilie Bellet: that will lower your risk. So when you're trying to
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  Emilie Bellet: find out the level of risk, it's really trying to
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  Emilie Bellet: find the right portfolio. So if I'm quite young, I
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  Emilie Bellet: can usually take more risk. Why is that? Because if
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  Emilie Bellet: there are market fluctuations, I will have more time for
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  Emilie Bellet: my money to recover until I need the money, if
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  Emilie Bellet: we're talking about retirement, for example. So if you're in your
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  Emilie Bellet: 20s, you could probably take a little bit more risk
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  Emilie Bellet: than someone who is in their 50s or 60s, who
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  Emilie Bellet: sees retirement very close and needs to change their portfolio
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  Emilie Bellet: to have maybe a lower allocation to equities, maybe bigger
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  Emilie Bellet: on bonds and cash, because they want more certainty. So
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  Emilie Bellet: that's going to be the main thing when you look
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  Emilie Bellet: at building a portfolio. And whether you do it yourself,
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  Emilie Bellet: whether you use a robo- advisor, it's really trying to
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  Emilie Bellet: keep in mind how I build these portfolios.
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  Iona Bain: And can you just explain, for anyone who doesn't know
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  Iona Bain: what equities are?
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  Emilie Bellet: So the term equities means that we're looking at buying
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  Emilie Bellet: small pieces of companies. You will sometimes hear the term
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  Emilie Bellet: shares or stock, so this is really looking at buying companies.
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  Iona Bain: And people might have heard vaguely of this idea of
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  Iona Bain: active investing versus passive investing. Could you just unpack what
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  Iona Bain: those mean and why you need to understand the difference
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  Iona Bain: between them?
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  Emilie Bellet: So when you invest, there's two ways to build these
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  Emilie Bellet: portfolios and to invest. So if you're a passive investor,
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  Emilie Bellet: it means that you just want to follow the market.
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  Emilie Bellet: And the market is a collection of companies in different
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  Emilie Bellet: industries, in different geographies, and you're trying to get the
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  Emilie Bellet: market return. So when you're a passive investor, you can
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  Emilie Bellet: invest into a selection of funds or you could have
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  Emilie Bellet: a very broad multi- asset fund, index funds. Ideally, it's
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  Emilie Bellet: a low- cost fund also that doesn't cost you a
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  Emilie Bellet: lot of money. And then this way, you're going to
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  Emilie Bellet: invest in the whole market, and you're not necessarily going
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  Emilie Bellet: to adjust your investment when something happens. Now, you could
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  Emilie Bellet: also be a more active investor, and someone who's an
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  Emilie Bellet: active investor means they're going to pick and choose what
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  Emilie Bellet: they want in their portfolio. So they won't necessarily try
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  Emilie Bellet: to get the market return, but they will try to
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  Emilie Bellet: beat the market. It's not always going to be the
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  Emilie Bellet: case, because as we know, when we want to become
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  Emilie Bellet: active investors, it's going to take us so much time
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  Emilie Bellet: to research. Some people, it's their full- time job to
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  Emilie Bellet: actually be active investors. So I would recommend from anyone
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  Emilie Bellet: who's a beginner, who's starting to invest, or also who's
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  Emilie Bellet: been investing for a little while, the passive approach is
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  Emilie Bellet: actually really helpful in terms of also not reacting to
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  Emilie Bellet: market fluctuation, having a long- term approach, and letting your
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  Emilie Bellet: investments actually do the work over a longer period of time.
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  Iona Bain: And in the past 10 or 20 years, we've seen a lot
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  Iona Bain: of passive investment funds, like index funds and exchange- traded
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  Iona Bain: funds, become a lot more popular, especially with beginner investors.
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  Iona Bain: Why is that?
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  Emilie Bellet: So I think investing via funds, it's such a great
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  Emilie Bellet: way to get what we want, is this diversification also.
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  Emilie Bellet: So not having just one investment into one stock or
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  Emilie Bellet: one bond, but actually buying a collection of investments. That's
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  Emilie Bellet: what you want for your portfolio, is making sure you
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  Emilie Bellet: have a little bit of everything of every asset classes.
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  Emilie Bellet: So these types of funds are now widely available on
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  Emilie Bellet: platforms and you could find index funds that will track
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  Emilie Bellet: the whole market, but you could also find funds that
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  Emilie Bellet: will track just a specific industry or will track a
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  Emilie Bellet: specific geography. So that's really interesting in terms of you
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  Emilie Bellet: trying to get exposed to these industries via funds, and
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  Emilie Bellet: you won't have just one investment, but you will have a
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  Emilie Bellet: lot of investments. So again, these funds will always try
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  Emilie Bellet: to take the best in their markets or the top
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  Emilie Bellet: performance in their market. Some index funds will look at
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  Emilie Bellet: the biggest companies.
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  Iona Bain: Could we just explain what an index is, in case
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  Iona Bain: people aren't sure?
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  Emilie Bellet: So an index is just a way to follow maybe
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  Emilie Bellet: the top companies in the market. And this way, when
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  Emilie Bellet: you invest via an index fund, for example, or via an ETF,
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  Emilie Bellet: you're getting a collection of a lot of investments of
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  Emilie Bellet: a lot of companies instead of just going and buying
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  Emilie Bellet: one company. And that gives you something that's going to
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  Emilie Bellet: help your investment return over a longer period of time,
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  Emilie Bellet: which is diversification. That's going to help manage your risk,
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  Emilie Bellet: because your investments will be spread into a lot of
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  Emilie Bellet: different smaller investments.
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  Iona Bain: So the FTSE 100, for example, is an index that people
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  Iona Bain: could follow if they wanted to. And you do hear
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  Iona Bain: about people making a lot of money by investing just
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  Iona Bain: in five or ten really hot companies. And I think
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  Iona Bain: back to the 2010s and the FANGs, Facebook, Amazon, Netflix,
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  Iona Bain: Google, and the idea that these companies are all you
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  Iona Bain: ever need for your investment portfolio because they just do
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  Iona Bain: so well, why would you invest anywhere else? What's your
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  Iona Bain: thinking today on investing in hot companies like that, and
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  Iona Bain: not maybe looking at the wider market and seeing what
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  Iona Bain: else there is to offer?
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  Emilie Bellet: So I mean, I've made this mistake myself of trying
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  Emilie Bellet: to pick individual companies, and that's actually really risky. So you're
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  Emilie Bellet: hoping for higher return, but it's quite concentrated. And with
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  Emilie Bellet: being more concentrated, you also increase your level of risk.
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  Emilie Bellet: So if you just have three, four companies, one of them
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  Emilie Bellet: fails, then that's a big part of your portfolio. Then
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  Emilie Bellet: you have to know that some of the big tech
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  Emilie Bellet: companies, for example, today, they make most of the larger
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  Emilie Bellet: index funds and markets. So even when you invest into
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  Emilie Bellet: these index funds, you're going to get exposure to this
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  Emilie Bellet: company. If there's some companies you really want to invest
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  Emilie Bellet: in, either you look at some indices that will hold
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  Emilie Bellet: these companies ... they will have them as a holding, and
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  Emilie Bellet: then by investing into the whole fund, you will have
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  Emilie Bellet: exposure to these companies ... or otherwise you keep it maybe
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  Emilie Bellet: as a small portion of your overall portfolio. So you
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  Emilie Bellet: still get the exposure, but that's not going to be
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  Emilie Bellet: 100% of your exposure into a selection of companies.
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  Iona Bain: That's really good advice. So let's just talk about reviewing
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  Iona Bain: our investments and pensions and how often we should do
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  Iona Bain: that, whether we should think about rebalancing at certain points
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  Iona Bain: in our life, how we can rebalance without panicking or
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  Iona Bain: harming our returns.
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  Emilie Bellet: So rebalancing is quite interesting, is when you've built your
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  Emilie Bellet: initial portfolio, remember that you had equities and you had
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  Emilie Bellet: bonds in your portfolio. Because stocks, equities ... we can use
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  Emilie Bellet: the same term ... they tend to grow faster, over a
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  Emilie Bellet: slightly long period of time, you will see that your
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  Emilie Bellet: allocation is changing. So if you add maybe 50% of
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  Emilie Bellet: equities and 50% of bonds, you'll see that maybe this
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  Emilie Bellet: 50% is now 60% or 70%. And what you want
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  Emilie Bellet: to do with rebalancing, it means that you have to
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  Emilie Bellet: sell some of these stocks, equities, and add more bonds,
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  Emilie Bellet: so basically come back to the original allocation. If you want to do that, if it's
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  Emilie Bellet: still in line with your goals, so this is why
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  Emilie Bellet: we rebalance portfolios, so that's the term. If you're investing
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  Emilie Bellet: with a robo- advisor or something that's managed for you,
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  Emilie Bellet: this rebalancing is automatically done for you.
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  Iona Bain: That's clever.
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  Emilie Bellet: That's clever. And now if you're doing it on your
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  Emilie Bellet: own, you have to check that you're still in line
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  Emilie Bellet: and you have to rebalance yourself. In terms of reviewing your
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  Emilie Bellet: investments, this is really personal, but I would say don't
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  Emilie Bellet: check every day, maybe not every week, but maybe once
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  Emilie Bellet: a year, twice a year, really sit down, look at
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  Emilie Bellet: your investments. I think it's really important that you check
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  Emilie Bellet: your pensions. You check that your contributions have been going
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  Emilie Bellet: in, you check the type of funds you're investing in. Is
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  Emilie Bellet: it the default funds, or are you actually allocating your money
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  Emilie Bellet: yourself? Reviewing your strategy, reviewing also the fees on all
• 15:05
  Emilie Bellet: of these platforms. Unfortunately, investing is never free, so you
• 15:08
  Emilie Bellet: have to check how much money you're paying, and sometimes
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  Emilie Bellet: you need to adjust your investments or you need to
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  Emilie Bellet: adjust maybe the platform, how much money you're actually putting into
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  Emilie Bellet: your investment pots. And the other thing is looking at
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  Emilie Bellet: personal goals. Do you have any major change in your
• 15:24
  Emilie Bellet: life? Are you getting married? Do you have kids? Have
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  Emilie Bellet: you changed job? Are you now an entrepreneur? This will
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  Emilie Bellet: all have an impact on how much money you make,
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  Emilie Bellet: how much money you save, and you may want to
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  Emilie Bellet: change your allocation. Maybe your goals have changed. So that's
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  Emilie Bellet: really important, to take the time and look at your
• 15:42
  Emilie Bellet: investments and look at your whole financial life. At Vestpod,
• 15:45
  Emilie Bellet: we love the term of having a little money date
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  Emilie Bellet: with yourself, so maybe once a month, taking the time.
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  Emilie Bellet: It could be different things. It could be listening to
• 15:52
  Emilie Bellet: a podcast about money and investing, but it could also
• 15:55
  Emilie Bellet: be looking at your investments, looking at your pension, calculating
• 15:59
  Emilie Bellet: your net worth, looking at your budget, but really having
• 16:02
  Emilie Bellet: in your calendar this time to review regularly your investments.
• 16:06
  Iona Bain: Money dates won't feel as romantic as real dates, but
• 16:09
  Iona Bain: you will feel a hell of a lot better after
• 16:13
  Iona Bain: you've had a money date, that's for sure. So what tools or
• 16:16
  Iona Bain: approaches do you like personally from managing investments?
• 16:20
  Emilie Bellet: I think that could be quite simple. Your investment app
• 16:24
  Emilie Bellet: or your investment platform is already doing a lot of
• 16:27
  Emilie Bellet: this for you, so I think what you need to
• 16:31
  Emilie Bellet: check is that you're still matching your goals. That's really
• 16:33
  Emilie Bellet: important. You need to check the performance of your investments.
• 16:37
  Emilie Bellet: We've said, and we're going to say it again and
• 16:39
  Emilie Bellet: again, that investments go up and down over time and that
• 16:43
  Emilie Bellet: your capital could be at risk, so it's really checking
• 16:47
  Emilie Bellet: what has been performing, what has been underperforming, and trying
• 16:50
  Emilie Bellet: to think about, " Okay, what do I do going forward
• 16:53
  Emilie Bellet: with these investments?" It's the diversification, so checking what have
• 16:57
  Emilie Bellet: you been investing in sometimes. You can also check the
• 17:00
  Emilie Bellet: diversification. So sometimes we've been investing in funds and we
• 17:03
  Emilie Bellet: start adding maybe a few stocks, and then we realize
• 17:07
  Emilie Bellet: that we have maybe the same investments in two different
• 17:10
  Emilie Bellet: pockets or in two different vehicles, so it's making sure
• 17:13
  Emilie Bellet: we're still happy with that. Looking at the fees, how
• 17:16
  Emilie Bellet: much have you been paying to the platform or how
• 17:19
  Emilie Bellet: much are you paying to buy and sell your investments,
• 17:22
  Emilie Bellet: and looking for duplicate investments. So I would say it's
• 17:26
  Emilie Bellet: really about declaratory sometimes, because as you add up and maybe a
• 17:30
  Emilie Bellet: lot of your investments are automated, you may not realize
• 17:34
  Emilie Bellet: that you're adding a little bit of complexity in your portfolio.
• 17:37
  Emilie Bellet: So it's maybe taking a step back and cleaning a
• 17:40
  Emilie Bellet: little bit your portfolios.
• 17:42
  Iona Bain: So lots to think about there. And again, people will
• 17:45
  Iona Bain: probably want to digest all of this over a cup
• 17:47
  Iona Bain: of tea or coffee. So what's one quick thing that
• 17:52
  Iona Bain: people could do whilst they wait for their cuppa to boil?
• 17:56
  Emilie Bellet: If you have a little bit of time, you should
• 17:57
  Emilie Bellet: think about automating your investments. Boring investing is actually quite
• 18:02
  Emilie Bellet: good, and knowing that every month there's a little bit
• 18:05
  Emilie Bellet: of money going into a saving account and an investing
• 18:08
  Emilie Bellet: account for your future self is actually super valuable.
• 18:12
  Iona Bain: Yeah. So start that process today and ...
• 18:13
  Emilie Bellet: Start small.
• 18:13
  Iona Bain: ... reap the benefits. Yeah. Start small. Absolutely. Thank you so
• 18:17
  Iona Bain: much, Emilie.
• 18:18
  Emilie Bellet: Thank you very much.
• 18:21
  Iona Bain: Well, that brings us to the end of our investing
• 18:23
  Iona Bain: series. I hope it's empowered you to make that next
• 18:26
  Iona Bain: step in your investing journey, and to remember it's all
• 18:30
  Iona Bain: about creating wealth for future you. Of course, your investments
• 18:33
  Iona Bain: can go up as well as down and there are
• 18:35
  Iona Bain: risks involved. Thank you so much for listening to A
• 18:39
  Iona Bain: Little Bit Richer. If you find this helpful, feel free
• 18:42
  Iona Bain: to share it with someone who might need a boost
• 18:44
  Iona Bain: in their investing confidence. This podcast is brought to you
• 18:48
  Iona Bain: by L& G. You can keep up with the show
• 18:51
  Iona Bain: on YouTube, TikTok, and Instagram @ legalandgeneral. If you have a
• 18:56
  Iona Bain: question or a topic that you would like answered on
• 18:59
  Iona Bain: the show, then you can get in touch on our
• 19:01
  Iona Bain: socials. Until next time, see you soon, and thank you
• 19:05
  Iona Bain: for watching and listening.