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Transcript

The Price of Playing It Safe With Your Money · Making Cents

• 0:02
  Hey team, it's Francis.
• 0:04
  Some of you will already know I've got the weekly Market Memo newsletter where we get smarter with shares every week.
• 0:10
  Real talk, real tactics, no spreadsheets required.
• 0:14
  One of the latest ones really hit a chord.
• 0:17
  The Price of Safe Money.
• 0:18
  So I thought, okay, if this is really helping a lot of people out, let's get it everywhere we can.
• 0:23
  So I'm turning it into a podcast episode for you as well.
• 0:27
  Enjoy.
• 0:32
  The Price of Safe Money I got a comment on here a week or two ago about what you should do if you're worried about the share market crashing.
• 0:40
  There's been a lot of noise about that lately, so I totally understand the fear.
• 0:45
  My response at the time was that there's a famous joke about economists having predicted nine out of the last five recessions.
• 0:53
  It's easy to predict a doomsday by the time the date rolls around.
• 0:58
  Either you're right and a genius, or people have forgotten your prediction and moved on.
• 1:03
  However, I don't mean to totally dismiss these worries.
• 1:07
  There are plenty of people who refuse to ever invest in the share market at all because it just feels too much.
• 1:14
  So there is a way to dabble.
• 1:16
  Get some of the benefits without all of the risks.
• 1:20
  It's called low beta investing and it can be a good option for some situations, but it does have a price tag of its own.
• 1:29
  And if you're actually someone who prefers the spicy side of life, you can use this knowledge to flip things and invest in a high beta way instead.
• 1:38
  Because choice is what makes the world go round.
• 1:41
  So let's dive into its pros and cons first.
• 1:45
  Finding the Grey the money world is easier to understand when we make it nicely black and white, but it also becomes a bit less accurate.
• 1:54
  So a lot of money advice will act like you have two options.
• 1:58
  One Brave the full roller coaster, make more money on a nail biting journey or two Hide somewhere safe and stable, but watch inflation quietly nibble away at your savings.
• 2:12
  This is helpful when someone is just starting out with money and figuring out the lay of the land.
• 2:17
  But once you've had a glance around and started to dig below the surface, it's also good to know you have a whole range of options in the middle.
• 2:26
  You can even be in the share market, but with a much gentler ride than many others are getting still shares, still growing, still beating inflation and helping you build wealth, but it's a gentler ride.
• 2:40
  What you need to know is that the lows won't be as low, but the highs also won't be as high, so high.
• 2:50
  WTF is low beta?
• 2:53
  All right, finance bro.
• 2:54
  Translation time.
• 2:55
  Beta just means how much a share bounces around compared to the rest of the share market.
• 3:01
  Picture the share market as a road, and the market in general is cruising along at the speed limit.
• 3:07
  That's your baseline.
• 3:09
  A high beta share is the boy racer, like say, Nvidia.
• 3:14
  When the market is cruising up making a bunch of cash, this one is likely to go screaming up past the rest and make even more.
• 3:23
  But when everything drops, it's likely to drop even harder.
• 3:29
  Bigger thrills, bigger Spills A lot of the tech and AI companies we've talked about lately drive like this.
• 3:37
  Now, a low beta share is the sensible station wagon on the school run.
• 3:42
  The market leaps ahead, but this share just trundles up a bit, enjoying a good clear section of road but not leaning on the accelerator too heavily.
• 3:52
  And when the market falls, it only dips gently.
• 3:56
  It's often the more boring or established companies.
• 4:00
  Think power companies, supermarkets, staples.
• 4:03
  It's the sort of companies that provide the things people need in both good times and bad.
• 4:09
  This idea originally started as a score that was given to individual companies.
• 4:15
  Every listed company has its own beta that is calculated from how its share price has moved historically when compared to the rest of the market.
• 4:23
  And you can find it when you search a company or fund on either Yahoo Finance or Google Finance.
• 4:29
  It ranks them from negative one to two, which is with one functioning as the baseline economy.
• 4:37
  Anything above one high beta, anything below low beta.
• 4:42
  Now you can also find investment funds that are organized along these scores.
• 4:48
  They'll bundle karma low beta companies together or more volatile high beta companies if you just really love to give yourself a heart attack.
• 4:57
  So cool.
• 4:59
  You can have an easier ride of it if you want.
• 5:01
  But yes, there is a catch.
• 5:04
  And can you and I will do some numbers for you to show you how it works.
• 5:08
  So numbers time.
• 5:09
  We have a lovely recent example of this in 2025 where we got a big old scare and then a happy ending, all in the space of 12 months.
• 5:18
  So let's step back in time to see how that would have impacted your money.
• 5:22
  Early in the year, the US announced a big round of tariffs and the share market tanked at its worst.
• 5:29
  The S&P 500 was down almost 19% from its high, according to LPL.
• 5:36
  How did the calm low beta funds do?
• 5:39
  Well, they barely flinched.
• 5:41
  Morningstar was monitoring it and found that through the worst of the April dip, the two big low beta funds were actually up for the year, while the rest of the US market was down nearly 9%.
• 5:54
  But but but but but but.
• 5:56
  By December, the overall market had roared back and finished overall up 13% on where it started at the beginning of the year, beating the low beta funds, which were 7% up.
• 6:11
  So say we have two investors with $10,000 each to invest at the start of 2025.
• 6:18
  The cautious one has decided to take a karma run.
• 6:22
  Invested in low beta funds.
• 6:24
  They finished the year at $10,700.
• 6:28
  Nice.
• 6:29
  Still growing their money, still beating inflation, still investing for their future goals.
• 6:35
  But the one who invested in the overall market through The S&P 500 ended the year at $11,300.
• 6:46
  The calm investor got exactly what they paid for in the form of a gentler year.
• 6:52
  But they have $600 less than the average investor who still didn't do anything special.
• 6:59
  The scary drop they avoided was gone by Christmas.
• 7:03
  They bought insurance against a fire that put itself out.
• 7:08
  So is it a worthwhile cost?
• 7:11
  Here's the thing.
• 7:12
  Some people are willing to pay a few hundred dollars for a better night's sleep.
• 7:16
  And if it's this or a bank savings account, you're still going to make more in the low beta fund and stay ahead of the inflation that quietly eats your cash elsewhere.
• 7:27
  If someone is nervous to start investing or not, sure they can hack it.
• 7:31
  This can be a gentler introduction to my mind.
• 7:35
  It's certainly better than doing nothing at all.
• 7:38
  But then I'm sure there's some of you who hear this and think the exact opposite.
• 7:43
  Hey, let's jump on the wildest ride we can, because I want to get those highest of highs.
• 7:49
  So the next edition will see us taking a deep dive into these beta scores.
• 7:54
  Where to find them how it can change your investing strategy Whether you're after the thrilling ride or the calmer one, do hit subscribe to the Market Memo.
• 8:04
  It's just marketmemoweekly.substack.com and then you can get that in your inbox automatically every single week.
• 8:11
  Until next time, have a great day.
• 8:13
  This podcast can only give you general information about how things work in most situations.
• 8:19
  It's not individual financial advice.
• 8:21
  If you're after that, a financial advisor is always the best bet.