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Caution! Listen at your own risk (profile) · She's On The Money

0:01
Speaker 1: She's on the Money. She's on the Money.
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Speaker 2: Hello, and welcome to She's on the Money, the podcast
0:20
Speaker 2: for millennials who want financial freedom. Now today we're chatting
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Speaker 2: risk profiles. They're those things you've heard us talk about
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Speaker 2: thousands of times on the podcast before, particularly when discussing
0:30
Speaker 2: investing v so, especially when they go hand in hand.
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Speaker 2: So if you've always wondered what a risk profile actually
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Speaker 2: is and want to know where you fall on the
0:43
Speaker 2: risk scale, then today's show is the perfect place to start.
0:47
Speaker 2: It is, it really is. Can't wait for it.
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Speaker 3: I'm actually so everyone's excited.
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Speaker 2: You're excited. I'm excited now. If you don't know, my
0:55
Speaker 2: name is Georgia King. I'm a copywriter and journalism student,
0:58
Speaker 2: and joining me as she does every Wednesday morning, is
1:02
Speaker 2: financial advisor Miss Victoria to fine Fee.
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Speaker 3: Good day, Hello g King. You are usually far or complimentary,
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Speaker 3: like I usually get like a glitzy, glamory introduction, but
1:12
Speaker 3: today I just got Yeah, So she's a financial advisor?
1:15
Speaker 2: Did I do Melbourne based? Sometimes I throw that into
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Speaker 2: for it geographical, you know what it'll do it. Moving on,
1:21
Speaker 2: they talk us through what we are actually going to
1:24
Speaker 2: be covering in today's episode.
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Speaker 3: Well, I'm really excited about this episode, namely because they
1:28
Speaker 3: always talk about risk profiles, but I've never told you
1:30
Speaker 3: what a risk profile is. So today we're going to
1:32
Speaker 3: be covering the A Z E of what a risk
1:34
Speaker 3: profile is. And I'm going to tell you the six
1:36
Speaker 3: different types of risk profile there are. I'm going to
1:39
Speaker 3: tell you how to I identify which categories you fall into,
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Speaker 3: and I'm going to tell you exactly why knowing your
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Speaker 3: risk profile is arguably the most important step in investing.
1:49
Speaker 2: Can't wait?
1:49
Speaker 3: Yeah? I knew you'd be excited. And if you're not
1:52
Speaker 3: excited in listening on, well, grab hold of your seat
1:55
Speaker 3: or you're you know, car set or the legs you've
1:58
Speaker 3: got while you're on your walk like care strappy.
2:01
Speaker 2: Because things are about to hate it are about to
2:03
Speaker 2: get risky. Let's start from the start. It makes sense,
2:07
Speaker 2: it's practical. What is a risk profile?
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Speaker 3: Okay, So before we even consider investing, we need to
2:14
Speaker 3: assess the setup. We need to understand the framework for
2:17
Speaker 3: how we're going to invest. A risk profile is basically
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Speaker 3: our assessment of what kind of investments you're willing to
2:23
Speaker 3: take on and what ones you're not willing to take
2:26
Speaker 3: on and is going to be based on the level
2:28
Speaker 3: of risk you're happy to be exposed to. So this
2:31
Speaker 3: is going to be so different for every single person
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Speaker 3: listening because not all of us have the same tenacity
2:37
Speaker 3: to take on risk, but not all of us want
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Speaker 3: the same things or even have the same financial background
2:41
Speaker 3: or the same types of assets to play with. Really,
2:45
Speaker 3: so we need to take into account your personal preferences
2:47
Speaker 3: and what kind of investor you are. That's actually really
2:51
Speaker 3: really important. If you take on a risk profile that
2:54
Speaker 3: you're not comfortable with, you're not going to be able
2:56
Speaker 3: to sleep well at night. If you can't sleep well
2:58
Speaker 3: at night, you're very likely to pull out of an
3:00
Speaker 3: investment at a time that is not good for you.
3:03
Speaker 3: And if you do that, you're putting future you at risk.
3:06
Speaker 3: So we need to just make sure everything is hunky dory.
3:08
Speaker 3: And I know that many people who have assets behind
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Speaker 3: them to be able to operate as high risk investors
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Speaker 3: or they're willing to take that risk if they don't
3:17
Speaker 3: have heaps behind them, but also their personalities might be
3:21
Speaker 3: to take that on.
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Speaker 2: So it can be a combination of what your financial
3:26
Speaker 2: position says you can take on in terms of risk,
3:28
Speaker 2: but also what you're comfortable with doing. So that's how
3:31
Speaker 2: we kind of figure it out.
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Speaker 3: Absolutely, And there are six different types of risk profile
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Speaker 3: that we are going to cover today. They are capital stable, conservative,
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Speaker 3: moderately conservative, moderate growth, growth, and high growth. And I'm
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Speaker 3: going to go through them one by one. Which one
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Speaker 3: do you want to start with? Gking?
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Speaker 2: Let's go capital stable.
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Speaker 3: Oh, that's arguably the most bland one, but we have
3:53
Speaker 3: to start somewhere. I explain this literally each and every
3:57
Speaker 3: single week, two clients that are coming on board, I
3:59
Speaker 3: take them through a risk profile before I will even
4:03
Speaker 3: consider working with them. So if you start to see
4:06
Speaker 3: a financial advisor, this will actually be a part of
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Speaker 3: the process. So you'll go through what's called a fact
4:11
Speaker 3: find process, and the advisor will be like, hey, G King,
4:14
Speaker 3: nice to see you. So here are all these forms
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Speaker 3: you need to fill in to tell me about your
4:18
Speaker 3: personal situation, and here is your risk profile that you
4:22
Speaker 3: need to fill in to tell me what kind of
4:23
Speaker 3: investor you are. And you're like, oh, well, like I
4:25
Speaker 3: thought this was going to be easy, and we're like, no, no, no,
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Speaker 3: have some admin is that like a little questionnaire? Is
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Speaker 3: something questionnaire? It's very pretty, very pretty document. I mean
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Speaker 3: it's a pretty document, Etzella, because obviously esthetics and everything.
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Speaker 3: My financial advisors don't actually care. They're always like, oh cool,
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Speaker 3: she changed again, we have to use the most of
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Speaker 3: today one. But you know, I think it's beautiful, and
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Speaker 3: I think that people actually care about what their risk
4:47
Speaker 3: profiles look like. Oh for sure, I'm not going to
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Speaker 3: do a questionnaire if it's not pretty.
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Speaker 2: Why would you capital stable? Though? Talk to me.
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Speaker 3: Yeah, Look, if you're a capital stable investor, it means
4:57
Speaker 3: that you have a number of things going on, right,
4:59
Speaker 3: so you might I might choose that because you have
5:01
Speaker 3: little to no understanding of your investment risk profile or
5:05
Speaker 3: investing in general. You might have a whole eve of
5:07
Speaker 3: cash and you're about to retire, which means you have
5:09
Speaker 3: no interest investing and being exposed to the share market
5:12
Speaker 3: because that would be risky and you don't actually want
5:14
Speaker 3: to lose any of your capital, because that's a terrible idea,
5:17
Speaker 3: especially if you're going into retirement. When you think of
5:20
Speaker 3: risks as an individual, you might go, oh my gosh,
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Speaker 3: that's so dangerous, Like I've got no interest, Like that
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Speaker 3: really scares me. I really don't want to have any investments.
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Speaker 3: A capital stable investor is your friend that only has
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Speaker 3: a bank account with a world or at return. Like
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Speaker 3: they weren't the friend that is chasing high returns in
5:37
Speaker 3: the share market. They're the friends. They're just plugs away.
5:40
Speaker 2: Yeah, they're you, Georgia king Ah, the boring one. That's
5:44
Speaker 2: what you said at the start. Look, I tried to.
5:46
Speaker 3: Put enough words and you, but you're you right now
5:51
Speaker 3: because you don't invest and you just have money in
5:54
Speaker 3: a savings account, like right now, I would classify you
5:57
Speaker 3: as a capital stable investor because most of your assets
6:00
Speaker 3: are sitting in domestic cash i e. In your bank account.
6:05
Speaker 3: Someone who is a capital stable investor is someone who
6:08
Speaker 3: you know makes a financial decision, and when they do,
6:10
Speaker 3: they focus on the potential loss. It's like they're more
6:13
Speaker 3: likely to look at the negatives in a situation than
6:15
Speaker 3: what they can gain, and they seek pretty basic returns.
6:19
Speaker 3: They're not really looking towards taking on any risk because
6:22
Speaker 3: they genuinely are just a bit like really that's a
6:24
Speaker 3: durable idea. I don't care how much you know about investment.
6:26
Speaker 2: I don't care.
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Speaker 3: How good the upside is. All I think about is
6:29
Speaker 3: the downside. So I'm just keep my money in the bank.
6:33
Speaker 2: But there's nothing to say that you can't be a
6:35
Speaker 2: capital stable and then become, you know, a moderately conservative.
6:39
Speaker 3: No, no, absolutely not if it's all about education, and
6:42
Speaker 3: that is what we are learning today. It is absolutely
6:45
Speaker 3: not about just what is one size fits all. So
6:48
Speaker 3: someone who has capital stable, it's not a bad thing.
6:50
Speaker 3: It just means that approximately. And we're going to start
6:54
Speaker 3: talking about percentages, which is very hard to articulate in
6:57
Speaker 3: a podcast, but Jess is going to do an epic
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Speaker 3: little you know, I think she's going to do an
7:01
Speaker 3: Instagram carousel post of all of the different risk profiles
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Speaker 3: so that you can have a look and see what
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Speaker 3: the percentages are. So it makes a lot more sense
7:09
Speaker 3: to you. And we are going to ensure that that's
7:11
Speaker 3: posted it about the same time, So maybe without your
7:13
Speaker 3: jaw and have a hot look at your Instagram because
7:16
Speaker 3: it will be right there on hopefully your homepage.
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Speaker 2: That's helpful with time, the well, visuals are helpful.
7:21
Speaker 3: If you're going back through our podcast and this happens
7:23
Speaker 3: to be a podcast that you're listening to hypothetically far
7:26
Speaker 3: into the future, I'm sorry you've missed the boat. Please
7:28
Speaker 3: scroll down on the Instagram by that content. But we'll
7:32
Speaker 3: have a little pie chat now. The most important thing
7:35
Speaker 3: to remember about this pie chat, apart from it being
7:37
Speaker 3: really ridiculously attractive, is that each and every single asset
7:43
Speaker 3: class is actually the same.
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Speaker 2: Between risk profiles. It's between risk profiles.
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Speaker 3: The thing that changes is the percentage of that asset
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Speaker 3: you hold, not the percentage of you know, different companies
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Speaker 3: that you're investing in or different asset classes. So the
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Speaker 3: cash inside a capital stable portfolio for those of you
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Speaker 3: play along at home, is going to be about sixty
8:07
Speaker 3: five percent of your portfolio, whereas if we jump a
8:10
Speaker 3: little bit ahead to someone who has a growth portfolio
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Speaker 3: or a high growth portfolio, they're going to have five
8:17
Speaker 3: percent and three percent retrospectively. Oh so it's one of
8:22
Speaker 3: those things that it actually just that asset class becomes
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Speaker 3: lower and the other asset classes increase. So if you
8:29
Speaker 3: say invest a little bit of money into an ETF,
8:32
Speaker 3: if you are a conservative investor, what that might mean
8:36
Speaker 3: is you just invest a higher percentage. Which is why
8:39
Speaker 3: I say I am a high growth but conservative investor,
8:43
Speaker 3: because when I say that, what I mean is I
8:45
Speaker 3: want most of my money to be exposed to the
8:47
Speaker 3: share market. I don't actually want to be holding any
8:50
Speaker 3: cash in a savings account. I have my emergency fund,
8:53
Speaker 3: and to be quite frank that's pretty much the only
8:56
Speaker 3: savings I personally have. Then, have you know a cash harbin.
8:59
Speaker 3: I've got myn that comes in and out to pay
9:01
Speaker 3: for my life. But I don't actually have a savings
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Speaker 3: account to say for anything, because it's really empty after
9:06
Speaker 3: purchasing a home. Kind of sad, but that is okay.
9:09
Speaker 3: But most of my assets are now in one a
9:13
Speaker 3: really big mortgage, but two they're in my share portfolio.
9:17
Speaker 3: But my share portfolio will just increase in comparison. And
9:20
Speaker 3: what I mean when I say I'm conservative is I'm
9:23
Speaker 3: not picking risk air sets. I would never and I'm
9:25
Speaker 3: not saying this because everybody should. I'm saying this because
9:28
Speaker 3: me personally, because I'm not willing to invest in risk
9:31
Speaker 3: air sets like bitcoin, cryptocurrency, things that you know, have
9:35
Speaker 3: just gone through an IPO. Like I'm a little bit
9:37
Speaker 3: risk averse. I want tried and true blue chip stocks
9:41
Speaker 3: that are going to make me feel safe and secure
9:43
Speaker 3: at night, and that's what's inside my investment portfolio. I'm
9:46
Speaker 3: not actually investing in things that make me feel uncomfortable.
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Speaker 2: So you're basically saying that you have like a very
9:52
Speaker 2: low percentage of cash, yes, as in money in your
9:56
Speaker 2: savings accounts, and most of your money is in but
10:00
Speaker 2: it's invested in really safe places. Yes.
10:02
Speaker 3: So if you made a pie chart for Victoria Divine,
10:05
Speaker 3: hers would say that she's a high growth investor and
10:08
Speaker 3: that you know, most of her assets are split between
10:11
Speaker 3: domestic equity and international equity, which is a fancy way
10:16
Speaker 3: of saying Australian shares and shares from overseas. So for me,
10:21
Speaker 3: I think it's really important to preface that because I
10:24
Speaker 3: think people use words like oh, risky or aggressive investors
10:29
Speaker 3: or high growth, and you think, oh, that's actually a
10:31
Speaker 3: little bit intimidating.
10:33
Speaker 2: I don't emotionally charged. Yeah, I don't.
10:35
Speaker 3: Want to be an aggressive investor, Like that's not me.
10:38
Speaker 3: An aggressive investor just means that most of your portfolio
10:40
Speaker 3: is made up of shares, not cash. So capital stable.
10:43
Speaker 3: Summary of that is people who are either really worried
10:47
Speaker 3: about the share market and don't really want to invest,
10:50
Speaker 3: or they're close to retirement and they want to maintain
10:52
Speaker 3: the capital that they're created over their lifetime and most
10:55
Speaker 3: of their assets are in cash. That's capital stable.
10:58
Speaker 2: Let's move on now to talk about the conservative risk profile.
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Speaker 3: Yes, so when you move into a conservative portfolio and
11:06
Speaker 3: a conservative risk profile, you start to increase the amount
11:10
Speaker 3: of assets that you hold and you hold less cash.
11:15
Speaker 3: Conservatives is going to introduce some more assets. You're going
11:19
Speaker 3: to be looking at having now domestic equity as well
11:23
Speaker 3: as some international equity, not much, but a little bit
11:25
Speaker 3: of international equity. You'll be looking at things like domestic
11:28
Speaker 3: fixed interest, which is again a really fancy way of
11:31
Speaker 3: saying a bond or a high interest rate term deposit.
11:35
Speaker 3: You'll probably introduce something like property. And when we say
11:39
Speaker 3: property in an investment portfolio, we aren't talking about property
11:43
Speaker 3: as in, hey George, I've put this down in your
11:45
Speaker 3: conservative portfolio, Go buy an apartment, because it needs to
11:48
Speaker 3: be you know, it needs to be a portfolio. I'm
11:50
Speaker 3: actually talking about shares that you can buy in property assets.
11:55
Speaker 3: So we're talking high rise buildings in the Melbourne CBD
11:58
Speaker 3: the least out right in companies that hold those buildings,
12:01
Speaker 3: and then you essentially have exposure to the property market,
12:06
Speaker 3: which is kind of cool.
12:07
Speaker 2: Yeahtcha.
12:07
Speaker 3: You can own property without owning that thing. Yeah, cool,
12:11
Speaker 3: So that is conservative. Conservative portfolios are again for people
12:16
Speaker 3: who a little bit worried maybe want to be a
12:19
Speaker 3: little bit more conservative. They have a pretty basic understanding
12:23
Speaker 3: of the investment world. When they think of risk, they
12:27
Speaker 3: don't think it means danger. But they also are pretty weary,
12:31
Speaker 3: and when you make a financial decision, you're more focused
12:34
Speaker 3: on the losses not on the gain. So if I
12:36
Speaker 3: ask you the question, hey, Georgia, you've got a thousand dollars,
12:39
Speaker 3: do you want to invest it? You could make eleven percent,
12:42
Speaker 3: You'd be like, oh, what could I lose? And I
12:44
Speaker 3: might go, oh, you could lose eleven percent. You're like, hmm, no,
12:47
Speaker 3: thank you. I might just hold on to that and
12:51
Speaker 3: put my money in an asset that might make four
12:53
Speaker 3: a five percent. Right, I'm more likely as a conservative
12:56
Speaker 3: investor to chase returns that are about four or five percent,
13:00
Speaker 3: not eleven or twelve, which a lot of more aggressive
13:05
Speaker 3: investors are probably looking towards.
13:07
Speaker 2: Moving on too. Moderately conservative you're good at keeping me flowing, yeah,
13:12
Speaker 2: like it.
13:12
Speaker 3: So moderately conservative is again just increasing the amount of
13:18
Speaker 3: assets that you hold, So you're probably a little bit
13:21
Speaker 3: more prepared to establish a well diversified portfolio that protects
13:25
Speaker 3: you from inflation and tax. So that's something you need
13:28
Speaker 3: to take into consideration. If you are young, picking a
13:31
Speaker 3: capital stable portfolio that returns two percent isn't actually going
13:35
Speaker 3: to help you get ahead in terms of tax and inflation.
13:38
Speaker 3: You're actually going to end up going backwards. Good financial
13:41
Speaker 3: advisory is going to explain that to you and talk
13:43
Speaker 3: you through your risk profile and the positives and the
13:45
Speaker 3: negatives of it and what it might suit, who it's
13:47
Speaker 3: best for. But it's really important to understand that when
13:50
Speaker 3: you think of risk, you might be like, oh, it's
13:52
Speaker 3: a little bit uncertain. I don't really know, but you
13:54
Speaker 3: know you want to have some more shares. Going back
13:57
Speaker 3: to percentages, around forty forty five percent of your total
14:00
Speaker 3: portfolio is going to be made up of shares. You'll
14:03
Speaker 3: then have a larger portion, so we're talking about twenty
14:06
Speaker 3: percent of a domestic fixed interest asset, so essentially bonds
14:10
Speaker 3: and high interest rate term deposits. But then you'll also
14:13
Speaker 3: still have property. You will have some domestic property, international property.
14:18
Speaker 3: You're going to have some international fixed interest, which is exciting,
14:21
Speaker 3: So international bonds and you're also going to add in
14:25
Speaker 3: alternative assets, which is kind of cool, kind of different.
14:28
Speaker 2: I'm surprised to see that they only have twenty percent
14:32
Speaker 2: of domestic cash, so money in the bank, but they're
14:34
Speaker 2: still only considered to be moderately conservative.
14:37
Speaker 3: You need to remember that it might be twenty percent cash.
14:40
Speaker 3: So if you break it down one thousand dollars investment
14:42
Speaker 3: portfolio two hundred dollars, if that would be in your pocket,
14:46
Speaker 3: it would just be in cash. When I say in
14:48
Speaker 3: your pocket, I don't mean hey, you're actually retain that.
14:51
Speaker 3: Often it's put into a bank account on your behalf
14:54
Speaker 3: that makes up your investment portfolio. But then you also,
14:57
Speaker 3: if you're looking at that pie chart, you can see
14:59
Speaker 3: domestic fixed interest, so that's a bond. So another twenty
15:02
Speaker 3: percent is actually setting in a very conservative asset that
15:05
Speaker 3: is only going to return maybe like three or four percent.
15:08
Speaker 3: So when you think about a moderately conservative portfolio Georgia,
15:12
Speaker 3: we are actually looking at something a little bit more diversified.
15:15
Speaker 3: So when I say diversified, I mean there's just a
15:17
Speaker 3: lot more colors on it, there's more options. It doesn't
15:20
Speaker 3: mean it's a better diversified portfolio. Because these risk profiles
15:25
Speaker 3: have different amounts of diversification allocated to them based on
15:28
Speaker 3: your risk profile. So I feel like I'm talking really
15:31
Speaker 3: quickly today, so I do apologize, but I'm just really
15:34
Speaker 3: excited about this. But essentially, you will be allocated a
15:38
Speaker 3: certain percentage. So if you were a moderately conservative investor,
15:42
Speaker 3: you'd be allocated this pie chart, and then your financial
15:45
Speaker 3: advisor would allocate investments in line with your risk profile,
15:49
Speaker 3: which means they would then go, hey, Georgia, well for
15:51
Speaker 3: the twenty one percent domestic equity or bonds that you're
15:54
Speaker 3: meant to be holding, we recommend these options. So then
15:58
Speaker 3: you would make up an investment portfolio with that amount
16:01
Speaker 3: of that asset in your portfolio, as I choose to
16:05
Speaker 3: just filling in the pie chat. But moving on to
16:07
Speaker 3: the next risk profile, Georgia from memory, what is it?
16:10
Speaker 2: It is moderate growth?
16:12
Speaker 3: But like, what's moderate growth?
16:13
Speaker 2: What is moderate growth?
16:14
Speaker 3: It's like putting one sugar in your tea? Maybe it'll
16:18
Speaker 3: bit good, Okay, you didn't need sugar.
16:20
Speaker 2: Slightly sweet but naughty.
16:22
Speaker 3: I don't know.
16:22
Speaker 2: I don't know. Let's let's talk about it and then
16:24
Speaker 2: find out what you tell me.
16:25
Speaker 3: About moderate growth right, and then you're gonna by the
16:27
Speaker 3: end at me explaining moderate growth. You're going to have
16:30
Speaker 3: a better label for it, challenge accepted. Okay, cool. So
16:32
Speaker 3: when you are a moderate growth investor, you're going to
16:36
Speaker 3: be looking and adapting a more diversified portfolio to somewhat
16:39
Speaker 3: protect you from information and tax more so than the
16:42
Speaker 3: other one, because you're going to be chasing a little
16:44
Speaker 3: bit higher of a risk. You have a pretty reasonable
16:47
Speaker 3: understanding of what the investment markets do and the way
16:50
Speaker 3: they operate and how they flow. You might have been
16:53
Speaker 3: doubling a little bit in investments yourself, like you've probably
16:55
Speaker 3: used a micro investing platform before, or you've even bought
16:59
Speaker 3: your own ETF for you know, you've had a shot
17:01
Speaker 3: you've had to try. When you think about risk, you're
17:05
Speaker 3: thinking possibilities. You're not really thinking about the negatives. You're going, yeah,
17:08
Speaker 3: I understand the negatives, I get that they exist, but
17:11
Speaker 3: and more interested in the possibilities of investing my money.
17:15
Speaker 3: And when you personally make a financial decision, you are
17:18
Speaker 3: far more focused on the possible gains, but you're also
17:22
Speaker 3: kind of still thinking about the possible losses because you're
17:24
Speaker 3: a little bit concervative. If you're not like all in
17:26
Speaker 3: boots and all, you're just like, you know what, let's
17:28
Speaker 3: be reasonable about it. I reckon moderate growth is pretty pragmatic. Yeah,
17:32
Speaker 3: like a name Sandra, she lives in Sandringham.
17:34
Speaker 2: She's like form. I just made that. See, I told
17:38
Speaker 2: you I'm not creating good.
17:42
Speaker 3: Someone who is a moderate growth folio is going to
17:45
Speaker 3: accept that there is some level of volatility in risk
17:47
Speaker 3: in investing. Volatility another word. It's going to be in
17:51
Speaker 3: my glossary of my book, because I wrote the glossary yesterday,
17:54
Speaker 3: which was very exciting.
17:55
Speaker 2: That's helpful.
17:56
Speaker 3: Volatility essentially just means when the stock price goes up
17:59
Speaker 3: and down. It's when a price fluctuates full stop. Like,
18:02
Speaker 3: I don't know why we use these complicated words. It's
18:04
Speaker 3: just not necessary.
18:05
Speaker 2: No, they're definitely not.
18:06
Speaker 3: So to restart that, guys, what I mean is you
18:08
Speaker 3: can accept that stock prices go up and down over time.
18:11
Speaker 3: That's much more interesting. Well, it's easier, it's easier to understand, easier.
18:15
Speaker 3: That's what we're here for. And you are a moderate
18:18
Speaker 3: risk caker in life, and you can accept that there
18:20
Speaker 3: is some level of risk involved in investing. But it's
18:22
Speaker 3: not too risky again. Talking about percentages, I want you
18:26
Speaker 3: to visualize these. Hold your hands out in front of you,
18:28
Speaker 3: have a pie chart, and then select twenty three percent
18:31
Speaker 3: of that hand pie chart. That's going to be domestic equity,
18:34
Speaker 3: so Australian shares, and then twenty seven percent is going
18:37
Speaker 3: to be international equity, which is international shares, which is
18:41
Speaker 3: very exciting. You're going to have fifteen percent fixed interest,
18:44
Speaker 3: so fifteen percent of that portfolio is going to be bonds.
18:48
Speaker 3: You're going to have some international property in there now,
18:50
Speaker 3: which is very exciting. Your alternative assets are going to
18:53
Speaker 3: be about five percent, which is more than what the
18:55
Speaker 3: last portfolio was, and you are going to have some
18:57
Speaker 3: international bonds as well, which is very excited. Well diversified,
19:01
Speaker 3: you're seeing the percentages come down in this portfolio as
19:05
Speaker 3: you go towards the middle of the risk profiles, they
19:08
Speaker 3: become a lot more even, and in the end they
19:10
Speaker 3: kind of skew. You would have noticed that the capital
19:12
Speaker 3: growth had some bigger percentages, like sixty five percent cash,
19:16
Speaker 3: and you can expect the same thing to happen at
19:19
Speaker 3: the other end of the spectrum when someone's a growth
19:21
Speaker 3: investor or a high growth investor. They're going to hold
19:24
Speaker 3: more shares and quote riskier assets than someone who wants
19:28
Speaker 3: to be a little bit more stable.
19:30
Speaker 2: Okay, can I ask you potentially a silly, dumb dumb question.
19:34
Speaker 3: Can you please stop saying they're silly dumb?
19:37
Speaker 2: I don't know I've ever said that.
19:39
Speaker 3: Maybe you haven't, but you always preface it with like,
19:41
Speaker 3: oh my gosh, I probably should know this.
19:44
Speaker 2: Well, I don't know a finance podcast for a year
19:47
Speaker 2: and a half. What you're talking about here with all
19:51
Speaker 2: of the percentages. Is this like a financial investment across
19:55
Speaker 2: Australia official way of doing it? Or is this the
19:57
Speaker 2: Victoria divine intent way of doing it?
20:00
Speaker 3: Like unfortunately, there is no victory a divine way of
20:03
Speaker 3: risk profile. I wasn't sure because they wouldn't meet compliance.
20:06
Speaker 3: Right at the end of each podcast we say that
20:09
Speaker 3: I actually am authorized representative of Australia Pacific Funds Management Limited.
20:14
Speaker 3: I won't go through that right now as you guys,
20:16
Speaker 3: I don't know why you do, but most of you
20:18
Speaker 3: sit through that. But because I am legitimate, I have
20:22
Speaker 3: to adhere to the standards that have been set by
20:25
Speaker 3: Australia and the law. So for me, this This isn't victorious,
20:29
Speaker 3: it's a standardized He's just standardized across Australia. Like the
20:33
Speaker 3: percentages do differ from advisor to advisor, and dealer grouped
20:37
Speaker 3: deal groups or deal group is like the person who
20:39
Speaker 3: owns the financial services license that then licensed financial advisors,
20:44
Speaker 3: and it might differ depending on what types of portfolios
20:47
Speaker 3: are being made up. But this is pretty stock standard
20:50
Speaker 3: and when you look at your superannuation, for example, this
20:53
Speaker 3: is so applicable. When we talk about a balanced portfolio,
20:57
Speaker 3: they're talking about a conservative folio. So if you've listened
21:01
Speaker 3: to this and you go, hey, Victoria like conservative. That
21:04
Speaker 3: does not suit me at all, my friend, Why is
21:07
Speaker 3: your investment in your superannuation conservative? Then they just set balanced,
21:11
Speaker 3: which sounds a little bit more exciting because you think
21:13
Speaker 3: it's a little bit safer.
21:14
Speaker 2: Okay, there you go, Yeah you're welcome. Let's move on
21:17
Speaker 2: to growth now, but not before I quickly give that
21:19
Speaker 2: a rebrand. I'm going to call it. What is that
21:22
Speaker 2: I'm going to call it? Gets it? That's it, but
21:26
Speaker 2: still a bit sweaty about risk. Do you like it?
21:30
Speaker 2: I love it.
21:32
Speaker 3: I're gonna love as well. The job I'm about to
21:35
Speaker 3: give you, and that is writing a blog post on
21:39
Speaker 3: the new improved names for risk profiles from Shees on
21:44
Speaker 3: the Money.
21:44
Speaker 2: Love it done, but it's the list. Okay, talk to
21:47
Speaker 2: me about talk to me about growth, all right? Growth.
21:51
Speaker 3: Growth portfolios tend to be where people our age shore
21:55
Speaker 3: just sit. Not heaps of us are actually high growth investors,
21:59
Speaker 3: albeit real say we want to be. This is where
22:02
Speaker 3: you desire to have a broad spread of really good
22:05
Speaker 3: quality investments, but predominantly growth, so that you can achieve
22:09
Speaker 3: growth over the long term. Because you personally understand that
22:13
Speaker 3: you'll be investing for more than ten years, so it
22:15
Speaker 3: makes sense to be investing in assets that are going
22:18
Speaker 3: to last that long. You understand investment markets will fluctuate,
22:22
Speaker 3: There'll be volatility. Georgia. We're learning words today. Maybe we
22:25
Speaker 3: should have a word of the week. Every single week
22:27
Speaker 3: we all learn a new finance term.
22:29
Speaker 2: Volatility. Is that today?
22:31
Speaker 3: I mean in our Facebook group and tell me if
22:32
Speaker 3: you want that, because I'll teach you finance words. But
22:34
Speaker 3: it sounds really true. And you understand that there are
22:37
Speaker 3: different sectors and they perform differently, and there are different
22:40
Speaker 3: levels of risk and income and growth associated with your investment. Platforms.
22:45
Speaker 3: So when you personally, if you're a growth investor, look
22:48
Speaker 3: at the horizon for long term investing, you're looking at
22:51
Speaker 3: investing for a minimum of seven years. So I would
22:54
Speaker 3: never expect someone who's like, oh, I've got three or
22:57
Speaker 3: four years to invest to be a growth in so
23:00
Speaker 3: because that's a silly thing to do, because you don't
23:02
Speaker 3: have enough time to get a return. It is too risky.
23:06
Speaker 3: And when you as an individual think about making financial
23:09
Speaker 3: decisions or investing, usually focus on the possible gains. You're
23:12
Speaker 3: not so much worried about any losses. You're more concerned
23:17
Speaker 3: about making sure you make the right decision over the
23:19
Speaker 3: long term because you know that there will be a
23:21
Speaker 3: positive return. And in life you're more likely to take risks,
23:24
Speaker 3: and you're just feeling a little bit more comfortable with
23:27
Speaker 3: taking higher levels of investment risk. So that to me
23:30
Speaker 3: is a growth portfolio. Again, when we look at the
23:33
Speaker 3: very cute high charts, you'll see again the international shares
23:37
Speaker 3: and the Australian shares make up about or fifty percent,
23:41
Speaker 3: fifty to fifty five percent of the portfolio. Then you've
23:44
Speaker 3: got to mextic fixed interest, so you've got bonds sitting
23:47
Speaker 3: at fifteen percent. You've then got Australian fixed interest sitting
23:51
Speaker 3: at another I think that's ten percent. And yeah, everything
23:54
Speaker 3: is becoming a little bit more so, remember how I
23:57
Speaker 3: said in the middle, you have less percentage, and coming
24:01
Speaker 3: towards the end, like your growth portfolio, you're going to
24:04
Speaker 3: be more aggressive. You are going to expose your share
24:06
Speaker 3: portfolio to more shares than cash, so more risky assets,
24:12
Speaker 3: which means more shares, less bonds, less.
24:14
Speaker 2: Cash, but ultimately a higher return. Yes, and we will
24:18
Speaker 2: be talking about the relationship between risk and return a
24:21
Speaker 2: little bit later on.
24:22
Speaker 3: And that's something that I really really want to talk about. Arguably,
24:24
Speaker 3: we probably should have flipped this episode on its head
24:27
Speaker 3: and talked about the relationship between risk and return before.
24:30
Speaker 2: We we'll get that too late. We're not willing to
24:32
Speaker 2: fix ou finish us off here, V with a little
24:37
Speaker 2: chat about high growth. So this is the the highest
24:40
Speaker 2: growth of the risk profiles.
24:42
Speaker 3: You're excited, Thank you so high growth. You'll notice the
24:47
Speaker 3: chart actually has less asset classes. Do you say that, jeking.
24:52
Speaker 3: We've got rid of the bonds, We've gotten rid of
24:56
Speaker 3: the cash.
24:56
Speaker 2: There's no cash.
24:57
Speaker 3: There's no cash. Sure, there's no bonds, there's no fixed interest.
25:02
Speaker 3: Bry is made up of shares and other shares. So
25:05
Speaker 3: we've got forty two percent domestic shares and we have
25:08
Speaker 3: forty one percent international shares. We have a little bit
25:11
Speaker 3: of international property, we've got some domestic property, and then
25:14
Speaker 3: we have alternative assets. You're not going to be surprised,
25:18
Speaker 3: but an alternative asset isn't a share, it's not a bond,
25:21
Speaker 3: not the usual. It's also not cash.
25:22
Speaker 2: Okay, it's alternative. Huh.
25:24
Speaker 3: It's also not that emo kid you went to school
25:26
Speaker 3: with different form of alternative, but it is a relatively
25:31
Speaker 3: loose term, so it can actually include a whole heap
25:34
Speaker 3: of things. Alternatives are used to explain an asset that
25:37
Speaker 3: doesn't really fit in any of those other categories. So
25:40
Speaker 3: it could just be a little bit left field. But
25:43
Speaker 3: it can be in some circumstances wind collections, it could
25:47
Speaker 3: be antiques or coins, it could be stamps, it could
25:51
Speaker 3: be some types of different forms of finance assets, so
25:54
Speaker 3: like real estate or commodities or private equity. So you
25:57
Speaker 3: might have purchased into a fund that promises a certain
26:02
Speaker 3: red term, but it is not a listed fund on
26:04
Speaker 3: the ASX. That could be it. It could also be
26:08
Speaker 3: hedge funds. You would have heard of that. I don't
26:10
Speaker 3: recommend them for anybody who is not a high growth investor.
26:12
Speaker 3: And even then I've never recommended one to a client
26:14
Speaker 3: because they, to be honest, carry two much risk. And
26:19
Speaker 3: then it could be venture capitalist. It could be cryptocurrency.
26:23
Speaker 3: That would be an alternative asset, albeit that is not
26:26
Speaker 3: an alternative asset I've ever put into one of my
26:28
Speaker 3: client's portfolios. I do think it is really important to
26:33
Speaker 3: understand what this is though, because it does come up
26:35
Speaker 3: and people always flippantly say it, but at the end
26:37
Speaker 3: of the day, it is something that is not a bond,
26:40
Speaker 3: it is not a share, and it could be a
26:42
Speaker 3: lot of things. Could be gold.
26:44
Speaker 2: My friend, oh, sovereign hill? Have you been? I have
26:48
Speaker 2: been to a sovereign hill.
26:49
Speaker 3: I think I went in grade four. Same. Yeah, well
26:52
Speaker 3: we did go to school together, but yeah, I did
26:54
Speaker 3: go gold paining beautiful stuff. Thank you. A high growth
26:58
Speaker 3: portfolio a high growth investor means that you are interested
27:03
Speaker 3: in capital growth and you are interested in accumulating more
27:06
Speaker 3: wealth more quickly relative to your investment timeframe, so you
27:10
Speaker 3: understand the cyclical nature of investments. And accept that there
27:14
Speaker 3: is going to be a very high level of volatility
27:16
Speaker 3: in the value of your investments. So somebody who is
27:20
Speaker 3: a high growth investor might one year see at twelve
27:23
Speaker 3: percent return and another year seeing negative six or seven
27:27
Speaker 3: percent return, But they have to be okay with that
27:30
Speaker 3: because over the long term, the average return of their
27:32
Speaker 3: portfolio might be eleven percent. So you might go okay, cool, Well,
27:37
Speaker 3: over my ten year timeframe, I might see a couple
27:39
Speaker 3: of years that actually my portfolio has a negative return,
27:42
Speaker 3: but in the grand scheme of things, I actually end
27:44
Speaker 3: up over the long term better off. I just have
27:47
Speaker 3: to be emotionally okay with seeing my portfolio being negative
27:53
Speaker 3: and sitting down with my financial advisor and having them go, hey, Georgia,
27:57
Speaker 3: so this year we've been working on ab and as
28:01
Speaker 3: you would know, your total return of your portfolio is
28:04
Speaker 3: actually negative seven Like, you've got to be okay with that?
28:07
Speaker 2: Does that make sense?
28:08
Speaker 3: Yep, you say, shooting your own heart.
28:12
Speaker 2: It was a step. It was a step. Well, I
28:15
Speaker 2: mean that would hurt me, and that's because I am
28:18
Speaker 2: capital stable and I fear risk.
28:21
Speaker 3: But also exactly which is why it's really important for
28:25
Speaker 3: you to understand this portfolio, because if I then made
28:29
Speaker 3: the suggestion for you to take all of your cash
28:31
Speaker 3: that you've saved up and put it in a high
28:33
Speaker 3: growth portfolio, you'd be really uncomfortable with it. You wouldn't
28:36
Speaker 3: be comfortable, you wouldn't sleep, it would be something that
28:39
Speaker 3: didn't make you feel like you're working towards the right things.
28:42
Speaker 3: That's not a good place to be at all, because
28:44
Speaker 3: if we are stressing ourselves, that's a rib terrible outcome.
28:48
Speaker 3: So someone who is high growth is pretty experienced in investing, like,
28:52
Speaker 3: I would never see and I would never be comfortable
28:55
Speaker 3: with somebody coming on board, you know, to my advice
28:58
Speaker 3: practice and going I'm higher growth and I go what's
29:00
Speaker 3: your experience And they say absolutely nothing. I've never had
29:04
Speaker 3: any experience in any asset class. And I go, okay, cool,
29:07
Speaker 3: what's a share? They're like, Victoria, I've.
29:08
Speaker 2: Got no idea, I don't know ready, but.
29:10
Speaker 3: I am here and I'm ready, And I'll be like,
29:14
Speaker 3: probably not, my friend. So for me, you have to
29:17
Speaker 3: have had experience in most of the asset classes already.
29:21
Speaker 3: You have to at least understand what a share is
29:24
Speaker 3: and probably have been working at it. So I do
29:26
Speaker 3: have clients who are high growth who have just come
29:28
Speaker 3: off micro investing platforms. We're not talking about people who
29:31
Speaker 3: are just investing exotic asset classes or our collections or
29:35
Speaker 3: luxury car collections or whatever. We're not talking about that.
29:38
Speaker 3: We're just saying you need to fully understand the market,
29:40
Speaker 3: and you know what micro investing platforms, if you need,
29:43
Speaker 3: can teach you that. So somebody who is investing as
29:47
Speaker 3: a high growth investor will be investing for the long term.
29:50
Speaker 3: So we are talking minimum seven years, like that is
29:53
Speaker 3: minimum seven years of not taking your money out. Ideally
29:56
Speaker 3: it's thirty plus years because we are actually investing for retirement.
30:01
Speaker 3: We're investing to create financial freedom, and unfortunately that usually
30:05
Speaker 3: can't be done in seven years.
30:06
Speaker 2: So I do apologize.
30:08
Speaker 3: I wish there was a quick get reach quick scheme
30:10
Speaker 3: that I could bitcoin baby, but we could do bitcoin.
30:16
Speaker 3: We could probably start in MLM, but like none of
30:18
Speaker 3: those actually aligned to other No, they don't.
30:21
Speaker 2: How much does that suck just going to recap before
30:23
Speaker 2: we quickly go to a break?
30:25
Speaker 3: So it's got okay, wants so break for me to
30:27
Speaker 3: get it.
30:27
Speaker 2: In the from the levels of low risk to high
30:30
Speaker 2: risk and return based on that as well, so low
30:34
Speaker 2: return to high return. We have capital stable coming in
30:37
Speaker 2: at the lowest form of risk, then so.
30:39
Speaker 3: The lowest form of return correct.
30:42
Speaker 2: Then it goes up to conservative. Then we have moderately conservative,
30:46
Speaker 2: moderate growth growth, and then we finish off with high growth.
30:51
Speaker 2: So hopefully our little chat today has helped you kind
30:53
Speaker 2: of figure out where you sit in that space. We
30:56
Speaker 2: will be back after a very short break where we
30:59
Speaker 2: will about what to do if your risk profile doesn't
31:02
Speaker 2: quite match up with our investment preferences, and we will
31:05
Speaker 2: be chatting about that very important relationship between risk and return. Okay,
31:23
Speaker 2: b let's go back to the start where it all
31:25
Speaker 2: should have begun and chat about risk and return.
31:28
Speaker 3: The concept of risk and return it pretty much says
31:31
Speaker 3: that where there is a very low level of risk taken,
31:34
Speaker 3: a low return will follow, and vice versa. So if
31:37
Speaker 3: you are taking a high level of risk, the probability
31:40
Speaker 3: of you getting a high return bit more risky, so
31:44
Speaker 3: we've got to be aware of that. So over the
31:45
Speaker 3: long term there is great volatility, but at the same
31:49
Speaker 3: time you are more likely to have positive returns. So
31:53
Speaker 3: cash is arguably the lowest risk and the lowest return
31:56
Speaker 3: asset that we can hold. Then you've got fixed interest
31:59
Speaker 3: and bonds, which is the next level up, so a
32:02
Speaker 3: little bit more return, a little bit more risk. Then
32:04
Speaker 3: you would have property, again more return, more risk. Then
32:09
Speaker 3: you have Australian shares, and then after Australian shares pretty
32:12
Speaker 3: much sitting together, but has a higher level of volatility,
32:16
Speaker 3: so their share prices fluctuate a lot more is international
32:19
Speaker 3: shares because they have higher return but also a higher
32:23
Speaker 3: level of risk. And that is why we need to
32:26
Speaker 3: understand what that risk return trade off is, because we
32:29
Speaker 3: compromise something when we want something else. So when I
32:33
Speaker 3: say that, I mean you want to purchase a share
32:35
Speaker 3: because you actually want that level of risk, So you're
32:38
Speaker 3: compromising your financial stability and your security, which is why
32:42
Speaker 3: then we want to invest over the long term because
32:44
Speaker 3: that then takes that risk away, not completely obviously.
32:49
Speaker 2: But it allows that level of risk.
32:51
Speaker 3: And so does diversification. So holding a lot of different
32:54
Speaker 3: shares as opposed to just one, so that if one
32:57
Speaker 3: share completely plummets, you don't actually feel a much because
33:00
Speaker 3: you have a lot of different options in your portfolio.
33:03
Speaker 2: Does that make sense? Perfectly explained, thank you, And that's
33:06
Speaker 2: why I know a lot of people in our community
33:09
Speaker 2: ask about wanting to invest for like two years, but
33:12
Speaker 2: they have the big goal of buying a house.
33:15
Speaker 3: Yes, and that is why I don't recommend investing for
33:18
Speaker 3: the short term. Obviously, chasing again is going to put
33:22
Speaker 3: you in a position where you are at risk, and
33:25
Speaker 3: that risk is not worth it in my opinion. And
33:29
Speaker 3: for those of you who are considering, and this is
33:31
Speaker 3: just like a little hot tip, those of you who
33:33
Speaker 3: are considering investing over a short period of time because
33:37
Speaker 3: you've got a house to deposit. First things first, have
33:39
Speaker 3: you considered the first time Super Saviors game? If not,
33:42
Speaker 3: why not because that is essentially free money from the government.
33:47
Speaker 2: All right, My last question for today's episode B is
33:50
Speaker 2: what we are meant to do If our risk profile
33:52
Speaker 2: doesn't match our investment preferences.
33:55
Speaker 3: You can change your risk profile. I say this at
33:59
Speaker 3: the office. You go through this entire fancy questionnaire and
34:02
Speaker 3: it pops out with a hey, Victoria, you're a conservative investor.
34:06
Speaker 3: You can go oh no, no, no, sir, and you can
34:10
Speaker 3: actually change it. You will have to sign a form
34:12
Speaker 3: to say no, I actually don't want that risk profile
34:15
Speaker 3: that's been allocated to me based on your silly little
34:17
Speaker 3: survey Victoria Devine, I actually want to be a growth investor.
34:21
Speaker 3: You will be able to change it. You just have
34:23
Speaker 3: to justify it and say no, I want to change it.
34:25
Speaker 3: But at the end of the day, it is definitely
34:27
Speaker 3: worth considering why you answered those questions in a certain way,
34:30
Speaker 3: because if you're saying, oh, no, I want something else,
34:33
Speaker 3: it's like, well, do you actually fully understand those because
34:36
Speaker 3: it's come out that maybe.
34:37
Speaker 2: You do not.
34:40
Speaker 3: All right.
34:40
Speaker 2: To help you guys figure out exactly where you fall
34:43
Speaker 2: in terms of risk, we will be putting together a
34:45
Speaker 2: little risk profile quiz that.
34:47
Speaker 3: I'm actually just going to give you guys, the ones
34:49
Speaker 3: I use in my business. I'll just brand it pink.
34:51
Speaker 3: How about that?
34:52
Speaker 2: Stunning perfect Before we wrap, though, let's do a quick recap.
34:56
Speaker 2: So a risk profile is essential. It really is that
34:58
Speaker 2: first step in figuring out how we will invest. It's
35:02
Speaker 2: going to go how we do it, what we're investing in,
35:04
Speaker 2: et cetera, et cetera. There are six profiles. Six risk
35:07
Speaker 2: profiles capital stable, conservative, moderately conservative, moderate growth, growth, and
35:11
Speaker 2: high growth, and those were ordered from least risky to
35:14
Speaker 2: most risky. And finally we learned about the relationship between
35:19
Speaker 2: risk and return, establishing that the riskier the share, the
35:22
Speaker 2: higher the potential return. Advice versa v. I think that
35:26
Speaker 2: is all we have time.
35:27
Speaker 3: For today, almost all we have time for. G Just
35:30
Speaker 3: before we head off, we'd like to acknowledge and pay
35:32
Speaker 3: respects to Australia's Aboriginal and torrest Rate islander peoples, the
35:36
Speaker 3: traditional custodians of the lands, the waterways and the skies
35:40
Speaker 3: all across Australia. We thank you for sharing and for
35:43
Speaker 3: caring on the land which we are able to learn.
35:45
Speaker 3: We pay our respects to it is past and present,
35:47
Speaker 3: and we share our friendship and our kindness.
35:50
Speaker 2: And please remember, friends, that the advice shared on shees
35:53
Speaker 2: on the money is general in nature and does not
35:55
Speaker 2: consider your individual circumstances. She is on the money exists
35:59
Speaker 2: purely for educational purposes and should not be relied upon
36:02
Speaker 2: to make an investment or a financial decision. And we
36:05
Speaker 2: promise Victoria Divine is an authorized representative of Australia Pacific
36:09
Speaker 2: Funds Management Propriety Limited ABN three four one three two
36:13
Speaker 2: four six three two five seven AFSL three three nine
36:16
Speaker 2: one five one And a big thank you to the
36:19
Speaker 2: dream team of Beck, Ryan and Jess for helping us
36:22
Speaker 2: put together today's show.
36:24
Speaker 3: We literally would have not our head screwed on without.
36:26
Speaker 2: Them, we wouldn't and we'd probably talk for hours.
36:29
Speaker 3: Oh my gosh, we've already been talking for a very
36:31
Speaker 3: long time. So good luck editing this one guy.
36:33
Speaker 2: See you next week. Bye, guys,