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Passive vs. Active Investing · She's On The Money

0:00
Speaker 1: Hello, my name's Santasha Nabananga Bamblet. I'm a proud yr
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Speaker 1: the Order, Kernie Whoalbury and a waddery woman. And before
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Speaker 1: we get started on She's on the Money podcast, I
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Speaker 1: would like to acknowledge the traditional custodians of the land
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Speaker 1: of which this podcast is recorded on a wondery country,
0:18
Speaker 1: acknowledging the elders, the ancestors and the next generation coming through.
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Speaker 1: As this podcast is about connecting, empowering, knowledge sharing and
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Speaker 1: the storytelling of you to make a difference for today
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Speaker 1: and lasting impact for tomorrow.
0:33
Speaker 2: Let's get into it.
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Speaker 3: She's on the Money, She's on the Money.
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Speaker 4: Hello, and welcome to She's on the Money the podcast
1:01
Speaker 4: Millennials who want Financial Freedom. My name is Georgia King,
1:04
Speaker 4: and joining me as she does each and every Wednesday,
1:07
Speaker 4: is Victoria Divine V.
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Speaker 5: How are we I'm well, I just had a diet coach.
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Speaker 5: I don't know how this option is thriving.
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Speaker 4: With so many of our community members either interested in
1:16
Speaker 4: investing or active investors, there is nothing we love more
1:20
Speaker 4: than doing a deep dive episode into investing and all
1:23
Speaker 4: the various topics within that to help people along on
1:26
Speaker 4: their journey up on the show. Today we're looking at
1:28
Speaker 4: active and passive investing.
1:31
Speaker 5: Be this sounds very exciting for me, don't know about you.
1:34
Speaker 5: How are you feeling about it?
1:36
Speaker 4: Well, I'm curious to learn what it all means, So
1:39
Speaker 4: I'm excited.
1:40
Speaker 5: Sounds so apprecisive when we're not doing something that You're like,
1:44
Speaker 5: I am passionate about this topic. Well, lucky, I am
1:48
Speaker 5: really passionate about this topic. So there is going to
1:50
Speaker 5: be so much on this episode to unpack when it
1:53
Speaker 5: comes to investing, because your investment options and journey are
1:56
Speaker 5: arguably as unique as you are.
1:58
Speaker 2: Some of you real unique.
2:00
Speaker 5: However, most investors usually fit into two categories, and those
2:05
Speaker 5: categories are active and passive investors.
2:08
Speaker 2: So this basically refers to the.
2:10
Speaker 5: Two different ways of managing your investment portfolio, and today
2:14
Speaker 5: we are going to define what each of these are
2:17
Speaker 5: and look at some pros and cons for each to
2:19
Speaker 5: help you choose what path might suit your capabilities and
2:22
Speaker 5: your situation the best.
2:24
Speaker 4: I like the sound of passive investing better just my
2:27
Speaker 4: personal opinion of the top.
2:28
Speaker 5: But I don't really know, because you're more of a passive,
2:31
Speaker 5: caressive type of communicator.
2:33
Speaker 4: Who who whoa more just like a passive person yess
2:37
Speaker 4: like creature.
2:39
Speaker 2: It's a cube with that covered off.
2:41
Speaker 4: Now we know what I'm interested in. Let's talk about
2:43
Speaker 4: active stuff.
2:45
Speaker 5: On the sloth saying, have you seen that video by
2:47
Speaker 5: Kristen Bell or it's got Kristen Bell in it? Oh,
2:50
Speaker 5: kristin Kristen Bell. She's on Ellen and Ellen gets her
2:53
Speaker 5: a sloth and she just breaks and cries, what do
2:56
Speaker 5: you mean a sloth?
2:57
Speaker 2: Are you joking?
2:58
Speaker 5: So Kristen Bell said that her face favor animal in
3:00
Speaker 5: the entire world was a sloth, and so she went
3:03
Speaker 5: on the Ellen Show and then Ellen gotterisloth and she's
3:07
Speaker 5: just there crying.
3:08
Speaker 2: I'll show you after the ap.
3:09
Speaker 5: Everyone should google it because it's real wholesome content. All right,
3:12
Speaker 5: speaking of good content, let's go back to our sloth
3:14
Speaker 5: versus like a cheater investing scheme.
3:16
Speaker 4: I like that scheme. Did you say that?
3:18
Speaker 2: Let's remove that worth? Yeap? Great?
3:20
Speaker 4: Moving on active investing, tell me all about it all.
3:22
Speaker 5: Right, Before we jump into defining exactly what those two
3:25
Speaker 5: things are, Georgia King, let's do a little comparison. So
3:29
Speaker 5: a big difference between these two different ways of managing
3:31
Speaker 5: your portfolio. Is that generally an active investor is they're
3:35
Speaker 5: trying to beat the market, whereas a passive investor is
3:38
Speaker 5: trying to track the market. So we get a pinpoint
3:41
Speaker 5: that there, so that you know right off the bat
3:43
Speaker 5: there is quite a big difference between the two. It's
3:45
Speaker 5: not just how you act towards your portfolio, it's also
3:48
Speaker 5: about the types of returns you are anticipating as an investor.
3:52
Speaker 5: Back to your question, what is an active investor? So
3:56
Speaker 5: active investors tend to pretty keenly watch the market. They
3:59
Speaker 5: are very likely to trade as they see fit, so
4:03
Speaker 5: they will be in and out of their chase's portfolio
4:05
Speaker 5: quite often, buying and selling assets because they have usually
4:10
Speaker 5: a better education than the average bear. When it comes
4:14
Speaker 5: to what the share market is doing, active investors are
4:17
Speaker 5: generally chasing shorter term gains i'd say so quicker profits
4:21
Speaker 5: from their investments. Let's remember what happens when you want
4:25
Speaker 5: higher profits though, gee higher risk I'm not even needed.
4:30
Speaker 5: And some active investors they choose to engage with professional
4:34
Speaker 5: fund managers to actively manage their investments on their behalf.
4:37
Speaker 2: So just because you're an.
4:38
Speaker 5: Active investor doesn't mean you're going straight to your shares's
4:41
Speaker 5: or your share trading platform and buying and selling shares
4:43
Speaker 5: on your own. You might actually choose a managed fund
4:46
Speaker 5: to put your money in. That's actively investing on your behalf.
4:51
Speaker 5: Keep in mind here, active investing is usually more expensive
4:56
Speaker 5: than passive investing. I'm sure we'll get to this later
4:58
Speaker 5: with the questions that you've got, but I'm just pinning
5:01
Speaker 5: it here for good reference. And the reason is because
5:05
Speaker 5: active investing requires a lot more work than just passively
5:08
Speaker 5: tracking or just going and buying an ETF or just
5:11
Speaker 5: tracking the index of a market, whereas active investing is
5:14
Speaker 5: really about buying and selling and trying to get a
5:16
Speaker 5: really good profit. And again more risk, but also more work.
5:19
Speaker 2: Okay, it makes sense.
5:20
Speaker 4: It's interesting. Yes, this makes sense. It sounds slightly exhausting,
5:24
Speaker 4: but that's okay. Tell me, first off, the pros of
5:28
Speaker 4: active investing, please.
5:29
Speaker 2: Be all right.
5:30
Speaker 5: So, because investors are trying to beat the market, as
5:33
Speaker 5: we said before, when they succeed, it can pay off,
5:36
Speaker 5: which is nice. They have usually higher than average returns. However,
5:42
Speaker 5: that obviously I'm going to keep going back to, it
5:45
Speaker 5: goes back to their risk profile. So this might not
5:47
Speaker 5: be for everyone. This approach obviously, also, George requires a
5:52
Speaker 5: bit more experience, a lot more confidence when it comes
5:55
Speaker 5: to investing, and a higher level of engagement. So when
5:58
Speaker 5: I say a higher level of ink agent, we're not
6:00
Speaker 5: talking about rings here or if you'd like to see mine,
6:03
Speaker 5: just ask any time. I'm willing to show it off.
6:06
Speaker 5: But it's more about the time, energy and effort that
6:08
Speaker 5: you need to put into looking at the markets and
6:11
Speaker 5: your portfolio, whereas passive will be a bit different then
6:15
Speaker 5: it would typically involve, as we said before, higher risk.
6:18
Speaker 5: I need to disclaimer this a million times because if
6:20
Speaker 5: we're going to talk about strategies, the higher the reward,
6:23
Speaker 5: the higher the risk, which should always be taken into account. Obviously, George,
6:28
Speaker 5: this is for a lot of people a con but
6:31
Speaker 5: it can also be a pro that it involves higher
6:33
Speaker 5: risk because with higher risk comes higher reward, which does
6:37
Speaker 5: need to be taken into consideration, which is why some
6:39
Speaker 5: people actually choose to engage with an active fund manager
6:43
Speaker 5: to oversee their investments instead of taking all of that
6:46
Speaker 5: on themselves. And I mean, I don't think it's the
6:48
Speaker 5: worst idea to outsource it instead of being a direct
6:51
Speaker 5: share investor, because if I'm trying to be risky. Who
6:54
Speaker 5: am I going to trust to help me? Probably a
6:57
Speaker 5: fund manager who does that forty hours on them. It's
7:00
Speaker 5: not forty hours, they work like sixty hour weeks being
7:03
Speaker 5: fund managers. But I'm probably going to look at a
7:05
Speaker 5: fund manager instead of me, who might be a nurse
7:08
Speaker 5: or a midwife, Like, how on earth would you not
7:10
Speaker 5: as how would you.
7:11
Speaker 4: Keep up with it exactly?
7:12
Speaker 5: How are you going to allocate that much time, energy
7:14
Speaker 5: and effort into tracking the markets? I just I'm a
7:17
Speaker 5: very strong believer in seeking professional advice where you can
7:20
Speaker 5: afford it.
7:21
Speaker 4: Yeah, Okay, I was going to say, this does seem
7:23
Speaker 4: too complex to kind of do yourself unless you're someone.
7:26
Speaker 5: Like Cant, But I also have lots of friends who
7:29
Speaker 5: are just really interested in it, right YEA, Like since
7:31
Speaker 5: we've been working with Chasy's. Absolutely not a shameless plug,
7:34
Speaker 5: but since we've been working with Chazy's, I feel like
7:37
Speaker 5: a lot of our community and a lot of my
7:39
Speaker 5: friends have felt as though it's a bit more accessible
7:42
Speaker 5: than it used to be to like download an investing
7:44
Speaker 5: up like Jess ask her.
7:46
Speaker 2: She now has her.
7:47
Speaker 5: Own little chaseas platform and she buys shares that she
7:51
Speaker 5: wants and believes in, and I think that that's kind
7:53
Speaker 5: of cool. And this goes back to we've spoken about
7:56
Speaker 5: it on the podcast before, about the strategy you employed,
8:00
Speaker 5: and if we're going to talk about Jess, she has
8:02
Speaker 5: what's called a core satellite approach, and I'm only talking
8:05
Speaker 5: about it because I know we've mentioned it on the
8:06
Speaker 5: podcast before. And that's why she has a core portfolio
8:10
Speaker 5: of tried, true products that she doesn't really manage herself
8:14
Speaker 5: and then shares is for her. Is her like dabble
8:17
Speaker 5: in things she's really interested in and keep up with
8:19
Speaker 5: the market. But she's never investing as much on that
8:22
Speaker 5: platform as she is in her actual investment account. So
8:25
Speaker 5: investment account, I would argue, is more of a passive investment,
8:30
Speaker 5: but she's still actively investing on the side. And I
8:32
Speaker 5: think that's important to mention here because you might see
8:36
Speaker 5: pros and cons on both sides of the table. That
8:38
Speaker 5: doesn't mean you have to only sit on one side
8:40
Speaker 5: of the table, because that's actually kind of how I
8:43
Speaker 5: employ my own investment strategy as well. Most of my
8:46
Speaker 5: wealth or most of my share portfolio is sitting in
8:50
Speaker 5: a relatively passive investment type but because I am who
8:54
Speaker 5: I am, and I'm obsessed with the markets. You best
8:56
Speaker 5: believe I'm having a bit of fun on the side.
8:59
Speaker 5: So I think it's interesting to just talk about it
9:01
Speaker 5: in that way, because as much as you might be
9:03
Speaker 5: more of a passive or you might be more of
9:05
Speaker 5: an active investor, doesn't mean you can't have a look
9:07
Speaker 5: at both and find a way to make that work
9:09
Speaker 5: for you. Because who am I, I'm Victoria, I'm a
9:13
Speaker 5: arguably quite passive investor. Am I actively investing to well, yes,
9:17
Speaker 5: but we need to have a talk about that structure
9:20
Speaker 5: and how it might work for you or not work
9:22
Speaker 5: for you, because it depends on your ability to take
9:25
Speaker 5: on risk. So the last point I want to mention
9:27
Speaker 5: there is we talked about active fund managers managing your
9:32
Speaker 5: actively invested portfolio, and one of the other benefits to
9:35
Speaker 5: having a fund manager if you're in that circumstance is
9:39
Speaker 5: often fund managers have access to products that the average
9:43
Speaker 5: person can't get access to.
9:45
Speaker 4: That doesn't seem fair.
9:47
Speaker 5: Look it's not fair, but it actually makes sense. So
9:49
Speaker 5: often in that circumstance, your active fund manager plays the
9:54
Speaker 5: third party, and when it comes to different asset types,
9:57
Speaker 5: often with the more active when they're issued by the.
10:01
Speaker 2: Product issue, you are.
10:02
Speaker 5: The product issue is like, I don't want to deal
10:05
Speaker 5: with George from down the street. I don't care George
10:08
Speaker 5: if you've got five hundred dollars to invest I'm a big, active,
10:11
Speaker 5: billion dollar company. I just want to deal with big
10:14
Speaker 5: dogs because it makes my life a whole lot easier.
10:16
Speaker 5: So I'm going to put this product on the market.
10:18
Speaker 5: I'm then going to put an entry point on that
10:21
Speaker 5: product to say, all right, this is a actively managed product
10:25
Speaker 5: and you need a minimum of thirty thousand dollars to
10:27
Speaker 5: invest in it. Some of them are even more so
10:30
Speaker 5: wouldn't be accessible for you if you wanted to get
10:33
Speaker 5: into it, although I know you're a pretty good saver,
10:35
Speaker 5: so maybe it would be.
10:36
Speaker 2: Who knows.
10:37
Speaker 5: However, an active fund manager might go all right, no problems.
10:41
Speaker 5: Product provider will buy fifty of those, They put that
10:43
Speaker 5: in their fund, and then when you bring your money
10:46
Speaker 5: to your fund manager, they go, hey, here's an ETF
10:49
Speaker 5: or here's a product that we've made up, and we
10:52
Speaker 5: will give you access via us to that product that's
10:56
Speaker 5: usually inaccessible. So you're five hundred dollars now can be
11:00
Speaker 5: invested in that product, but it could never go directly
11:03
Speaker 5: to the product issuer.
11:04
Speaker 2: Does that make sense?
11:05
Speaker 4: Yeah, yeah, it does. Okay, thank you for covering that up.
11:08
Speaker 2: No problem.
11:09
Speaker 4: The tell me about the negative side to active investment.
11:12
Speaker 5: Right, Long story short, George, you still need to do
11:14
Speaker 5: your due diligence, like you don't get out of that.
11:17
Speaker 5: You need to make sure that you are making a
11:19
Speaker 5: good decision when choosing a fund manager. Because you're placing
11:22
Speaker 5: a lot of trust in them. It's a bit more risky.
11:25
Speaker 5: Human error is still possible, and basically they could misjudge
11:28
Speaker 5: the market and choose underperforming stocks l DR. That's what
11:32
Speaker 5: could happen, and that could be a pretty negative outcome
11:35
Speaker 5: for you because there's usually a little bit more to
11:38
Speaker 5: lose in active stocks because risk return reward chart.
11:42
Speaker 4: In terms of choosing a fund manager, though, v is
11:44
Speaker 4: that as simple as plugging it into Google and seeing
11:46
Speaker 4: what comes up. How do you actually find someone?
11:48
Speaker 2: You could google it.
11:49
Speaker 5: Another way to do it would be to just go
11:51
Speaker 5: to the ASX website and see who is listed as
11:54
Speaker 5: a fund manager. They actually have a full page that's
11:57
Speaker 5: called fund Managers and Responsible Entity and they've got names
12:01
Speaker 5: on there that you've probably heard of before. So you've
12:03
Speaker 5: got amp Capital, you've got Antari's, you've got Antipdes, you've
12:07
Speaker 5: got os Bill, Australian Ethical. You might have heard of
12:10
Speaker 5: equity trustees before. You might have heard of in Sync
12:14
Speaker 5: or Investo or JP Morgan. They've got Macquarie and MLC.
12:17
Speaker 5: I'm perpetual. I'm not recommending any of those, but they
12:21
Speaker 5: are brands that you've arguably heard of before that you
12:25
Speaker 5: could look into as an option for you. Something I
12:27
Speaker 5: would say first is, before you go, I want to
12:30
Speaker 5: be an active investor, sit down and write a list
12:33
Speaker 5: of your values and what you're actually looking for, because
12:36
Speaker 5: it can be so overwhelming going to platforms and going okay,
12:40
Speaker 5: well what does Alan Gray do?
12:41
Speaker 2: Alright, look at this, this, this, and this.
12:44
Speaker 5: You can probably wipe off more than half of them
12:46
Speaker 5: to begin with, because you might have written down on
12:48
Speaker 5: your list of you know, non negotiables, that you don't
12:51
Speaker 5: want to invest in fossil fuels, and that you wanted
12:54
Speaker 5: ethical portfolio, and you want all these other things. So
12:57
Speaker 5: from my perspective, i'd get my values in line before
12:59
Speaker 5: a go and find a product, because it's much easier
13:02
Speaker 5: to find a product that aligns to your values, then
13:05
Speaker 5: look at every single product and go would I accept
13:07
Speaker 5: this or not? So that's what I would be doing
13:10
Speaker 5: when it comes to picking a fund, having chats with friends,
13:13
Speaker 5: understanding what they're doing. Seeing a financial advisor if you're
13:16
Speaker 5: planning on being an active investor, I do think it's
13:19
Speaker 5: really important to consider advice if it's within your financial
13:22
Speaker 5: realm of capabilities. If not, obviously I get it. Many
13:26
Speaker 5: financial advisors are aligned with institutions though, so I would
13:31
Speaker 5: be quite aware of that when seeking financial advice here
13:35
Speaker 5: in Australia. I would say, not everyone's going to agree
13:39
Speaker 5: with me, but you guys will probably get a bit
13:40
Speaker 5: out of this. There's three types of financial advisor. There's
13:44
Speaker 5: insto advisors, so they're financial advisors who might work for
13:48
Speaker 5: a specific institution. So you might go down to one
13:51
Speaker 5: of the big four banks and say, hello, big four bank,
13:53
Speaker 5: I'd like to speak to one of your financial advisors.
13:56
Speaker 5: And that doesn't mean that they're not qualified. They absolutely are.
13:59
Speaker 5: But the product access they have is always within the
14:03
Speaker 5: silo of that bank. So if you went to Westpac,
14:07
Speaker 5: they're only going to offer you Westpac products because that
14:10
Speaker 5: makes sense right. Then you have the difference, and I
14:13
Speaker 5: think a lot of people get confused here because you go,
14:16
Speaker 5: are you independent or not? If you ask me that question,
14:20
Speaker 5: I hate answering it because I'm technically not an independent
14:23
Speaker 5: financial advisor because I am signed through a licensee. So
14:27
Speaker 5: you guys know that at the end of every single
14:29
Speaker 5: episode you would hear our disclaimer about general advice and
14:33
Speaker 5: that I am signed within Focus in Focus hold my
14:37
Speaker 5: financial services license and I pay them a fee each
14:40
Speaker 5: and every single year to make sure that I meet
14:43
Speaker 5: compliance that I'm doing the right thing. They're kind of
14:45
Speaker 5: like my financial guardian. They do a lot to make
14:48
Speaker 5: sure that I'm safe and my clients are safe. And
14:51
Speaker 5: they have what's called an APL so they have an
14:54
Speaker 5: approved products list, but that products list is not just
14:58
Speaker 5: one product, it's basically everything in the market that meets
15:02
Speaker 5: their criteria for being safe to invest in that they go,
15:06
Speaker 5: we'd be comfortable with you doing that. However, as a
15:09
Speaker 5: financial advisor working with them, if I then decide, all right, well,
15:14
Speaker 5: I've looked at Georgia king circumstances, and I've done a
15:17
Speaker 5: whole heap of research, and what I found is that
15:19
Speaker 5: her circumstances lead me down the track of picking this
15:22
Speaker 5: product that's not on my apl I can actually go
15:25
Speaker 5: have a chat within Focus be like, this is G's situation,
15:28
Speaker 5: this is the product I want to put her in.
15:30
Speaker 5: Here are the reasons, and they go, no problems at all.
15:33
Speaker 5: We will do what's called a non core approval, and
15:36
Speaker 5: so that is where they approve me to give advice
15:39
Speaker 5: to you because it's putting you in the best possible position,
15:42
Speaker 5: but it's not part of their core offering. So in
15:46
Speaker 5: Focus are always trying to put my clients in the
15:48
Speaker 5: best possible position where I can use whatever I like
15:51
Speaker 5: as long as I can justify it and put my
15:53
Speaker 5: clients in the best possible position.
15:54
Speaker 4: Right.
15:55
Speaker 5: Then you have traditional independent advisors. That's where they have
16:01
Speaker 5: their own license, so the compliance and all the management
16:05
Speaker 5: is on them and they run it and they can
16:07
Speaker 5: basically do whatever they would like. And there's always been
16:10
Speaker 5: this er towards wanting a financial advisor who's independent, But
16:15
Speaker 5: from my perspective, I just don't want someone who's aligned
16:19
Speaker 5: to a particular type of product. I want someone who
16:22
Speaker 5: doesn't take commission or my investment product at all, because
16:25
Speaker 5: I find that very unethical and I want someone to
16:28
Speaker 5: put me in the best possible position. So whether you
16:30
Speaker 5: go with someone who has a financial services license through
16:33
Speaker 5: a third party or you go with someone who's completely independent.
16:37
Speaker 5: To me, it's more about are you going to put
16:40
Speaker 5: me in the best possible position, do you have great reviews,
16:43
Speaker 5: have you put clients in the best possible position for
16:46
Speaker 5: a while, and are you not clipping the ticket on
16:49
Speaker 5: my investment product? Because to me, that's ikey. Does that
16:52
Speaker 5: make sense in terms of those three level they're not
16:55
Speaker 5: levels really, it's just like three ways that financial advisors
16:58
Speaker 5: exist here in a yep.
17:00
Speaker 2: Yeah, So that's a little bit of a tangent.
17:02
Speaker 5: So a few more cons of active investing before I
17:05
Speaker 5: let you go to a quick break because I think
17:07
Speaker 5: you need a breather after I'm like throwing.
17:09
Speaker 4: This at you.
17:10
Speaker 5: But it does cost more money for you to actively invest.
17:14
Speaker 5: As we said before, often fees for managed funds include
17:17
Speaker 5: management and administration because it does take a bit more.
17:20
Speaker 5: But remember that performance can greatly differ between managed funds,
17:23
Speaker 5: so the fees they charge are important to take into consideration.
17:27
Speaker 5: But as somebody who works with a lot of active investors,
17:31
Speaker 5: I'm happy to pay a higher fee for a better
17:33
Speaker 5: quality product. I'm happy to pay a higher fee for
17:35
Speaker 5: a better fund manager. So I think it's just all
17:38
Speaker 5: about not finding the cheapest but finding the best outcome
17:41
Speaker 5: for your particular circumstances. And then, obviously, active investing is
17:46
Speaker 5: a highly involved strategy, so you need to be quite
17:48
Speaker 5: aware of the time you need for stock analysis and
17:51
Speaker 5: keeping up with market movements if you choose this strategy
17:53
Speaker 5: and you're not going to go with a fund manager.
17:56
Speaker 5: But I reckon we can leave it there because I
17:57
Speaker 5: feel like, do you get what active investing is and.
18:00
Speaker 2: How it works and what that means?
18:01
Speaker 4: Yep, I get the gist. But on the other side,
18:03
Speaker 4: we're going to talk about passive investing.
18:05
Speaker 2: So let's let's do.
18:06
Speaker 4: It already, be straight back into it. Let's talk about
18:15
Speaker 4: passive investing, the exact opposite of active investing. Tell me
18:19
Speaker 4: all about it.
18:20
Speaker 2: We can work in seeing. Okay, yeah, there are two kinds.
18:23
Speaker 5: You don't have to be one or the other, but
18:26
Speaker 5: you will fall into one category. Doesn't mean you can't
18:28
Speaker 5: go across the road and have a turn at their path. Sure,
18:31
Speaker 5: it's all right, grass is always screener. You can go
18:33
Speaker 5: over see how they muld. I like that you can
18:35
Speaker 5: go over there whenever you want, but let's get into
18:38
Speaker 5: the needy gritty of it. Passive investing tends to suit
18:41
Speaker 5: those who would rather take more of a set and
18:43
Speaker 5: forget approach in saying that it's not set and forget.
18:46
Speaker 5: No type of investment is ever set and forget. You
18:48
Speaker 5: don't just get to drop it over there and then
18:50
Speaker 5: wait until you're sixty five. So set and forget is
18:53
Speaker 5: just a term that is used in the financial services industry.
18:56
Speaker 2: Because it's less active.
18:58
Speaker 5: Yeah, in general, I'd say that passive investors have a
19:01
Speaker 5: lower risk tolerance when compared to active investors, and passive
19:06
Speaker 5: investors are often investing for long periods of time, so
19:09
Speaker 5: they adopt a buy and hold tactic and they're very
19:12
Speaker 5: likely to go, you know what, I'm just trying to
19:14
Speaker 5: make use of compound interest over the long term, which
19:17
Speaker 5: makes sense. And a lot of people who passively invest
19:20
Speaker 5: will pick something like an index, so like a market index,
19:23
Speaker 5: or they might pick an ETF that has the top
19:25
Speaker 5: two hundred shares in Australia and they go, I'm happy
19:28
Speaker 5: with that because I'll get the average returns of those
19:30
Speaker 5: two hundred companies and I'm just going to track that
19:33
Speaker 5: over time feels a little bit more stable. They tend
19:37
Speaker 5: to keep an eye on the price, which is very nice,
19:39
Speaker 5: and ignore short term setbacks. So someone who is a
19:42
Speaker 5: passive investor wouldn't be too concerned about the market downturn
19:46
Speaker 5: we've currently gone through because I'd be like whatever, Like,
19:49
Speaker 5: over the long term, this will.
19:50
Speaker 2: All work out. But if you're an active investor, you
19:53
Speaker 2: might have been like, oh my gosh, like I've got
19:55
Speaker 2: to be way.
19:56
Speaker 5: More active in my investment portfolio and sell things or
19:58
Speaker 5: trade things, or you know, see an opportunity. It can
20:01
Speaker 5: actually be quite a frenzied period of time for active investors,
20:05
Speaker 5: whereas passive investors are very likely to be like, ah
20:08
Speaker 5: gking this you will pass. Yeah, And that's kind of
20:12
Speaker 5: the different mentalities they adopt. And you have to adopt
20:15
Speaker 5: those different mentalities to actually adhere to your strategy, right, Like,
20:19
Speaker 5: if you're a passive investor and you buy into that frenzy,
20:22
Speaker 5: you're compromising your strategy. If you're an active investor and
20:26
Speaker 5: you're like, yeah, this too shall pass, like your strategy
20:29
Speaker 5: is not going to be like you're meant to be
20:32
Speaker 5: buying and trading guys, You're shooting yourself in the foot.
20:35
Speaker 5: So there's different mentalities that surround these type of investing
20:38
Speaker 5: profiles and then kind of a money win. I suppose
20:42
Speaker 5: passive investing is a more low cost and low maintenance
20:45
Speaker 5: way to invest, which involves way less time analyzing the
20:48
Speaker 5: market and costs when it comes to buying and selling.
20:51
Speaker 5: Like you're not so concerned about brokerage or sell out
20:53
Speaker 5: fees because you're not really doing that all too often.
20:56
Speaker 4: Brilliant, Okay, So the low cost and low maintenance were
20:59
Speaker 4: definitely be one of the pros of passive investing. What
21:02
Speaker 4: else would be the potential positives?
21:05
Speaker 5: It involves less time commitment. As we said before, you
21:08
Speaker 5: don't have to jump in and become an automatic shared trader.
21:11
Speaker 5: It can be a way more affordable way to access
21:14
Speaker 5: the market. So, as you guys know, you can jump
21:17
Speaker 5: on and buy an ETF and that's a pretty easy
21:20
Speaker 5: entry point because you're not paying the fees that come
21:23
Speaker 5: alongside active fund managers. Also, passive investors generally have complete
21:28
Speaker 5: transparency over their investments. You know exactly where your money
21:32
Speaker 5: is and you can remove it and reinvest it as
21:34
Speaker 5: you please.
21:35
Speaker 2: It's very easy.
21:37
Speaker 5: When you are a active investor with that third party
21:41
Speaker 5: in mind, sometimes it's a little less transparent. There are
21:46
Speaker 5: very transparent active options, please don't get me wrong, but
21:48
Speaker 5: there can be a lack of transparency sometimes. And sometimes
21:52
Speaker 5: that's just because the fund managers doing what.
21:54
Speaker 2: They do best. And that's okay. It's not saying they're
21:56
Speaker 2: doing the wrong thing.
21:57
Speaker 5: But if you are, I really want to be in
21:59
Speaker 5: control of this, and I want to hit a button
22:01
Speaker 5: and sell down all my shares if I wanted to,
22:04
Speaker 5: active might not be it because it can be a
22:06
Speaker 5: little bit more of an arduous task. And then you
22:09
Speaker 5: don't have to worry about whether you've chosen the right
22:11
Speaker 5: professional fund manager, because most of them don't actually have
22:15
Speaker 5: fund managers because they're just the top two hundred stocks
22:18
Speaker 5: in the country or the top two hundred tech companies,
22:22
Speaker 5: or it might be tracking an index of the average
22:25
Speaker 5: of the market, so it's less about human error and
22:28
Speaker 5: more about averages and indexes.
22:31
Speaker 4: Perfect, okay, tell me the negatives to passive investing.
22:34
Speaker 2: All right.
22:34
Speaker 5: So there are fewer products available that suit passive investing
22:38
Speaker 5: as an approach. Investors are basically limited to index funds
22:42
Speaker 5: like an index ETF and an index managed fund, keep
22:45
Speaker 5: in mind that just because we're talking about ETFs here
22:49
Speaker 5: in passive investment, that doesn't mean they aren't actively managed
22:52
Speaker 5: ETFs because there are. Just because you're looking up ETF
22:56
Speaker 5: does not mean that it will automatically be passive. You
23:00
Speaker 5: need to actually look at that. When I said an
23:02
Speaker 5: index ETF, though, that will always be a passive asset
23:06
Speaker 5: because indexes track the average of the average. Right, Yeah,
23:10
Speaker 5: you will also never beat the market at the end
23:13
Speaker 5: of the day. A passive approach means that you ride
23:15
Speaker 5: the lows and the highs of the market because you're
23:17
Speaker 5: tracking the market. But that also means you're never going
23:20
Speaker 5: to overperform it bonus of that though g not a pro,
23:24
Speaker 5: it's a con.
23:25
Speaker 2: You're never going to underperform the market.
23:27
Speaker 1: Either.
23:27
Speaker 2: That's good, that's not bad. So that's not bad.
23:31
Speaker 5: So V you did say earlier that we can do
23:34
Speaker 5: a little bit of both, but again or last star exactly.
23:37
Speaker 4: But if you are trying to decide which strategy works
23:40
Speaker 4: for you better, what kind of tips would you have?
23:43
Speaker 5: Look It really comes down to personal preference and what
23:46
Speaker 5: suits you and your investment goals. So as I gave
23:49
Speaker 5: you an example before of you might want all right,
23:51
Speaker 5: I'm really not willing to take a risk, but I'm
23:54
Speaker 5: so interested in this fee. All right, maybe a passive
23:58
Speaker 5: core approach makes the most, said Yen's for you. That
24:01
Speaker 5: doesn't mean you can't go and download Jazy's and have
24:03
Speaker 5: a little play with it on the side. Right, It's
24:06
Speaker 5: all about what makes sense to you. We need to
24:09
Speaker 5: talk about time frame, so that's going to be really important. Obviously,
24:13
Speaker 5: if we have a really long period of time, we
24:15
Speaker 5: don't need to take as much risk. If you're investing
24:19
Speaker 5: for the next forty years, gee, why would we risk
24:21
Speaker 5: it when we have time on outside, Like, let's make
24:24
Speaker 5: decisions that make sense for our actual situation, not what
24:28
Speaker 5: looks sexiest. Because I know a lot of you are
24:30
Speaker 5: going to look at this and go ohm active investing
24:32
Speaker 5: is glad sexy.
24:33
Speaker 2: I get it.
24:34
Speaker 5: That's why I also actively invest, But I have my
24:37
Speaker 5: head screwed on and I've picked a strategy that works
24:40
Speaker 5: for my personal circumstances. Then consider how old are you,
24:43
Speaker 5: how quickly do you need access to these funds, what
24:45
Speaker 5: are they actually going to be used for? And how
24:48
Speaker 5: confident are you around the markets? What does that actually mean?
24:52
Speaker 5: How is that going to work?
24:53
Speaker 1: For you.
24:54
Speaker 5: But at the end of the day, I would go
24:56
Speaker 5: back and listen to our episode on risk profiles. Understand
25:00
Speaker 5: that google how to maybe work out your own risk
25:03
Speaker 5: profile and write down your goals and what you're trying
25:06
Speaker 5: to achieve, and then pick your strategy. And once you've
25:10
Speaker 5: picked your strategy, then we can talk about product. The
25:13
Speaker 5: number one question I get around investing is what do
25:16
Speaker 5: I invest in?
25:17
Speaker 2: I don't know.
25:17
Speaker 5: There's a whole heap of steps we need to go
25:19
Speaker 5: through before we talk about product. And I can't even
25:22
Speaker 5: talk about products with you because I can't give you personality.
25:26
Speaker 2: Because it's illegal.
25:27
Speaker 4: It's illegal, right, Okay, perfect feed. This is one of
25:31
Speaker 4: our investing episodes. And if you are someone who's new
25:35
Speaker 4: to investing, or you're curious and you want to know more,
25:37
Speaker 4: we have been talking about investing for almost three years now.
25:40
Speaker 5: We haven't guessed what comes On the twentieth of September.
25:44
Speaker 2: I have a whole investing book.
25:46
Speaker 5: It is no secret that I'm shamelessly going to plug that.
25:49
Speaker 5: But I have been over the last few weeks recording
25:52
Speaker 5: the audiobook version of that, and I don't know.
25:54
Speaker 2: I've got a few tickets on myself.
25:56
Speaker 5: Oh look, I knew it was all right because I
25:58
Speaker 5: spent so much time, energy and effort and crying on it.
26:01
Speaker 2: I was like, oh, this is pretty good. Like I'm
26:03
Speaker 2: very happy with the product.
26:04
Speaker 5: Now I'm reading it aloud, I'm like, I think the
26:06
Speaker 5: community is gonna be happy with this product.
26:08
Speaker 4: I'm excited to listen to it.
26:11
Speaker 2: But I think that's all we have time.
26:12
Speaker 4: That is all we have time for. But let's wrap
26:15
Speaker 4: with the boring but important stuff, George. The advice shared
26:19
Speaker 4: on She's on the Money is general in nature and
26:22
Speaker 4: just not consider your individual circumstances. She's on the Money
26:25
Speaker 4: exists purely for educational purposes and should not be relied
26:29
Speaker 4: upon to make an investment or a financial decision. And
26:32
Speaker 4: we promise Victoria Divine and she Is on the Money
26:35
Speaker 4: are authorized representatives in Focused Securities. Australia Priortary Limited ABN
26:40
Speaker 4: four seven zero nine seven seven nine seven zero four
26:42
Speaker 4: nine AFSL two three six five two.
26:45
Speaker 5: You're a fancy go thank you so much here on Friday, guys,
26:49
Speaker 5: you will Bye, guys,