Put your hand up if you've kissed more than one person, and people will put their hand up and we're like, well, that's diversification. You know, you're spreading the love. You're not putting all your eggs in one basket. You hear so many horror stories about investing in the stock market, which I hate because nine times out of ten it's from.
People that haven't diversified.
I would rather go to sleep and not have to wake up in the middle of night to make sure that my portfolio hasn't fallen off a cliffs. One of the easiest ways, and it's not a lazy way. It's not a cheating way, it's not a you know, get rich quick way. It's literally a strategy that many many great vestas have used.
Kyota and Welcome to Shared Lunch, brought to you by Charesia's. I'm Sonia Williams, co CEO and co founder at chairs EA's and we're on a mission to create financial empowerment for everyone. Today on the podcast, I'm excited to welcome back Victoria Harris, co founder from financial education and investment platform The Curve. In this episode, we'll get into the nitty gritty of diversification, what it means, when to do it,
and some potential ways on how to do it. Before we get started, here's some important information.
Investing involves risk. You might lose the money you start with. We recommend talking to a licensed financial advisor. We also recommend reading product disclosure documents before deciding to invest. Everything you're about to see and here is current at the time of recording.
Victoria, Welcome back to the podcast.
Hi, how are you? Thanks for having me.
Really cool to have you here to talk about a topic, a very cool investing topic.
Diversification one of my favorite words. Well love that.
Do you want to tell us a bit about what diversification is?
Yes, So diversification is.
It sounds like a mouthful, but really it's all about spreading your risks, So investing in lots of different things, spreading the love, splitting up your investments so you're not susceptible. If you know, if you put all your investments into into one company and it didn't do well, then you wouldn't be too happy. So it's spreading the love around and spreading investments around so you're less susceptible to one bad decision.
Yeah, so let's jump into that a little bit more like, so, what are the benefits why diversify?
The best thing that we want to do when we invest is we want to get great returns with the lowest amount of risk, and that's what everyone wants to
do at the end of the day. And the best way to do that is to spread your investments around multiple things, whether it's investing in lots of different companies, so like investing in the S and P five hundred, which is the top five hundred companies in the years, or spreading your money around different assets so that could be property in stocks, or investing in in different sectors.
There's lots of ways that you can diversify. But essentially diversification is so that you are reducing your risk and it's just a really great investment strategy for building long, long term wealth.
He touched on it, well, it's also like looking at your whole wealth picture and how you might split or consider diversifying, you know, your income or things like that.
Yeah, that's that's a really good point. You can diversify in many ways throughout your life. The end of the day, it's just all all about reducing your risk. If you had diversified income streams and you lost your job and you still had your side hustle, then that's great, you'd be you'd have less stress if something happened or if
something didn't go right. And so that's the whole point of justification is to kind of, I guess, reduce the stress when something doesn't go right, protect yourself while also on the investing side, build your wealth in a really sustainable, sustainable kind of wealth creation way.
Is it just something you should consider when you're getting started, or is it, you know, something that you need to worry about when you're an experienced invested.
When we've started educating and we were talking about diversification and we were talking to beginner investors, what we noticed was that it was almost stressing them out more because they were like, well, you know, I'm investing. All I want to focus on is finding the right investment, investing in one thing let alone, something else or something else and something else, and diversifying. And someone said one day to me. They were like, they were like, diversify when
you can. So if you're investing in the stock market and then you have the financial ability to invest in the property market, then you should. So it's like but don't stress yourself out being like, oh gosh, I have to invest in property and stocks and diversify within property and diversy within stocks, and get stressed out about how much you have to diversify.
It's like start, start with one thing.
And diversify in that if you can, and then diversify beyond that.
Yeah, yeah, I just saw that kind of meme pop into my head of the person staring off into middle distance.
While all the calculations are coming on.
As you're talking within diversifying and diversifying.
Even diversifying the word itself diversification, people's eyes glaze over and we say, put your hand up if you've kissed more than one person, And people will put their hand up, and we're like, well, that's diversification. You know, you're spreading the love. You're not putting all your eggs in one basket. If you start dating, you don't want to date just just one guy in case you might be a plunker
and then you've got to start again. You know, it's like just you know, not date multiple gill at once, but you know, keep your options open. You know you might have a successfu one, you might have a done so It's the same with investing. It's like invest in lots of different things. So if one doesn't do as well, it's like, so what, I've got all these other ones that are doing well, and it's it's it's not going to be as impactful for me on almost stress levels but also my finances.
Yeah, totally. So now that we've established that, it's really cool. It's really important as part of your investing, you know, and considering wealth as a whole. You know, when should people and how should people consider to start seriously thinking about diversifying or moving different things into different buckets.
Yeah, I think the simplest and easiest way is to start with ETFs. It removes the thought process of like, okay, well how many how many stocks we have to invest in?
It is it four? Is it ten? Is it twenty? Do I have to pack all those companies?
You know?
It's it removes that that that decision making element, while you still get access to stop the US stock market.
Say, if you're invested in the S and P five hundred.
And you're just owning one thing in your portfolio, which is a share in an ETF, you're getting access to all these underlying companies that are in it, and I think that is one of the easiest ways. And it's not a lazy way. It's not a cheating way. It's not a you know, get rich quick way. It's literally a strategy that many, many great investors have used, which
is buying ETFs and getting diversification that way. We get a lot of questions of people asking, you know, do I have to direct do I have to directly pickstocks? And if I want to diversify, what is a correct amount?
Is it five? Is it ten? Is at twenty? And there's no real answer.
It's you know, you could have ten companies that you're investing in that are all in the healthcare industry. Yes, you're diversified, but you're not You're not very well diversified because you've still got exposure to one industry. So it's really thinking about you know, diversification can reach so many different areas.
It can be diversification and size of company.
It can be diversification in sector, it can be diverstic diversification and country. It can be diversification in your asset classes, so stocks.
Bonds, property, like, yeah, it's it's never ending.
Can you tell us a bit about different asset classes. We've talked about those, but maybe might be helpful to go into those in a bit more detail.
Yeah, So there's typically four asset classes. So we've got stocks, bonds, property, and cash. And the reason that assets are lumped into those classes is because they move in different ways.
We've got stocks, which.
Are high on the kind of risk but then higher the reward spectrum in general, and then we've got then we've got property next, and then we've got bonds, and then we've got cash. So cash is at the bottom. It's low risk, but it's also low return. If you put one thousand dollars in the bank, you pretty much know unless you've spent some of it that in a year's time, you're going to wake up and there'll be
a thousand dollars in there. But because of that guarantee or that I guess that security, you're not taking a lot of risks, so therefore you're not compensated for that, so there's not not a lot of return, whereas with stocks at the other end of the spectrum, because you're taking a lot more risk, then you're getting compensated for it by a higher return on average.
Yeah, co and how about currencies.
With currencies, it is something to consider when investing a lot of the companies that we invest in, a lot of the household companies that we know companies in the S and P. Five hundred, they're all US dollar companies, and so we do have to transfer our New Zealand dollars into US dollars. So therefore, if the currency moves in the opposite direction, say our stocks go up, but the currency moves in the opposite direction, and that's going to impact our overall return in a negative way.
And so we're not going to get as much of a return when we.
Convert our profits, all the money that we've made in those stocks back to New Zealand dollars, and the opposite happened can happen as well though, So if you invest in US dollars and then the currency moves in your favor, that can boost your returns. So I try, particularly for beginner investors, to not get too hung up about currency.
I yeah, there's it's very hard to predict, you know, currency moves, and I think if you just accept that, you know, sometimes it will benefit you, sometimes it might not. But over the long term, you know, it should be the returns of the of what you're investing in. That that's the most important. So you've been investing for a while now, as you have and I have. Are there any blind spots or what are the blind spots? What
catches people out? You hear so many horror stories about investing in the stock market, which I hate because nine times out of ten it's from people that haven't diversified, and it's from people that have put, you know, their entire life savings into bitcoin, for example, and that hasn't
gone to plan. And so that's and then those stories, you know, flow down to beginner investors, and they get spooked and they get stick scared, and then they or they put they don't diversify from day one, and they have the same experience and they never invest again. And
that's that's the opposite of what we want here. But some other blind spots, I think you might might not be as diversified as you thought, Like I was talking about with you know, investing in maybe a healthcare healthcare ETF for example, Yes you're diversified, but you're still in
the healthcare space. So say we had an election that cut a whole lot of healthcare spending, then that ETF would be impacted even though you're still investing in a whole bunch of companies within that ETF, you're still you're overexposed or investing heavily in one sector. That's why the S and P five hundred is so great, because that ETF has over five hundred companies across, like over nearly
twelve different sectors. Big companies, small companies, companies that get most of their revenue from offshore or outside of the US, companies that get their revenue from inside the US. So there's a lot of I guess, risk mitigation going on within that ETF. For example, it's probably not a blind spot, but it's more of like something that people might stress out about is is having too much focus on being too diversified. So there's kind of I guess what I'm
getting at is there is a middle ground. Don't stress yourself out about being you know, super super diversified and owning you know, twenty different ETFs like that's you know, if you've got if you've got a handful of them, that's that's fine, or even just one well diversified ETF. But yeah, don't stress yourself outself out about being you know, needing to be so diversified that you're just owning things for owning them, for owning them's sake. You know, you're
not actually owning them. You're actually making a conscious decision of why you own that ETF or stock.
Yeah, that's such a good point, and we see that play out and the data.
Around like how people use shares these as well.
So we've got over seven hundred thousand people investing and most have you know, a few a few funds and.
A few companies like that. It's like level of data.
So yeah, or satellite approach.
I'm like, I should be I should be direct stock picking all my stocks, but I don't give time.
I'm trying to like run a business as well.
And it's so I'm still interested in investing, and of course I want to grow my money and grow my you know, grow my wealth.
So I'm going to put eighty percent in ETFs and.
Funds, But then I might read about a company that I'm like, oh that's interesting, or yeah, by buy companies that I that I want to almost like double down and support because I think they're going to do They're going to do really well.
So I'll do that as well, So.
There's no right or wrong, it's it's kind of what works for you as well.
Yeah, that's that's so great to hear it because that's exactly how I invest as well. And and it's one of those almost myths that we're trying to bust, which is when people say, oh, I'm just a beginner, so I invest like this, and it's like, well, I've actually been using for a while now and I miss like that too, Like I know, yeah, So it's kind of almost like you know, trying to that is we you know, it's the great principles to start with, great principles to
continue doing. And it's cool to hear that, you know, and and it's well known like that really sophisticated investors can continue to invest in that way.
Coming back to.
Your comment about like when you come across like a few companies you're keen to invest in as part of that course satellite approach, there's another phrase that you hear a lot in investing, which is like invest in what you know? How do you think about that? And what do you what are your reckons?
Yeah? I love it.
I love that phrase, and that was one of I remember my first day as an analyst, and my boss threw a book down on my my DearS can. He said, I don't want to do anything today. I just want you to read this book and it was Peter Lynch One Up on Wall Street. And the key takeaway from that book is invest in what you know. And that is just stood buy me. You know, my entire investing in career. And it's so true.
And I think investing has got, you know, so complicated.
And can be so overwhelming and confusing for so many people. But if you strip it back, it's like what do you enjoy, what are you passionate about, what are you interested in? What products do you use? Yeah, and it's like what are your values? All of that just comes down to investing in what you know. And for me, it's like, I don't know biotech. I'm not going to know if some clinical trial is going to be a success.
I'm not going to invest in those companies like I'll leave them for someone else to invest in.
I'm going to stick to.
Companies that I'm interested in, like technology companies, media companies, retailers. All of that really interests me, and I it doesn't seem like like it's it's tiresome, or it's just something I have to do. It's because I'm interested in it. I'm following those companies, I'm reading articles on them, I'm using their products, I'm looking, you know, using their new features. So I know, because I'm a user and it's and
it's a company. I know if for whatever reason I don't, I don't use it anymore, or I see all my friends not using it, or they're using something some other platform, or or they're buying a different product, then that is that's research, and that's investment research. And so I'll be like, oh, hang on, if all these people and myself are now no longer using this product or no longer interested in this in this company, surely there must be other people.
And so you start to.
Be in this investing world without realizing it. And at the end of the day, you know, if you're a consumer and you're you're you're voting with your wallet for that company, you know you may as well benefit as an investor as well and benefit from that company's growth. If you're kind of giving it the tick of approval as a customer, it kind of makes sense to double down and benefit from it as an as well.
Yeah, I love that, And I think the way I think about it too is, you know it really you can turn observation into your superpower because when you invest in the things that you're just around and you're amongst, and you're observing, you can really say huh, like yeah, as you say, like the taste of this thing has changed or they've changed the recipe, I'm not that into it.
And something like for women, it's like we make up eighty percent of global spending and so it's like, yes, you're a consumer, so it's like you are dictating where that money is spent, you know as a gender or you know your majority of spending. It's like you can see these trends and you are almost part of the trend. So you've got that foresight before a lot of other people, particularly.
Men, might have.
You know. It's like using these these things to your advantage rather than kind of being like, oh, it's not a world for me, or it's I'm not part of it.
It's like we're all part of it, whether we are like it or not.
Like yeah, it's such a good point.
Let's deep dive into rest, Like how how does risk plan to diversification and you know, how do we think about how should people think about that?
Yeah, so risk is effectively the movement up and down of prices. So if something is got big movements in its in its price, then it's got a lot of risk. So things like cryptocurrency, they you know, there's big moves in cryptocurrency. You know, Bitcoin for example, has has moved around a lot over the last couple of years.
Therefore it's quite risky.
So when it comes to risk and diversification, the the two intertwined, and the fact that yes, if you if you spread your risk, so you invest in lots of lots of different companies. Let's say, for argument's sake, you invest in lots of different companies. Some of them might have big moves, some of them might not move at all, but the average of those is not a lot of movement. I think it comes back to you never know what's
around the corner. And yes, you might invest in something that has done very well over the last few years, and you know the ins and outs of that investment or that company or whatever it is, and you are so positive that it's going to do well, but that just the world is so unknown and you never know also how other investors are going to react, because when you're buying and selling a share that's off other investors, So how they react is you also have to take
into consideration if they don't want to own this stock anymore or this company, but you do, and there's a whole lot more of them than there are of you, than the share price is going to go down. So it's you've got to take all that into consideration as well as kind of what's going on with the company, the world that there's a lot of There's a lot going on that you need to consider if you it's going to be still one thing we didn't foresee COVID, for example, and that led to a lot of sheer
price falls. But again that's probably a really good example of diversification. If you'd owned, you know, heading into COVID, if you'd owned just travel companies, then your portfolio would have looked pretty dire, Whereas if you'd owned some travel companies and some tech companies, you would have, you know, feared a lot better. Yes, the travel companies would have gone down and the tech companies would have gone up.
It can be an event like that, but it can also just be the subtle changes of trends or how people you know, Like I think even at the moment when you consider like run club culture, like that feels like something that's like really a fundamental shift that it's like almost going back to you know, like aerobics in the nineties being this really but the whole like social and exercise coming together.
You're like, oh, I see, I see where this is going.
And that like when you come back to the COVID thing, like who would have thought that it would be totally fine and a lot of businesses to.
Work remotely to.
You know, like there's just so much that is that reset in motion that you know, new new like emerging technologies or emerging ways of doing things, emerging businesses, like new stuff pops up tod.
And in those times, you know, when there is uncertainty, you want to worry about yourself. You don't want to sit there worrying about your investments. And so if you diversify, there's kind of less uncertainty you.
Have to worry about.
You know, you can you can be selfish and you just worry about yourself because you know you've got your investments sorted and so you can just focus on the things that that are important rather than stressing about your investments.
Because yeah, it's not.
That I do the sleep at night test, which is just like that to me is priceless.
Yeah.
So it's like if there's yes, winning is awesome, but like I would rather have a portfolio that meant that I could sleep at night and like sleep comfort.
Yes.
Yeah, And some people love having the spicy stocks assets in their portfolio and that's fine.
That is not for me. I'm sorry.
I would rather go to sleep and not have to wake up in the middle of the night to make sure that my portfolio hasn't fallen off a cliff. I just yeah, I would rather do a more pragmatic, considered a tried and true way.
Of investing through diversification.
Yeah yeah, but a garnish, but a garnish here and there.
Yeah, but chili flake would be would be good for you.
So how does it differ between you know, how an individual might think about it or manage diversification versus like a professional like a fund manager or different money managers.
Yeah. So when I was a fund manager, we were active, active fund managers, so we were out there picking stocks, picking companies on behalf of clients, and so we had a duty to make sure that the portfolio was well diversified all the time. And you know that that was the reason that our clients had given us money, was to make it grow, and so we had to make sure it was diversified.
So we would have about.
Depending on the fund, but you know, an average of maybe like thirty different companies to invest in to make sure that we were properly diversified as well as.
Generating good returns.
Whereas and so that's kind of when you give your money to a fund manager that's or an active fund manager, what that's what they'll do for you, and that's what you pay them a fee for. The thing with the professionals is they've got usually teams around them, so it's not just and when you're doing it individually, you usually only got yourself, so it's yeah, they've got a lot of other people and systems and research feeding into those decisions.
So when I say they're picking kind of twenty to thirty stocks to be diversified, you doing that yourself is going to be a lot more time consuming, a lot more take a.
Lot more research and effort.
If you're doing it yourself, then the best way is to do it through through an ETF, where you're getting that diversification, you're not getting that kind of personal element because it's ETFs essentially run by computers that don't really change that much. They're pretty stock standard. But as an individual you can you can pick that yourself, and the fees.
Are a lot lower. So an ETF is usually the easier. But also you.
Know, in most cases just as high returning strategy to invest in.
You mentioned like diversifying within diversifying within diversifying, can you be to diversify it?
And what do you do about it? On Once you.
Realize if you're investing in things that you either don't understand, you don't know, you don't want to own, but you just have to own because you to be diversified, that's not a good sign because then if it doesn't do well, you won't know why you owned it, you won't know what it does. And it's just I think you can
definitely have too many things in your portfolio. It can become very stressful being across you know all those companies, what's going on, you know their financial results, What if the CEO leaves, what if there is a product failure. What if there's some technological innovation at a competitor or what. You know, there's a lot of things to be going on. There's a lot of things to be across when you
own a lot of companies in your portfolio. Some people love that and that's great, but I think for a lot of investors that can be very overwhelming and almost take the shine off investing and the fun off investing. And I think that's that's a place we don't want to get to. I think you can achieve the same or similar outcome by a much more simplify strategy, and.
That is through and through ETFs.
And I'm not endorsed by any ETF anyway, you know, I keep keep keep, you know, holding up the fame ETFs, but I'm definitely not being endorsed by them. But I just think it's for a beginner to intermediate you even advanced invested. I just feel like it is such a good strategy, and yeah, it makes for a very clean looking portfolio as well.
If our listeners were to take three actions from this episode, what what do you recommend if.
You forget beginning your investing journey, always start with diversification, Also invest in what you know and go to a farmer's market and buy some oranges and apples.
Love that get you.
Think of a third one?
Oh and hey, what was the book that you got handed when you're at work? That?
Yes, Peter Lynch One Up on Wall Street.
It's very old, it's probably about forty years old now, but like that even in itself, you know, there's people that have made fortunes, that have been investing this way for such a long time, and it's stood the test of time and it's still a way that I invest today. And yeah, it's Peter Lunch One Up on Wall Street.
Great book.
Awesome, love a good book. Book recommend I add that to my good Reads. Hey, thanks Hete for joining us, Victoria, it's been an awesome conversation. Thanks on Yeah, thanks everyone as well for tuning in. You can watch it Shared Lunch on YouTube, or follow the podcast on Apple, Spotify, or you get your podcasts. Leave us a rating and comment on what you'd like to hear about next, and enjoy the rest of your week.