Back to Basics Of Investing

Order Kerney Whoalbury and a waddery woman. And before we get started on She's on the Money podcast, I would like to acknowledge the traditional custodians of the land of which this podcast is recorded on a wondery country, acknowledging the elders, the ancestors and the next generation coming through as this podcast is about connecting, empowering, knowledge sharing and the storytelling of you to make a difference for today and lasting impact for tomorrow.

for you. If you've had investing as a goal that just keeps getting pushed to the back of your to do list because you don't really know where to begin, or if you're worried that you'll make the wrong decisions, or maybe you get overwhelmed with all the research and information and jargon that is out there. We honestly have all been there. The worst place to be is at the start of a journey and feeling really overwhelmed by all of it and you just don't know what to do.

But please don't think that you're the only one there, and don't let that stop you. That's why we're here and taking you back to the basics of investing today.

So I do have lots of questions for you, v So in the first half of the show, we're going to get you to explain some of the absolute basics like what is a share, types of shares, how you earn money from shares, risk profiles, and then in the second half you tell us about compound interest, and we'll talk about some common concerns about investing and some questions we should be asking ourselves at the start of our journey to determine next step.

knowing absolutely everything. So there could be a tidbit that you learn or something else, or a different point of view or a way of seeing things that you hadn't seen it before that can actually be really helpful on your investing journey. So while you might go, well, I know what a share is, full stop, end of story, like this conversation can actually be a really empowering one to either remind you of how well you're doing or to make you feel really empowered about taking the next step.

forty percent of our company to the public. So we'll keep sixty percent of it. We're going to issue forty percent of it to the public, but we're going to break it up. So you can't just go buy one share and get forty percent, right. They might break it up into one hundred thousand pieces, and therefore there might be one hundred thousand shares in the market that could be bought. They might break it up into a million pieces, and therefore you get a million to forty percent, which

is obviously not even one percent. But you have a very small fraction of that company, and when you buy a share, you become an owner of that company. It might be very, very small, but with that ownership comes voting, right, so you could vote if you really wanted to, oh, when their board makes decisions. But it also entitles you to a portion of the profits if there are some in some shares. So if you go and you say, all right, I'm going to give you ten dollars for

this share that I purchased. And it might be in a bank, it might be in something else, but we're going to use a bank share as an example because they are kind of like tried and true blue chip boring stock that basically everyone's heard of. Right. You hear about them on the news all the time. You hear about them when people are talking about oh, hands is down or up, or a bought NAB shares or a

bought Combank, like everyone talks about it. Right, But if you went and bought a Combank share, how much do you think a share is worth?

I'm going to say twenty dollars. Oh, if they were twenty bucks, I would be going and buying so many of them because back today there are one hundred and ten dollars a share, right, a lot more than a lot of people think they are, which is why fractionized investing has become popular, where you buy like a fraction of share so you can still have exposure, but you might not be able to afford the full share at one hundred and ten dollars each, right, But essentially if

you went and bought that share, it entitles you to some of the profit but then also some of the gain over time. So one hundred and ten dollars is what Combank is worth today as of record. However, maybe in a couple of years that Combank share might increase in value because they've grown their business model and they're a far more profitable bank and they're a lot sexier

than they currently. They're a standard share today, and banking shares in Australia don't have a lot of flexibility, like they don't go up and down in the same way a lot of other shares do that we talk about because they are a blue chip stock, which means they are tried and true and have existed for a long time,

so their fluctuation in price usually stays similar. If their business increases in price, will your share price increases, which means if you go to sell that share, you can then see a piece of that profit because the share that you sold is now today worth more than it was when you bought it yesterday.

you money in a number of ways. So one is that capital growth, so the business increasing in value over time. But also two, you're getting paid a percentage of the profit that that business makes each and every single year because you're a part owner. And as to get.

one hundred and ten dollars. You might go, fee, I have one hundred and ten dollars, but I don't want to only own one asset because then I only own Combank. I want to own a lot of different things so I get good diversification in my portfolio. Because if you know Combank crashed tomorrow, well that's my whole portfolio. That's

one hundred percent of what I own. But if I owned a lot of different banks, and I owned you know, a few different other industry if one crashes, it's not going to be felt as harshly because I own one hundred different companies. So instead of buying a stock, an individual stock, you might go and buy what's called an ETF.

So that's an exchange traded fund, and it's essentially a fund that exists that has bought maybe one hundred or two hundred companies, or it could be an ASX top two hundred, so it could be the top two hundred companies in the share market, and it just holds that and you go and buy one share in that basket

as opposed to buying the share directly. So you go, I want to own an exchange traded fund, an ETF, And that's a type of pulled investment where instead of you giving your money to combat and saying thank you, I would like one of your shares, you give your money to the fund. So the exchange traded fund and the manager there say can you put my money in the basket with everybody else's money, And then collectively we

all own a lot of different stocks. So essentially it's a pulled investment security holds lots of different underlying assets rather than just one individual stock. So that makes sense.

these days is there's basically an ETF for everything. So if you're like, well, I'm an ethical investor, I really want to own ethical shares, well, you can go get an ethical ETF. Or if you go, i'm really into tech Victoria, like I just want to invest in different tech companies, go buy a tech ETF. Or you could go, you know what, I only want to own American tech companies. There's an ETF for that. There's literally ETFs for everything that.

A couple of years ago, I was online obviously looking love ETFs because I was bored and it was fun. I found an ETF that only invests or only holds businesses that have one hundred percent women on their board.

diversification is really important. It's making sure that you don't have all your eggs in one basket. Instead of just having exposure to CBA, you have exposure to heaps of things. So if one thing crashes, I guarantee something else is doing well, and then maybe other things are just coasting along. So your returns are an average of that bucket of shares as opposed to just that dire one share. Does that make sense?

basically just what it sounds like. It's an investment fund that is managed by a fund manager, whereas an ETF often is not. If you put your money into a

managed fund. You're essentially giving your money to them to invest on your behalf, so you often have very little say over what they do with your money, which is fine because you're not going to pick a fund manager that you don't believe in, right, You're not going to go give it to Beck if you think that Beck is not going to use it wisely, So you do

have to hope that they will invest it wisely. And one of the key differences between the managed fund and an ETF is that a managed fund is unlisted, so it is not going to be on the ASX like an ETF that you go and buy in the same way that you purchase a share, So unlike an ETF, managed funds don't usually trade on the share market. In fact,

they only trade once a day. So right now, if you googled any share, you could get today's right now current market price, because in Australia the market opens at ten am and it closes at four pm. Surprise, but she don't know that. No, but we trade between ten and for every single day, which means you can get a live price, whereas a managed fund only trades once a day and often it is ten am or eleven am.

Depending on what the company is. Thus, you do have to wait until the end of a trading day if you want to buy or sell your units, so you can't do it throughout the day. It's not something that people would become, you know how we talk about the concept of share traders, where they're online all day and they're like buying and selling shares through really small amounts.

You can't do that with managed funds. So one of the benefits of a managed fund, and this is very similar to an ETF, is that allows investors to pull their money together with other investors, and the more money you have, the more power you have when it comes to purchasing and by doing so, opportunities that might not actually be available to a retail investor because we just

don't have enough money can then be opened up. So many managed funds will invest in assets like property or the government, or corporate bonds or private equity that is usually completely out of reach, but you can do so by buying a portion of a managed fund get access to an alternative asset class, which can for a lot of people be really exciting. But as I'm explaining this, I think I can see your brain working going this

is a little bit more complex than an EF. You don't just go and buy it and then you can sell it whenever you want. You absolutely can buy it, you can absolutely sell it. That makes sense, but there is a bit more complexity behind it, which is why some people in the shehese on the money community don't lean on it in immediately as one of their first investing decisions.

I like that guy, I like his decisions. I'm very interested to see what he does at this new company, and that's why I'm following him, and that's why I've invested. So if you like a track record of a particular fund manager, you can go with them. But that's obviously not that common to know that information and it's quite

in depth. But the benefit of having a fund manager is that you don't have to do any of the hard work of researching, of identifying and tracking potentially high performing companies that might provide outsized returns, because you'll be paying a manager and a team to do that. Managed funds are more expensive than ETFs. ETFs are usually automatically created, whereas managed funds have a whole team of researchers behind them. Does that make sense?

it exists to copy something that already exists. So you might create an ASX Top two hundred ETF and that will take the top two hundred companies on the ASX list and pop them into a fund and it will just track the average of that. So the idea of an index fund is not to outperform the market. It's actually to meet the market returns and the market benchmarks. So index funds usually have way lower expenses and fees than actively managed funds because there's no one managing it

in the same way that a managed fund exists. So in a managed fund, you've got somebody going out there doing the work, maybe surveying the company, seeing if it's worth putting into the portfolio. An index fund actually follows what we call a passive investment strategy, where you just go, all right, I'll take the top two hundred and get the average of that. Wham bam, thank you, ma'am. That absolutely makes sense. So an index fund is an investment

type that just wants to track the market average. And usually if you're talking about an index fund, we're just looking for the average of the average. That's all I want, that's it. But I just want a consistent return. And index funds typically invest in all the components that are included in the index that they track, and they have fund managers whose job it is to make sure that

the index fund performs the same as the index. So the index is the measure, and the index fund has basically cut and paste everything from the index to own it in that asset. Does that make sense? I think it's not making sense? Is that?

investors this isn't an issue. But essentially something like the ASX Top two hundred ETF could be bought and sold throughout the day, whereas the ASX Top two hundred index fund couldn't be, and both of them employ different strategies. But essentially that from my perspective, is the main difference. Okay, that is one of the main differences. The other thing is, I would say, is fees and expenses. So the primary difference between ETFs and index funds is, as I said before,

how they're bought and sold. But this actually translates to fees. So ETFs, as we were saying before, trader on an exchange, just like shares do, and you buy and sell them through a broker, which means that you could potentially be paying broking costs, whereas index funds are usually bought direct with the fund manager, so there isn't that intermediate body. So there's just different fees and charges that need to

be taken into consideration. And I don't think it's like for like, but I also think that they can be quite similar, especially to a beginner. And do not fear if you're in a position where you're like, this is a lot of information and I feel really overwhelmed. We all do. I have a book that goes into this

even more comprehensively so you can digest it. And you know what, there's absolutely no shame in listening to this portion of the episode a few times so you can really wrap your head around it, because lord knows, it takes me like three or four goals to understand something for the first time, and then it finally clicks and I go, oh, okay, now I get it.

it is an investment nonetheless. The next is fixed interests, so these are things like bonds or you would have heard of a term deposit where you can kind of lock your money away At the moment, it's not that popular because obviously interest rates are going wild and the bank is not going to pay you that much so that they can hold onto your money. The next is

the Great Australian Dream. So that's property. We've all heard of property investing, and we have an entire podcast called the Property Playbook on property if you want to deep

dive more into that asset class. And the last, which is unsurprisingly my favorite, is shares and shares essentially, as we explained, makes sense, but each asset class is expected to have different risk and return characteristics, and the right asset mix for you at any given point in time is actually going to really depend on how much time you have to be investing. So obviously cash might be

better for a short term goal. You might be saving for a holiday or a car, but if you're working towards financial freedom back and you're like, oh, my gosh, I really want to be investing for the next thirty forty years. Well, cash is probably not the best place to put your money because you've got a larger time horizon, and if you're investing for the next twenty thirty forty years, maybe shares is a better option for you. And the

same goes for fixed interest and property. It all depends on who you are and how much risk you want to take on. And that leads me, actually beck into the last thing I wanted to talk about, and that is actually the word portfolio. I feel like it gets thrown around a lot, and the second you maybe sign up for shares Is, or you might have signed up for six Park, or you might have gone through self Wealth, or you might be with Rais, or you might be

with Spaceship. It really doesn't matter what one. But you might assume that that's your only portfolio because you go, oh, they've used the term portfolio. But essentially, a portfolio is a collection of financial investments. Like it could be shares, it could be bonds, it could be commodities, it could be cash, it could be your jewelry. But essentially it's

everything that Beck individually owns. So my personal portfolio, it's made up of some shares, I own, property, I have, you know, some assets at home that I ensure through my home and contents. I have a car, and all of that collectively becomes my portfolio. And I think a lot of the time, and it was the reason I wanted to include portfolio in this list, is we just assume it's only referring to a share, or we just assume it's only referring to one asset class, whereas that's

not the case. So, for example, if you bought an investment property, that would become part of your portfolio. And when we talk about that, I think it's important to take into consideration because a lot of people will say I have nothing. It's like, well, let's actually step back. Do you own a car, do you have jewelry, do you have this? Do you have that?

You shouldn't have to sell something down to access that. But investing in shares can give your money the chance to earn better returns than it would have if you left it in your bank account over the long term. So over ten years, the ASX two hundred index, which we discussed in the first half of this episode, had an average total return of nine point three percent each year, and the total return combines the price return, so the capital growth, So how much that asset has increased in

price over time? And the income yield, so how much you got paid for owning that Almost half the total return came from yield. So how much you got paid for owning that shared, not how much it increased in value. In fact, you could own a sharebeck today that is worth ten dollars, and you could own that same share in twenty years and it could still be worth ten dollars, but it might have paid you one hundred dollars over that period of time just for owning it, because you

get a portion of that profit. But the company was just consistent, it didn't increase in value. Because maybe they're a potato chip company. Yeah, and they just make these great potato chips and they have the same customer base over that you know, ten twenty years. They buy their potato chips regularly, they make it profit, they distribute it to their company. But is that company worth more in ten years than it was today if they haven't increased

their customer base. Now it's still worth ten bucks a share. But you got paid every year for owning that share. So we need to take that into consideration because a lot of people might look at their portfolio and go, oh, I bought that share for ten bucks and it's still only worth ten dollars, and they completely forget the dividend that was paid out during that time, which is the money that you get paid to own that share.

And I will make sure that we link to the money Smart Compound interest calculator in the show notes because I talk about it all the time and it's basically my favorite resource on the internet. I have a bookmarked. If I start typing in my search bar compound, it will literally come out compound Interest Calculator, Money Smart, and like it knows what I'm looking for because I go on there so often. But I did a little example

for you. So let's say, Beck, you invest five hundred dollars and then every single month you go and invest fifty dollars into this account for the next ten years. And we're going to use the example before of the asx two hundred index of nine point three percent return over the last ten years, because that makes sense. That's

where we're pulling our stats from following following. So at an annual interest rate or an annual rate of return of nine point three percent over that period of time, Beck, if you just saved it and put that money, that five hundred dollars and then fifty dollars each and every single month into your savings account, you would have saved

six thousand dollars. Wow, that's pretty good. But if you had invested it at a rate of return of nine point three percent, you would have eleven thousand, one hundred and four dollars, which is four thousand, six hundred and four dollars more money than if you had saved it instead.

That is four thousand, six hundred dollars from my perspective, free money that you didn't have to work for money exactly because the money that your money makes makes money, and then that compounds, and the power of compounding actually doesn't exist just over ten years. Ten years is about the time frame from my perspective. It's the minimum timeframe when compounding actually starts to take in effect. So if we look at it, maybe let's zoom out a little

bit further and look at twenty years. So let's just double the time frame. Your initial deposit was five hundred dollars. You know, over ten years, we said that you'd earned six thousand dollars in your savings account. If we doubled it, that's twelve thousand dollars. That makes sense. But if you had invested it at that rate of return of nine point three percent each year, beck, you'd have thirty seven thousand, eight hundred and eighty five dollars over that period of time,

which compares to that twelve thousand dollars you would have saved. Otherwise, we're just twenty five thousand, five hundred and eighty five dollars more hore money that you have.

But if we did that over the long term and said, all right, well it's going to be forty years in the sheer market, that first year of you earning six thousand dollars, if you'd saved it, then we had twelve thousand dollars over forty years, would have saved twenty four thousand dollars if you just kept doing that, right, Like, that's basic maths. Compounding is actually really hard for the human brain to understand because it kind of goes along

level and then it projects upwards. And we don't think that way. We actually think in a really linear way, which is one plus one equals two, and then two plus two equals four and four plus four equals eight. And like we think in a linear way, we don't actually have the mental and I'm not saying we're silly. It's not the case. It's just the way our brains work.

We don't compound in our brains, right, So I think this is really going to shock you, and it makes me so excited because over forty years, just starting with five hundred bucks, we're just talking about fifty dollars per month, which if you're in that position, that is fantastic. The sooner you can start, the better. If you're not in the position to start yet, that is totally okay too, because we can always come back to this at a

time that suits you. But had you saved over that period of time, it would have been twenty four thousand dollars back. Had you invested it instead, it would be two hundred and seventy six three hundred and eighteen. Really, that is two hundred and fifty one, eight hundred and eighteen dollars free money for waiting. That is so our is so much money. And see the like I'm just

showing Beck the graph. If you look at the graph this down here, so the bottom blue part on your money smart calculator is going to show you how much you've saved. And that's that linear line that we expect one plus one equals to two plus two equals for right. But you can see that above that it has what compounds because the money that your money makes starts making money, and then that money starts making money, and at some point the money that your money makes actually becomes more

money than what you're contributing. So what you're contributing does compound a little bit, yeah, but what your compound interest does is actually compound massively over time. So the light blue bar that you can see above and if you guys go and have look at it, it'll make sense. You can see in the very last year that your initial deposit is still fifty dollars, but you're literally making

twenty four thousand dollars on that in a year. So it's one of those things that over time we think it doesn't matter, but from little things, big things really do grow. Because if we strip that back to that ten year example again, I go, it's eleven one hundred and four dollars. Back go, that's pretty good, but like not life changing. But if we go back to that forty years, that's life changing.

about whether you can or can't do it. It's not about what is quote enough because from my perspective, even if you have a dollar a month to invest, from my perspective, that's enough because I want you to be investing because you understand compound interest, because you understand what that can create. And while today you might only have a dollar, well, next month you might be able to find two. In a couple of months, you might be

able to find five. In a couple of years, you might be in a different situation where fifty dollars a month is conceivable. So Beck, that's why I'm so passionate about it, because from little things, big things really do grow. And if we even just take it back to what women earn in general, we already know we're at a disadvantage. We already know that women are retiring with less superanuation

than men and less to actually retire in general. And given that number I just gave you, do you know that women who are seventy five years and older on average retire with only three hundred fourteen thousand dollars in superanuation. And if you strip that back to what quote retirement age is, and retirement age is usually sixty five, the average female who is sixty five years old has a superranuation balance of three hundred and eighty one thousand dollars.

By investing five hundred dollars and then potentially investing fifty dollars each and every single month, you double that. Is that not wild? To think that with education we could change our lives?

future I can invest more. And instead of going all right, well i'll invest when I have money, you're already doing it today. So if ever you do come into money, or if ever your situation does change, you go All I have to do is change my contribution amount because I know who I am, I know what I'm investing, and I know where I'm investing, as opposed to having to start from scratch. Quote, when you have money, that's the same thing as going, yeah, i'll start dating when

I get married. Like that makes no sense. Why would you start investing once you're rich. You're not going to get rich unless you start investing.

here is zoom out. Investments should be for a long time, and don't worry if your stock does go down. The one thing that you need to remember is if you went and bought ten shares in a company, and you spent one dollar on each share, so you had ten dollars worth of stock beck and then in a couple of months, because we have a predicted recession coming up, that stock has dropped down to being worth five dollars, You're gonna absolutely worry, right, you go, Oh my god,

I bought ten dollars worth of stock. I got ten shares, and now it's worth five bucks. It's worth half of what I paid for it. What you're not remembering is that's just what the market's valuing it at today. They're not saying, Beck, you only have five dollars. They're saying, Beck, you will have five dollars if you sell this asset today. What you own right now is ten shares in this company. And the market might be off, it might only now

be worth five dollars instead of ten dollars today. But if you wait and the market it recovers, it might get back to that ten dollars. It might even go to fifteen or twenty dollars, but you still own those

ten shares. It's really important to understand that. During the global financial crisis in two thousand and eight two thousand and nine, obviously a lot of people lost a lot of money for a lot of different reasons, but one of the main reasons was people being really scared of the market, and if they had shares, they sold it because they were like, I just want to save whatever

I have. And one of the best investment opportunities was actually when the market was completely down because shares were on sale Beck, So essentially the market crashed, everything was cheaper, and those who were in the market for the long term saw it as an opportunity to stock up on stocks that they liked for a little bit cheaper. So I think before you sell a stock, I would really do a little bit of a check and go, why am I selling this stock? Is it out of fear?

Am I selling this because I'm anxious? Or am I selling this because I need the cash? Those two are different conversations. If it's because you're anxious, please before you do that, cell do a bit of research to make sure that you aren't just triggering something. That means in six or twelve months, when you go I want to invest again, you don't then have to buy back in at a dollar per share again and have lost five dollars in the process. Does that make sense?

he had never reported a bad year. It was impossible. Over the period of time. I think it was seventeen years that he said he was investing. They were like, he just never had a bad year, and even the best, if the best investors over a seventeen year period, have bad years.

market dips. They'll see things like the GFC, they'll see things like the recession that our market is currently talking about, and the best investors try to keep up and try learning and get up when they fail, not run away when they're anxious. So I think it's really important to talk about the fact that if in doubt, zoom out.

Instead of looking at what's going on for this year or what the performance on your p follow you was for the last six months, let's look at five, ten, twenty, even thirty years into the future, and I promise it looks a lot more bright.

I don't care what you are. I still think you need an emergency fund as a priority, because to me, that is the first ticket to financial freedom is making sure that you don't have to go further into debt fund expected expenses, that you don't have to rely on anybody else for money, that you don't have to ask for things, and that you feel completely empowered in your financial journey, so having an emergency fund. The next thing I would do is prioritize paying off consumer debt first.

So paying off debt, from my perspective, is an investment in itself because you're not paying interest on that and most consumer debts actually carry really high interest rates. So we're not talking about, you know, the four percent interest rate you have on your mortgage, because as we said before, the ASX index has averaged a total return of nine point three percent, so obviously one of these things is

not like the other. But if you have a credit card that's fourteen to twenty two percent, I would absolutely prioritize paying that off because the sooner you pay that off, the less interest you're paying, and that's money win. So I would get rid of that first. And then once you've got that rid of and you have your emergency fund, from my perspective, if you want to invest, my friend, you are ready to invest. The thing I would do, though,

is making sure that you have enough education. But you're listening to this podcast, so you're on the right path, aren't you amazing. I feel like I've got a long redhead of me, but I am pretty bloody motivated after.

see you on Friday. See later, guys. By the advice shared on She's on the Money is general in nature and does not consider your individual circumstances. She's on the Money exists purely for educational purposes and should not be relied upon to make an investment or financial decision. If you do choose to buy a financial product, read the PDS TMD and obtain appropriate financial advice tailored towards your needs.

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