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