Building an investment portfolio

HOSTS Alec Renehan & Bryce Leske|13 January, 2020

Meet your hosts

  • Alec Renehan

    Alec developed an interest in investing after realising he was spending all that he was earning. Investing became his form of 'forced saving'. While his first investment, Slater and Gordon (SGH), was a resounding failure, he learnt a lot from that experience. He hopes to share those lessons amongst others through the podcast and help people realise that if he can make money investing, anyone can.
  • Bryce Leske

    Bryce has had an interest in the stock market since his parents encouraged him to save 50c a fortnight from the age of 5. Once he had saved $500 he bought his first stock - BKI - a Listed Investment Company (LIC), and since then hasn't stopped. He hopes that Equity Mates can help make investing understandable and accessible. He loves the Essendon Football Club, and lives in Sydney.

What does it take to build a great portfolio?

This episode we debunk the myth that you need to be an expert to build a great portfolio. The truth is, it’s simple, as long as you’re dedicated, do your own research and are prepared to have some fun. We discuss the simple building blocks that we think are fundamental to building a portfolio and that are achievable for the beginner.

In this episode you will learn:

  • What is an investing portfolio
  • The 4 pillars for building a portfolio – goals, risk, diversify and allocate
  • Importance of having a strategy or at least end goal
  • How to set personal investing goals
  • Thinking about risk
  • How to identify your risk profile
  • Diversifying assets: 5% rule & Perfect portfolio
  • Importance of asset allocation:
  • Do you keep some cash available to put into the market when it drops?
  • How much of your portfolio should be made up of individual stocks vs. ETFs or LICs.
  • For a beginner would a heavier focus on the latter be appropriate?
  • Diversification and rebalancing your portfolio Want more?

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Bryce: [00:00:37] Welcome to get started, investing a series of lessons to help you on your investing journey. This is for anyone who wants to start investing but isn't really sure where to start. Our aim is to make the markets accessible to you. My name is Bryce and as always, I am joined by my equity buddy Ren. How's it going? It's very good, Bryce. We are up to episode eleven. Yes. Second last of the series. Yes. Unless we decide to tack on some more in the end. Yes. Yeah. Ren we're really bringing it all together now. We have discussed everything from finding a broker, setting up the broker, talking about indexes where you can find information on stocks, where you can find inspiration for stocks. [00:01:18][41.6]

Bryce: [00:01:19] We've spoken about the process of buying and selling individual and direct stocks. And now Ren, we want to discuss everything there is to building a great portfolio. [00:01:29][9.9]

Alec: [00:01:30] Yeah. So we are going from buying one stock to managing multiple stocks. Yes. Big leap forward. But it's not as scary as it sounds. Just rinse and repeat. Lost episodes, lessons, maybe five to 20 times. And then you're at a portfolio. [00:01:46][15.7]

Alec: [00:01:47] Exactly. We can move on to the next episode. [00:01:49][1.5]

Bryce: [00:01:50] So the question is, what does it take to build a great portfolio of money? Yes. Amongst other things. What else? A broker. So this episode, we're going to debunk the myth that you need to be an expert to build a great portfolio. [00:02:04][13.8]

Bryce: [00:02:05] The truth is that as long as you're dedicated, you do your own research and are prepared to have some fun along the way and learn from your mistakes. Anyone is capable of building a great portfolio. [00:02:14][9.2]

Alec: [00:02:15] And unlike recently built Sydney apartments, we're going to teach you how to build it in a structurally sound way. [00:02:20][5.6]

Bryce: [00:02:21] Correct. So Ren, there's, I think, four major things we want to discuss. We want to discuss setting goals, thinking about risk diversification and then also allocation there probably for us the four fundamental building blocks that you need to consider when building a great portfolio. [00:02:39][17.4]

Alec: [00:02:39] Yep. Now you're the go getter and goal setter amongst us. So why don't you kick us off with the first one? Talk to us about goal setting. So goal setting. [00:02:48][8.4]

Bryce: [00:02:48] You get these large posts so you can really tell that we're getting to the tail of the episode. Don't really learn from the bad. Well, that was my goal. [00:02:59][10.8]

Bryce: [00:03:01] So goal setting, I think is relatively important Ren because it helps frame how you approach obviously your you're investing. Everyone can have different goals. Your goal may be that you want to use investing as a means of building up a large sum of money so that at some point in the future you can use that to put towards a house deposit. Or your goal might be that you want to develop a large portfolio so that it can generate income and you can move away from the nine to five. And I guess support yourself that way. There are many goals. [00:03:34][32.8]

Alec: [00:03:35] A lot of your goals sound a lot like the fire movement that you were so disparaging about in earlier episodes. Still, I still am I still five, maybe a goal of yours? [00:03:46][11.3]

Bryce: [00:03:47] It may be scary, for example, but I think it is important to at least have a goal in mind when you start out investing, because otherwise you could go on a very wayward journey and make decisions that perhaps will come back to bite you later on down the track. So what's your goal? My goal for from an investing point of view is to develop a portfolio over a long period of time so that when I do get into my later years, I'm getting closer. I am not reliant on I'm not relying on my day job and can use the income that comes from not to, I guess, supplement my activities. [00:04:25][38.5]

Alec: [00:04:26] It's almost as if you want financial independence. I guess so, yeah. Look, at the end of the day, that's what it's all about. And I see the stock market as a way of being able to do that. Yeah. [00:04:36][10.0]

Alec: [00:04:36] What about you? What's your goal? Similar. I want money not to be the driver of my decisions and I want to build a solid nest egg is the word, but a solid financial basis. [00:04:49][12.5]

Bryce: [00:04:50] While we're relatively young, the reason I think that setting a goal is very important to building a portfolio is because now that we've essentially identified that the outcome or the result of our portfolio is to be able to, as you said, X, Y and Z, then it helps us to make decisions now about what we're investing in and also take away emotion from when we do invest in things. And knowing that the end goal is sort of 20, 30 years down the track, would you agree, Ren? Yeah. Yeah. [00:05:20][29.9]

Bryce: [00:05:21] So I think if our goals were shorter term than perhaps what we would be doing is investing in different asset classes, different stocks that are going to be out to help us to reach those shorter term goals. Yeah, but because we've got a longer term goal, then we probably gravitate more. Towards products that are going to benefit us over the longer term. We have time on our side. We can be a bit more aggressive with things. We can take on more of a growth mentality and also not worry about market fluctuations, for example, with the markets going out. We know that, look, we don't probably need our share portfolio to be working for us for another 20 or 30 years yet. [00:05:54][33.3]

Alec: [00:05:54] Let's ride it out. Yeah. So what would some reasons be that you have a shorter term goal. [00:05:59][5.4]

Bryce: [00:06:00] Perhaps you're using it to try and increase the speed at which you can save for a house deposit or you might be wanting to use it to pay for further education. These are probably things that I necessarily wouldn't use the sharemarket, but I'm sure I would either. Yeah, it's a good question because I've never really thought short term about the market and because there's risks associated with that. Yeah, for the goals that I just mentioned, I would probably not be using the share market to, I guess, reach that goal. [00:06:28][28.1]

Alec: [00:06:28] Yeah. So I think, look, there would definitely be reasons that you want to achieve short term results. And the classic one, not probably not for listeners of our podcast, but generally is it's people's career. And people have career risk if they're not achieving a certain percentage every year. So there's a lot of people there's a lot of participants in the stock market that are trying to achieve short term goals. But I think for a lot of people, there would be listening. A lot of people like us trying to achieve what you want to achieve in the short term, financially through the share market may not be the best option. Yeah, it may work, but you may be worrying more risk than you're comfortable with. [00:07:10][41.9]

Alec: [00:07:11] Absolutely. Yeah. So, like, I reckon one of the most common questions we get on equity markets is I've got X dollars. I'm trying to get to X plus Y dollars to save for a house. What should I invest in? And it's generally the answer is you shouldn't unless you do have you you're looking to buy a house in a decade sort of thing. There is just that risk that things might go bad. [00:07:35][24.6]

Alec: [00:07:36] GFC 2.0, whatever it is, there's just there's a lot of risk there. So I think if you're trying to preserve your money in the short term, the market does a fair bit of risk. [00:07:46][9.6]

Alec: [00:07:47] Absolutely. So, look, identifying a goal is very important. As we said, it helps for you to frame your thinking around the investing decisions that you make. So speaking of risk, Ren, I think the second sort of pillar to building a great portfolio is to understand the risk in two parts risk that you're willing to take. You might be a bit of a risk taker and you can deal with the side effects of being a good risk taker. But then also knowing how different asset classes can be used to avoid risk, I guess. [00:08:21][34.6]

Alec: [00:08:22] Let's take a step back. What is risk when we're talking about investing? [00:08:25][3.4]

Bryce: [00:08:26] Now, I know you have an opinion on this, so I don't have an opinion and I agree with what you're about to say. So I'll leave it to you to say. You agree. You agree with what I'm about to say. Yeah, I know what you're going to say, that I carry equity mates. [00:08:40][14.0]

Alec: [00:08:44] Glad you agree. Well, do you want to just say say yes [00:08:47][3.7]

Bryce: [00:08:49] I'll leave it to you. I guess one side of risk is the risk of losing your money. Obviously, that is one way to look at risk and the risk of losing everything that you've saved up and work towards. But I know that there's another way to view risk Ren and you're about to let us know what that is. [00:09:05][15.8]

Alec: [00:09:05] Interesting. Okay, so. I was actually going to go where you went, but I know you're down. No, no, no. You gonna say no? So I think the most important risk is what you mentioned, though. So it's worth stressing that that risk in an investing context is permanently losing your money. [00:09:23][17.3]

Alec: [00:09:23] There are some or all of it. That is the key risk. Emphasis on permanently. We're going to come back. And second, the risk that you're referring to and I think is not equally as important, but it is very important, is the risk of missing out. You know, you're young once you have an opportunity set. And by not accessing the market, you are deteriorating your future quality of life by not getting the market early and enjoying the benefits that come with long term investing. So I think that's what you're referring to. Yeah. The risk of not being in the market. Yeah, there is definitely a risk there. But I think importantly for this, let's talk about the risk of losing your money. Yeah, a lot of investors, especially professional investors, will talk about risk in terms of volatility. And we touched on what volatility meant in an earlier episode in our jargon episode. But it essentially means that price fluctuations of an asset and a lot of people think about risk and they say the more volatile an asset is, the more risky it is, in my opinion. And I think in your opinion, that's a wrong way to think about risk. If an asset is volatile and prices going up and down at certain points, you may be down and you may have lost money, but you haven't permanently lost it. And that's the risk you're trying to guard against. You're trying to guard against never having that money again, an asset that is volatile and it goes up and down at certain points. You may have lost some of your capital, but if it's a good investment and over the long term, you will make money on that investment. The fact that it fluctuated up and down more than other investments has nothing to do with the end result. It's just the journey was a lot more rocky to get there. And so if you can shut out the noise and shut out the day to day fluctuations, the end result doesn't change. So how is that more risky? [00:11:13][109.8]

Bryce: [00:11:14] So then what should you be looking for if you're not defining a risky asset based on price fluctuation? What would be some of the reasons that you would classify an asset to be risky? [00:11:24][10.4]

Alec: [00:11:25] So, yes, it depends a little bit on the asset, but we're talking about stocks. And so the big risk when we're talking about companies is that, one, the company itself will fail. It goes past year and then obviously, if it goes bust, the share price will go down with it. Number two is the share is way too overpriced. And so there's a risk that even if the company doesn't go bust, the share price will fall in value. And the way you permanently lose your capital there is that never I've never seen that value. Yeah. Yeah. So that there the key the key ways, at least to my mind, is any others that you're thinking of? Not particularly, no. Yeah. So within each of those key sort of buckets, there's a number of things you can look forward to. Think about how much risk am I taking on? So if you're talking about how the company is going to perform, you can look at some things like the amount of debt it's got compared to the amount of cash that's generating that can cover that debt. If it does have a lot of debt, does it have assets and stuff like that that it could sell? Has the manager been involved in, you know, the CEO or the management team been involved in companies that have gone bankrupt before? You know, maybe not above table reasons. You know, are people investigating the company? Does it look like it's committing fraud? You know, regulators sniffing around all that kind of stuff, that that all pertains to the risk of the company going bad. [00:12:48][82.7]

Bryce: [00:12:49] So why do people then consider, for example, penny stocks to be riskier than perhaps your blue chips such as BHP? Telstra, what is it about the difference in companies that give it that different risk profile? [00:13:03][13.4]

Alec: [00:13:03] Well, a lot of the time the companies are less mature and then there's less liquidity in those stocks, then bigger gambles, I guess. Yeah, there's a higher upside, but there's a bigger chance that you lose your money. [00:13:14][10.9]

Bryce: [00:13:15] Yeah. So I wanted to make a point there of the fact that you mentioned they are sort of less mature. So business cycle or where the company is at in its life cycle generally has some sort of correlation to the level of risk that you'll be taking investing in that. Because if you're investing in a very early company, in some instances, the business model hasn't necessarily been fully proven out. So you are taking a bit of a gamble that the company will go on to be successful. We know the model of Telstra and BHP work. It's just a matter of for how long? [00:13:47][32.7]

Alec: [00:13:48] Yeah, now. So that's the risk around the company. The risk about the pain too much. And then, you know, losing money on that investment, you could invest in the best company in the world. But there is a price at which it is too expensive and therefore you're wearing too much risk in terms of the opportunity to make money compared to the opportunity to lose money, essentially. And that's where some value investing techniques come into play. And you look at your price to earnings ratio, so how much you're paying for the company's profit and stuff like that? [00:14:19][30.7]

Bryce: [00:14:19] Mm hmm. Bit harder to do as as someone just starting out. Yeah. It's something that you certainly can learn along the way. Yeah. So we've set a goal. We've thought about risk in terms of what with the money that we're gonna be putting into companies, what is the risk of that company going bust or am I paying too much for that company? The third part to then building a good portfolio Ren is to then diversify the number of companies that you might be invested in or the exposure that you have to different industries, etc.. [00:14:49][30.0]

Alec: [00:14:50] Yeah. So we explained diversification in in our jargon. So we don't trying to frame it in this particular context. [00:14:57][6.9]

Bryce: [00:14:57] Yeah, sure. So there's two ways that you can look at this. You can diversify within the number of companies that you hold and then you can also diversify across the exposure to different industries and asset classes. [00:15:08][10.6]

Bryce: [00:15:09] So, for example, when I talk about diversifying across a number of companies, you might really like tech as an industry or you might really like agriculture as an industry and have a really good understanding of that. Rather than putting all of your money into one company in agriculture, you might want to spread your money across five different companies within agricultural industry. That means that if one goes bust, you still have exposure through the other four and and vice versa. So you are less affected by one company than you are across four or five. Another way to think about diversification is to have access to different industries as well. So you might want to ensure you've got companies in agriculture and tech as well as telecommunications and perhaps in shipping. [00:15:54][45.3]

Bryce: [00:15:56] So that's one way to diversify against cyclical changes in industry. If the agriculture industry is going through a drought and really suffering, those businesses might not be performing so well. But on the flip side, tech industry might be booming and you've got exposure to that. So it negates the swings and highs and lows of each and protects you on sort of both the up and the downside. Yeah. So it's important to sort of consider your total portfolio where you have exposure and think about how you can protect yourself by using diversification. [00:16:25][28.6]

Alec: [00:16:26] Yeah. So if you think about the risks that we spoke about and then you think about how diversifying protects against those risks and we just do a simple work example. You're a new investor. You've got 10 grand. If you put it in one company and that company goes bankrupt or you pay too much for that company to get so sad. You're out of here, you're out of business. You're out of business. If you have that 10 grand and you put 1000 dollars into 10 companies, even if you screwed up on that one company that you put all of your money into in the previous example, you're only losing a tenth of your portfolio. [00:16:59][33.1]

Alec: [00:17:00] You still got nine grand invested in nine other companies. And then to what Bryce was saying, different industries mean you protected different countries, even just different companies within the same industry. There's still company level protection. [00:17:14][13.7]

Bryce: [00:17:15] Now, practical way to do this. And we've spoken about ETF exchange traded funds before, but there's probably no easier way to get diversification in one simple trade. If taking Ren is example, you've got ten thousand dollars, you might want to put two thousand dollars into five different ETF exchange traded funds. And by doing that you could get exposure to hundreds and hundreds of different stocks and markets and countries. So if you're looking to diversify well and cheap at a low cost ETF are an excellent way to do that. [00:17:44][29.3]

Alec: [00:17:44] I think as a general rule of thumb, that people may want to implement is that any one security, anyones stock, anyone asset, whatever it is, should never be more than five. Percent of their portfolio. Now, that's that's just a rule of thumb. It's not hard and fast. But in that way, you're not overly exposed to any one company or asset. [00:18:08][23.5]

Bryce: [00:18:09] But Ren, what if I have a thousand dollars and I want to invest in two companies? How would you approach that situation? [00:18:14][5.3]

Alec: [00:18:15] Five percent is probably once your portfolio is a little bit more mature. Yeah, I would say in the early days when you've got a thousand dollars, 2000 dollars, whatever it is, you just need to start getting into it. Yeah, I wouldn't put all your eggs into one basket, but, you know, if you've got two thousand dollars and you've got two companies, a thousand dollars each. I wouldn't stress. But when you start talking about twenty thousand dollars, fifty thousand dollars, which you will hopefully grow your portfolio into having any more than five percent and one company potentially just exposes you a little bit too much. As I said, it's only a rule of thumb, but it just gives you something to sort of base your decisions around because you've got to start somewhere. [00:18:52][36.5]

Bryce: [00:18:52] So there will be a point at which your portfolio may only have one stock in it. It might be an ETF, but by definition, everyone's portfolio at one point, even if it's just for a few seconds, has a 100 percent in one year. So, as he said, rule of thumb to consider. [00:19:07][15.0]

Bryce: [00:19:08] As you start building up more and more, you probably need, what, Ren around about 20 stocks or so to really, really make that meaningful. [00:19:16][8.0]

Alec: [00:19:16] But the important thing there, the reason that you say five percent rather than 20 stocks is because you don't want people to think I have 20 stocks, therefore I'm diversified. If 90 percent of your money is just in one. Yes. Question it does your portfolio followed the five percent rule? It almost does. All right. Yeah. Yeah. So, as I said, a rule of thumb, A2 milk is more fair, bit more in double digits. And that's just because it has run a fair bit. I'm not in a position where I want to sell it at this point. As I get more income coming in and I say if I'm not buying anymore A2, A.T.M., I'm buying other things and that's reducing the percentage that A2 milk is in my portfolio. [00:19:57][40.3]

Alec: [00:19:58] But at the same time, I'm not selling A2 milk and putting it into other things because I want to say where this A2 milk story goes. Potentially it doesn't go much further. But China's a big country and there's a lot of opportunity there. So for me it is. But I'm conscious of how overweight I am, a2 milk. And I'm consciously making that decision, knowing the risks, but also understanding the opportunity. And I think that's probably the important thing. If you're gonna be overweight, a particular company or asset, just do it knowingly. Yeah. Having a loving reason to do it. Yeah. What about you? Any any major ones. [00:20:35][37.6]

Bryce: [00:20:36] So. By nature of the employee share scheme. I'm pretty overweight with Woolworths, but that's just because the way that it keeps pumping through. But generally most are within sort of the single digits. I think from memory, my only other one was after pay. Okay. And I am also a local authority. Yeah. And I just want to keep writing that. But to your point, I haven't been adding anything to it. Yeah, it's just growing and I'm putting other things in. Gold is growing rather quickly. Gold. Yeah. Yeah. [00:21:07][31.3]

Bryce: [00:21:08] Nice. All right. So is there anything else you want to cover off from diversify a diversification point of view? No, I think not. That's covered. Nice. So we've gone setting a goal. We've thought about the risks. We've discussed the importance of then diversifying also as a way of reducing your risk. And then it comes down to Ren allocation. So when we talk about allocation, we're talking about how much cash do we want to put into each trade? How much cash do we want the portfolio to be overall? But then also considering how much cash do we want to keep on the side? If that's part of your strategy. And what should the overall mix look like? [00:21:44][35.8]

Alec: [00:21:44] Yeah, well, as well as what other assets should play a role. You know, you mentioned gold before, how much you allocate to stocks, how much you allocate to gold property. Property is tough because if you're putting money in property generally, that instantly becomes 95 per cent of you. [00:21:59][14.7]

Alec: [00:22:01] Yeah, unless you're a multimillionaire. Yeah. [00:22:02][1.7]

Bryce: [00:22:03] Okay, let's just start with probably one of the more common questions we get, which is how do I know how much to buy of a stock. Right. In any one individual trade, any one individual trade. What's your answer? Well, so firstly, you're somewhat limited to the amount of money that you've got. You've got 500 bucks. You probably can't do any more than five hundred bucks. [00:22:20][16.9]

Alec: [00:22:20] I think the corollary of that is you wouldn't we would not recommend borrowing to trade and we would not recommend putting trades on your credit card. [00:22:29][8.4]

Bryce: [00:22:29] Absolutely not. I don't even know if you can put a trade on the credit cards. Isn't it what Chris Soccer did back in the day? Yeah, that's the story, I'm pretty sure. I know that you can't do it through like the likes of some of the brokers that we just link up. I mean, I don't want to have to do a cash advance on your bank, but that is done so darn well. [00:22:48][19.2]

Alec: [00:22:48] I mean, just logically, think about it. If your interest rate is, let's say, 19 per cent, you've got to be beating that benchmark just to break even. [00:22:56][7.3]

Bryce: [00:22:57] And if you're doing that, well, full credit. We're not here to talk about that, just do not do it. So to answer, how much should I be buying? Let's hypothetically say you have enough money to be able to aim for a certain percentage. Right. And this is entirely an individual thing. But if we're going to say the five per cent rule, then you can pretty easily work out that how much you need to buy to make your stocks sort of five percent of your total portfolio. [00:23:22][24.8]

Alec: [00:23:23] Yeah, I think this is a bit of a how long's a piece of string question? Absolutely. I think. Yeah. Your upper limit would be about five percent unless you had super high conviction that something amazing was going to happen. But yeah, really, really. So context dependent. [00:23:36][13.6]

Bryce: [00:23:37] I think at the early stages, Ren, it's probably not something to worry about too much. It's more just about getting some trades in building that portfolio. But I think mainly just thinking about making sure you're not putting all of it into one thing over and over again. [00:23:51][13.9]

Alec: [00:23:52] Yeah, there's always going to be the next opportunity in the market. And so whilst at the time it's really hard to say, I'm not going to put all my money into this. It's just better on the side of caution, especially when you're learning protect yourself by minimising your risk and minimising your exposure to anyone trade. But it is a bit of a how long's a piece of string question. [00:24:13][21.5]

Bryce: [00:24:14] So then how about we discuss allocation of, I guess, Elyse's verse ETF direct stocks? Is there a way to approach that? [00:24:22][7.8]

Alec: [00:24:22] So maybe do we take a step back and talk about broader asset allocation first and then we'll talk about shares specifically that. So I think it is good to have exposure. You shouldn't be 100 percent shares. There is definitely merit to having exposure to some other things as well. Gold and other commodities. Always having a little bit of cash bonds just to diversify. Again, diversification, diversify your sources of risk. And also in different market environments, different assets perform differently. So when there's trouble brewing, when people think a recession is coming or something like that, gold and bonds are generally considered more safe haven assets. The share market generally falls vice versa. When the economy's doing really well, you want to be in equities, not so much in gold. So it changes. Do you have the amount that you want in some of those different asset classes? [00:25:14][51.7]

Bryce: [00:25:14] No. I think generally speaking, from what I've learnt along the journey, is that you should have at least sort of five per cent allocation to gold just from a defensive point of view. So that's what I've got. I think we've got about seven percent. I just want to pick up on something that you mentioned, Ren shares versus commodities versus property or whatever. You and I both own gold through the stock market. [00:25:36][21.8]

Bryce: [00:25:37] Yeah. So do you consider that to be part of your share portfolio or do you classify that is as a bit different? I just want to make it clear that so I think you can diversify in assets through the stock. [00:25:48][11.5]

Alec: [00:25:48] Yeah. So I think of that as gold. And you could do the same. You could buy Bond 80 EFS and stuff like that. And then you would think about that as a bond. Yeah, because because for all intents and purposes it will act like a bond. It will pay you like a bond. It just is. Again, ETF suggest a wrapper that we keep saying this ETF suggest the vehicle to give you access to whatever is underlying it. [00:26:14][25.9]

Bryce: [00:26:15] So one of the beauties of the stock market is that you can get access to all of these assets via the share market and diversify that way. Okay, so Tancer then you question how do I think about it? It's sort of I don't really have a hard and fast as well. It's a bit of a, as I said, property. Well, I'm not going down that route at the moment. So I try to be as diverse as possible. So I have a good mix of stocks versus gold, as you said. Well, that's probably probably it, to be honest. I don't have any bonds. I don't have any property and I've got cash. That's mine. [00:26:45][30.2]

Alec: [00:26:45] Yeah. Yeah. So I do have a bit of or I have a few bonds, gold and cash, but the vast majority is in equities. Yeah. And that's just because we're young. Yeah. We have time on our side and equities are the biggest growth opportunity. And so I can't remember where I heard this, but I'd like a general rule of thumb. Now this is highly general, but it may help you sort of think about how much money you want in defensive assets and how much you want in growth assets. And in this case, growth assets are mainly equities and defensive assets of things like bonds, gold, cash generally take it as your age in defensive and then the remainder in growth interest. So, for example, I'm 26. Yeah. So then I want about a quarter of my portfolio defensive and then 75 percent growth. I'm definitely more than 75 percent in equities, probably. Yeah. So it's just a general rule of thumb. But the idea is as you get older, the percentage you have in defensive assets increases as well. And so then by the time you're 80 and you're in retirement, about 80 percent of your money is in defensive assets. You're 20 in great growth. Yeah. [00:27:53][67.8]

Bryce: [00:27:54] Yeah. Nice, good. The general rule of thumb. Something I don't. Certainly not intentionally, but I definitely don't have twenty eight per cent worth of defensive linemen. [00:28:05][11.0]

Alec: [00:28:05] Yeah, I think the other thing is like as soon as you have kids, you know, you've got a family to pay for and all of that, your shift from growth to defensive will accelerate very quickly. You'll start getting a lot more defensive because you've got your family to look after, stuff like that. Absolutely. So I imagine that our shift from aggressive to defensive won't happen along a linear timescale as we get older, but it will more change due to life circumstances. And so I'm more than happy to be far more aggressive. While I don't have anyone else relying on me, while I have the opportunity set to really be aggressive. [00:28:38][32.8]

Bryce: [00:28:38] Yeah, I agree. So you could probably then take that same approach Ren when you're looking at allocation within your share portfolio. We're in a position where we can afford to have some pretty aggressive stock positions and even through ETF you can take on some pretty aggressive positions as well. So whilst you can apply that 28 to 25 to 75 to overall asset allocation, you could probably apply that to your your share portfolio as well. [00:29:02][24.1]

Alec: [00:29:03] Yeah, a hundred percent. Now you ask the question, individual stocks fee, they allies say, I think for me at least, I don't have any desire to say I want this money in this much. [00:29:15][12.5]

Alec: [00:29:16] Now, I say, is this much an ETF, this much in stocks? The only thing that I'd think of in terms of this split is am I duplicating my exposure across those things? So, for example, if as an individual stock, I own the Commonwealth Bank in my ETF, I have Australian Banks ETF and then in the Allies say the listed investment company, which is essentially a fund manager investing your money for you. If I know that that fund manager has a big stake in Commonwealth Bank, then across all those three things, I'm exposed to Commonwealth Bank. And if something goes wrong with the Commonwealth Bank, then all three of those take a hit. So it's really good to spread your money across those three things. ETF listed investment companies and your individual shareholdings, but it's not diversifying risk if they're all just holding the same stuff. [00:30:08][52.6]

Bryce: [00:30:09] I agree. And the same sort of consideration should be given to your superannuation account as well rounded, considering that your superannuation is run just like a normal fund in the background and has exposure to all of the major companies in Australia. Probably it probably just follows something similar to the ASX 200, depending on how you've set your superannuation account up. Know that that is ticking away in the background and that you are getting exposure tour and use that to then also think about how you want to position your personal portfolio as well. Because to Ren point, if you soup all in whilst you're probably and access it at a different time, you don't want it over duplicate. [00:30:46][36.7]

Alec: [00:30:47] So one other question that we get, and I think it's important when we're talking about asset allocation and how you build your portfolio is how much would you focus on dividend paying stocks and how much would you focus on stocks that are more growth orientated at this time in our lives? [00:31:03][16.0]

Bryce: [00:31:03] I think growth is certainly something that I am pursuing more than dividends, whilst dividends are an added bonus. If if the company pays it and I'll reinvest it and use compounding, then that's great. But for me, if I'm to pursue a dividend sort of strategy, I'm likely to be investing in companies that are much more mature and paying a good dividend. And I'm not going to be getting as much capital growth as I was pursuing those sort of high growth companies which are unlikely to pay a dividend or pay a very small dividend. Also, to really make the most of dividend payments, you know, you need a large amount of money in there to actually get decent. You know, I'm talking tens of thousand dollars sort of payment. Right. And yes, it takes time to build up. But right now, I'm not really pursuing that as my number one strategy. It's an added bonus, and I'm sure over time it will change. But at this stage, growth over dividend for me. Yeah. Nice. [00:31:55][52.2]

Alec: [00:31:57] So I think the main things in terms of building your portfolio as you go from buying your first stock to developing a broader number of holdings and you go further on your investment journey is to really focus on spreading the risk across multiple holdings and spread the risk across multiple asset classes. I agree. Yeah, that's that's really what we want people to take away from this. [00:32:21][24.9]

Bryce: [00:32:22] Absolutely. So those are the four fundamentals Ren when it comes to setting up a great investment portfolio. Think about what goals you won't think about the risk that you are willing to take and also the risk the companies that you are investing in. Think about diversifying and also about your allocation. Pretty, pretty straightforward. And and look what you may think is your goal and your strategy now. It may evolve and it definitely will evolve as time goes on. Don't be worried about setting out a hard and fast now. Just be willing to change as you go, I guess, and at. As we always say, you're not going to have a better opportunity than when you get started, so just get stuck in. Yep. [00:33:01][39.2]

[00:33:01] Always good to chat. Stocks and markets Ren very much. [00:33:04][2.5]

Bryce: [00:33:04] Looking forward to our final episode in our wrap up in the next episode where I think we bring it all together and hopefully have broken down almost all barriers that are out there for beginners to get into the market. Nice one. [00:33:16][12.2]

[00:33:18] Thanks for listening to get started investing. A production of acclimates media. Please remember that everything you hear and get started investing is general advice. [00:33:25][7.4]

[00:33:26] Only the content has been prepared without knowing your personal objectives, specific financial circumstances or goals. The host of Get Started Investing may maintain positions in the companies discussed before considering any investment. Please read the product disclosure statement and consider speaking to a licenced financial professional. [00:33:26][0.0]


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