It’s time to give your portfolio a refresh | 2023 investing inspo with Global X

Maddy: [00:00:19] Hello and welcome to your good companies on this series. I'm Maddy Guest and as always, I'm in some very good company with my co-host, Sophie Dicker. 

Sophie: [00:00:30] Mads, it's fair to say that 2022 has been a volatile year for markets. And it's also safe to say that we have learnt a lot of lessons this year. 

Maddy: [00:00:39] If only we had had a crystal ball at the start of the year, we could have had some very different investing decisions. 

Sophie: [00:00:46] Well, why not then? This year we create our very own crystal ball. 

Maddy: [00:00:51] We are bringing you industries to watch In 2023 as voted by you, four episodes of a four weeks of Aussie summer. 

Sophie: [00:00:59] Or a winter series. If you're joining us from the Northern Hemisphere, welcome. 

Maddy: [00:01:02] We are talking about some of the most talked about industries that just might have their moment on the ASX in 2023. 

Sophie: [00:01:09] This series is brought to you by Global X, a powerhouse ETF provider in the local and international market, offering investors best in breed products backed by industry leading research. 

Maddy: [00:01:20] So Soph, the new year is a great time to reset. Have a think about your goals and how to think about how your portfolio is structured, which is what we're going to be talking about today. 

Sophie: [00:01:31] We can make our motto for 2023 or the beginning of it reset and reflect or reflect and reset. 

Maddy: [00:01:38] So we do have an interview coming up with the head of Global investment Strategy at Global X, where we get some great tips and tricks for setting up your portfolio for the new year. But before we do that, I thought it would be nice for us to do some reflection. One of my favourite games that we play in our household is Pit and Pig, but I thought, Let's make it money related. Let's start with the negatives. What was your pit for 2022? 

Sophie: [00:02:04] Money related? I've got two. I can't. I'm sorry. I've got two. One of them was that the gender pay gap stalled. So for the first time in since 2015, it actually didn't decrease. And I just think that was, you know, because of the pandemic, very much pandemic related as people either lost jobs or had to go back to, say, caring for elderly or for children. So that was definitely a hit. But then coupled with that, we also have really high inflation. And that's just a pit because my money is doing so much less than what it was. Maybe we can be specific and say that the pit was when iceberg lettuce was $6 to you. And I couldn't make I couldn't make Sanjoy about for dinner. 

Maddy: [00:02:47] Okay. So what is the learning that you're going to take away from this? 

Sophie: [00:02:50] So going into 2023, my learning is to be really specific with my goals and then cut down in areas that I do not need to spend. For example, I have subscriptions AJ and Amazon one, the prime one that I literally use once a year, like I'll use to order something and it comes quickly, cut those expenses out, and then we really focus on the things that do matter. So for example, that I make sure that I have my $500 a month to go into my investments and to not skimp on that part, make sure I have that money to spend by skipping on the areas that I don't need this year. What was your pit? Your Money Pit? The Money Pit sounds like a good thing. I wish I had a pit of money. 

Maddy: [00:03:30] Me Too. I think the pit for me has to be that the market crash really showed me that I was overweight in tech stocks and small cap companies. I think I got a little bit excited over the last couple of years so that everything or most of the things that I was investing in were going up. And I guess I guess I guess, I guess and I guess I probably raised my investing skills a little bit too highly. 

Sophie: [00:03:52] Yeah. Okay. So your point is that there's a fair amount of read happening on your screen that examiners. Right. Should we spin this then and ask what's the lesson you'll take from then 2023. 

Maddy: [00:04:03] Well, I think it has really got me thinking about how diversified I really am. It's so much market movement over the last 12 months. It's really sort of encouraged me to, I guess, do a bit of a review of my asset allocation. So thinking about, you know, how heavily exposed am I to tech versus health care or other industries, how heavily invested am I in Australia versus overseas market? So, you know, my goal for the year ahead is to really prioritise focusing on investing in ETFs and trying to think very strategically about where I'm putting my money and what are the actual companies behind those ETFs. 

Sophie: [00:04:39] Yeah, you know, I've had a year of ETFs after being very damaged with my tech stocks saga. 

Maddy: [00:04:45] All right, let's go to the positive side now. What is your pick for 2022? 

Sophie: [00:04:51] One of my picks for 2022 money related was that I got paid a dividend whilst I was on holiday. and I have not traditional. We invested in a lot of dividend stocks. I've invested in ones where I was hoping to get more capital gains. So that's that the amount of money that you would sell the stock for increases. But when I got this dividend and I was like sitting on a beach, I was like, Oh, hold on. I've always known that you can get paid dividends, but I think now that I've started to build up my dividend side of my portfolio, I've realised how important and how like incredible that is that you can make income like all the time just through investing. I know it sounds stupid because we talk about it all the time, but honestly, it was like the first time that I was like, Wow, I can make ongoing income through investing. 

Maddy: [00:05:38] Quick follow up question for you. Did you reinvest that dividend or did you spend it on your holiday? 

Sophie: [00:05:42] So my goal this thanks to my goal is that I realised that one of my brokers that I go through doesn't have the reinvestment plan set up for it. So I started out on CommSec and that's all set up with dividend reinvestment but on stake I'm not. So my goal for this year is to consolidate all my investments onto one platform and to make sure that all the dividends are reinvested because I did spend my dividend on a couple of pina coladas holidays. What was your pay money paid for 2022? 

Maddy: [00:06:15] My pick was I reached my goal $4 invested every month. I said I at the start of the year and I said that I had a specific dollar figure in mind that I wanted to try and invest each month. And what I have sort of really taken away from the past year is that automation helps. So I actually set up an automatic transfer to go into my brokerage app. And I have to say, I don't think that I would have reached this goal if I hadn't had that because of so much volatility in the market. You know, managing your money mindset is so key. And I think that with everything going on, I wouldn't have had as much conviction or I wouldn't have sort of gone out of my way necessarily to be transferring and investing so much had I not had this automatic transfer. 

Sophie: [00:07:00] Yeah, And I'm sure, like when you look back on this time, you'll be so grateful that your dollar cost averaging over a really volatile period because a human emotion gets in the way very easily. And if you're going to be putting out $500 or something, $100 into investing, but it's like a really bad week for markets, you might be like, I'll put it off, I'll put it off, and then all of a sudden you spend it that weekend. 

Maddy: [00:07:20] It's all about like removing that friction, right? Just trying to make it as easy and as retain as possible.

Sophie: [00:07:25] So your goal then for 2023? 

Maddy: [00:07:27] Stay consistent. You know, I want to keep going and I want to keep with these sort of different strategies, testing out different things in terms of turning off the stock market or the negative news that maybe stops me from investing so much and just try and really stay consistent. 

Sophie: [00:07:42] Love it. I think that's a great goal. Be consistent. 

Maddy: [00:07:45] We are going to take a quick break for our sponsors, but we'll be right back to hear from the head of investment strategy at Global X. Today we are excited to be joined by Blair Hannon, head of investment strategy at Global X with over 15 years experience. It's Blair's job to help us understand the global x axis in Australia, which is exactly what he's going to be talking to us about today. So, Blair, welcome to You're In Good Company. 

Blair: [00:08:12] Thank you very much. 

Maddy: [00:08:14] Blair, You very much across the ETF space, would you call yourself a bit of an ETF guru or is that going too far? 

Blair: [00:08:21] It's going way too far. No, what I like is Explicar. That's none of that stuff. I think, yes, I work in ETFs, so I have some context. Like that's going to be helpful. My background, just just for your listeners to like to make sure that, you know, I used to be I give advice. I have used to give people each a little bit older than probably a listeners advice around buying ETFs, foreign portfolio, how to build a portfolio sorts of things. And now yes, working in ETFs. So oh look, you call me guru if you want, but I don't like it. 

Maddy: [00:08:51] Well, regardless, you'd be well aware that, you know, over the past year there's been a lot of stock market volatility and because of that, we're all really pivoting to think, you know, how can we build up a kind of stable portfolio for the new year? What would be your three practical tips for building up a stable portfolio? 

Blair: [00:09:08] Look, it's a hard one, isn't it? You know, I think for many of its many, many younger investors, this has probably been the toughest year they would have experienced. I'm sure you can't save. I've got grey hair and that came from the GFC, which was a tough time. So I don't envy those who didn't have to go through that. But I think you learn a lot of lessons from those, those painful times around how you think about your portfolio. And you know, you use the word stability, for example. But for me, I think I'll put my old advisor hat on and I think this certainly pertains to ETFs, But there's a few things that I think stand out. So one, what I've always found and this is what a lot of people don't, don't get advice, is not saying you want to sell, but this is a reason, but is to think about what like what is your actual strategy? Like what are you trying to achieve out of the investment? Like, you know, I think a lot of people think that goals but like, you know, formulating that strategy is so important to help you actually get to those goals. And I think it's certainly a step that can be skipped sometimes where what happens is you sort of see what's out there. You might and you probably got some good structure out of a buy, some ETFs in the corp space and I'll build a portfolio around it. That's it's not an easy it's not an easy thing to do. And it's kind of going to my second tip because I think asset allocation, which is a bit of a jargon word, but it's like, how are you building a portfolio to expose yourselves to different parts of the market? So shares or, you know, bonds for be that popular for younger people and that's what they do. But you know, different parts of the share market, different different areas. And so it's not it's you know, it's a difficult space where education and self-education on how to do this can take some time. And it's a bit of effort. So I think what like what you guys do and I think the whole this whole podcast community that is bringing to light a lot of these questions for investors, I certainly for new investors is really, really important because it's not easy. And what happens is the longer you go in as he built a portfolio, you need to keep resetting and going back. Well, what was my strategy? Am I getting myself sticking to that strategy is the allocation. I thought, you know, that I've put in place still. Right. So I think that's that's really, really key to, again, building, you know, think about portfolio stability. Then lastly, I think diversify like every ETF guys going to say diversification that I actually think like think about what you're actually getting when you buy and think about over diversification. Because when you buy an ETF, I think the first thing you should obviously look at we can talk about this is how many shares you're actually getting in that portfolio. What's the weightings of those shares? And the really good thing about ETFs is that you can see what's in there. You can have a look, you know, go on to whoever the issue is, website is click on the holdings and you can download the whole thing. So you really know what you're getting and you know, you can build definitely build a whole portfolio. I mean, yes, it's great. You know what you're exposed it and then think about how those portfolios pair together and that diversification can be good or it could be, you know, too bad because you can't wait to fall on the track. So I think we'll get there might kind of three things I think about a strategy, think about how to allocate built for that strategy and think about what the diversification you're actually doing and getting into when it comes to an ETF is. 

Maddy: [00:12:16] I know sometimes when I'm sort of looking into an ETF and trying to decide whether it's something that I do want to add to my portfolio or not, you know, it's very easy to get analysis paralysis when I'm trying to decide what to invest in. So what would you say are the most important things to look at when you are actually getting into the nitty gritty and selecting an ETF? 

Blair: [00:12:35] When we think about ETF, it's it's similar to think, you know, doing your own research when it comes to stocks, but not to the point where you looking at a balance sheet going on to do it just kind of cash flow analysis to bring it back to today to know what the you know, the risk free rates are, you're not going to that level. But what you need to understand is, is especially with the with the advent of the matrix and how that playing a role in a portfolio these days, whether that's the old core satellite, you know, again, however you set up your portfolio, think really deeply when you when you do do that, you do look under the hood. When you look at the companies in that portfolio, when you look at how that portfolio is constructed. So the kind of the index structure of that, think about, do you think this is going to help you achieve the outcome that you want? That's what happens a lot of the time is, let's say, investing in health care and you like health care. And we certainly maybe it's not now, but you were thinking about that previously in terms of during COVID, it was a pretty obvious kind of trade, right? It was sort of sitting in front of you. Well, there's a bunch of different health care ETFs on the market, like were the ones that you buying, getting what you thought you were going to get out of it, whether that was playing into that space of the COVID vaccines or were you trying to buy it because you thought that might have slowed down, down to the more the biotech space, again, whatever your whatever your rationale was for doing it, But you've got to understand and you go down that really clearly that what you're getting is going to help you try to get what you're trying to achieve when you're buying ETFs. And that is you can't just do that by looking at the title and looking at what the ETF name is that you got to go a bit deeper than that. And if you don't, well then when you look back and go, Oh, hang on, I thought I was going to make more money out of that. Well, that's probably why that didn't happen. 

Sophie: [00:14:11] Yeah, I do find it interesting as I've kind of gone on my ETF journey this year, like actually looking at like the weightings and what countries the companies like where they're sitting. And when you do a little bit more due diligence, jargon word, when you do do that due diligence, you actually work out like, oh, okay, I might be buying this top 100, you know, U.S. ETF, but you realise that 50% of the holdings is Apple and you're like, Well, then I'm not really getting that diversification that I was like looking for once you actually do start looking into it. So it does make a lot of sense. 

Blair: [00:14:41] Exactly. 

Sophie: [00:14:41] But you've mentioned a couple of times that it's quite important to really know your strategy and know your reason for investing to select an ETF. Global X has something I saw called Conversational Alpha, which was on your website, and I think it's all about like selecting a portfolio, building up a portfolio so it suits you and your strategy. Can you explain a little bit about this and why it is useful in building up your portfolio? 

Blair: [00:15:05] I think it kind of goes back to that point. Anyway, this this to give you the context, this was framed by our US CIO. His name's John Mayer, not the singer John Mayer. It's a complete different guy. He might be good at it. Yes, it's a fun topic. Yeah, I don't know. I'm not judging his investment portfolio, but it's all around thinking about. Trying to make the idea of building a portfolio and portfolio construction relevant for investors. And I think it's hard. And I think the point is also this is alpha and alpha that is pure jargon, beta and alpha and all this stuff that comes into the world. And for context, what that means is, is batteries beta is essentially an index because you get better returns. Beta is like an index, like an SPF of hundreds like that, where alpha is what you're trying to get up over and over and above that, that index where you know, at most, you know, generally 90% of ETFs are beta or they're tracking index. So what we're kind of saying he was where the alpha comes from, how you think about that is how you're building the portfolio, how you constructing it together, how you're putting all your pieces into that bigger puzzle because that's what's going to give you. You're technically your Alpha as an investor. So how does that look across sectors? Has it look across the matic's? What indexes are you buying? Are they rules based? Are they narrow? Are they broad? These are the questions are are you buying bonds? How you're pairing your bonds with equities? These are big questions and I'm not sure I'm not answering these questions. I'm giving you the context. Then how does that pair with you as an investor? Are you younger? That mean you got a longer time frame? Does that mean you, because of that time frame, can't take on more risk because you've got, you know, a longer time frame to to to smooth that volatility. You talked about this earlier around the stable portfolio. If you're younger, you know, compared to bank, say, a retiree who needs income and he's 80, that's a it's a whole different portfolio what your portfolio looks like. So it's really thinking about. How you want to generate alpha and how you want to get your outcomes for your portfolio at that sort of top down level, which I think, again, I think it's really important to think about for for any type of investor, especially sort of younger investors as well. 

Maddy: [00:17:12] You touched on time horizon there, and I have to say this year in particular, I have been glad that time is on my side because my portfolio hasn't been looking at so flash recently. I think this year has been a really good year of learning, though I'm keen to hear. What would you say is your biggest lesson from investing in 2022? And I guess what will you be carrying into 2023?

Blair: [00:17:34] I think it's because it's think investing is it's in general, it's a thing called recency bias and probably pretty well aware of it. And the idea is, is that what you think has happened recently is going to happen. And that's going to prolong future. And it just shows with. Yeah, well, I think it shows with inflation and interest rates, which really are like, let's be honest, probably the interest rates are some of the biggest drivers of investment returns we've seen. We've had a prolonged period of time where interest rates fell from. Yeah, I wasn't around, but in the you know, you hear from your parents very, very often that interest very high and things like the seventies and eighties when they were paying this amount on their home loans compared to they are when it's still low lower in comparison then but obviously bounce off a very, very low base. So that has fundamentally changed the game in terms of what investments look like in the future. And it's really about how that's going to play a role and how you think. And this is not an easy question and I don't have a great answer for it, but this is going to fundamentally play a role in going to say, Oh yeah, now there's no crystal ball here. It's really it's a really hard question because. A lot of investors for a predominant period of their life, have lived through this cycle of decreasing, potentially decreasing interest rates. And it's just changed in terms of these younger investors like yourselves, how to think about what we're going to do the next ten years. So I think there's still a bunch of different options that you can play to take advantage of this. It's just thinking, thinking deeply about how that works. Now compared to basically what the free money game was we had obviously the last ten years. 

Sophie: [00:19:07] So just so I understand, right, because I feel like I'm a little bit lost. Are we saying that we like we now see that kind of, you know, pretty not stable, but, you know, low interest rates. And obviously inflation is high at the moment. But, you know, usually sit between that 2 to 3%. And that means going forward, the stock market's going to, you know, be reacting in a different way to we've seen, you know, historically or. 

Blair: [00:19:30] I think it's a situation where what we have was a gradual decline into very low interest rates since the GFC. Obviously, military nature from from from governments and central banks, that's likely not going to come back in the very near future and lock actually come back probably in the next. You know, forecasting is a very hard game and I certainly don't pretend that I'm anything special, but it's unlikely that you're going to see 0% or very, very low interest rates in the next couple of years if inflation stays around in any copper form. So what that means is, is it just it's more difficult. Now let's look at you guys. You would have probably in your whole investment journey never been out of get any yield any income out of bonds thing I suppose in there. Now that's changed already. So what does that look like again for the next ten years? That's going to change how you think about your type of investment. So this is the thing. There's no easy answer to this because for many investors, this probably hasn't been something that you've even seen before. But again, to my point, there is options to play this in a broader sense. It's just how you think about when you build your portfolio with it.

Maddy: [00:20:35] Are there any industries that you have your eye on for the year ahead in 2023? 

Blair: [00:20:39] Well, I think going back to the point earlier, around the long term, I think one area that if we think about like what interests going to impact a lot of areas, but one area for me is, is it when, not if is this whole decarbonisation trend where we're seeing a lot. We've seen COP 27 just recently. So everything that came out of COP 27 was that there's an expectation that between four and 6 trillion USD needs to be spent in renewables by 2030 if we're going to hit net zero by 2050. Now interest rates on all that's happening because we know as an Australian government and we're probably a little bit slow here, but in comparison to the rest of the world, I'm driving towards renewables and it's a few reasons the acceleration of this war that's come out of Ukraine and Russia. We're lucky here. Heaps of coal hates natural gas going against the policies of the all the caps and that sort of stuff. But like we've got this abundance of fossil fuel that we can turn to if we need to, places like Europe and Asia. They don't have that, but they've got no choice. So they're trying to drive independence of energy security. And one of the areas they do that in is to build renewables, which has become much, much cheaper. Actually one of the most cost effective ways you can get energy now. So if you want to move away from your reliance on traditional fossil fuels called natural gas, what do you do? You go and build a bunch of renewables That ties in really nicely with this broader decarbonisation trend that's happening globally. So yeah, that's why I think for me it's a way not if it's just it may not be perfectly 2023, but if it is truly the long term game. 

Sophie: [00:22:15] Is there to put you on the spot here, is there a specific area of decarbonisation that you are interested in or you just the whole trend in general? 

Blair: [00:22:24] look, yeah, look at this. There's this is a thing. It's about thinking about as an investor how I can apply this theme. Like that's, that should be the mindset of all your listeners. Like how do I, how do I do the right thing by the Globe and participate in this? But how I saw how do I generate wealth alongside it? I think one of the areas that that we really like is probably the metals that are going to take to build this infrastructure that takes are the solar panels, electric vehicles, the wind turbine. So, you know, we know about lithium, lithium trade talks about a bunch of Australia. But I think one of the other ones that's really interesting is copper like if you were to build a traditional copper or additional sort of power plant, natural gas, coal, you need at least between 3 to 5 times more copper to build one of these new wind turbines or solar. So we had this base case of copper venues for, you know, millennia around building an infrastructure and everything. If you had renewables on top of that, where does that come? What does it come from? So we had some pretty interesting stuff happen recently. BHP has bought Oz Minerals in Australia. It's a copper miner. Rio's just gone and bought another pot. Play it up in Mongolia again, a copper mine. So these big companies are starting to see what's happening in the future in these areas. So it's a really interesting stuff in the material space when it comes to this renewables picking renewables trend. 

Maddy: [00:23:38] Very interesting indeed. Well Blair, thank you very much for joining us on the show today. So very interesting to get your perspectives on sort of how I can be thinking about our portfolios at this time. Obviously, for us newer investors, it is a very different environment today than it was even six, 12 months ago. So thank you very much for your time. 

Blair: [00:23:59] Thanks, guys. It's really good. 

Sophie: [00:24:01] Good to get a little bit of insight from someone that builds up ETFs every day and hopefully something that we can take into 2023. Another thing we can take in is one of your summer recommendations. 

Maddy: [00:24:12] Today, I'm recommending in an episode of a podcast called Masters of Scale. This one is so good. It is called Make It Epic Will I Am? And it's all about Will.i.am and his ability to bring people together and actually really leverage partnerships to create things that are far bigger. I always thought that, you know, Will I Am was a singer. He was part of Black Eyed Peas, you know, obviously good at his job, But I had no appreciation of just quite how my class, how much? 

Sophie: [00:24:41] Quite, how much he did with his life. 

Maddy: [00:24:42] He partnered with Apple, Coca-Cola. He became the director of Creative Innovation at Intel. And he was one of the founding partners of Beats. Beats by Dre, Those headphones. I honestly could not recommend this episode more highly. It was fascinating to hear what he's been out to create. Out of what on the surface looks like a music career. 

Sophie: [00:25:02] Sounds like I've got a podcast for a summer drive somewhere. 

Maddy: [00:25:06] Love it. What are you recommending for me today? 

Sophie: [00:25:08] I have previously recommended this podcast, but I think it is a perfect one for 2023, which is the human lab. 

Maddy: [00:25:16] Oh nice. Have you got a specific episode? 

Sophie: [00:25:18] Yes, I've got two. So there's one all about goals. And so he speaks about like setting up your goals and how important it is. A really great thing about his podcast because you might see it and be overwhelmed because they're like 2 hours, but he timestamps everything in his shownotes. So there's a certain area that you're like, I need to know why setting up goals important. He'll like have that written and you can go to that timestamp, which is great. Another one is that he speaks about the science based facts behind happiness. And I think if you just need a bit of a feel good or like I don't know if you want to reset for 2023 and really bring a little bit more serotonin or happiness or positivity into your year if you've had a crappy year. It's just like a really thought provoking episode. Again, got the timestamp so you don't have to listen to the full 2 hours, but he's got his game. 

Maddy: [00:26:05] Well, we will be including all three of those links to all three of those episodes in our show notes. As always, if you have any questions, please get in contact at YIGC podcast on Instagram, or jump into our Facebook group YIGC Investing Podcast Discussion Group. 

Sophie: [00:26:20] It's also summer, so please feel free to share this to a friend or family member if they are setting up new money goals, new investing goals for the new Year. 

Maddy: [00:26:29] Otherwise we will catch you next week.

Sophie: [00:26:31] See you then. Bye.