Optimise Your Portfolio for Minimal Maintenance and Maximum Returns

Bryce: [00:00:30] Welcome to Get Started Investing feed, a podcast where we help you learn to invest in 15 minutes or less. Each episode, we take one real world business story and apply a key investing lesson to help you build your investor toolkit. If you're joining us for the very first time, welcome. We strongly recommend that you scroll up and start at episode one. Now, while we are licensed and we'll get to that in a second, we are not aware of your personal circumstances. All information on this show is for education and entertainment purposes, and any advice is general advice only. With that said, let's crack on. My name is Bryce and as always, I'm joined by my equity buddy Ren.

Alec: [00:01:04] How are you? I'm very good. Bryce very excited for this episode, for everything that's going on in our lives and in the lives of Equity Mates at the moment, yeah. But while our life is busy, our portfolios don't need to be. And while our lives are busy, being an investor doesn't have to be busy as well. Yes. It's never been easy to be an investor.

Bryce: [00:01:25] Love that. Love that. Well, there's a lot to crack into. We've got 15 minutes. But you've noticed. You may have noticed. I changed my intro there, Ren, based on some very exciting news that has come across the Equity Mates desk, and that is we are now licensed.

Alec: [00:01:39] Yes, we have an Australian financial services license. Do you remember the number?

Bryce: [00:01:44] 5406979.

Alec: [00:01:47] So this has been months of work in the background and what it means for the show, what it means for our content is ultimately not a lot. We'll still be producing get started investing Equity Mates all of the content we produce, socials, email, all of that. But we are now officially licensed by the Australian Government.

Bryce: [00:02:09] That's it. The regulator.

Alec: [00:02:10] It's real now.

Bryce: [00:02:11] We've been working with the regulator, ASC, and we have our own license, unlike others who may be operating under other licenses as an authorized representative. This is an Equity Mates media affair. So very exciting news.

Alec: [00:02:24] Yes, yes. But that is only one of look. We'll talk about this more in coming days. We've only got 15 minutes. We can't dilly dally because our lives. I said they've been busy. We're recording this two days before Fin Fest. We're releasing it two days afterwards. If everything goes wrong at Fin Fest, maybe we won't release. But we're nervously excited for it. Hope everyone who came had a great time. That's been keeping us busy. You got married?

Bryce: [00:02:51] I got married.

Alec: [00:02:52] Someone decided it was a good idea to book a wedding two weeks before the biggest event we've ever thrown. Bold move, then take a week off for a honeymoon.

Bryce: [00:03:01] Break off for a honeymoon? Everything? Yes. Got married when you were there. It was an absolutely magical weekend. It was very special. Just had such a good time. Took a week off feeling refreshed and revived. And let's. Let's crack in.

Alec: [00:03:16] And the good news is, despite everything that's going on in our lives, we've kept investing.

Bryce: [00:03:21] Well, you have particularly given that last week, I think we spoke about your auto investing.

Alec: [00:03:27] Yes.

Bryce: [00:03:27] And when we left the end of that episode, it actually hadn't kicked in. You were doing it as a bit of a trial. You'd set it all up. Yep. But from what I remember, it actually had an executed and now it has, yes. Has it executed how you thought it would actually execute?

Alec: [00:03:42] I've had it executed twice.

Bryce: [00:03:43] Okay.

Alec: [00:03:44] So. So maybe we might have recorded that. We just had a week. Yeah, yeah. Yeah. Yes. Because of your wedding? Yes. Yes. So since we recorded that episode, I've it's I've had to pay cycles and it's auto invested twice. That is quite.

Bryce: [00:03:59] Nice.

Alec: [00:04:00] The money hits the account like Equity Mates paycheque to account on Monday. All the transfers go out on Tuesday and the auto invest happens on a Wednesday.

Bryce: [00:04:12] Nice. And you get a text message. Confirmation? Yeah. Nice.

Alec: [00:04:15] Oh, I'm like, hell, yeah. I've had five text messages in the morning. Ten. I am on the other today. Interesting. Well, ten or whatever.

Bryce: [00:04:24] So it's executed as soon as market opens. Yeah. Yeah. Okay, good. Well, the reason we're doing this episode is because off the back of that conversation, we've had a number of questions come through about actually setting up portfolios. We spoke about the way that you were approaching diversifying your portfolio and a bit of overlap. And a constant question we get is how many ETFs is too many? And so we're going to sort of cover that in the next 10 minutes or so.

Alec: [00:04:52] Yeah, the two pieces of good news are, first of all, it's simpler than you think. And second of all, don't let perfection be the enemy of the good.

Bryce: [00:05:02] I know.

Alec: [00:05:03] Oh, really?

Bryce: [00:05:04] Yeah.

Alec: [00:05:05] Well, it's kind of fresh. It's like, however you're investing, the fact that you're investing means you're, like, 80% of the way there, and you're doing more than so many people, which is really unfortunate because it's so important to have your money work for you rather than sit in the bank and get less than 1% interest when inflation's at 6%.

Bryce: [00:05:26] Yeah. Well, I think this the fact that this. Let the perfection be the enemy of the good. You're a classic example.

Alec: [00:05:34] Are you saying I'm not perfect?

Bryce: [00:05:35] No. But you've been investing now for five plus years. Easily? Almost ten. Hmm. Whatever.

Alec: [00:05:42] Yeah. Yeah, actually, almost ten.

Bryce: [00:05:44] It was only in the last three or, well, a few months that you've decided to just completely overhaul your portfolio.

Alec: [00:05:50] Yeah.

Bryce: [00:05:51] So, like, it just goes to show.

Alec: [00:05:54] Yeah.

Bryce: [00:05:54] You know, whatever you start out.

Alec: [00:05:56] Was like doing for the last year.

Bryce: [00:05:59] Whatever you start out with, you're not locked in. Like you can learn and make changes and and go again and yeah. And, and make changes and go again.

Alec: [00:06:07] And I think a key part of it for me has been life has just got busier. And while I was fresh out of uni and, you know, just starting out in work or whatever and COVID just felt like I had more time. But now with Equity Mates and, you know, growing the team and everything. Life got busier and my just that day to day investing like lost it lost its focus a bit. But that's part of the reason why I've just set up all this automated stuff. And the good news is that, you know, I don't have to do anything now.

Bryce: [00:06:38] Yeah.

Alec: [00:06:39] It's never been easy. Like, you don't have to be an investor to be invested.

Bryce: [00:06:44] Nice.

Alec: [00:06:45] You don't have to wear Patagonia vest in a suit and tie. You know, you have to talk about stocks at parties. Well, let's listen to this podcast. No, no.

Bryce: [00:06:54] All right. Well, let's talk about diversification, Ren when it comes to setting up an ETF portfolio of ETFs. And we'll start with the research side of things because there's a pretty well-known chart that we've spoken about on the show. We might try and get it up on on socials if we can, or in the forum that really show the benefits of diversification. Do to K pretty quickly.

Alec: [00:07:14] Yes. And so basically what it shows, if you have one stock holding, one individual stock is riskier than the market. The volatility is higher, you know, the movement of price up and down. But as you add more stocks, you start to see the benefits of diversification. And by the time you get to about 20 to 25 stocks, the risk in your portfolio is about the same as the overall risk in the market. And so after that, any more additional stocks that you add, you're not getting really any additional benefits of diversification. Now, if that doesn't really make sense, the all you really need to understand is the outcome, which is that like the benefits of diversification sort of knocks out around 20 to 25 stocks, different stocks. Yeah. Yeah.

Bryce: [00:07:59] So having 100 in your portfolio versus the 20 to 25, you're not going to have a hugely. Yeah.

Alec: [00:08:06] Diversified difference. And that's so that's what the academic research tells us. But for most investors these days, this is a big call for me. But I think it's right of our age. Most investors, those days, they're predominantly not buying individual stocks.

Bryce: [00:08:20] Well, I don't think that's a big call. I think research came out a couple of weeks ago that said seven out of ten ETFs.

Alec: [00:08:27] 77 out of $10.

Bryce: [00:08:28] Investments are made by millennials are ETFs.

Alec: [00:08:33] So you go. I got my finger on the pulse. Yes. And the good news is that ETFs, most of them already have more than 20 to 25 stocks.

Bryce: [00:08:40] Yeah. Well, then that begs the question around like how many ETFs do I want to have? Yeah. If if one has 20 to 25. Yeah, I've got another that has 20 to 25.

Alec: [00:08:52] And the thing is like, does diversification even matter when you're talking about ETFs? If they all have, you know, the ASX 200 has 200 stocks. Yeah. And the reason it matters is because you want to just diversify away from different risks, the risks that America does something stupid and the American stock market falls or the Australian housing bubble bursts and the Australian economy implodes. Yeah, or I don't know, the tech sector collapses for some reason.

Bryce: [00:09:19] So there's sector diversification, geography, diversification.

Alec: [00:09:23] It's just like you think of all the different types of risks there are in the world, and you want a portfolio that is resilient to those to those risks. So let's get to the meat of this episode, which is about how we actually build a diversified portfolio of ETFs.

Bryce: [00:09:36] Warren will start with two options where you can do it through one ETF. Now, you and I both have a super in superhero. They have a diversified ETF in there that you're forced to put a percentage of your superannuation into, and that is the Vanguard Diversified Balance Index ETF. The ticker is V, D, B, B, A. Now this is a one ETF that gives you exposure to a multitude of global markets as well as a different asset classes. Yes, so well diversified within the one ETF.

Alec: [00:10:12] And that's just one example of these one ETF portfolios, I guess you could call it where Betashares, Vanguard, iShares, whoever it is, have done the work and built a diversified portfolio. And you just have to buy one thing. Yeah. And so you mentioned very day.

Bryce: [00:10:30] Yeah.

Alec: [00:10:30] But the fire community, the financial independence, retire early community love they d h j which is the vanguard diversified growth. Yes. And they just oh, I'm just like they but it's like you know fire proponents love just by not and buy more of that and that is also one that has like multiple different social like property bonds stocks. Yeah. And so there's a number of products out there we've mentioned to Vanguard ones, but every ETF provider has them where it's just like they, they build a diversified portfolio for you. Yeah.

Bryce: [00:11:05] And in one simple trade bang. Yeah, you get it.

Alec: [00:11:08] You don't have to be an investor to be invested.

Bryce: [00:11:11] In P catchcry coming so those two one ETF portfolio options but there are other ways that you can do it and we will shed some light on how we do it.

Alec: [00:11:21] Yeah, well, I guess so. Neither of us invest in those. Why why don't you why don't you just have ADHD and then go and play the drums and do whatever else you do in your spare time?

Bryce: [00:11:32] Good question, because I like the enjoyment of doing it myself. Yeah. I also don't feel like I want exposure to everything that's in those ETFs. I want a bit more of a concentrated exposure to equities only. Yeah, some of those other ones have bonds, as you said, cash and bits and pieces, property, property. So those are probably the two, two main reasons. Yeah.

Alec: [00:11:58] One of my reasons as well is the weighting of them is something that I want to have a bit more control over. So even the the high growth index has a meaningful allocation to bonds and cash and stuff like that, which is good. Like that's great if you just want to buy one thing. But for me it's like I want to set the set the time. Yeah. So then I want to take the next level down and just buy the ETFs themselves.

Bryce: [00:12:24] So what do you have in your portfolio?

Alec: [00:12:27] Well, we've been talking about my auto invest, so and I think I said this on a previous episode, but I picked five ETFs, okay. With zero overlap. So none of these stocks will overlap unless they're dual listed. Okay, let's not worry about that. So S&P 500 gives me America. Yeah, ASX 200 gives me Australia. Footsie Asia Index ex Japan gives me Asia. Ex-Japan. Yeah. A Mainland Europe ETF.

Bryce: [00:12:54] How many like all countries.

Alec: [00:12:56] Yeah. Okay.

Bryce: [00:12:57] Yes.

Alec: [00:12:58] All western Europe. Yeah, I'm pretty sure. Yeah. Yeah. And then a footsie 100 which is the UK.

Bryce: [00:13:03] Nice. You know, Central and South America.

Alec: [00:13:07] North South America.

Bryce: [00:13:09] Is there one. Yeah, there would be.

Alec: [00:13:10] Yeah. Yeah. And like there are some big stock markets I like Brazil's got a big index. So yeah.

Bryce: [00:13:15] So that was a conscious decision you made to have five ETFs that gave you world coverage? Yeah, no.

Alec: [00:13:21] Overlap. I just didn't have more money.

Bryce: [00:13:25] And so that's what you classify as your core.

Alec: [00:13:27] Yes.

Bryce: [00:13:28] And that is what you are auto investing into on a regular basis. Yes. Nice. Then do you have any ETFs outside of that?

Alec: [00:13:35] Yeah, I've got two that I've looked at recently. Cyber, the hot quant. Oh yeah. That was one of my first ever investments when we were doing Equity Mates when we interviewed Betashares. Yeah, yeah, yeah. And then the hydrogen one. Yeah, a bit of exposure to that. So that too it's, it's in my satellite and then I've got a number of individual stocks as well, but I don't auto invest into any of the satellite stuff.

Bryce: [00:13:59] Okay.

Alec: [00:14:00] Well, you know, I don't think so. I think it's like I want to auto invest into the core. If I if I if you finally give me a pay rise here at Equity Mates, I think it makes more sense for me for me to put more into those core just country like region indexes rather than like finding the next ETF in the next ETF in the next ETF. Yeah, but personal preference, of course.

Bryce: [00:14:24] Of course. Nice will make sense. No overlap. You're building your core there that that's the ten plus year holdings and then you've got a few around your satellites plus then I imagine individual companies as well. Yes, plenty of those.

Alec: [00:14:37] Okay. Enough, enough. What about you are.

Bryce: [00:14:42] Not as diligent with the exposure globally I've discovered. So my core is really centred around the ASX 200 here in Australia and S&P 500 both leveraged. So really just constantly putting money into both of those. I do have an Australian property ETF and then I've got my carbon ETF, my hydrogen eighth and my semiconductor ETF.

Alec: [00:15:06] Okay.

Bryce: [00:15:07] But then I was like, hang on, I've got some investments elsewhere outside of the broker. I do have a investment in the closed Magellan Global Fund. Yeah. And then when I looked at the holdings of that, it's pretty much the S&P 500. Yeah, but it just comes with way higher fees. Okay. So that is not currently under review.

Alec: [00:15:26] Okay. Okay. That on notice there.

Bryce: [00:15:28] On that is currently under. I bought years ago. The it's the ticker is AWOL day it's the iShares core MSCI World X Australia ESG leaders don't ask me why, but it's been in my portfolio.

Alec: [00:15:42] It's a long title for that time.

Bryce: [00:15:44] It's been in my portfolio for ages. I have a bit of an emotional attachment to it, but again, it is really just so heavily concentrated with top Americans. Alec: [00:15:54] It's just like big, it's just.

Bryce: [00:15:56] Big tech and S&P 500. So again, probably should review that. And then I do have a tech which is the Aussie Tech ETF, 55 tech ETFs.

Alec: [00:16:06] 5055 tech stocks.

Bryce: [00:16:07] Stocks here, 55 tech stocks.

Alec: [00:16:10] So, yeah, you're getting rid of it.

Bryce: [00:16:12] No, no, no. I really like that one. Yeah. Because I don't own any of the other tech stocks individually.

Alec: [00:16:17] Well you would through the ASX.

Bryce: [00:16:18] Yeah, yeah. But I like the concentration that this gives to REIT, Computershare etc. etc.. No zip. I mean zip might be in there, but.

Alec: [00:16:27] Would.

Bryce: [00:16:27] Not a high concentration. It's not.

Alec: [00:16:29] So I think the key that's a key point as we go over time here that you have overlap there and that's okay because you've made the decision that you want more exposure to those Australian tech names. Yeah. So you know, people think about overlap and they're like, you can't have overlap, but you can overlap is completely fine as long as you're okay with having more exposure to the companies. Yeah, yeah. So if you want, if you think that Aussie Tech is going to do really well and so you want some extra exposure to Aussie Tech alongside your ASX 200 ETF, or if you think American companies in general are going to do really well and you buy like a Vanguard Diversified Growth Index or a all world stock market index, and then you buy some American specific stuff as well, an S&P 500 to go on top of that, that's fine. But like just make the decision consciously knowing that there's overlap being and being okay with that. Okay.

Bryce: [00:17:26] Yeah, completely agree. I think the the overlap here that I'm definitely going to review though is, for example, the the Magellan and the iShares, both between them are very similar and then also against the index of the S&P 500. And then it just comes down to two phase. For me, it's what's the point in paying multiple phase four at the end of the day getting exposure to the same top ten holdings? Yeah. So yeah, look, we'll keep everyone posted with how we progress with with our portfolios.

Alec: [00:17:53] I think, I think the final takeaway there is that like we're not talking about heaps of ETFs. No, there's 250 something ETFs listed in Australia, 250 759 in the States. There's more than 1000. I think I've just pulled that number up, but it feels about right. But you know, some of the portfolios we've spoken about here, one ETF portfolios or you know, I have five in my core, you have two in your core and then four others or six in your call. I don't know how you breaking that up or whatever, but like we're not talking about a stupid amount of ETFs, you know, and I think that is a really important point. Yeah.

Bryce: [00:18:32] Well then that brings us to the end of our get started investing episodes hopefully for investors gone well we were done for it for the year has.

Alec: [00:18:40] Crossed into next year.

Bryce: [00:18:43] Yes start planning next year. If you've enjoyed the show, can you please jump over right and review? We would appreciate it. Five stars if you would like to provide feedback. Otherwise you can email us at contact@equitymates.com but have a great week and then we'll pick it up next week.

Alec: [00:18:56] Sounds good.