Risky Business… how can I minimise my risk when investing? | Guest expert Sarah King

Maddy Guest: [00:01:11] Hello and welcome to another episode of your podcast. A lot of people who want to make smart investment decisions. I'm Maddy and I'm here with my good friend Sophie. [00:01:22][10.4]

Sophie Dicker: [00:01:22] how are we today? [00:01:23][1.1]

Maddy Guest: [00:01:24] I am so excited because today we are joined by a very special guest. But before we start today's episode, we would like to acknowledge and pay respects to the wonderful people of the Coolen nation. But the traditional owners of this land had the deepest respect for the elders past and present and to the next generation for who we hope to create a different future. [00:01:43][19.0]

Sophie Dicker: [00:01:45] So over the next two episodes, we're delving into two very important topics, which is understanding your risk profile and also building out your portfolio accordingly. Now, I would say that when I started out my investing journey, I was a pretty risky investor because I was buying into, I guess, the likes of off to pay and into some other small companies that I did believe in. But, you know, I didn't really build out kind of a stable investment portfolio, which I'm now kind of moving into a little bit more. But yeah, I guess I was a little bit risky. And now I'm realizing that for long term growth, I probably need to bring that restore a little bit down. What is your risk profile look like? [00:02:28][43.7]

Maddy Guest: [00:02:29] Yeah I think I was kind of probably more the opposite. I started out with buying ETFs and I sort of built my confidence in my interest that way. And then more recently, I've actually started putting a little bit of money aside to invest in smaller or lesser known stocks that, you know, I researched and can have a little bit of fun with with investing in things that I'm really interested in. But I definitely still keep the majority of my money invested in sort of those more stable ETFs. But, yeah, it's been really fun to see how my money has sort of grown that way. [00:02:58][29.5]

Sophie Dicker: [00:02:59] Yeah, well, I guess knowing how much risk you want to take is really important as it's definitely going to impact your investment decisions. And to help us understand these concepts a little bit more, we're going to now cross over to our chat with Sara King. And over the next two episodes, delve into your own risk profile. [00:03:14][15.5]

Maddy Guest: [00:03:15] Sara is the head of client care and advice at Starbucks about which is a leading online investment advisor in Australia. She has had over 14 years experience in financial services and is passionate about empowering women in the areas of wealth creation and financial independence. So we are so excited to have you today. Welcome. [00:03:34][18.8]

Sarah King: [00:03:35] Thank you so much for having me on the podcast. It's great to be here. [00:03:38][2.7]

Maddy Guest: [00:03:39] Now, we have read somewhere that you have the super power of explaining investing like a real person. Would you say, is this true or false? [00:03:46][7.7]

Sarah King: [00:03:48] I would say that is very true because that is by nine, five or ninety six day job as head of client care and advisors. But what I keep out of my role is explaining quite complex financial terms to everyday Australians who are on their investing journey. So, yeah, the ability to break down complex financial talk into. Yeah, easy to understand. I guess language is is what I do day in, day out and I absolutely love it. [00:04:17][29.5]

Sophie Dicker: [00:04:18] Well, that is exactly what we need on this podcast. So we're very excited to have you here. We're going to start with some of our quickfire questions for you. So first one, what is your morning routine? [00:04:29][11.3]

Sarah King: [00:04:30] I get up, without a doubt, around about six o'clock every morning and go straight to the kettle to make my hot lemon and water. I'm a firm believer that that keeps the justice system for the day. I then get ready to come to work. So I live pretty close to the Sydney CBD. I had the pleasure of walking to work every day and I. I walk through the Sydney Botanical Gardens and that's sort of my time to think about the day ahead, my planning for the way listen to the music or a podcast. I've also practiced yoga for many years. I often do my own yoga practice in the botanical garden if I can't make it to a club. And then I get in and I get ready for work and I'm ready for what lies ahead and to be my best site for clients and all of the new people calling in to get started with investing and whatever, whatever else unfolds during the day. [00:05:17][47.2]

Maddy Guest: [00:05:18] That sounds like an amazing way to start your day. And Sarah, I guess sort of going back a few years now, I imagine. Can you tell us who or what influenced you to invest? [00:05:28][10.4]

Sarah King: [00:05:29] Yeah. So the very first influence would have. The first financial adviser I ever worked with, so back in the day, I worked for a traditional financial advisory firm and that was where I learned about index investing and the benefit of low cost passive investing. And this particular adviser was a real mentor to me and showed me the value in doing that. So I got started with that. I was then influenced by some of my other colleagues who then convinced me to take out a margin loan combined with that, which was a super risky strategy, and that was just before the global financial crisis hit. So I learned quite a few lessons there in terms of taking on a little bit too much risk. And I can sort of allude to that later. But then you combine that was also my mom. She you know, she's struggled financially a lot during her life, having been through a few marriages and sort of certain things happening in her life. And, you know, I then got to a point where I was like, you know, this is really, really important that women know what to do with their money and how to invest. And, yes, that after my major lending experience, I spent a few years where I wasn't investing and then seeing my mom go through things that really motivated me to get started with investing again and have confidence and to then want to help educate other women on how to do the same thing. [00:06:51][82.0]

Sophie Dicker: [00:06:52] That's really nice that you mention your mom. I've we've had a lot of guests and my dad and I also talk about it that we have had a lot of males in our life who have influenced us to invest grandpa, dad, brother. So it's nice to know that your mom was an influence for you. And last question, in one minute or less, if you a stock or company, who would you be and why? [00:07:12][20.4]

Sarah King: [00:07:14] Yeah, I don't want to sound cliche, but I would have to say Nike, for me as a big brand, Nike is a health fitness performance, innovation. You know, they've got incredible sustainable policies in place. They breed diversity and inclusion. And for me personally, like their epic react, foam has made my walk to work immensely better for decades now. And I'm yeah, I've just been full of it. Get a supercool company. They're making people look better, feel better. But most importantly, even though they're a big global brand, I feel like they create an incredible sense of community. And some of the best events I've been to have actually been Nike events as one of their first. She runs the night events here in Sydney through Centennial Park in the evening. And it was just incredible. And then I used to on Monday night, go and join their the Nike Run Club with a couple of friends. And we do like 10K runs around the Sydney CBD in the dark and it was quite euphoric. So they built an incredible sense of community on a local level. And yeah, it's a really cool brand. [00:08:16][62.4]

Sophie Dicker: [00:08:17] Yeah. I also use the Nike Ren Club and I love the coaches at the end when they tell you you're doing a really good job. [00:08:21][4.7]

Sarah King: [00:08:22] It is brilliant. I love it. Yeah. It's so good. [00:08:26][4.6]

Maddy Guest: [00:08:29] So almost every person responds the same way when we ask what are you most afraid of when it comes to investing? And I guess that that really comment on the way here is that, you know, I'm scared of losing all my money, which is really highlighting the fact that people do believe investing is quite risky and it's riskier than keeping your money in the bank. So, Sara, just broadly, how how do you define risk? [00:08:52][23.4]

Sarah King: [00:08:53] So risk is if we look at investing, you know, you can have your money in a savings account, which people perceive as relatively risk free. You know, your money isn't going to go down in value. So people see that as a risk free asset. Now, when you look at something that carries risk, this means that there might be ups and downs in the value of your money. And when people think about investing in things like says, they think, oh, my gosh, that is super risky. I could lose all of my money. And, you know, that's why I'm not going to start investing in the first place, because I'm super uncomfortable with the thought that my money might go down in value. [00:09:32][38.9]

Sophie Dicker: [00:09:32] So why do you think there is this kind of conception out there that investing is riskier than keeping your money in the bank account? Why do people think that? [00:09:41][8.3]

Sarah King: [00:09:41] Yeah, I mean, if we look at things like the media and the investment industry as a whole, it's quite complex. You know, you watch the news every night and you see this stock down, that stock down. And, you know, this creates a perception that investing is actually more akin to something like day trading, you know, this constant buying and selling of investments. You really need to know what you're doing. You have to be an expert. But really, investing is the opposite of that. And we can talk about ways you should be investing to, in fact, manage that risk. But it's very much how yet it's portrayed in the media. The fact that we're not taught about it at schools, we actually don't really understand how you can take massive risk and how you can. Yeah, not have to worry about that sort of. Day trading type of activity, because that essentially is not investing. [00:10:34][53.0]

Sophie Dicker: [00:10:36] It's a good point that you bring up the media. Even many analysts say, like the movies, like Wolf of Wall Street, you just say that is the environment and you think, oh, that's what I'm putting my money into, like Norway. [00:10:45][9.7]

Sarah King: [00:10:47] Without a doubt. And yes, that's exactly what it's not. So, yeah, I think the more we can demystify that, the better and the more hopefully we'll see more women and more Australians investing. [00:10:57][10.3]

Maddy Guest: [00:10:58] So I guess on that then, do you think investing is risky? How do you sort of perceive the risk? [00:11:03][4.5]

Sarah King: [00:11:04] So the way that I look at it is keeping my money in a savings account long term is risky. And this is something that I think is a bit of a refrain we need to see people have. So for any money that you don't need for your short term goals, that seems like three months to three years. Keeping your money in a savings account is actually risky because it's not growing ahead of inflation. It's not going to allow you to buy the things that you want to buy in the future. So for me, then, I think, OK, how can I get my money working harder for me in a way that helps me to manage my risk? And sometimes you have to take a bit more risk, and that's healthy to do that so that your money is going to grow ahead of inflation and to afford do the things you want to buy in the future to meet a future goal. And investing is the best way to get you there. [00:11:53][48.9]

Sophie Dicker: [00:11:53] So what are the main risks you should be aware of when investing? What are the things maybe that your clients are thinking of or that you see a lot that people are thinking of? [00:12:02][8.8]

Sarah King: [00:12:03] Yes. So the first one is, I'm scared I'm going to lose my money. What's the risk that I'm going to lose all of my money? And yeah, I mean, for clients that come to like, you know, we've never had a year where clients have has lost or made a negative return, you know, and again, that's the benefit of owning different types of things and having lots of different sort of companies and investments in your portfolio. The other thing is, you know, the market risk share markets go up and down and that can make a lot of, you know, I guess less experienced investors or people just getting started quite nervous. So they want to know, like, you know, you know, can I stomach this? What is this going to impact me? Am I going to be able to sleep easy at night? And I think that's that's a very big concern for a lot of our investors. So market risk, you know, you've then got things like interest rate risk. You know, what's going to be the impact of changes in interest rates on my investments. But, yeah, the main risk is really around, you know, the financial loss. And I think that's something that many investors need to get their head around or people just getting started that when you invest, seeing ups and downs in your portfolio is very, very normal. But all you need is a lot of time in the market. And, you know, the benefit of keeping like a long term perspective. And, you know, you can ride through those ups and downs and be rewarded for it in the long term. [00:13:28][84.8]

Maddy Guest: [00:13:29] So can you explain a little bit further how do you actually lose money in the stock market? I understand there are a couple of ways the company goes bust or if there is that price movement. Can you elaborate on that a little bit? [00:13:40][11.2]

Sarah King: [00:13:41] Yeah. So, I mean, the most common thing is, is price movement. Right? So, you know, you buy a share the given price today, that's maybe five dollars tomorrow. It might be worth ten dollars or the day after that it could drop and then be worth it could be back down to five dollars. So that's when you see the fluctuations in price of a certain investment. Yeah. And then obviously day to day, you know, you've got companies out there who have a lot of news. They might have had their profit announcements. They might you know, there might be something else going on within a specific industry. And that news that's coming out every day can have a big impact on the share price. And, you know, you've got a lot of professionals who are pricing all of that information into the value of a share. And this is the day to day sort of volatility and changes in the value of the share that you can see, you know, like things like Apple Pay at the moment, they're very on trend. Everyone wants to buy technology stocks. We're seeing the prices rise. So then you also see things like emotion come into the play here. So investing is something that carries a lot of emotion with it. You know, when something's trendy, people get a bit of phone. So they want to jump on the bandwagon as well. And that's the type of behavior you can see driving prices up often, sometimes above and beyond where they should be. And then it's very normal to then see once that sort of hype has passed, you might see the prices have dropped down to its sort of normal average price. So there's so many things going on that that can affect that the day to day value of investments. And I think that's why, you know, when you're investing, it's really important to block out that sort of day to day noise because it stops and changes so much you can't keep up with it. Is you better off just having a mix of different things and staying focused? In the long term, you have to worry about that. [00:15:33][112.4]

Maddy Guest: [00:15:34] So I do have a quick question on that. And I'm wondering, we've spoken about attacks a lot on the show so far with ETFs. Do you still experience that same sort of price movement as much? Because I know it's something like off to pay off. Lots of people want to buy. You know, the price can go up really quickly and potentially come down really quickly. Do you have that same experience with ETFs? [00:15:54][20.3]

Sarah King: [00:15:55] Look, you don't believe with ETFs. So if I use the Australian share ETF we use in our portfolio that tracks Australia's top 300 companies. Right. So you're getting exposure to a mix of different sectors, different types of companies, you know, the largest and some sort of medium to small ones as well. So it really. Yeah, you know, the the price of the ETF you're buying a unit of an ETF can change slightly day to day. And this is a big market for like we saw last March where the market fell by, you know, close to 35 per cent. That's when you would see the unit price of an ETF drop. But day day, because you're just buying the market, you're not seeing those massive fluctuations. And that's why it's a fantastic way to invest, because you're just buying a whole asset class. It removes the need to worry about which stocks should I pick and then also remove the concern about worrying about the day to day fluctuations in those stocks. And when you are picking individual shares or stocks, you can't help but focus on what's happening day to day. And, you know, there's a lot of I think with this, you know, the Hlophe brokerage platform, as we're seeing coming out now, the gamification of investing, there's a lot of hype around this and retail investors downloading these apps and focusing on the day to day stock picking, which really isn't investing. And I think that's an important thing we want to articulate today is that investing is not that type of behavior. But going back to ETF, you they help you to buy a whole asset class, remove the need to pick stocks and give you that very, very broad mix of different types of shares in your portfolio. [00:17:33][97.7]

Sophie Dicker: [00:17:34] Yeah, I think that's one thing that Maddie and I have struggled with a little bit when we start investing is we checked those apps every day one day to be like, oh, it's afternoon, the next day back. Oh, it's down. But really now I just, like, delete the app and just let my stocks do. The thing in the background is now one risk that was actually brought to our attention from someone in our Wijk community was is there a risk of not getting into the market early enough so that you can enjoy the long term benefits of investing? [00:18:03][29.2]

Sarah King: [00:18:04] Yeah, so look, I would say with investing, it is never too late to get started, whatever your timeframe. But if you've got it, you've got the money to do it. Just do it right. But if we look at someone who starts investing in their 20s, you know, and then had decades and decades to let their money work for them and grow and enjoy receiving distributions and dividends and reinvesting those, and if you start in your 20s compared to your 40s, it can lead to a difference of, you know, hundreds of thousands. Right. If you're sort of accessing that later on. So, look, we've investing that earlier. You start the better. Absolutely. You know, the longer you have invested in the market, it's only going to do you favors. But, you know, if you are in your 40s or 50s, you think, oh, my God, I've missed the boat like I haven't got started. That is absolutely not true. It's never too late to get started. Even investing your money for five or ten years compared to leaving that in a savings account is going to lead to a much better outcome to not doing anything at all. And, you know, I hear that quite a lot that, you know, people are saying, you know, I've missed the boat. I should have started years ago. I'm just never going to get there. And it's baby steps and you can start small. And I think that's the important thing. You know, you can start with a hundred dollars these days or a couple of thousand, you know, and really get your money into investments are going to help you money grow for you. [00:19:26][82.3]

Maddy Guest: [00:19:27] Okay. So I guess we've discussed what sort of makes an investment risky compared to maybe keeping your money in the bank account. Can you give us some tips on sort of evaluating risk when you're making investment investment decisions? Is there anything in particular that you should be looking out for? [00:19:43][16.0]

Sarah King: [00:19:44] Yes. So I think the first thing is, you know, understanding your own risk tolerance, you know, I think that that's really, really, really important. So when before you start investing, you think about, OK, like how much of my money do I want to put into things that are a little bit more volatile, go up and down a bit compared to things that are going to help my money be a bit more stable and secure. And having that understanding is really, really important. And I think that's why using something like a robot is great, because they help you work that out. They help you understand what strategy is right for you. You know, your goals, your risk appetite, your risk time frame. So we things like shares, you know, again, you want to make sure that you're investing in shares that aren't going to be hugely volatile or making sure you've got a mix of. We want to make sure you've got some shares that are going to pay you maybe some income along the way, and that you're also comfortable with the fact that that's going to bring some ups and downs in your portfolio, because it will, and it's a very natural part of those types of investments. And then you go to global shares, which are the same again, but carry even a little bit more risk because you're accessing, say, the emerging market economies of the world or you're investing into economies like the US where there's a heavy tech focus. And, you know, we've seen lately based on like changes in government policy over there in stimulus, those things can be quite volatile. So but as we look at that, the more risk you are generally rewarded for that. And that's that risk reward trade off. Right. So if you keep your money in savings, you're not going to be rewarded for it very much. You put your money into shares, you will be rewarded more. But you've got to accept that there's some risk along the way. And that's sort of that risk reward trade off when you invest. So when you're looking at how you're going to allocate your money, it's really important to do your due diligence and think about those different types of risk for each of those asset classes and then come to a decision on where you'd like to invest your money. Is it a blend of both? Is it just into property that just into shares? The that that hopefully that's a good outline on that. [00:21:52][128.6]

Sophie Dicker: [00:21:53] That's I think what I'm getting at from it at the moment is that you really need to kind of understand your risk profile, which we'll get into in a second. And then you need to have a little bit of a plan about how much risk you're going to be taking in what assets. In this case, we're mainly talking about shares. Before we do jump into that, we just quickly want to touch a little on volatility. You mentioned just then that your share portfolio can go up and down, which is often what we would call volatility. Can we go back to basics and just explain what volatility is? [00:22:25][31.2]

Sarah King: [00:22:26] Yes. So that's really the variance in the price of an investment or an asset class. So very simply, in the way I describe it to clients on the phone, it's how an investment can move up and down. So you buy a certain price today at what you think is an average expected price for that investment. But then the next day, based on news or media or something that's happened or profit expectations, it could jump really, really high the next day. It could then take the elevator down and drop in price. And that's what we would describe as volatility. So it's the amount of ups and downs in in the price of an asset or an asset class or an investment. But what you can do to smooth out those ups and downs is have different things in your portfolio that help to do that. We can touch on that a little bit later. So but the more and another way to do that is by spreading your money across a number of different types of investments. But in a very simple terms, it's that up and down in the price for an expected return over time. [00:23:32][66.5]

Maddy Guest: [00:23:33] So is there any such thing as sort of normal fluctuations that we can expect to see in our portfolio? [00:23:38][5.2]

Sarah King: [00:23:40] Yes, fluctuations are very, very normal. You're going to see that day today, like I have clients calling me every day and they're like, you know, Sarah, my portfolio was you know, it was it was a one hundred dollar return yesterday. You know, now it's dropped down to 50 like, oh, my God, what's happening? Like, am I in the right portfolio or am I in the rectory? It's like, no, that is just that's the nature of investing in a very, very short term. You are always going to see ups and downs in your portfolio when you invest. It's something you have to accept. This is why when you invest it, you have to keep that long term perspective. And if I don't know if any of you guys have seen the charts on the news, I can look at the line and it's going like little like jagged edges up and down. But if you if you zoom out and look at the big trend line over time for the share market, it's trending upward, you know, so if you look at the Australian share market, for example, it's returned on average nine to 10 per cent per annum for the last 30 or 40 years. Right. But day to day, you're going to see those ups and downs. So that's why we're investing. It's so important to lock out the noise, except the fact that there's going to be day to day ups and downs. It's normal. There is just so much news going out there. You know, you've got people trading and buying and selling and trying to, you know, I guess speculate on shares. And all of this type of behavior can change the price on any given day for sure. So and investing is very much thought that it's helping you to keep a long term perspective, stick with your goal. Why am I investing in the first place to achieve this 10 year goal out here so that I just won't need to worry about the day to day fluctuations because they're always going to be that. [00:25:22][102.0]

Sophie Dicker: [00:25:23] Yeah, that's the perfect, I guess, explanation for that. But it is very normal and it's something to not worry about. And if you check it every day, it's obviously going to give you a lot of. Heidi. So best not to check it, I think we've we've learned from personal experience. We are now just going to take a quick break to hear from our sponsors. But we will be right back to continue our discussion with Sarah about what a risk profile is and how you can determine your own risk profile. [00:25:48][25.2]

Speaker 1: [00:25:52] Live forward with the Lexus hybrid range charged as you drive with fewer emissions and sales performance. Visit your local Lexus dealer to find out more. [00:26:04][12.5]

Maddy Guest: [00:26:10] So we've discussed what risk is and what it means in the context of investing, we're now going to delve a little deeper into understanding how our own attitudes towards risk can and sort of should impact our investment decisions. So, Sarah, can you tell us what is a risk profile? [00:26:26][16.4]

Sarah King: [00:26:28] Yes, so your risk profile is very, very important and it's fundamental to knowing your risk profile before you start investing. So the way you work out your risk profile is first and foremost like, what is my goal? What am I what am I investing for? Is it that I am saving to buy my first home? Am I looking to build my wealth for the future? Am I am I planning for a family? Am I am I saving for my retirement? So knowing what that goal is first and foremost is super important because that's going to then help you understand what you need to do to get there. Your risk profile is then, you know, understand what investment time frame, you know, someone who say, you know, closer to retirement isn't going to have as long to invest. Someone who might be saving for property, might only be wanting to invest for three or four years because they want to access that money soon to purchase their first home. So your your your investment time frame is very, very important because that dictates how much risk you can take. Typically, the lower your you know, the less time you have to invest. You shouldn't be taking as much risk compared to if you've got years and years ahead. You can afford to take more risk because you've got plenty of time for your investments to recover from any dip in the market that might happen. And then you've got things like, OK, to work out your risk profile, OK? It's helpful to go through scenarios like and that's what we do at stocks. But actually, you know, we ask clients about what are your goals, what's your investment time frame, what's your experience? But then to understand how they're going to feel through certain market scenarios is really important. So, you know, one of the questions we ask is to achieve a potential return of a nine per cent per annum. Now, you have to be comfortable to see, say, a 20 per cent fall in the value of your investments to get that. And that's very normal for that high return compared to someone who might be like, well, I'm really quite comfortable with getting five percent, but I don't really want to see any fall in the value of my investments whatsoever. So we ask those types of contextual questions in a few different ways to then give our client like a risk profile and help them understand what their risk profile is. So someone who has a lower risk tolerance or risk profile is suited to a more conservative strategy so that when you have a much higher allocation to your safe or defensive investments compared to your growth investments, compared to someone who has a much higher risk tolerance, that's when you have a much higher allocation to things like shares your growth investments and less to those defensive investments. So with a key outcome being that, you know, if there is another share market dip, you need to know you can stomach it and stick with your strategy and stay the course. What I did see last year in twenty twenty was often I see clients wanting to go with the portfolio that has the highest returns because they're like, wow, I want those returns. But then when a market for comes and it dips, they either move to cash or they move to a more conservative portfolio because they're really not comfortable with it. And, you know, doing that at that time, it means you're often selling out at a time when your portfolio is made a bit of a loss and you're locking in those losses, you can be moving it to cash or, you know, it's selling at the wrong time and that can really impact your returns. So rather than choosing the portfolio, it's got the best returns. You know, always reiterate to clients you want to make sure you're in a strategy that is right for your risk profile. What level of losses can you sustain and feel comfortable with? And that's also aligned to your goals and your investment time frame rather than focusing on performance. [00:30:05][216.8]

Maddy Guest: [00:30:06] Yeah, I actually did the stock spot sort of. Is it a little interview or how would you describe what is the questionnaire question? When I first started investing and it was great because when I first started, I was thinking, you know, I've got time. I don't I don't mind if I lose a bit of money. I just want big returns. And actually, when I do that questionnaire, I realize that probably actually that more growth than slightly riskier portfolio wasn't for me because those questions really allowed me to drilling on how I really felt about actually losing money in the stock market. And I realized that maybe slightly more conservative was better suited. [00:30:45][38.7]

Sophie Dicker: [00:30:46] I think you summed it up pretty well there. And now we obviously spoken a little bit about our risk profile. And you've mentioned risk tolerance a couple of times. Can you just define what risk tolerance actually is? [00:30:59][13.1]

Sarah King: [00:31:00] Yes, the risk tolerance is really your ability to stomach or withstand drops in the value of your investments. Right. So as I was alluding to that example earlier, like someone who is quite comfortable with risk, you know, they're like, I want to work potentially. I'm investing for the long term. I want to try and get nine to 10 per cent per annum over the long term. In my portfolio, I'm super comfortable seeing the value of my investments dropped by 20 per cent. Any given year, so some people would freak out and. Wow, like that's that's far too much for me. So that that is essentially your risk tolerance, the amount you're willing to see your investments fall by at any given point in time. So if we go back to the market share market for last year, for example, the market fell by 35 to 36 percent over a number of days. And that is the biggest share market that many of us would have seen in our lifetime, particularly first timers, and guarantee that a lot of investors who just had their money in the share market or risky assets at that point in time would have seen a massive drop in their investments. And they might have either freaked out and moved to cash or. Yeah, or they're still waiting to recover all of those losses. So, yeah, it's really you need to sort of it can be hard to do that. You need to sort of play out those outcomes in your mind when you are investing, like what amount of money am I willing to see my investments drop by? And a way that you can reduce that is by owning different types of investments, not just having it all in shares, not just having it all in cryptocurrency, having it in a mix of different pieces, because it's also not until you go through those experiences that you really get a handle on what you're comfortable with. So, yeah, so that really define your risk tolerance. [00:32:53][113.1]

Maddy Guest: [00:32:53] I've spoken about this on the podcast before, but I invested for the first time just a couple of weeks before the crash. So that really sort of was a great test on my understanding of my own risk tolerance and a sort of like I said, I OK with this. So we're going to stick with it. But yeah, I think that's a great, great point about making sure you have a good understanding and then I guess just taking the emotion out of it. So I guess if people are starting at their investment journey and they are the most important thing is they really need to understand what kind of risk they are willing to take. And then if it's not a lot of risk, which is absolutely fine, then we can really look into researching stable and long term options that like we spoke about earlier, for example, ETFs don't really have that same sort of market volatility and don't move around as much as some sort of individual stocks do. I think something that sort of stuff. And I joke about a lot, but for a good reason, because it does come off a lot, is investing doesn't need to be like gambling and it doesn't have to be day trading where you're trying to rate the market every day. It really can be long term putting your money in for stable long term growth. [00:34:06][72.3]

Sophie Dicker: [00:34:07] Now, Sara, one question we wanted to ask you before you finish up is how would you describe your risk profile at the moment and how has it changed over time? [00:34:17][10.0]

Sarah King: [00:34:18] Very good question. So my risk profile has changed. And so, in fact, I've actually I'm I'm doing what you call gold based investing. So I actually have two portfolios. I have one where I'm taking a lot less risk because it's money that I might want to draw on in the near-term to fund a home purchase. So I've got my stock portfolio and it's in the Sapphire strategy, which is not the most conservative, but the next one up. I've got a much higher allocation to you. You're safe for the fancy investments like bonds and gold, because I might want to draw on that money in, say, three to four years time. And I do not want to run the risk that if I need to call on that money, there's been a share market and my my money has gone down a little bit. So that's why having that higher allocation to that is defensive investments is important. But now also I know that the likelihood of me buying a home is probably going to be many, many more years given house prices in Sydney. So I'm actually considering looking at doing a rebalance of that strategy and going up the risk of a little to go to more of a balance profile where I've got 60 per cent in growth investments and 40 per cent in defensive compared to the 50 50 in the saphire. Currently, I've then got with my with my husband, we have a joint account for which is our long term. This is our let's let's say for our future. Let's this can be something to complement our retirement capital. We're not going to touch it for decades. So that particular portfolio is in a high growth strategy. So that has 78 per cent in things like shares and twenty two per cent in things like bonds and gold, because I want that money to be working harder for me. We're just going to keep topping it up every month and it's just going to be that set and forget don't look at it and know that over the long term that it's going to achieve that more sort of nine to 10 per cent per annum after fees compared to, say, the more conservative one that might be more around like five to six percent. But I'm happy with that because I don't want to risk that money going down. So that's how I'm having different strategies for different goals I've got. Going on in my life at the moment, and that's what you can do with investing, so but yeah, as I said, it seems like your time frame changed. That can dictate, you know, needing to do a strategy shift as well, which is what I'm considering for that pool of money earmarked for our first home purchase. [00:36:43][144.9]

Sophie Dicker: [00:36:45] I like how you touched on that. You can actually have a couple of different risk profiles and they're both for different goals. So what you're trying to achieve in different areas of your life, you can actually set up investing to cater for that. [00:36:56][11.2]

Sarah King: [00:36:57] Absolutely. Yeah, I think it's a really sensible way to do it. I think, you know, with investing as well, you know, I think a lot of people see my money is locked in. I can't access it. Oh, my God. Like, what do I do? And that's not the case. You know, when you invest, you can always access your money. But I think yet to make sure that you're not taking it out at the wrong time, setting up different pools of money for different goals can be a really smart way to do it. [00:37:20][23.3]

Maddy Guest: [00:37:22] So for our final question today, what would you say is the best piece of advice for sort of starting out and trying to determine your own risk profile? [00:37:31][9.3]

Sarah King: [00:37:33] Yes, so as I said, like it, it can be hard to do, but it's putting know going through those scenarios in your mind, like what amount of money am I willing to lose when I invest? Or C is a short term temporary dip? It doesn't mean that it's a permanent state. So I would say that's the most important thing. But yes, going back to the stock spot question and I recommend for anyone who wants to understand the risk profile, just go and do this online. It's free and it will help you understand what you need to put, like, what am I goals? Like, what am I what do I want this money for? What's my investment time frame? And I'd like to achieve a certain return. Is it five percent per annum. I want to get is at six percent. Is it 10 percent or more. What, what sort of drops in the value of my investments. Can I, can I withstand and stomach so that they're the essential things? And yet I think going and using an online tool, if you can't work that out for yourself, go and do a couple. There's lots of different online advisors out there. You can all the all the questionnaires are slightly different. So I'd recommend going and doing those to get a bit of a handle on what your risk profile might be, because I've been trying to work it out yourself, even it's going to be financial planner and go through a complex questionnaire. Or you might have to learn through experience to really understand what your risk profile. So but yes, because there's a lot of like online investment advisors now, you can get this stuff free and it's the best way to really understand what your risk profile is. [00:39:04][90.9]

Sophie Dicker: [00:39:06] Sarah, thank you so much for joining us today. We found your chat about risks so insightful and I feel like I've personally even pulled so much out of it next week. We are very excited. We're going to be joined by you again and we're going to be talking about our portfolios and how to build those up. What can that look like? How to manage it into the future. But for the time being, is there any social media that people could follow you on or anything that you want to plug? [00:39:33][27.0]

Sarah King: [00:39:36] No. I mean, you know, if you if you want to have a chat, my email, there are stocks that I recommend going to the website there is that under our loan section. There are so many great tools that you can access. There's an investment calculator, which I think everyone should look at. You know, you can put in a starting amount. You can show how much you're going to top up with each month and then project that out over the years. And it shows you how much your money could grow by. And I think that is the most powerfully visual way to see the benefit of investing and doing it in a way that helps you to manage the amount of risk you're taking. So definitely recommend that otherwise. Yeah, I'm I'm on Instagram as Sarah and looking, but otherwise, yeah, I'm, I'm not massive on social, so [00:40:17][41.6]

Maddy Guest: [00:40:20] I actually do love the stuff about Instagram. I've done a few great posts recently actually. [00:40:25][5.2]

Sarah King: [00:40:26] Yes. Actually so sorry stuff but Instagram as well as our YouTube channel. So yeah. Catch us on YouTube. Chris Rock's CEO and founder has a bunch of awesome personal finance topics that you can tune into the information ETF. And there's also I do the Great for International Women's Day, a great talk with Queene 2010 on investing and personal finance topics. So definitely get to see on YouTube and Instagram. [00:40:57][31.5]

Maddy Guest: [00:40:58] Thank you so much, sir. I look forward to chatting to you next week. [00:41:01][2.9]

Sophie Dicker: [00:41:01] Thank you so much for joining us today for our first episode in our two part series. Sarah, we hope that this has given you some insight into understanding your risk profile and how you can utilize it to make more tailored investment decisions. [00:41:13][12.0]

Maddy Guest: [00:41:14] Next week, we'll be debunking the myth that building an investment portfolio is a job that can only be done by the experts. If you haven't already, please follow Instagram page at YIGC podcast and join our Facebook group YIGC Investing podcast Discussion Group where you can ask any of the questions you have or share ideas you find interesting [00:41:34][20.3]

Sophie Dicker: [00:41:35] until next time [00:41:35][0.0]

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