Have your stocks been down recently? Potentially seen some headlines about an imminent market crash? Well hey, volatility and surprises seem to be the never ending gift of 2021! On today’s episode we break down three of the biggest news stories that are playing a role in the current share market volatility. We unwrap why the Chinese Property Developer Evergrande and its defaults affects the Australian stock market, how the US government could run out of money and what’s happening with inflation. Plus, we discuss some ways in which investors try to derisk their portfolios during turbulent times.
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Maddy: [00:00:06] Hello and welcome to You're in Good Company
Maddy: [00:00:09] money and investing podcast striving to disrupt the knowns in the finance industry. I'm Maddy. And as always, I'm in very good company with my co-host Sophie. Say hello.
Sophie: [00:00:18] I'm not excited because coming up in today's episode, we take a look into what is causing all the volatility in the stock market. At the moment. I know my stocks have been
Maddy: [00:00:28] down
Sophie: [00:00:30] and why your portfolio is potentially in the red.
Maddy: [00:00:33] We'll be covering the Chinese property developer Evergrande that has gone from being relatively anonymous to most Australians to being one of the most talked about companies globally over the last month. We will also discuss everything you need to know about the US government running out of money and the global supply chain issues that are happening around the world at the moment. And of course, what you can do in times like these.
Sophie: [00:00:57] But first, before all
Maddy: [00:00:58] the doom and gloom, I have a joke for you. Okay, here we go. What do you call
Sophie: [00:01:04] a financial scam in Egypt?
Maddy: [00:01:07] Well, surely you could have like a guess at least one mummy. I mean, a pyramid scheme. Oh, of course. Lovely to have a good pyramid scheme.
Sophie: [00:01:22] But before we get into today's episode, we would like to acknowledge and pay respects the laundry people of the island nation who are the traditional owners of this land. We pay our deepest respects to the elders past and present, and to the next generation who we hope to create a different future for all.
Maddy: [00:01:36] Let's jump right in and hear from a wider community member.
Maddy: [00:01:40] Show me the money, honey.
Speaker 4: [00:01:41] Hi, my name's Emma. I'm 20 years old and I work in reception, and I'm also studying as a full time student still. I'm earning roughly one thousand to one thousand five hundred dollars per month. I've just started investing and I've decided to invest at least $200 every month into a couple of ETFs. And as I get a bit more knowledgeable, I'm going to start investing in two stocks that I like today. The total value of my portfolio is around $500 since I started investing in a couple of months ago. I have made a loss of about five to $10, but I know the market's quite volatile and this money staying in there for a long time, so I know it's going to go back up again, so I'm not too worried.
Sophie: [00:02:41] I don't know about you, but as I said, my stocks have been a little bit in the red lately and I feel like we're getting a lot of questions from people as well as to what's happening. So I think it would be a good time to talk about like what's happening in the global sphere and why it's impacting the stock market.
Maddy: [00:02:57] Yeah, I guess it's good to preface this conversation by saying that, yes, people are kind of saying stocks are down at the moment. We're all in the red and blah blah blah. It's not good, but actually the ASX is still up around 20 per cent this year so far. So yes, things have come off a little bit, but it's like it's not that bad guys come on, but it's a good
Sophie: [00:03:15] to just a good time to talk about like why sometimes there is volatility so you can, like, really understand it and also like join the conversation about it as well if other people are talking about it.
Maddy: [00:03:24] Yeah, for sure.
Sophie: [00:03:25] It's like current events, but Stock Market
Maddy: [00:03:27] Edition, that's exactly what it is. That is what we are doing to 60 Minutes on the stock market. Not going 60 Minutes. This is a story about the need do Chinese property developer Evergrande
Speaker 5: [00:03:40] as Evergreen teeters on the edge of default, is also the most indebted property developer in the world to the tune of 300 billion dollars.
Maddy: [00:03:49] I understand that, but how? What do you do? What does that mean?
Maddy: [00:03:52] So until about a couple of days ago, I had never heard about this so-called evergrande. So what do we need to know? What's the rundown? Yeah.
Sophie: [00:04:02] So I did a little bit of digging, and I feel like I was actually saying this to a friend the other day. Gurgle is like a really hard place to navigate now because you really have to read a lot of articles and think form an opinion. It's not just like the first link, and
Maddy: [00:04:14] it's like, That's my information.
Sophie: [00:04:16] So I'll give a quick explainer kind of what's happening? So for context, Evergrande is China's second largest property developer, and the company sells houses that aren't built yet. So like buying off a plan, and it's really been accumulating debt now for a long time and has over around $300 billion US stay in debt, which is about. Yeah, I know it's a lot of money just about, I think, like four hundred billion a day, and it owes money to two main groups of people, which are homeowners who. Yeah, there was lots of YouTube videos of black people in the immigrant offices like demanding their money back, people who I know it's sad and bondholders, so they will have lent money to the company.
Maddy: [00:04:58] So they've obviously got. Crazy amounts of debt, but why are we hearing about them now?
Sophie: [00:05:02] Yes. So at the beginning of the year, the Chinese government imposed new rules to reduce the debts that property companies could carry on their balance sheet. And this essentially meant that for someone like Evergrande, it brought forward the date that they have to start paying it back and they owe a lot of money and they're missing some of those repayments. So a couple of things that they've missed recently was a bond repayment of forty seven point five million dollars to investors like not a small figure,
Maddy: [00:05:32] yet another big figure.
Sophie: [00:05:35] And they also missed an interest payment by just interest of eighty four point five million dollars.
Maddy: [00:05:41] Oh my gosh, I can't even conceive its numbers.
Sophie: [00:05:44] I know, like imagine having an interest
Maddy: [00:05:46] payment of eighty five million
Maddy: [00:05:48] dollars and for a little bit of context as well, I think Evergreen Stock has come off about 80 percent of value since the start of this year. So definitely, I mean, fair enough, but the stock price is being punished for 100 percent now.
Sophie: [00:06:02] And I think when these first this story first kind of broke, I was like, Why is a property company in China affecting our stocks? Like what? Like what is the cause and effect there? So maybe be good to like chat through from what you've read, what's really happening at the moment?
Maddy: [00:06:20] Yeah. So I guess the first thing is that like China is the second largest economy in the world, and immigrants $300 billion of debt is two percent of China's GDP, which fell from one company. To make that up is just ginormous.
Sophie: [00:06:35] It's it's massive. Like three percent is massive. But why is that? Like literally, if we think about it, like if you have a grand tomorrow, just like shut down, they had no help. They had to just go into bankruptcy. Like, what is the if? Like, what happens? Why?
Maddy: [00:06:49] Well, yeah, it's weeks
Maddy: [00:06:51] went by all the W's.
Maddy: [00:06:54] It's weird because it's like, surely one company can't have that much of an impact, but it can. It literally can. So it's like if we take a step back, if it's such a huge part of the Chinese economy, it's going to have a big impact on its economic growth. Yeah, that then flows on to like China's imports and exports, which which flows on to other countries. It creates uncertainty, it creates fear, it affects all the companies, which affects the stock market. So the ramifications a huge yeah.
Sophie: [00:07:23] And I always think with things like this, like I always try and get it down to the individual, like if you think at the end of the day, like if ever grand collapses and it owes a lot of people money, that's a lot less cash in people's hands. And that means there's less people, less money to be spent on the economy. And like, it's sometimes good to try and get it down to the individual and be like, OK, like if it was me, it was impacting me, I'd probably be spending less. Yeah, and therefore not that my spending would really impact the economy.
Maddy: [00:07:50] I mean, maybe one day my close, my close loku might be a bit disappointed, but like you did that.
Maddy: [00:07:58] So we are located in Australia, so let's talk like specific to Australia what the impacts are going to be. So let's start big picture by thinking in China, we're thinking real estate. So China has been developing like a crazy, fast rate for so many years now. We know that one of the fastest growing countries in the world. Yeah, they actually have. And I was looking at this on YouTube this morning. It is extremely like confronting footage to say it's so weird that entire cities with empty apartment buildings and like, I'm not talking like one or two empty apartment apartment buildings. I'm talking like a whole city exist. Yeah, and it's empty.
Sophie: [00:08:36] And I think this has been happening for a really long time, like they've been building so many apartments because they have such high population growth. And there's also like people come from the country to the cities to try and get jobs. So they're like expecting this demand for these apartments, but then it doesn't happen.
Maddy: [00:08:51] So with all of this in mind, like ever, Ground's collapse is going to really dampen property development, leading to reduced demand for like construction materials, including steel, which has made mostly from iron ore.
Sophie: [00:09:03] And if you're an Australian, this is huge news because iron ore is our biggest export. And China accounts for nearly 70 percent of global iron ore imports and around 60 percent is coming from Australia. So direct impact for shareholders, for example, is if you earn things like Fortescue Metals, BHP or Rio Tinto, they have a really close connexion, obviously to iron ore and therefore to every and something like Rio Tinto. Their share price has dropped approximately 23 per cent over the past two months because of this. So that's a really easy correlation to say when it comes to like an event like this affecting Australia. Yeah.
Maddy: [00:09:38] And I mean, even putting iron ore aside like China is still our biggest export market out, like taking all the iron ore out. So just for some context, Australia's exports to China are around three times the words of our second largest trading partner, Japan. So huge, huge connexions to Chinese economy. So huge impacts because if Chinese economy slows down, there's. To be wanting less of our exports, which means we're getting less money in the door for the Australian government,
Sophie: [00:10:04] meaning goodbye share market.
Maddy: [00:10:09] No, that's not what it means,
Sophie: [00:10:14] but it could be a little blip in the system.
Maddy: [00:10:17] Yes.
Sophie: [00:10:18] So what's what's happening now like? We know that then defaulted on a couple of their payments and it's a bit speculative. You know what's going to happen in the future with a company like this, but is going to fail? Like what's in the news at the moment?
Maddy: [00:10:29] Yeah, I mean, there are lots of different kind of stories and ideas going around. There has very recently been an announcement that hops in development. Another property developer in China could be buying a 51 percent controlling stake in the Evergreen Property Management Unit. This is kind of the first sign of like major progress in terms of like clearing evergreens mountain of liabilities.
Sophie: [00:10:52] What's different about Hobson Lake? Do they sell a lot of cash?
Maddy: [00:10:54] Look at it. It was good to go.
Maddy: [00:10:56] I mean, I hope so. I really hope because we don't want this to happen again.
Maddy: [00:11:00] We don't want it to get even bigger.
Sophie: [00:11:03] So if they acquired them, they would be taking on all of their debt and then hopefully paying it off. Is that what their whole
Maddy: [00:11:10] volumes for them? Yeah. Okay.
Maddy: [00:11:12] So then a lot of people have been asking why the like the Chinese government is going to intervene because if it's going to have such a huge impact on the Chinese economy, like, surely they would step in and fix it, right?
Sophie: [00:11:23] Yeah. Well, who knows? It's China. I mean,
Maddy: [00:11:26] yes, but also like you might have had people talking about how like something is too big to fail. It was something that they talked about in the global financial crisis a lot. It's the idea that if a company went bankrupt, the ramifications would be so widespread that the government would step in and save it, like we said. But then the issue is, is that like this sets a precedent which no government wants because then companies go around thinking that they can take all this debt, and then if something bad happens, the government will just save them and they don't want that. Yeah, because
Sophie: [00:11:56] you're walking such a fine line because on the one hand, you want the economy to be OK. But on the other hand, you don't want companies to think, Okay, I'm going to accumulate a lot of debt. You've got to look after your own self to face.
Maddy: [00:12:06] But I think the one thing I would add in this situation is that China, unlike many other governments that way, maybe would be more familiar with it, actually intervenes in markets quite regularly. And this it has traditionally been seen to kind of like, tolerate very few risks in the Chinese market. So it actually gets involved a lot more to ensure financial stability. So maybe they will do something. So so what should we be looking out for in the news on this story?
Sophie: [00:12:32] Yeah, if you want to keep up to date with it, I would just say be looking out for things like whether they've defaulted on other payments. I guess that's a bad sign, whether the government intervenes, I guess that could potentially be a good sign. Whether there another company wants to acquire them, that could also be a good sign. But just know when there's big news coming out about Evergrande, you might see stocks move around a little bit depending on what's around.
Maddy: [00:12:52] They might do do a bit of cat cow yoga, but let's
Maddy: [00:12:56] take a quick break for our sponsors and we'll be right back to chat all about the U.S. government running out of money.
Maddy: [00:13:05] America could face an economic crisis for joining me today to talk about the need to raise the debt limit. We haven't failed to do that since our inception as a country.
Speaker 5: [00:13:14] It would be disastrous for the American economy.
Maddy: [00:13:17] I understand that. But how what do you do? What does that
Sophie: [00:13:19] mean? I'm going to bring up your most hated topic.
Maddy: [00:13:21] Oh gosh, what is it? What's your most hated topic? Oh, Covid definitely took me a second that
Sophie: [00:13:30] we're going to quickly talk about Covid, but will keep it really brave because we know that it's just a drag but quick recap on economic response to COVID. Governments around the world pumped money into the economy in order to avoid their countries falling into a recession, and the US was really no different. In fact, it was probably one of the biggest pumpers of money into the economy.
Maddy: [00:13:52] Yes, so we're going to be talking about debt. Governments often talk about spending billions of dollars on infrastructure, health care or in the case of the virus that shall no longer be named for the rest of this episode. Stimulus packages to support people and the reason
Sophie: [00:14:07] why we're going to be talking about debt is because in order to keep a cap on government spending, the US and actually other countries around the world implement something called a debt ceiling and a debt ceiling is a buzz word you might be hearing in the news a little bit more.
Maddy: [00:14:21] We also have one in Australia. A debt ceiling is just a cap on the amount of money that the government can borrow.
Sophie: [00:14:27] So why the hell is this debt ceiling also making my stocks look sad?
Maddy: [00:14:34] Yes.
Maddy: [00:14:35] So more debt. A bit lack of a grant.
Maddy: [00:14:38] So debt. Yeah.
Sophie: [00:14:39] Oh my god, guys. How do we get
Maddy: [00:14:42] less debt anyway? It's like we need more cash. No, no, no, no. No. Going to that next.
Maddy: [00:14:51] Currently, the US government is in around 28 trillion dollars of debt.
Sophie: [00:14:55] How do you get to 28 trillion dollars of debt?
Maddy: [00:14:57] Again, I just these numbers. I can't conceive. They are so hard to wrap your head around.
Sophie: [00:15:01] That's like how many zeros I got. Let's not. I'm sorry.
Maddy: [00:15:05] So recently, the US Treasury Secretary Janet Yellen announced that the US government was going to be running out of money on the 18th of October.
Sophie: [00:15:14] And when we say running out of money, it just means that pretty much like in the U.S. or in any country, you kind of have a budgeted amount of money. So you can think of, like in Australia, our federal budget, you kind of commit to that spending. And the US is running out of the debt that it could use to actually pay back people that had already committed to.
Maddy: [00:15:32] Yes. So basically, where we got to is if the debt ceiling isn't raised, because that's what they're going to hit, then ultimately that would mean that the US government was going to default, which would not be good news for anyone.
Sophie: [00:15:46] No, because this means that you aren't spending money in places that you said that you were going to be. So for example, like this is very US based, but Social Security payments, child tax credit payments, payments to US military members, postal workers and even federal government employees might stop getting paid because the government can no longer actually take out any money to give that to society. So why if if the U.S. is about to hit their U.S. debt ceiling, why does that actually have an impact on any of our stocks?
Maddy: [00:16:16] So in short, the US would need to cut a whole lot of funding for a whole lot of people. This means that there would be a whole lot less money in the hands of people in circulating throughout the economy. The U.S. credit rating would also be downgraded. So just like if you miss a bunch of credit card or like loan repayments, the credit on your credit score goes down. The same would happen for the US government. This was back interest rates, which go up to discourage borrowing and also reflects the increased risk of lending in uncertain times. If interest rates go up, then people will be paying more for interest on bank loans on houses cause businesses.
Sophie: [00:16:50] So it sounds like we are all going to be paying more like if our interest rates go up. So what's the correlation there with the stock market? Yes.
Maddy: [00:16:57] So the effect on the share market is kind of twofold. Companies that you invest in have to pay higher prices to keep their businesses running. So, for example, a lot of tech stocks who don't actually make a profit, they rely on debt so they'll have to pay higher interest rates on their loan amounts, which ultimately impacts their performance.
Sophie: [00:17:16] That's so true. So you've got to think about it from a business perspective. Businesses are paying more. And then what's the other side of the argument
Maddy: [00:17:22] that consumers like us have less disposable income to put into the stock market? So let's say in an ideal world, I had a home loan,
Maddy: [00:17:32] so I would have in an ideal world like in a, you know, not reality in a fantasy world.
Maddy: [00:17:39] Let say in Maddy's fantasy world, she has her home loan. I would potentially have to pay more on my loan repayments. So that means less money in my pocket, which means less money to invest. Yeah, right.
Sophie: [00:17:50] OK, so businesses are struggling and then consumers just have less to actually put in, so it's likely that the demand would go down. So for context, in the last debt ceiling standoff, the S&P 500 so that top 500 U.S. companies index actually lost around 17 percent.
Maddy: [00:18:06] That was Obama times.
Sophie: [00:18:07] Yeah, Obama times. So it has it has happened before. And like if if you want any context around the U.S. debt, you can definitely research it. But they're in a lot of debt like they haven't seen surplus in a long time, just like we're not going to see a surplus for a long time with all our Covid spending. But that's OK.
Maddy: [00:18:24] That's OK.
Sophie: [00:18:25] So it sounds a bit scary, it sounds like our stocks could be going down if we don't raise the debt ceiling, have we had any news whether they are going to raise it or yeah.
Maddy: [00:18:34] So on Thursday, last week or the 7th of October, the debt ceiling was raised through to early December. So we've got a bit of short term reprieve, but it's still sort of unclear what's going to happen on that date. So. So, so what do we need to be looking for in the news?
Sophie: [00:18:50] Well, currently it sounds like they're just putting a Band-Aid on like a huge gaping hole. So I think there's going to be a lot of news about it. But yeah, I think it's just keeping up to date with, I guess, what the government. I mean, there's a lot of parties involved, but what the government is really going to do with this and whether they continue to raise it or whether they say that they're not going to, because if they're not going to, I would suspect that it's going to be pretty bad news for the stock market.
Maddy: [00:19:16] So I think there is one more important topic that we need to discuss. Let's call this one like honourable mentions, honourable.
Maddy: [00:19:24] So Nicole at consumer prices soared
Speaker 5: [00:19:27] more than expected last month as inflation jumped to a 13 year high in the grocery store at the gas pump on the car lot. Prices keep rising. The sharp increase in inflation blindsided many economists from May to June, inflation jumping nearly one percent.
Maddy: [00:19:39] I understand that. But how? What do you do?
Sophie: [00:19:42] OK, so this honourable mention is inflation, and the reason why we're going to bring it up is because I feel like it's in every second news article that I'm seeing at the moment.
Maddy: [00:19:51] Yeah, it has been a while. So quick recap inflation can occur and basically out is too many Dollars in the system and not enough. Good so.
Sophie: [00:19:59] So if you think about like what we've just spoken about, it sounds like the economy of the US government and other governments around the world are just pumping money into the system, right? Exactly. So that's all. That's the too much money in circulation.
Maddy: [00:20:10] Yes. And then basically the supply of products can't keep up.
Sophie: [00:20:15] Yeah, no. Not goods means that we are having kind of big supply chain issues around the world at the moment. So when Covid really struck, people were out of the workforce. There were lockdowns, you know, social distancing, people at ports got Covid. There weren't enough workers. And this pretty much meant that it really slowed down the production of goods, but also getting goods to people. So the issue here is we have all this money that people want to spend in the economy, but we don't actually have enough goods to keep up with the amount of money. Yeah.
Maddy: [00:20:44] So some good examples, you've put the shortage of wood here. Yeah, there was like
Sophie: [00:20:48] big construction, like timber construction as you make right? People like couldn't get timber to build houses.
Maddy: [00:20:55] The other big one that I've heard a lot about is the global shortage of semiconductors. This is a pretty big deal because these semiconductors are an essential part of electronic devices down in pretty much everything. So we're talking like phones to cars, to even machinery in factories, which is further impacting the issues with production. Yeah. So I don't know if you guys are across what has been happening with the car market recently, but this is a good illustration of inflation because if you want a new car, you could be waiting for up to an over 12 months. It's really crazy. And as a result, not only are the prices of new cars rising because there's so much demand and competition to get them. But then you've also got the second hand car market going crazy because they have all these disposable income that they want to spend and they're willing to spend it in order to get the car.
Sophie: [00:21:44] I even saw the other day that Amazon was saying that you should start ordering your Christmas presents now.
Maddy: [00:21:48] I know I saw that made,
Sophie: [00:21:50] which is really annoying because I'm going to give them the best Christmas present in the wake of Christmas. Yeah, trying to think
Maddy: [00:21:55] that prices are on in my head. Real, literally still in April 2020. Oh my gosh, I got in trouble at work the other day because I put 2020 on a report
Maddy: [00:22:05] Hey, vulnerable,
Maddy: [00:22:10] so we know inflation's happening. But what's the impact on the stock market?
Sophie: [00:22:15] So in the short run, inflation isn't necessarily a great thing for your stocks. The general economic slowdown means people are going to be spending less money. It leads to lower sales and profits, which drag down share prices. And honestly, investing just becomes a little less attractive because we're paying more for our goods as is, and we just have less money to be putting into other things over
Maddy: [00:22:37] the long run. Inflation can actually be quite good for stock investors. It can kind of act as like protection against inflation, because once a businesses that you're investing and adjust to higher prices, it means the economy is actually kind of growing and expanding.
Sophie: [00:22:51] Yeah, I think they say like, you need inflation for your stocks, but just in the short run, it can be a little bit more volatile. This sounds like frickin doom and gloom, as if we haven't had enough in 2020 21. Anyone else is in Melbourne right now. We've got the most locked down city in the bloody world,
Maddy: [00:23:10] so I've got a fun fact for you.
Maddy: [00:23:11] OK, please do lift up the bloody spirits.
Maddy: [00:23:14] It's a statistic, but it's a good one. OK, so JP Morgan Asset Management did this study in 2019, and it showed the impacts that pulling out of the market. Has on your portfolio.
Sophie: [00:23:26] So this all sounds really scary for me, and I don't want my money invested.
Maddy: [00:23:29] Yes, but looking back over the 20 year period from 1999 to 2008, Hayne, if you missed the top 10 best days in the stock market, your overall return was cut in half. That is a huge impact for just 10 days.
Sophie: [00:23:45] I don't. I don't really get that. What do you mean?
Maddy: [00:23:47] So basically what it's saying is like the stock market goes up and down, right? I'm talk about wanting time in the market instead of timing the market, and that is what this talk through. So we don't know when the best 10 days are going to be in the year. And what this is saying is if you happen to miss those best 10 days, your returns are going to be significantly cut. And that is why it benefits you just to be in the market instead of be trying to be in and out of the perfect time, depending on what you want to happen.
Sophie: [00:24:14] Yeah. So what you're saying, really, because I still don't really understand is buy and hold for the long term and invest regularly.
Maddy: [00:24:21] I think you understand,
Maddy: [00:24:24] oh, that's going straight in my basket.
Sophie: [00:24:27] So today we're going to do what with a little bit of a twist and looking at what investors kind of can do in times like this. So Mary, what are you adding to the watchlist today? And I really am excited to see like to track these on?
Maddy: [00:24:41] I mean,
Maddy: [00:24:42] yeah, it should be interesting. I am adding one of my first ever investments, which was gold. So gold has often been referred to as a hedge against inflation, and traditionally it's had really low correlation with other asset classes. Basically, what that means is if the stock market is going up, gold leg doesn't go up, it probably goes down or it sort of stays low. Yeah, but if the stock market crashes, the value of gold goes up. And a really great example of when we saw that was when gold hit all time highs in the middle of last year when the stock market was really down and impacted because of Covid.
Sophie: [00:25:18] Right. I think it's a really similar thing happened as well with the financial crisis when the stock market completely crashed and gold was up 19 per cent, while the rest of the equity markets fell by 35 percent.
Maddy: [00:25:29] Yeah. So this means that it provides just a really good opportunity for diversification during times like this of market turbulence and volatility, potentially dulling the impact of the market drop on your portfolio. So I guess I'm never like when I go to my portfolio. I'm not sitting here being like, Oh, it's going to be 100 bagger, like, this is what's going to make me rich. It's not going to make you rich, but it's going to help dampen out the effects. Robo Advisor Stock Spot increased its allocation to gold in its clients portfolios from 10 percent to twelve point three percent in 2017. And they said that this helps protect their clients from 50 to 80 percent of the market fall out last year.
Sophie: [00:26:07] Wow, that's big. So how do you actually invest in gold? Do I have to go down to the bank and buy some gold coins?
Maddy: [00:26:14] Well, that is literally one way. So there are a few options for investing. The first one is you just buy physical gold, whether it be like coins, like a block.
Maddy: [00:26:23] I think it's called a bullion anyway.
Maddy: [00:26:26] I really hope I'm saying that right.
Maddy: [00:26:27] I'm pretty about it anyway.
Maddy: [00:26:30] The other way is you can invest in a range of ETFs that have gold exposure or you can invest in gold mining companies. The one that I have in my portfolio is ETF, ticker gold. This one is actually backed by physical gold, which is stored in a vault in London. Wow. And it has a management fee of point four percent, so I am adding Gold Day to our watch list.
Sophie: [00:26:54] Gold, as some would say,
Maddy: [00:26:56] what have you got for us?
Sophie: [00:26:57] So I am actually adding which I never thought I'd add to the watch list, but I guess also very current and relevant, but I'm adding bitcoin to the watch list.
Maddy: [00:27:08] Nice. So what is your justification for this one?
Sophie: [00:27:11] So what I've been reading a lot lately is that bitcoin is potentially an alternative to buying gold. So in black gold, yeah, like digital gold. So the reason why cryptocurrency of bitcoin specifically is similar to gold, it's that in the sense that it's not too closely tied to the US dollar. So if they say, for example, the US dollar inflates and we're talking about inflation, there is no correlated impact on bitcoin. So just because something happens to the US dollar doesn't mean it's also going to happen to the asset class of bitcoin.
Maddy: [00:27:46] I saw the author of Rich Dad, Poor Dad tweeting, saying Get Gold, Silver, Bitcoin and Etherium before the biggest stock market crash in history. It's like, Wow,
Maddy: [00:27:56] that's like such clickbait. I saw that too, and I was like, Oh my God, what do I need to be buying caught in a trap?
Sophie: [00:28:03] No, but I think the reason why I've added this to the watch list today is because I find it really interesting because what we're really seeing is this demographic shift. So millennials are likely more likely to be triggering a crowding out of gold, owing their preferences for digital assets. So a couple of the facts that I've read that, you know, younger investors are definitely preferring these digital assets. Seven point five per. And of millennials between 25 to 34 are in gold and silver, whilst 25 per cent so a lot more actually owning digital currencies, including bitcoin and another 31 per cent are really interested in acquiring it.
Maddy: [00:28:38] I feel like you're going head to head in like kind of talking trash about my watch. No, no,
Sophie: [00:28:43] not trash, just digital
Maddy: [00:28:45] version of your watch. It sounds like the upgrade.
Sophie: [00:28:49] Hey, there's nothing wrong with the real, you know, stable.
Maddy: [00:28:52] Yeah, let's go.
Sophie: [00:28:53] But no, I actually really how I formed my opinion around this is I don't think that necessarily bitcoin has a place in replacing gold. I think they both stores of value, but they have different purposes, you know. Gold can be used in manufacturing jewellery, electronics, but bitcoin facilitates instant cross-border payments, remittances, et cetera, without central authorities. So I think they're just different ways to hedge against inflation, but also an interesting way to think about it.
Maddy: [00:29:23] OK, I'll take your word for it.
Sophie: [00:29:25] You can take my word for it, and I'm probably speaking trash.
Maddy: [00:29:28] Well, that brings us to the end of today's episode. We hope that this helps give you some context around what is going on in your portfolio at the moment, why there's so much doom and gloom around in the news, and hopefully just some clarity so that you don't have to feel so fearful that you don't understand.
Sophie: [00:29:43] Yeah, happening. And I would just say during this time, like, I know that you and I are constantly just checking, not constantly is like, you have to be doing it all the time, but just checking the headlines, trying to understand what happens. Because if, for example, you are checking your portfolio and going like, look at the news and be like, Oh, every gram Mr. Payment, that's fine. Like just it's good to contextualise it in that way so that you're not so worried about what's happening.
Maddy: [00:30:06] So head across to our Instagram at YIGC podcast. We will be posting more and more on these topics to keep you across what is going on. If you have any questions from this episode, I'm sure there will be many, so please feel free to send us a DM or join us on Facebook.
Sophie: [00:30:22] Yeah, join the YIGC Investing Podcast Discussion Group. Because people are really actually speaking about the current events that are happening on that group, actually. Well, yeah, sorry. People are talking about these current events on the on the group, and I think it's really good to get other people's opinions and insights because at the end of the day, you can't read everything on Google. So it's just good to get, you know, little snippets on the comments.
Maddy: [00:30:45] And if you enjoyed today's episode, please leave us a review. It means a whole lot to us and it helps us get noticed by other people by catch you next week.