Rask - Investing in shares & ETFs in 2025 (step by step guide) [Part 8 of 12]
The discussion begins by explaining shares as part ownership in a business, highlighting the misconception that share prices alone determine value. Shares represent ownership, similar to owning a piece of a company like McDonald's or Apple. The conversation then shifts to ETFs (Exchange Traded Funds), which bundle multiple shares into one investment, making diversification easier and more cost-effective for investors. ETFs are likened to a 'box of favorites,' offering a variety of investments in one package, thus reducing the need for individual stock selection and minimizing costs associated with brokerage fees. The podcast emphasizes the importance of diversification and the core-satellite approach, where ETFs form the core of a portfolio, supplemented by individual stocks for speculative investments. It also highlights the long-term benefits of investing in shares and ETFs, comparing them to property investments in terms of growth and income potential. The episode concludes with practical advice on using ETFs for building a diversified portfolio, the importance of understanding market cycles, and the role of financial planners in guiding investment decisions.
Key Points:
- Shares represent ownership in a company, not just a price tag.
- ETFs bundle multiple shares, offering diversification and cost efficiency.
- Use a core-satellite approach: ETFs as core, individual stocks as satellites.
- Investing in shares and ETFs can provide growth and income, similar to property.
- Diversification and understanding market cycles are crucial for long-term success.
Details:
1. 🎙️ Introduction and Sponsor
1.1. 🎙️ Introduction
1.2. 🔹 Sponsor: BetaShares
2. 📢 General Financial Advice Disclaimer
- The information provided is limited to general financial information only.
- Listeners are advised to consult with a financial planner before acting on any information.
- A Financial Services Guide is available at Rask.com.FSG for more detailed guidance.
3. 👥 Hosts Introduction and Topic Overview
- The segment introduces Jemma Mitchell and Owen as hosts of the Australian Finance Podcast's summer series.
- Owen compliments Gemma on her performance, noting she is following in the steps of another host, Kate.
- Jemma is described as a financial advisor and money coach, indicating her expertise in financial matters.
4. 🔍 Understanding Shares
- The segment focuses on shares and ETFs, serving as a continuation from a previous discussion on superannuation.
- It covers the definition and importance of shares and ETFs, providing foundational knowledge for investors.
- The discussion includes guidance on how to proceed with investing in shares and ETFs and recommendations on who to consult for further advice.
- A brief recap of the previous discussion on superannuation provides context, linking the importance of diversified investment strategies.
- Includes examples of successful ETF and share investments to illustrate practical applications.
- Highlights common pitfalls in share investments, advising on strategies to mitigate risks.
- Offers insights into current market trends, emphasizing the growing interest in sustainable and tech-driven ETFs.
5. 📘 Introduction to ETFs
5.1. Understanding ETFs
5.2. Basic Concepts of Shares
6. 🧺 ETFs as Diversification Tools
- ETFs emerged 30 years ago as a significant innovation in investment, providing a way to invest in a diversified basket of stocks rather than picking individual stocks.
- ETFs are likened to a 'box of favorites', offering a variety of stocks to satisfy different preferences, much like a mixed box of chocolates caters to varied tastes.
- Instead of selecting individual shares like Commonwealth Bank, Tesla, or Google, investors can invest in a collection of stocks through ETFs, reducing the risk associated with picking single stocks.
7. 🔄 Core and Satellite Investment Approach
- ETFs allow investors to bundle multiple stocks together, enabling diversification with smaller investments.
- Investing $500 in an Australian shares ETF provides exposure to numerous companies, unlike buying a single stock like CBA.
- ETFs reduce the need for large minimum investments in individual stocks, which can range from $100 to $500.
- Investors avoid high brokerage costs associated with buying multiple individual stocks by purchasing a single ETF.
- ETFs help overcome analysis paralysis by simplifying the investment decision process.
8. 🎢 Market Volatility and Long-term Investment Strategy
- The number of ETFs has surged from about 50 to nearly 400 over the last decade, providing more investment options and reducing the need to select individual stocks.
- ETFs are beneficial for beginners who don't want to pick individual stocks and can form a core portfolio that passively grows.
- Investors can create a diversified portfolio by combining ETFs with specific stocks, allowing for both stable growth and targeted investments.
- An example strategy is to invest in ETFs for different regions or sectors while also selecting promising individual stocks, such as Tesla, for additional growth potential.
- Investing in ETFs offers a passive growth strategy ideal for those wary of market volatility, while selecting individual stocks allows for potential higher returns but with increased risk.
- Using a mix of regional or sector-specific ETFs and high-potential individual stocks, investors can balance stability with growth in their portfolios.
9. 💡 Investing Mindset and Strategy
- The core and satellite approach involves maintaining core ETFs in the portfolio, which are added to every month, ensuring a steady and reliable financial foundation.
- This strategy allows for the inclusion of more speculative investments, such as individual shares or businesses, without derailing the main financial plan.
- Allocate a small percentage (e.g., 10%) of the portfolio for speculative investments, ensuring the majority remains in stable, tested methods.
- Beginner investors are encouraged to start with ETFs and gradually transition to individual shares as they gain experience.
- Example: With $20,000, invest $19,000 in ETFs and $1,000 in individual shares, gradually increasing share investments over time.
10. 🏡 Shares vs Property Investments
10.1. Investing in Shares
10.2. Property Investments
11. 📊 Managing Investment Anxiety
- Recognize that investment cycles vary, with good years typically outweighing bad ones, which is a key reason why affluent individuals invest in businesses and shares.
- Shares appear more volatile than property due to constant market updates, affecting perceived investment risk.
- Both shares and property can generate income and growth, but shares offer dividends and capital growth, while properties provide rental income and value appreciation.
- To manage anxiety, focus on long-term investment goals and diversify portfolios to mitigate perceived volatility.
- Consulting with financial advisors and reducing focus on short-term market fluctuations can help in managing investment anxiety effectively.
12. 🧠 Financial Planning and Investment Knowledge
12.1. Investment App Usage and Market Volatility
12.2. Historical Market Performance
12.3. Diversification and Risk Management
12.4. Comparative Asset Returns
12.5. Understanding Compound Interest
12.6. Inflation and Savings
13. 🔗 Diversification and Risk Management
- Investing has shifted from traditional savings and mortgage payments to more diversified strategies, influenced by podcasts, social media, and online communities.
- ETFs are highlighted as a core portfolio component due to their simplicity, low cost, transparency, and tax efficiency.
- An ETF miniseries and free courses are available to educate individuals on ETF basics, selection, and advanced share investing.
- Community data shows that on average, individuals deposit $2,000 to $3,000 every 3 weeks, with 90% of these funds invested in ETFs, indicating a trend towards ETF investments.
- In the community, about 70 to 80% of investments are in ETFs or similar products, reflecting a preference for these investment vehicles.
- The shift towards ETFs is part of a broader strategy to mitigate risk while maintaining potential growth, leveraging the benefits of diversified holdings.
- Additional diversification strategies beyond ETFs include sector-specific investments and international diversification to spread risk across different markets.
- Real-world examples show investors balancing portfolios with a mix of stocks, bonds, and alternative investments to achieve better risk management.
14. 🛠️ Resources and Tools for Investors
- Shares can provide growth and income over time, similar to property, making them a good option for retirement as they do not require dealing with tenants or large assets, and allow for diversification at low costs.
- Investing in shares and ETFs can be virtually free, and it is essential to choose a broker, as the minimum investment size typically starts at $50 to $500.
- Tony Robbins suggests turning from a consumer to an economy owner by investing, offering a sense of pride and financial benefit from everyday purchases.
- Buying shares online is as easy as online shopping, requiring just the selection of a platform and the shares to purchase.
- There are three straightforward courses available to help beginners understand and invest in shares, including quizzes to test their knowledge.
- Show notes will include links to annual reports of popular companies like Comm Bank, Apple, and Tesla, to help investors understand the companies’ operations.
- Joining a free mailing list can provide weekly emails with investing insights.
- Additional resources and information are available through the network and show notes.