She's On The Money - Investing In A High Inflation Market

Episode Date: May 2, 2023

There is no doubt that we are in a stressful economic situation right now, but every season brings a different opportunity! So today we are going to give you tips and tricks on how to invest in a high inflation environment. We look at why inflation currently sits where it is, the sorts of investments that are more viable in this landscape and do a bit of an investment mindset check in. Acknowledgement of Country By Natarsha Bamblett aka Queen Acknowledgements. The advice shared on She's On The Money is general in nature and does not consider your individual circumstances. She's On The Money exists purely for educational purposes and should not be relied upon to make an investment or financial decision. If you do choose to buy a financial product, read the PDS, TMD and obtain appropriate financial advice tailored towards your needs.  Victoria Devine and She's On The Money are authorised representatives of Money Sherpa PTY LTD ABN - 321649 27708,  AFSL - 451289.See omnystudio.com/listener for privacy information.

Hello, my name is Natasha Nabanunga-Bamblett. I'm a proud Yorta Yorta, Kernai, Wolperi and Awadjeri woman. And before we get started on She's on the Money podcast, I would like to acknowledge the traditional custodians of the land of which this podcast is recorded on Awadjeri country, acknowledging the elders, the ancestors and the next generation coming through. As this podcast is about connecting, empowering, knowledge sharing and the storytelling of you to make a difference for today and lasting impact for tomorrow. Let's get into it. She's on the money.

She's on the money. Hello and welcome to She's on the Money, the podcast for millennials who want financial freedom. Hello, V. Hello. Are you ready to talk about investment? Yeah, I'm very ready. I'm very, um, would you say interested? Is your interest inflated? It's inflated, believe it or not. People didn't come here for good jokes, Bec. No, which is good because we don't have any, that turns out. Yeah, no, terrible. We actually might get onto the finance content and see if that works out better. Let's try it. Let's try that. Yeah. We're talking about investing. Am I getting this right? How to invest in a high inflation environment. Strap yourself in. Today's

going to get wild. We are back with another investing episode. As you can tell, I'm trying my hardest to come up with as many topics related to investment as possible. Let me ask you a question. Do you think it is possible to invest in a high inflation environment, Bec? Okay. So I'm going to have to break this one down real quick because I did not know what high inflation actually meant. But is it true that high inflation is the rising cost of living in general? Yep. Amazing. That's right. Okay, cool. So, I mean, if you're not really affected by it, if you're making enough money to not really see a change or that much of a shift in your,

like how much you have to spend or how much you have left over at the end of the pay cycle, then i don't think that there would be a big problem yeah i'm getting on this topic i hope early enough so that you guys continue to invest during this period because i've seen some stuff online that says it's not worth it and i couldn't tell you harder harder can i tell you harder i don't know if that's the right terminology but you can you can do it beck all right i can't stress highly enough that it is fine to invest during a high inflation environment so obviously there's a lot of privilege in that because during the time of peak inflation other people are struggling and if this episode for some reason is triggering you into feeling like other people have things

that you currently don't maybe it's not the episode for you honestly I think that mindset is going to derail your confidence and make you feel worse off and I think that the best thing we can I guess see for our community is that that quote that I use all the time a rising tide lifts soul ships. So even if you're not in the best position of your life right now, that doesn't mean that somebody else needs to downplay their circumstances. Now, obviously we don't exactly want it rubbed in our faces, but someone else should thrive because by some other female or some other human being in our community thriving, that opens up even more opportunity for you and I to be successful, Bec. And I think that is so beautiful. Yeah, absolutely. So for anyone who

has been listening to She's On The Money, I think you guys knew I was going to say it was always a good time to invest. And today we're going to be giving you some tips and tricks on how to invest in a high inflation environment. We're going to start off with a little bit of a recap of why inflation currently sits where it is. We'll look at the sorts of investments that are a little bit more sexy in this landscape, and we're going to be doing a little bit of an investment mindset check-in too. So strap yourselves in. Oh my God, I'm kind of excited. But also if you do think that you are not in the place to be listening to this episode, just know that I'm on this journey with you because I also have zero dollars all the time. So keep listening anyway. No, you don't. You're

getting better at it. I'm getting better at it. You're getting better at it. I am. I am. I am. Bec and I are going to sit down very soon and do her budgeting and cash flow and I cannot wait. I'm so excited. We're going to bring the budgeting and cash flow masterclass to life. Like you're going to get it in real life. I am so stoked. She's not. She doesn't even know what that includes. I don't know what's... It's fine. I guess I'm excited. Do you want to talk about inflation? I want to do. I want to. You do? I do. All right. So first things first, I want to start off by saying that we are in a super stressful economic situation right now. But where possible, I kind of want you to try and zoom out and remember that the economy is like an ecosystem or even like the

seasons during a year. It is never stagnant and things are always changing. What we are in right now is the balancing out period of what was uncharacteristically low interest rates. They were actually never going to be low forever. And I feel like we heard that a lot. People would say things like, oh, Bec, money's never going to be as cheap as it is today. Maybe I heard that a lot more because I worked in money, but people would always say, oh, money's cheap right now. It's a great time to invest or money's cheap right now. It's a great time to buy property because, you know, that makes sense. But in the same way, this season is also going to pass and we are going to find a new status and a new update and a new, I guess, normal, you could say. So it's comforting

to know, but it's also just one of those things where I think in every circumstance and, you know, my business partner, Kate, in Zella Money, because we run a mortgage broking company together, Kate and I talk about this all the time. And it's just this idea that there was this concept of money's so cheap. And we would talk to people who'd be like, oh, but it's only 2% to borrow, you know, half a million dollars. Maybe I should just go up to 700,000. And a good mortgage broker would have talked to you about your personal circumstances and whether you can go up to that or whether you shouldn't or what that looks like and takes your entire picture into consideration. Whereas I think a lot of people had a few cheeky mortgage brokers who were like, oh yeah,

Becky, if you want to take more, take more, money's cheap. Whereas your broker, if they are a good broker or even anyone dealing with you in a money situation really shouldn't be pushing you to take more when it's unnecessary or more when it maybe isn't the best financial decision because anyone who works in the money space knew. We unequivocally knew that 2% wouldn't last. And I mean, I'm in that position where I have a mortgage. It has now gone up. I think my mortgage interest rate made me nearly be sick the other day. Grateful that I'm in a position where we can still afford that. Things have shifted. That is fine. But we're at like 5.5% now. I don't know.

When we first got our mortgage back, it was at 2%. Okay. My mortgage repayments have more than doubled. Oh, I see, I see, I see. That is absolutely not a complaint. I'm not complaining about that at all. It's just that's the way of the world. Right.

And I'm grateful to have been in a position where when my husband, Steve, and I took on that mortgage, we went, all right, how much can we afford? And Kate, who obviously, you know, helped us out during the process. Yeah, I'm going to abuse that relationship until the day I die. You should. But Kate said, oh, you can borrow up to X. No, no, no, no, no. I don't want X.

How about I've done my budgeting cash flow. I think this is going to be more obtainable because if things go awry, then I can afford it. But then on the flip side, I'm just going to have more free cash flow. More free cash flow is sexy. I can go on holidays. I can still enjoy my life. I can still do heaps of things that I want to do, but I'm not in a situation where I

am kind of like a slave to my mortgage. Yes, that's very clever. I've got in the position where they're like, oh my God, 2%. I can afford that 2%. But hadn't conceptualized what if that doubles? What if it goes up to 4%? What if it gets up to nearly 6%? What if we actually are in a situation where our mortgage interest repayments double? Can we actually afford that? Or would that significantly compromise our lives? And a lot of people are in that circumstance right now. So it's important to zoom out when we're making any decision, but especially when we're talking about investment, because when in

out, zoom out. That's a good phrase. But also if you look at the Australian share market over any 30 year period of time, no one has ever lost if they stayed invested. Right. 30 years though is a long time. Yeah. I can find you heaps of examples of people that put their money in four years later. They're like, oh, I've been investing for ages and I've made no money and took it out and made a loss. That would absolutely happen. Stay in there. If you stay in the market, that is what the most important thing is. Getting exposure to the peaks and troughs, they might feel really painful when the market's off and you're like, I'm not getting as much bang for my buck right now. And when the market's really on, you're like, oh, making hay while

the sun is shining. It all averages out to be a good return. But if you're exiting the market because that trough is really scaring you, that could actually mean a lot of financial harm to you. So it's actually all about, and we'll talk about it later, mindset, but it's actually all about really conceptualizing and understanding these things. And there's been a lot of conversation in our Facebook group, on Instagram, in my DMs of, Victoria, inflation's so high, should I still be investing? I see. If it works for you, my friend. Yes. If it works for you, if you can afford it, and everyone can, I suppose, if you have like a couple bucks spare.

I could talk about this forever, Bec, but let's get into the nuts and bolts of it. You asked me about inflation. Inflation is the general rise in prices in an economy over a specified period of time. The RBA, or the Reserve Bank of Australia, typically targets a low and stable rate of inflation of between 2% and 3% each year, which can signify a growing economy. So slow and steady wins the race, according to the RBA. Inflation, though, it can creep into the double digits and come as an economic shock really australian's annual interest rate beck you're not going to be surprised 7.8 okay at this point in time right right right and it's still fluctuating and it's going up and down yeah so the rba is the bank to the other banks sure so comm bank nab the big four

they don't just automatically have money the rba is like the big dog government bank mama they set the rules. They're the big dogs. The RBA says our interest rate's 2%. But if one of the big four banks then says, all right, well, I'm still going to be providing mortgages to our clients. Well, then they're borrowing money from the RBA at 2%. And they actually have to pass along that interest rate. And that's what dictates our interest rates here in Australia. The big banks, yeah, they might have heaps and heaps and heaps of money, but they actually do borrow from the RBA. So if the RBA's cash rate, when that gets said, I think sometimes people are like, oh, that's a bit confusing.

That's the amount of money it costs our big banks to borrow from the RBA. Right. So by the RBA increasing the cash rate and saying, look, we're going to make borrowing money more expensive. Do you know what they're doing in that circumstance? I don't. You're like, no, you've lost me already. So when the RBA increases their rates, what that means is things are going to be more

expensive for people. Like the trickle down effect means that me as a customer of one of the banks, because I have a mortgage, my life's going to get more expensive. My mortgage rates are going to increase. I'm going to have less disposable income, which means there's less disposable income going around in the economy, which means inflation can't creep up as fast. So the RBA are increasing their cash rates and saying, look, we're going to borrow money out at a higher rate because we don't want inflation to go wild. And after COVID, I feel like COVID put a little bit of a hold on inflation for a while there. And then everything went back to, let's call it business as usual or our new normal or whatever everyone's calling it. Everyone was like,

okay, cool. We are going to have to start pushing some of these, you know, increases in price onto our consumers. And everything went like this, like travel has gone wild. Travel can't happen in my family as easily if I'm paying more on my mortgage. They're trying to keep our economy a little bit slower. We're trying to slow the growth of our economy. Does that make sense? I see, that does. So if I have, or if you had less money to spend on things that were important to you, and you really had to prioritize maybe just the basics for a little while, the rest of the economy and the businesses around that, they aren't growing as much

because you're not funding them. Right. So if those businesses aren't being funded, the economy growth starts to slow. And if economy growth starts to slow, it gets back to that 2% and 3% that the RBA is trying to target to mean that we have slow and steady growth instead of such rapid growth that we can't afford things. Rental crises happen. Things that were previously affordable are not affordable anymore and it gets out of control. So the RBA, as much as a lot of people online are like, oh, it's awful. They've increased the cash rate again. It's the worst. That's them trying to do their best.

Okay. It's them trying to do their best to make sure that our economy gets back to a more stable environment. Okay. That's good to know. I was going to ask, why does inflation matter? But I guess you did kind of answer it in that. Inflation matters. It's an indicator of a growing environment and a growing economy. It can be a really sexy thing. It's like looking at She's on the Money. The rate of inflation in She's on the Money has been really beautiful. Four years ago, the podcast started and it's kind of gone up and up and up from there. but what if absolutely every business in the entire economy did that?

Where's the money coming from to fund that type of growth in every single business in Australia? Okay, I see what you're saying. We just don't have the cash to support that. And when you do, it comes from other places. And when you have an environment where inflation keeps increasing, people kind of get greedy in a way. Right, I see. And it's just, it's not a nice environment to be in. So inflation matters because essentially, it takes your dollar and makes it worth less. Let's talk about, I recently gave

someone in our team pay rise, right? And the way that I calculate pay rises, you know, I'm really proud of it because the way that I calculate it, I think is the way everyone should calculate it. And I said, all right, what's the rate of inflation? 7.8%. Great. We'll start there. You get a 7.8% increase in your pay this year. That's very nice. It's not nice from my perspective. that for me is the bare minimum. Sure. Because if inflation has increased by 7.8%, my team member is having her expenses increased by that. So today, if I had not given her a pay rise, she wouldn't be able to afford the same groceries that she was able to afford last year. Is that fair? Doesn't feel like it. No, I don't think it's fair either. So above and beyond that,

we can then talk about what pay rise she deserved. But I thought as an employer, I needed to go, okay, well, if this individual can not afford to buy the same groceries and put the same roof over her head this year as she could last year, like let's pretend bread went up. It absolutely has. But let's pretend last year a loaf of bread was $4. This year it might be $6. That's $2 less you have in your account for something else. Right. Life is just more expensive today than it was last year. And that's essentially what inflation does. Inflation kind of erodes your purchasing power over time. And as it kind of takes hold, a dollar is going to buy fewer things than you could purchase previously. I see. Okay. Well, I have so many questions right now and I don't

even know where to start. But if I'm just curious, this is silly, but if the inflation rate goes back down and the cost of living kind of like steadies out again, will you take that money back from your employee? Yeah, of course. No, I will not. Absolutely not. Because it doesn't go backwards. That's scary. It might go backwards, right? Okay. But like, if you look at a graph over time, and we started tracking it, it might go back down. But that's not going back down as in, hey, Bec, stuff's actually just a whole heap cheaper now. The rate of growth of things increasing has just slowed. So that loaf of bread, it's now $6. That's the base rate. But it's not going to creep up to $7 as quickly as it was the year before. Does that make sense?

That does make sense. It's not that, okay, well, now it's back down to 2%. No, no, no. That 7.8% was a line in the sand. Now we're moving along and it's just going to take less time. And it's just going to mean that growth happens a little bit more slowly. So the RBA, going back to them setting the cash rate, they want between 2% and 3% every year. Right now, things are growing way more than that. They're trying to drag us back down so that growth doesn't happen. I see. So hearing this, I'm thinking this is awful, terrible, very scary, but are there any pros? Yeah, I'm kind of like, okay. As I said before, inflation is actually a good thing.

There's a reason the RBA actually has a target of inflation, not keeping things the same, because that is a good predictor of a strong and good and stable and reliable economy. We want to grow. As we said before, slow and steady wins the race. So we actually want it to be between 2% and 3%. Sometimes it goes backwards. Sometimes, like right now, it is higher. Low and stable inflation is a good indicator or can be a good indicator to be a little bit more economically correct of a growing economy. It benefits holders of fixed rate debts like mortgages. So a lot of people have been messaging me recently like, I'm about to come off my fixed rate and I don't know what to do. Talk to your mortgage broker, my friend, ASAP.

It encourages consumption today rather than later. So we're not like saving up for things as we were before. So like the holidays and stuff, they kind of come to a grinding halt because we can't afford them. But then there are obviously a few cons. As you said, it does feel a little bit negative. Inflation reduces your purchasing power since essentially every dollar that you have purchases less stuff. Higher prices throughout the economy ends up hurting retail consumers. It's very tough on retirees that are living on fixed incomes. If you've predicted that you're going to have X amount every single year, obviously, when things absolutely spike, that's unforeseen and you just have a fixed income. And then it does prompt action by the RBA.

So the RBA is the Reserve Bank of Australia that we've been talking about. Yes, absolutely. So back to the idea of seasons. Every season has its possibility then. What are the possibilities of this high inflation environment? Well, inflation is a great season, I think, to kind of re-examine your portfolio and what your strategy is doing. I think any economic pressure is good for you as an individual to kind of like reprompt how you feel about things. Because when we start our investment journeys, often we're really gung-ho and we're so excited about it. And I get it because I am too. Like I remember starting investing and I'm like, I'm going to be rich. I am setting myself up for a very secure financial future and I cannot

wait. But then like the economy starts to take hold and you kind of see the effects of that in your portfolio and you feel a little bit uncertain or you feel a little bit unsure and things get rocky and you're not sure if you should exit the market or stay or do I put some more in, but we really shouldn't be burying our heads in the sand at this point. We need to re-examine our portfolio to make sure it's actually aligned to our values and our goals and what we're trying to achieve. One of the best strategies in a time like this is actually to ensure that you're properly diversified and fully invested. Money invested into shares tends to outpace inflation in the long run. So you might be looking at your portfolio today and be like, V, I don't know what

you're talking about. My portfolio has returned 5% and you just said inflation is 7.8%. I think I'm going backwards. But when we look at the numbers and we actually look at the data, yes, for a point in time, that might be absolutely true. And I will not argue with you on that. But again, when in doubt, zoom out and look at the bigger picture. And usually it ends up, or most of the time, it ends up outperforming what inflation was because this rate of inflation will not exist for as long as the rate of growth in your investment portfolio. So we know that over the last 20 years, the average rate of return of the Australian share market is about 11%. Right. Okay.

So obviously that's just the Australian share market. There's lots of different share markets and that's not a promise that your portfolio will return that. It's just that's the fact of the matter when it comes down to the data. It's very pretty. Yeah, I think it's very pretty. So now's the time to maybe have a think about some additional things that you could add to your portfolio that might make sense if you only have shares. And if you've got some cash, maybe you would consider things like maybe some investments in real estate. You can invest in real estate via shares if you want to do that. You don't have to go out and buy a family home or an apartment to do that. Commodities or even treasury index bonds, they often serve as a further diversification

support for your portfolio. Cash on the sidelines is essentially guaranteed to lose money. Not that sexy. So right now, if you've got $10,000 in a cash account just sitting there, absolutely no interest rate on their bank account, it's working at negative 7.8%. It's like having a debt. It's costing you 7.8% per annum right now to not have that money working for you. But people don't see it that way. No, okay. Because right now I can see $10,000 in that account and let's pretend I have absolutely no fees on that account and I just let it sit dormant for the next 12 months. I'll go back in 12 months. That account will have $10,000 exactly in that account. It's not going to have 7.8% less. But that $10,000 will buy you 7.8% less of stuff than it was able to today when you

had the opportunity to invest it and you didn't. That is a really, really good way to put it. I'm really dramatic. Thanks for coming. No, I love this because I was going to say I should not be doing this, but I started putting money in a piggy bank thinking that that was a good, it's a good start. Do you know what? I'm going to not do that. No, but looking at your financial circumstances, that works. Does it mean that I'm not sitting on some cash? Absolutely not. I absolutely have a savings account. You're not going to touch that. I'm not going to invest that. I have an emergency fund. I will not be investing that because the entire purpose of an emergency fund is to have access to quick cash and capital. And that's that

money's job. I don't want you to take from this that every single dollar you have needs to be invested and you need to be getting a return. Otherwise, it's not worth it. That's not what we're saying. Right. But I think we need to drive home this. If you've been thinking about investing, then yeah, like it's a good time to have a chat. Yeah. But if you have an emergency fund that's doing its job, it's not meant to be there. Yeah. And I know you're in the circumstance because we talked about it openly before where you're like, I just need to start saving. Yeah. That's a bloody great start. Cool. Okay. So I don't want you to think that me having this conversation about it now's a good time to invest. Yes. If you're in the financial position to invest, it's going to

cost you a lot more long term if you invest at a time that you can't afford. Because what happens 12 months from now, you have to pull that money out to afford something else and you lose money because the share market might not have recovered yet. That's a really bad outcome. So I think it's really important to make sure that you're making decisions that are based on you, not the way that that example came across. So that example, I still stand by. It's a great example because the purchasing power of $10,000 today is going to be less if you don't do anything with it in 12 months. And if that motivated you to go and invest, that's sexy. But if you were like, yeah, but that $10,000 is my emergency fund, I'll go get it clean, leave it there. That makes absolute

sense. But what we want is the education to know that every dollar in your account has been thought about and has been allocated a job. If that money's job is to make you money, then go get it. But if that money's job is to keep you feeling safe, leave it there. Yeah. Does that make sense? That makes so much sense. I love that. Okay. Thank you so much for that. I think it's a really good place to leave it for now. Let's go have a little break and come back and talk more about it. Okay. We're back and welcome back to you. I always get so fired up on these episodes. I'm like, let's talk about investment. And then I know it's time for you to have a little tea, a little breather. We all know that was a fake break again, Bec. I've got to pay you. No one on this team

doesn't get paid. That's true. That's true. It was a fake break. Okay. It was a fake break. It was a fake break, but we did get to talk about Sharesies and like, I do feel like Sharesies are a part of our team. Like 10 out of 10, very good team, very good people. Do you know what? They love my dog oh yeah well there's a place at our table for them exactly let's get back to the investment chat let's do it exciting exciting fun investment chat all right let's make this conversation a little bit more confusing okay have you heard of like hedging and investment hedging yes yeah like hearing on like the shows like suits yes where you like put your money in several different areas and some that are competing. Like, say, for example, I actually

am really doing probably a bad job at this. Stunning. Just forget everything I said. No, I really liked where you were going with that. Let's maybe talk about inflation hedges in that case. So a hedge in finance means to take an offsetting position. You are absolutely correct. You kind of like, you know, hedge a bet. You might go, oh, well, what if it doesn't work out? So in real estate, single family homes financed with low fixed rate mortgages tend to perform well during periods of inflation. Do you know why we know that? Because TikTok's going wild about how much they are costing to lease out at the moment, right? Like I always talk about TikTok because I basically live on TikTok. Am I creating

enough content on there? Hell no. Am I just consuming the content, mindlessly scrolling my life away? Hell yeah. That's what it's there for. That's what I'm doing. As the inflation climbs, your property is likely to appreciate in value while the monthly service cost of your mortgage either stays the same or slightly increases. This is at the core of home equity, which can rapidly increase your net worth. Very, very sexy. By purchasing real estate, you're also, they call it insulating, you're also insulating yourself from rising rents as they are likely to rise during inflation surges. We do need to take into consideration there, obviously, the rising costs of mortgage repayments, because as I said before, might have more than doubled.

And that makes me feel quite sick because I know that it's not just me that's happening too. Again, super grateful to be in a position where that is not putting significant stress on our lives. We just had to reshuffle a few things, maybe push a few goals off a little bit. And I feel grateful that we're in that position. But for some people, mortgages right now are absolutely destroying them. Let's just be honest about that. The second thing we want to talk about is what's called a value share or a value stock if you're a little bit more American. Some research has shown that value shares tend to do better than growth stocks during periods of inflation, which I think is interesting because we have done a whole series on what a value share is, what a growth share is,

how all of these things work. So if you haven't listened to that, please go back and have a listen because I feel like there was so much information in that that people said was really powerful and really helpful. But value shares are companies that have strong earnings relative to their current share price. They're also known to have like really good cash flows, which investors typically value when prices are rising. When prices are rising and things are getting more expensive, you know what's really sexy? Knowing that the company you're investing in has lots of money coming in the door. That makes me feel really good. Probably not if you're Porter Davis Homes, like that's not going to work out. I heard about that. Yeah, not great. But do you know what is

great about that. And I said to you guys, this would happen is that all of those Porter Davis contracts have been bought or transferred over to another company to finish. So people aren't going to be left in the lurch. What a treat. Hold on, hold on. It's going to be okay. Someone is going to want those contracts to finish your houses. It is okay. But a company like Porter Davis as a good example of that, because I feel like it's been all over the media and we've all heard about it, had terrible cash flow and could not keep up with the rising cost of prices. And that's not a reflection on them having terrible work or being a bad company or any of those things. But if you don't have money coming in the door, you can't pay your contractors, you can't

pay your staff, the business has to end. Like that's just a matter of fact, I suppose. On the other hand, something like a growth share, it tends to be a little bit more sensitive to change interest. Over the past decade, when inflation has been conspicuously absent, growth stocks have enjoyed a pretty good period. But lately, value shares have been, I guess, staged for a comeback. The current environment makes their continuing success likely though. So would you say what is better? I mean, I think that's a question that might pop up. B, is a value share better than a growth share? The answer is no, nothing's better. Like different things perform well in different economies and different periods of economic change, it does not mean one should be

preferenced over the other. It's why we promote having a really well diversified portfolio. It's why we talk about, you know, having some here, having some there, making sure that you don't have all your eggs in one basket. Because if you've got some growth stocks that are good companies, maybe they're not performing as well as they could during this period. They're just chugging along, doing their best. Your value stocks though, they're the ones like pulling the weight. They're the ones putting in the hard yards during this period of time. So that, you know, if the value stocks or the value shares are doing really well up here and then your growth shares are just trying their best. They're just trying to get by in this economy. Over time,

the average of your overall return is going to be a good average. You're not going to get the highs of the highs. You're not going to get the lows of the lows, but everything will kind of balance out. And that is what we want from investment. We just want to be safe. I don't want to just have one thing that does really well in only one economy. It's like playing board games. You just want a little bit of everything so that on your next roll, you don't know what you're going to get, but you're probably going to have a good shot. Exactly right. Exactly. Like Monopoly, you've got to buy the light blues and the dark blues. Exactly. I've recently got into a board game called this is just showing how nerdy i am you know what shows how nerdy i am like take us

to the next level okay i've paid for oh no and download an app on my phone so that i can play the board game on my phone he's katan oh my god same v are you serious the eight dollar one yeah can we play can we play together i did not know you were into katan okay we're gonna have to i'm obsessed but it's like that right like you don't know what's gonna happen next like you don't know if you're going to need to build a road or you're going to be able to buy a car. Like you don't know if you're going to be able to build a city because like on the next roll you could be given a whole heap

of different resources, but like it's good to just have like one in the bank for each because like what if you can't really do much? Well, I'll just build a road, you know. Exactly. Don't put all your eggs in the brick basket. Exactly. You don't want six bricks. You've got to spread it out.

And if you do have six bricks, do you know what you do? You go into the trade and you trade four bricks for one straw. Unless you've got a port. Anyway, we can definitely talk. Exactly. I'm so excited to talk Catan after this. All right, all right, all right. You can come over.

We can have a wine night where we play Catan. Real life Catan. Real life Catan. I have the board game. I bought it online. Okay, cool. Let's do it. Over Easter, one of our friends brought it down and I was like so skeptical, right?

No, no, I was skeptical. I was like, I don't know about this game. It was one of Steve's mates. So I just thought it was like, you know. Dumb boy's game. Dumb boy's game. I am the dumb boy. I'm here for it.

Anyway. Unfortunately, we are the dumb boys now. All right. Well, you know what dumb boys like to do? They also like to use complicated words like commodities. Yeah. That is the next thing I want to talk about. Let's do it.

Commodities, complicated word for what is essentially things like gold and other precious metals. Like, can you just say you invested in gold, babe? Like, it'd be a lot easier, but yeah, gold and other precious metals, as well as things like raw materials and various natural resources, which are critical to production. as demand increases prices rise in the economy and the cost of production to meet that demand typically rises accordingly so i can tell you this is true because the steel in my house is double what it was when i got quoted to pay for it last year and now i have no other choice

but to pay double for the renovation we're doing and that's okay again very privileged position to been. But man, I'm feeling it. I'm a little bit salty about it. Yeah. But can you go no steel or you got to get the steel. You got to get the steel. Yeah, I feel you. Even though commodities don't pay dividends or represent any underlying business, they are disconnected to the traditional asset classes like shares and bonds, and they actually tend to move in an unrelated direction. so they're a good way of diversifying. Treasury indexed bonds. Yes, good. I was going to ask you about this one. Bonds are sexy. I think bonds are really hot. They're really underrated actually. I feel like a bond is like a happy medium between if you're not willing to take on as much risk as a

share, but you also don't want your money just sitting in cash. There's something that if that's your circumstance, you might consider. So treasury indexed bonds, very specific, are medium to long term securities where the capital value of the security is adjusted for movements in the CPI, so in the consumer price index. Interest is paid quarterly, hot, at a fixed rate on the adjusted capital value. At maturity, so maturity just means at the end of the time that you agreed to invest for. What's with all these confusing words? It's ridiculous, isn't it? Like, I get it that you get it now, but the fact that I have to explain something that shouldn't need explaining, like why can't we just be like yeah okay at the end of the term that you agreed to invest so at

the maturity of the loan or at the maturity of the investment in this circumstance investors receive the adjusted capital value of the security so do you know what that means means you get your cash back oh very good initial investment back but it will be adjusted based on cpi so that's okay we're all right with that. The value adjusted for movement in the CPI is done over the lifetime of the bond, not just like what it is today. So if you were pulling it out today, like let's say that your bond matured today, it wouldn't be at 7.8%. It would be, you know, if you were in a 10 year bond, it would be averaged out over those 10 years. So it's a little bit more palatable than that 7.8. So it's not as scary as you think it is, but yeah. Gotcha. Gotcha. Gotcha. Okay.

We've talked about it on the podcast before. Yeah. You know what we have spoken about and you haven't mentioned yet, and I'm kind of getting concerned, you usually talk about Warren Buffett. Yeah, because he's real hot. I haven't seen him. Can you show me a picture after this? I'll show you a picture now so I can get your response.

Okay, let's do it. Oh, no, honestly, I thought he was kind of cute. I mean. Beck, he's like the type of guy that he just looks like he would line up behind you at the supermarket and you'd let him cut in line? I wouldn't let a single soul cut in line. Do you know what? That's because you're not very nice, but I reckon he'd pay you a bill

if he was behind you at the supermarket. Well, then, go ahead. Because do you know what he's worth? What? Do you want to guess what that meant? Look at him. He's sounding familiar. Yeah, yeah, yeah.

I'm going to say it. Yeah, because he's the most famous investor in the entire world. $11 billion. No. You read that wrong. That was $113.8 billion is what he's currently valued at. He's 92 years old for those of you playing along at home and is basically an American businessman and investor who has a very, very big following. And he is very rich because of his investment decisions, not because he has built super good businesses or came from family wealth. He's essentially made all

of his money by relying on time-tested rules of value investing if you are interested and I just think that's really really sexy like I mean he's one of the most frugal people in the entire world he still drives his original car original car that's cute so he yeah he still drives his original car and I'm just getting up a picture for Beck which you guys can google and I might even put it on my Instagram stories today but that's his house it's all he needs cute little modest I do wonder sometimes like he does have a very modest family home in America and that's very exciting but what kind of security do you reckon he needs on that given who he is and what's going on oh true I just go hold up hold up if you're worth 113.8 billion dollars like you don't just get

to walk home without any type of risk kind of overarching that circumstance well he's a dude so Yeah, you're right. A 92-year-old guy who, he can defend himself. He can defend himself. No, he probably needs some help. But that's a very good question, actually. But yeah, so we both agree that Warren Buffett. Oh, sexy. Smash. Yeah, yeah. Oh, smash for sure. You're right. I'm going to do a TikTok of all the famous investors,

and it'll be just like one of those smash or pass series. Yeah, let's do it. Yeah, done. Okay, so since we're talking about Warren Buffett. Yeah, it's real hot. Yeah. Real hottie. What does he usually say in trying times like this? So he has so many good quotes.

And if you've ever heard me say, oh, my gosh, yeah, look, I've just stolen a lot of things that he's said. What can't he do? Yeah, he's inspirational. Yeah. He says, all right, so the first best thing you can do to protect against inflation is to invest in yourself and your skills. He says, if you're the best teacher, if you're the best surgeon,

if you're the best lawyer, you will get your share of the national economic pie regardless of the value of whatever the currency may be. Isn't that interesting? I feel like it's just like, you've just been like, I don't get what he means. It was too fast for me. So essentially, he says, if you're the best in your field, you're always going to be valued and be able to generate a good income regardless of what the economics at the time are doing, right? So like if you prove your value and you invest in yourself and you invest in your skills to become the best of the best, that is not going to betray you. Because during trying times, we see,

you know, we've got the tech redundancies going on right now. They're not going to lose the people that are integral to their companies, are they? Very true. You'd hope not. They're going to try and cut the people that they go, okay, cool, we could get another XYZ at some point in the future. Yeah. The second best protection is a wonderful business, which means a company in which the products are in demand even if the company does have to raise their prices. Companies that tend to withstand an inflationary environment, quote, must have two characteristics. The first is an ability to increase prices rather easily even when the product demand is flat and capacity is not fully utilized without fear of significant loss of either market share or unit volume. And the

second is an ability to accommodate large dollar volume increases in business often produced more by inflation rather than by real growth with only minor additional investment of capital so those two things are really good so rather than trying to pick individual stocks whether we're in an inflationary period or not you should go with this tried and true method the index fund to have and to hold. Warren Buffett also talks a lot about it's time in the market, not timing the market. He has been known for identifying companies that are on his watch list, which is public, by the way. It becomes a public thing. If he's looking into a company, he talks about it and shares that. But he has been known to watch a company for 10, 20, 30 years before investing in them.

The patience of a saint. And people being like, you're missing out on these things, like you're not getting in. And he's like, yep, no worries, but I'm going to make sure that I'm making the right decision for me. And then he does, and it always works out. No, don't know how. He knows what he's doing. Everyone's leaving to it. He's a billionaire.

And is this something that you say, V, or does Warren Buffett say this, from little things, big things grow? No, I believe that was the very regal Paul Kelly. Ah, Paul Kelly. Yeah. Yep, yep, yep. Yeah, I believe that was his very, very well-versed song. Yeah, sounds familiar to me. From little things, big things grow.

It's beautiful. It's going to be stuck in my head all day. Stunning. I really recommend people go back to listen to our recent Investing Small Amounts episode. That was so popular. That was wildly popular. Like, I didn't expect it to be as popular as it was,

but the amount of beautiful messages you guys sent me, and let's be honest, the spike in downloads, so that was pretty good. Amazing. So I feel like it was a good ep though. We had good vibes throughout the whole thing. It was good vibes. It was a really, really nice day. That was on the 5th of April. So go and have a listen to that. But there are also a few things that I want to leave you guys with today. One is from little things, big things will grow. The next is the average investor will experience, get this Beck, approximately seven market corrections during their lifetime. and the last was the GFC. Ah. Do you know what a market correction is? No. It's where it absolutely

crashes. Ah, I see. You're going to experience your portfolio look like trash seven times. I'm so sorry. Oh man, that's a really pretty name for something that's so devastating. Yeah, but it's not devastating if you understand and your mindset is good and you're in a position where you're like, okay, cool. The market is off. My portfolio doesn't look the best, but if I hold on to this rollercoaster, it will go back up. Right. And we know that after the GFC, which was a global financial crisis, which happened in 2008, 2009, we know that some of the best investment returns have come after that. Like our market and our economy has more than recovered since the GFC. And people talk about that as the worst thing in history. And if you go on, my favorite website is

the Vanguard website at the moment. I mean, there's a lot of favorite websites I have, isn't there. Anyway, TikTok. Yeah, TikTok's an app though. TikTok is currently being overtaken by Catan though. Oh, God, yeah. Yeah, like I'm going to lose my pop culture references and I'm just going to be starting to talk about how many bricks and sheep you'll trade me for a piece of ore. Honestly, I won't complain. You'll get it. All right. So I think it's really important to understand that if you go onto the Vanguard website and have a look at their interactive investor chart, you can actually slide around and have a look at the different asset classes and how they've provided. But that graph is my favorite graph for showing people how the GFC at

the time, if you cut back the chart, looks like the scariest drop in the entire world. And then if you add all the way up to 2023, it becomes this little blip in the roller coaster and you go, what's that? That's a GFC. When in doubt, zoom out. Exactly, Bec. You are learning. And the second thing I want to leave you with today is my favorite thing to harp on about. Have your emergency fund. Pump it up. Make sure financially you are in an okay position. Right now is uncertain for so many people. And so many people think, oh, something won't happen to me. It's fine. If you have some extra cash, pumping up your emergency fund is never going to go astray. pay your bills on time hopefully stay on top of your mortgage and if you don't feel like you're

on top of your mortgage please sign into the Zella Money Instagram DMs or email them or shoot me a message or you know get in contact because they can review it and make sure that you're in the best possible position moving forward and make sure you're getting paid well for your job I know that that can be a very hard one and we are going to be creating in hopefully the near future a lot more career episodes because I feel like I can tell you to invest until the cows come home. But you know what you can't do? Invest if you don't have a good income. So we're going to be building up on the career kind of vibe to be like, okay, cool. I just feel like there are so many people in our community who I want to shake and be like, babe, do you know your worth? Like

you are worth so much more and here's how to achieve that. Or here's how you can create a pathway to that without feeling awful about it. So I just, I'm really excited for that stuff. But we're done here today. I love that. We're going to talk about Catan. Yes. And we'll see you guys on Friday. See you guys then.

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