She's On The Money - What Is Passive Investing?

Episode Date: November 1, 2022

Today we are chatting all about passive investing, an extremely popular investing method due to its laid back approach and gradual returns over the long-term. But what do we need to be mindful of and how exactly does it compare to its exact opposite method of active investing? Join Georgia King and Victoria Devine to learn more about this approach, the pros and cons and how to decide what might suit your needs best.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. Today, we are chatting all about passive investing, an extremely popular investing method which is famous for its laid-back approach and gradual returns over the long term. But what do we need to be mindful of and how exactly does it compare to its exact opposite method of active investing? My name is Georgia King and joining me is Victoria Devine. V, we spoke about passive and active investing fairly recently. A few months ago. Popular topic, my love. Very popular topic. For anyone who did miss that episode or who can't remember, who might be a little bit like me, can you please remind us exactly what passive investing looks like? Do you reckon you were

a goldfish in a past life? I think maybe, yeah. No, no, like in the most endearing way. I don't know. Goldfish was really mean. I'm sorry, but it's kind of true. Sometimes I'm like, Yeah. So this is a good idea. And you're like, never heard of it. I'm like, I literally told you yesterday, but okay. So let's recap this, but I also think it's really important to always start an episode on the exactly the same page. Cause if you haven't listened to it, like you'll be on the back foot. We don't want that. So passive investing in a nutshell is a buy and hold investment strategy. So we buy our shares and then we hold onto them for a long time with very little trading along the way. It's from my perspective, a very slow and steady

approach to investing. And because we are buying and holding, there are fewer fees involved, money win, because you aren't selling and trading and being really active all the time. It's the opposite of active investing, George, which is far more involved and is ultimately, over the long term, it is great for people who have time on their side. So not time when it comes to trading, but we're talking about time in the market because that's way better than timing the market, Georgia King. So if you're looking to invest over a long period of time instead of just a few short years. The aim isn't actually when it comes to passive investing to beat the market, but actually just to ride the ebbs and the flows of the market and experience consistent gains

along that investment journey. People who invest passively also generally have a lower risk tolerance, especially when you compare them to active investors who tend to take bigger swings along the way. Yep. Okay. You mentioned it just there, VD, active investing. It's the opposite of passive investing. And we did speak about it on that episode, but just so I have it really clear in my head, what actually is active investing? So active investors, as you said, the opposite. Well, passive investors adopt a buy and hold strategy and they don't trade often. Active investors, they're there to try and beat the market. They're chasing shorter term gains. They're selling things when they're up and buying things when they're down and trying to be really

good traders, which in theory sounds like a good method. Yes. But the performance doesn't vary over the long term that much, surprisingly. Okay. Active investors are far more hands-on and therefore usually need to be a little bit more experienced. And it is a bit more of an expensive method, especially if you have a fund manager helping you because there are additional fees and charges involved. But it honestly, it can yield higher short-term returns. So it's up to you what you find best for your situation. Right. Okay. So active sounds exhausting. Passive, a little more relaxing. I would agree. A little more chill. Couldn't agree more, Georgia King. V, when I was reading ahead of today's episode, because we like to be prepared. Were you reading my new book? I

actually was. It's good, guys. Can confirm. I'm like, this feels familiar. These words that you've put in this document. I think I like this. So index investing was something that came up time and time again as the most common form of passive investing. Once again, I'm sure we've spoken about it before, but what does index investing mean and why is that the best way to invest passively? So we've explained index investing before that from my perspective, it's the average of the average. Like you're just chasing the average of the average. Index investing is all about emulating the returns of a benchmark financial index, which sounds really complicated, but I promise it is not. It's basically just going, all right, we're going to take these top 200 shares

and then we are going to put them all in one basket and then you're going to get the average returns of those top 200 shares. So say one is up 10%, one's down 10%, one's up 2%, one's down 1%. You end up with an average. So you don't feel the super highs and you don't feel the super lows. You end up with an average return across the market. And that's why I say it's the average of the average because you're not looking for like, oh my gosh, I just want these, you know, specific shares in the top 10 in this area. You're usually taking a bigger basket so that you can track the index and the index is basically the average. Does that make sense? That makes sense. I hope it makes sense. Yep. It can be achieved by using so many different investment funds, including

managed funds, super funds, sometimes ETFs or exchange traded funds as they are very commonly known in our community. Index funds are comprised of, as I mentioned before, various stocks that make up an index. So another example of this, you know how I said before, you might take the top 200 stocks. There's literally the ASX 300, which is Australia's top 300 companies. Or you might have heard of the All Ords. I feel like they talk about that on the news basically every night at 6pm. They're like, and the All Ords are up. That's just a white male being like, oh my gosh, look at this. If we just go All Ords, people will think it's really fancy, but it's actually just the top 500 companies in Australia. There's nothing that complicated about it. No, that's good to know. I

feel like when I hear All Lords, I think of like the national rugby team or something. Oh, do you? All Lords. I don't know. I'm very dumb. I just remember when I was younger and I would watch the news and be really confused and basically zone out when they're like, oh, I'm the stock market today. And then they'd like put this chart up and it'd have like the green arrow up and sometimes the red arrow down and then be like the All Lords is trending X, Y, Z. And you'd just be like, what are you talking about? But if you hear it on the news, the all odds just means the top 500 companies in Australia, and it's the average. And the all odds is seen as a pretty good indicator of the health of our country, right? Because 500 companies in Australia is a lot of companies,

right? Like the top 500, we're not a massive country at the end of the day. So if the all odds is down, that means the economy is a little bit down. It's an indicator of how we're doing as a society, right? So if the all odds is up, the economy must be doing pretty well. If things are happening in Australia and they're negative like COVID, it would be expected that the all odds might be down. So it's an indicator of the economy and how it's performing today is basically what I would see it as. Sure. Okay. That's quite helpful. But you can also buy it. So how do you buy it though? So is that when we're buying into an index fund, are we buying a small portion of 500 companies?

Yes and no. So an ETF, I mean, sidetrack, we've done a whole investment series. Please go back and listen to that. I mean, you were on it, so I hope you remember it. But when it comes to an ETF, that is actually bought and sold in exactly the same way a share was. So say you want to buy a Woolies share and you go onto your platform, you might pick a sharesies or a superhero, or you might be going to a self-wealth.

It doesn't matter. You're on a trading platform and you've decided to buy a share. You go and you go to that profile. I would like to buy one share of Woolies, right? So you've done that transaction. To buy an ETF is exactly the same because ETFs are actually listed in exactly the same way a share is on the share market. However, an exchange traded fund is basically just this big bucket of shares. So instead of purchasing a Woolies share directly, you would be like, all right, well, a ETF is more in line with my goals and values at this point in time. And I would like some more diversification

because if you bought that one Woolies share, you're just buying into that one company. You know how we're talking about ebbs and flows of the market? If Woolies goes down 5%, you're going to feel that entire 5%. If it goes up 10%, you're going to feel that. But you also don't have any exposure to any other area of the market. Right. So an ETF is a good way of getting instant diversification. And when we say diversification, we mean not putting our eggs in one basket. So you're getting instantly a range of different share options. So you'd be getting maybe some woolies, but you'd also be getting some other areas. So you might be getting some mining, depending on what you're up to. You might be getting some infrastructure. You might

be getting some clothing businesses. So you're not just picking one area of the market. But when you buy an ETF, you're actually putting your money into a big bucket. And then that bucket buys shares because obviously a share can be quite expensive. Like some shares are more than a hundred dollars some are less than a dollar and across the market these are ebbed and flowed and if you've got five bucks and you're putting it into an etf that doesn't necessarily mean that you'd be able to buy the shares directly so it's basically in a way fractional investing but you're just getting bits of the entire market and it gives you one better diversification but it also means that you don't have to be as active in your strategy and they are in our she's on the money

community a very popular way of getting into the market and picking an asset that you go, I'm really comfortable with this because I'm not the one always calling the shots. Does that make sense? Yeah, yeah. Bit of a sidetrack because I know that none of that was in our script for today. I feel like it's important to talk about this stuff. And I know we've talked about it before, but to be honest, you guys need to hear it over and over again. So it really reiterates and you become really comfortable with it and it kind of just becomes second nature. And that's the point of what we do, right? Yeah, couldn't agree more. So be on that though, are all index funds

ETFs or not necessarily? Tell me more. So no, at the end of the day, but I feel like people in our community are often using them interchangeably, but not all ETF funds and not all index funds are ETF, but most of them are in Australia. The key difference between the two is that an ETF, as I mentioned before, can be traded on the share market like a stock, but an index fund can only be bought or sold at the end of a trading day. So it can only be bought or sold once a day. So not all ETFs are index funds, but most index funds are ETFs. Does that make sense? It does. It doesn't. It doesn't, does it? So basically an ETF could be a plethora of things. An ETF is an exchange traded fund, as I said before, a bucket. In that bucket, it could be

index of just the top 500 or the ETF might be a bit more active and it could actually have, you know, a different sector of the market in it where it just has 10 stocks of, you know, tech companies that you want to invest in. And there might not just be the top, there might be a certain select few that you want to purchase. I've mentioned it before on the podcast. There's also an ETF you can buy. I just think it's really cool because the world is wild. Or I think the world is wild and I obviously love investing, but there's literally an ETF, George, that you can buy that only has women on the board of the companies that you're investing in. Really? Isn't it cool? That's very cool. So even if you are a passive investor, I feel like in 2022, you can still find ETFs and

passive investments that align to your personal values. Whereas historically, and when I started in the industry, like these things weren't as accessible. I remember sitting down with clients and being like, well, if you want your values upheld, we actually need a direct investment portfolio. And that's more time, energy, effort, money. Like it's much harder to do. Whereas nowadays it's like, all right, well, gee, and I've explained this on the podcast before about doing your values first and then working out what type of strategy works for you and whittling it down kind of like an upside down pyramid so that you actually end up at one solution. And my new book, not to promote it too much, but my new book literally takes you down the garden path of doing

that because I'm like, all right, well, what's your risk tolerance? What are your values? How does this work? Because I think that especially as women, we get really overwhelmed and we get analysis paralysis. And I know you get this in particular where I'm like, gee, like start investing. You're like, I don't know what to pick. Like, I don't know how to do it. And to be honest, we need to be reverse engineering it in a way where it's not like, gee, don't tell me you don't know what to pick because if you've done your process, it will actually tell you what to pick. Right. Like you'll go through the process and you'll answer questions like, Jay, do you want to be really involved? And you'll be like, no. All right. Well,

maybe a passive portfolio is better for you. Let's look at passive options. Whereas if I put them all on the table, you're going to be like, oh my gosh, I'm so overwhelmed. Do I go direct or do I not? Whereas if your friend is saying, oh, I'm actually a passive investor, you know, really low risk tolerance. If they're then saying, oh, I went and bought all these direct shares, you'd be like, wait, what? That doesn't actually align to what your strategy should be based on your personal values. Anyway, let's not go on and on. This is all about passive investment, not how to put together an investment portfolio in general. That's covered in my book. Exactly right, which you can pick up at Dimmix. $19.99. I don't know how much it is.

Thank you. I don't actually know what it is. You know what? I think on Amazon, it goes down to $19. Get it on sale. Get it on sale. Money win. What would you say the main goal of passive investing is? Is it just to get rich, baby? Yeah, get rich. Get rich, retire. are. From my perspective, it's genuinely just wealth creation. Like it is long-term sustainable wealth creation. We know that not investing is a choice. Like it's actually quite funny when people are like, oh, well, like I'm not ready. I don't want to do it. But I think you need to actually take the plunge into investing if it makes sense for you, because having money in cash is actually going to put you backwards. And I did a little comparison while I was on the plane coming back

from America, because this is the kind of stuff I get up to when I'm bored, Georgia King. And I was like, I wonder what 10 grand invested 10 years ago would look like compared to keeping it in a savings account, like the current value of a dollar. So we know that a dollar today is not worth what a dollar tomorrow is worth because obviously when it comes to inflation and CPI and the rising cost of living, what a dollar can buy me today is not what a dollar can buy me tomorrow. It's usually less. So I don't have the exact stats in front of me, which I absolutely should, but $10,000 10 years ago invested, I think was worth $18,000 and $10,000 just in a savings account was worth $6,500. So you're literally losing money. And I'm not saying that you

wouldn't still have that $10,000. In your heads, you're probably like, V, if I put $10,000 in an account 10 years ago and didn't touch it, $10,000 should still be there. Yes. But it will not buy you as much as it would have 10 years ago. So 10 years ago, you know, you would have gone to the supermarket and filled up a grocery trolley with $100 worth of groceries, it would be far more full than it would be today. Does that make sense? So it's all about inflation. It's not necessarily saying, gee, you will lose money. Like no one's going to come and take money out of your account and put it in the bin because you have it in savings. It's going to stay there, but $10,000 loses value. And I'm not talking monetary value. I'm talking about the power of what it can buy you.

So it's actually putting you behind by not investing at the end of the day. It's really powerful, but it's also really sad when we, you know, come down to it because at the end of the day, you're putting yourself behind by not putting investing as a priority. Yeah. Wow. That has blown my mind. Why aren't we talking about that? We are talking about it. I literally have a podcast, but it's crazy to think what that means. And it's also like, I've spoken about this on the podcast before, when it comes to human behavior, humans are literally wired in a linear way. So to you, one plus one equals two, two plus two equals four, right? But if I talk to you about compounding interest, on paper, it looks really sexy, but your mind doesn't work that way. Your mind goes in a

really straight line slowly up, whereas compounding interest, it kind of goes in that really straight line going up. And then it starts to peak as compounding really takes power. And that's something that it's not because we're silly. It's because of the way our brains are wired that we can't really comprehend or harness that. So it takes us a while to actually go, hold on, the power of that is actually wild. And this is how it works. And this is how it impacts me. It's not because we're not explaining it clearly enough. It's because our brains are literally wired to not properly understand that. Because at the end of the day, we're creatures who are just trying to survive. And surviving is very different to thriving. Thriving is a choice.

Thriving is something you actually have to put active energy into doing and investing is part of that journey. Does that make sense? Wow, that does make sense. I wonder if maybe all the She's on the Money listeners in 100 years time, we check back in, most of us will be dead. Our brains might have changed though and maybe we'll grasp it better. Anyway, V. I hope so. Let's move on. Essentially, summary of that question that you asked me. Yes, it is to create wealth, But it is also really important to make sure that you're on that journey because investing is a priority. And we're not saying that passive investing is the way. We're just saying here's another way to do it because at the end of the day, TLDR, investing is really

important. And if you have a job and a super account, you're already an investor, Georgia King. Beautiful. V, I think now's probably the right time to take a little break. Let that all sink in. But on the other side, we're going to be chatting about the best parts of passive investing, what the returns really look like, and how you can actually set yourself up with one. So please don't go anywhere. What a time. Let's dive back in, V. Tell me what the returns actually look like when we're investing this way, because my mind would say, surely active investing, because it's so much more involved, we're trying to beat the trends of the market. Surely that is going to yield better returns. But is that the case? All right. Good question, Georgia King,

because so many times it comes up in our community. Should I be active? Should I be passive? Should I buy an ETF? Should I buy direct shares? What's the difference? Should it be chess sponsored? Does chess sponsorship matter? TLDR, no. But it's one of those things where the debate has spawned side arguments, like whether some passive funds are actually really active management in disguise or whether they should be debated as reframing along high cost versus low cost funds. It's a pickle of a topic because the deeper you get into it, the more meaning it has. But at the end of the day, the good news is, one, you don't have to be active or passive. You can be active and passive.

I think I've discussed before, as much as I'm not allowed to tell you what I own legally, I can tell you that I have a mainly passive approach and then I'm active in some areas because it interests me. And you could do something similar. You could be like, all right, well, my core portfolio is passive and then I can be a little bit active. When it comes to the returns, though, which I think is people's main priority, right? They're like, well, if I'm going to win best, I want the highest returns ever.

With more risk comes more return. But often, from my perspective, it's about making hay while the sun is shining. And if the sun is shining and we are able to create consistent returns, from my perspective, I much prefer consistent returns over the highest returns that are maybe possible because nothing's guaranteed, right? But according to Vanguard's matrix on active versus passive based on 10 years worth of data, obviously the more risk averse the investor is, the more difficulty they have choosing low cost options because they are far more expensive.

And when it all comes out in the wash, the difference is minuscule. Like you look at some articles and some graphs and I'm currently on barons.com. They have a really cute graph of active versus passive portfolios. And to be honest, the difference is less than 1% over a 10 year period. And I find that really interesting because obviously we could compare so many different things, but it's not comparing apples with apples. So if I go, hey, Georgia, you've got this really high risk portfolio that is currently returning, you know, 15% or something along those lines and your passive portfolio, it's one, not apples with apples, but we also need to remember the

different risk profiles associated. And someone who has a different risk profile and is, you know, maybe more of a moderate growth than a high growth investor, they're actually chasing lower returns anyway. So it's not which is better, it's which is going to serve you better in the long term. And from my perspective, as I've said before, I am more of a passive investor, but I'm more passive because I just don't want to stress every night. I'm so lucky that I am so young and got to start so early. And as much as I'm wildly passionate about this investing space, I'm also acutely aware that I can't time the market. So what I'm going to do is make sure I have the most time in the market so that I am just investing consistently over the long term. Because even

if you look at it, right, like in the investment world, you know, people obviously chasing sick returns and we want like the highest ever and all of this other stuff. And we know that the Australian share market over, I think it's the last 22 years or something has returned 11%. That's pretty sexy, I reckon. But when I do my calculations with my clients and I sit down and I say, all right, Georgia, like what returns are you looking for? You're going to go, all right, well, I just want an average return. I just want to make sure I'm okay. I usually either use 5% as a guide or 7.5%. I'm never looking at that 11, even though it's the average, because I would rather under-promise, over-deliver and make sure that we achieve our financial goals instead of

putting you in a position where we're expecting the world and then I can't put it on the platter for you. So I think it's all about under calculating performance and then being impressed later down the track. It means that you're not as disappointed when there are dips in the market because you can obviously go, all right, well, last year my performance was 11%. Like I remember back in 2019 before COVID-G, we were talking about my investment portfolio, you know, privately, and I can say this now because it's not current. And my investment portfolio that year returned 17%. And it was doing really well. And I was really stoked. I was like, this, you know, obviously isn't what was planned, but the assets that I'm holding are doing really well. And that's

just one year in isolation. Like that doesn't mean that that's perfect. My clients were stoked, George, because I had 17%. I had some of my clients where their entire portfolio had returned 22 to 25%. Like what? That's amazing. And every time I had a conversation with a client, as much as I was super excited about it, I was also like, all right, but take this with a grain of salt. I know it's looking really sexy. This is going to make up for the years in the future that we might have a little bit of an ebb or the market might be a bit down and they'd always be like, yeah, yeah, baby, we get it. Don't worry. Don't worry. Obviously, I had no idea that COVID would then come. COVID then came and some of my clients had underperforming portfolios or stocks. And I was

as a financial advisor who, you know, I graduated in 2009 and obviously the global financial crisis was the last big financial crisis that financial advisors had to go through. So I didn't experience that, but I heard all about it and I was like, oh my gosh, this is the first time I'm really going to have to sit down a client and be like, Georgia King, I am so sorry because your performance isn't where it should be. And I was so anxious and I did way more research than I usually would. like if a client had a direct portfolio, I was going through, obviously I do this anyway, but I was going through annual reports of their holding with a far finer tooth than I was before, trying to find every reason why this had happened. So if my clients mentioned anything, I'd be like,

all right, well, Georgia, this is what this means. Don't worry. I'm completely on top of it. I wanted my clients to feel safe. Every meeting I went to with clients, they're like, yeah, no worries. And I was like, what? They're like, you said this would happen. Like you set our expectations that the market would at some point go down. We had a really good couple of years, but like, we're just going to ride it out. And I was like, I've wasted so much time. I mean, I don't regret it, but I think it's really important to talk about this stuff as well so that you guys understand that, you know, over the last few years, my portfolio has been doing really badly. It makes me feel really sick. I actually hate logging in and seeing it. But at the same time, I always tell

you guys, it's about looking at it as if the shares are on sale and going, all right, well, the shares are on sale. If I buy more now, I'm getting better value, which is a money win, right? So I think when it comes to passive investing, it's not really about the performance. Like if you're chasing performance and you're really wanting the highest of the high, then yeah, you're probably more of an active investor. Passive investment strategies are the slow and steady stage that are arguably going to win the race. And you might not end up with millions upon millions of dollars, but like that was always going to be a risk. Does that make And when I use that example, which I've used on the podcast a million times, we've talked about

$500 each and every single month from the age of 21 up until retirement. If you had saved that money, it would be $240,000. If you had invested that money, it would be $1.2 million-ish in an investment portfolio. Money win, that generates a passive income stream of about $60,000. But gee, that's calculated at 7.5% return. And we know that the market has performed higher than that over the last few years. Does that make sense? So when we give examples, I'm always trying to under-promise, over-deliver, and I think you should do that for yourself as well. So when you're looking at, is an active portfolio better returning or is a passive portfolio better returning? I don't think it's about that. I actually think it's about picking something

that will get you to your goal safely. Does that make sense? It does make sense. Sorry, rant. No, no, I loved, I loved, I absorbed it all. Just on that V, the one thing you didn't touch on there was the difference in expense between servicing a passive folio versus an active folio. I'm assuming active will be more expensive, especially if you're paying for a fund manager because it's more hands-on. Can you talk through that difference as well? Absolutely. So when it comes to active, there's usually more hands involved. There's usually more people in the mix. And usually when it comes to investing, those people are very expensive. So

that could be a financial advisor. It could be a fund manager. If you're picking an active fund, it could be anybody, but essentially an ETF just baskets everything into a fund. Yeah, there'll be a manager that looks after that ETF or an ETF manager, but they won't be as actively trying to chase returns as a fund manager in an active portfolio. You do pay for it, but that's why I said it's hard to compare apples with apples because funds have different prices and different returns and then things that are more active sometimes come out in the wash exactly the same. So to be honest, it really boils down to what are your values, G? What's going to spark joy in you? And I know that sounds so lame sometimes, but if you're like, yeah, I just

want to invest to put myself in the best possible financial position in the future, then maybe passive is for you. But if you're like, oh my gosh, I'm so excited. I love investing. I want to be a part of it, I want to be trading, oh my gosh, I've been doing this research on this fund manager and I'd really like to follow their portfolio, then great, maybe that is for you. But different strategies can also be chopped and changed. As I've said before, I mix strategies for me personally because I am really passionate, but I'm also really passionate about that, you know, tried and true, steady steed, who's going to hopefully win the race for me. And so that's where passive comes into it. So it really, really depends on what your values are as a person. But

yes, active is more expensive in general because usually you're paying for a fund manager. Across the board in the financial advice industry, I find that financial advisors scoff a little bit when you say that an ETF costs more than 1% of your funds under management. They might use terms like basis points, but basis points can basically be converted straight into a percentage. So less than 1% I think is fair for an ETF that doesn't have an active fund manager, but you can pay way more than that when it comes to having an active person on your portfolio because they need to pay the bills. Yeah. Okay. Perfect. Vy, talk me through the very best parts of passive investing, apart from like the hands-off approach, which I'm very drawn to personally. I haven't sold you on it

yet. You're like, I want more. What more is there? Victoria, you need to pitch this harder. All right. So obviously very low maintenance, more of a hands-off approach, less responsibility on you, which to be honest, I find real sexy. But passive investing is really just like, as I said before, setting and forgetting and not having the constant angst or exhaustion of monitoring the market and can be quite freeing from my understanding. It doesn't mean you don't need a financial advisor though, contrary to popular belief, as much as you can absolutely go and do it yourself. It's funny because I actually have a whole heap of clients that have passive investment strategies and I mainly work with them individually on goal setting and actually budgeting and cash flow

because they're the things they struggle with and they're the things that they see value in me in and it's not actually investing. So we're like, yep, let's set up a passive portfolio. We'll put that over to the side. It'll tick along, do its thing and we'll focus on these things. Whereas I then have other clients and this is where I usually play a little bit more actively where they have direct share portfolios and I'm far more active in that and they're like, V, I don't care about my budget and cash flow. They're either really rich or they're on top of it and they don't need my help when it comes to budgeting cashflow. So each financial advice relationship is actually going to be really different based on how you frame it with your advisor. So I don't

want you guys thinking, oh, if it's passive, you just do it yourself. You don't need an advisor. It will really depend on what your goals are for seeking financial advice. Everyone's is different, right? Obviously, as we mentioned before, it's cheaper. If you've got someone investing on your behalf and looking at your portfolio, their fees obviously are likely to be higher because it's active investment, as we said before, so much more involved. So cheaper is a nice thing, a bit of a money win. Capital gains tax is also avoided sometimes because you're not selling when you hit a profit. So often with the more active investing, you're selling and buying and selling and buying and you really need to take into consideration capital gains tax. So that's a

tax you pay on the profit you make from the asset you sold. Say you had a share, George, and it was $1 when you bought it and then it was $2 when you sold it, you now have to pay tax on that $1 that you made. And if you sell it within 12 months, so in under 12 months, you're actually going to be slapped with a 50% capital gains tax. So that takes your profit down to just 50 cents. So it really strips it away. Otherwise, it is taxed at your marginal tax rate, which is really fair because we pay tax on money we earn. And basically, if you're earning it in the share market, you are earning that money and it needs to be taxed. Totally fair, totally understandable, but people don't seem to understand that. Whereas with a passive portfolio, you're

just buying, holding, buying, holding, and capital gains tax isn't something you would have to play with too often because the whole plan is to buy and hold. No buy and sell and you're not trading often. When it comes to passive investing, and to be honest, this is across the board, there's usually a really good level of transparency in what you're invested in because it's expected. It's 2022. There's not a lot of things you can't disclose like you have to be. These are the holdings. This is why we have the holdings. These are the percentages. And even ETFs nowadays are a lot more transparent than they used to be. Oh, okay. So they're the pros, Vicky D, but can you talk me through any potential considerations we need to think about? Any

negatives or downsides? Yeah, of course. So obviously with every pro, there's usually a icon associated in every aspect of life. Passive investing is subject to total market risk. So when the overall stock market falls or when a bond price takes a little bit of a dip and slide, so too will index funds. But that's, as we said before, you know how we're talking about the odds and it's like a good indicator of the market? Yes. That's just going to happen because if the market is going down, obviously if you're holding a really big part of the market, your shares are going to go down too. So it makes sense. Part of the journey though, so don't stress when this happens, it's obviously not as flexible as active investing because you're not handpicking

individual stocks and being completely in control of it. In saying that, that's why we want to take a little bit more time to pick the right ETF or right passive investment strategy for you, because I'm sure that there is one that comprises of things that all align to your values. It might just take a little bit more time being like, all right, well, it has to be ethical, it has to be women, it has to be this, it has to be that. And that's okay. We just need to find it. And you might not get above market returns because obviously with an ETF, the goal is to mimic the average of what the market in general is returning. You're not trying to pick, oh, the next up and coming tech stocks or the next up and coming X, Y, Z. You're literally going,

I'm going to buy a basket of shares and I hope to get the average return from these. Does that make sense? It makes sense. It makes sense. I'm on board with passive investing, V. Yay. Well, let's get you started. Well, that leads me to my final question for today. how do we actually set ourselves up with a passive investment folio? I'm assuming we're just calling the big guns, getting some help. I'll just call a big financial advisor, send all your money their way, pay an exorbitant amount of money and you'll be right. No, there's heaps of ways. Honestly, that is not true. Do not take that. You can obviously do it via fund manager. You can do it via broker. You can do it via an online share trading platform.

You can literally just log into an app like Sharesies and buy an ETF and bam, you're a passive investor. Like what a dream. It is actually so easy. Before you do though, there are a couple of things to keep in mind. So the first is to really ask yourself what your personal strategy is, what your values are and what you're hoping to get out of your investment experience. If you're chasing those really high highs and you're really keen on having a hands-on investing experience, well, perhaps active investing is a better option for you. Understand it. Honestly, I think the other thing I would really say here is trust yourself because I think as women in particular, and I keep saying this because it's an investing piece of content, but

we really doubt ourselves and our ability to make a good decision. And often we get analysis paralysis and that stops us from even getting into the market. I'm not asking you to put every single dollar of your life savings on the line. Even if it means you go and spend $10 on an ETF have to get in the market and start watching it, plot along and feel comfortable with it, that is literally better than not getting in at all. So I think it's all about being in the market to get an experience. Because how many times, G, and I've said this to you a million times, people are like, oh, I went to uni and I studied marketing for four years and I did my honours and then I went to work and all of that went out the window. All my research went out the window and

I learnt on the job. Same thing can happen in the investment world. That's a good way of looking at I think it's a good place to leave it too. Yeah, perfect, VD. Also, I'm going to throw a shameless plug out there. If anyone wants to know more about investing in general or passive investing specifically, Vicky Day's book is out. It's thriving.

It's fabulous. She's doing well. She looks really aesthetic on your bookshelf as well. She's so pretty. Pop her beside the bed. People will think you're really impressive. Exactly. So definitely check that out, guys.

But for now, VD, can you please wrap the boring but important stuff? Of course I can. 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 divine and she's on the money are authorized representatives of money Sherpa PTY LTD ABN 321 649 27708 AFSL 451 289.