If you’d like to discuss your finances with a professional, you can connect with Anick here: https://www.viderefinancial.com/contact
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Get your free verifiable CPD for this episode here >>> https://www.dentistswhoinvest.com/videos/fact-or-fiction-is-the-sp500-the-best-index-to-invest-in-with-anick-sharma
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“Just put your money in the S&P 500” – it’s the internet’s favourite investing advice. But does it actually hold up? In this eye-opening episode, financial planner Anick Sharma joins us to unpack the truth behind this popular mantra.
We break down what the S&P 500 really is – not simply the 500 largest US companies, but only those that meet specific profitability and liquidity rules. This subtle detail has major implications for investors who assume they are getting full exposure to the US economy.
Anick shares compelling global data that shows how market leadership constantly shifts. The top-performing country one year often ends up among the worst the next. With the US making up about 61% of global market capitalisation, focusing solely on it means missing nearly 40% of global investment opportunities.
We also explore factor-based investing – a research-backed approach that focuses on value, profitability, and size. One strategy highlighted in this episode would have turned £10,000 into £151,000 from 1994 to 2023, outperforming traditional global portfolios.
For those preparing for retirement or major financial goals, Anick offers a three-part framework that balances returns, volatility, and emotional comfort – a refreshing alternative to one-size-fits-all investing.
Tune in now to learn why the smartest investors think beyond the S&P 500 and how you can too.
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Disclaimer: All content on this channel is for education purposes only and does not constitute an investment recommendation or individual financial advice. For that, you should speak to a regulated, independent professional. The value of investments and the income from them can go down as well as up, so you may get back less than you invest. The views expressed on this channel may no longer be current. The information provided is not a personal recommendation for any particular investment. Tax treatment depends on individual circumstances and all tax rules may change in the future. If you are unsure about the suitability of an investment, you should speak to a regulated, independent professional. Investment figures quoted refer to simulated past performance and that past performance is not a reliable indicator of future results/performance.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Dr James (00:00):
When we talk about investing, a lot of people say
we should just put all of ourmoney in the S&P 500.
Well, that's not necessarilytrue, and that's why today we're
joined by Mr Anick Sharma ofVidere Financial Planning.
Anick is a financial planner.
We're going to be delving intothe pros of the S&P 500, the
cons of the S&P 500, when itworks, when it doesn't, so that
(00:20):
you can make informed investmentdecisions.
And if you don't know what theS&P 500 is, we're going to cover
that as well.
So it's all good either way.
Looking forward to this one, I'malso happy to share that there
is free verifiable CPDassociated with this podcast
episode.
Whenever you finish the episode, all you have to do is click
the link in the podcastdescription.
It'll take you right throughthe Dentists Who Invest website.
(00:42):
You'll be able to complete ashort questionnaire and, once
passed, you fill in yourreflections and we'll go ahead
and email over to you yourverifiable CPD certificate,
which is entirely free.
What that means is this podcastepisode will be able to
contribute towards yourverifiable CPD hours during this
learning cycle, myth busting101.
(01:06):
We got to talk about thisbecause the number of people I
see out there, especially oninternet forums like Reddit who
have this misconception in theirhead.
Whenever it comes to theinvesting side of things, we
really wanted to devote a wholeentire webinar to it, and that
is is the S&P 500 definitivelythe best place to put your money
long-term?
It certainly is, if you askReddit, but there's a little bit
more to it than that, right,Anick, just a little bit more.
(01:29):
Hi James, how are you today?
Anick (01:31):
I'm good.
The sun is shining, life isgood.
Dr James (01:34):
Hey, that's what we like to hear.
Anick, there'll be some peopleon the webinar who know you and
some people who've yet to meetyou.
For the benefit of the latter,maybe it might be a nice place
to start to have a little bit ofan intro, or a re-intro, shall
we say yeah, sure.
Anick (01:45):
I'm a certified and chartered financial planner.
I help people retire, livelives, set up investments and
accounts to live fulfilled andmeaningful lives.
Essentially no thing or twoabout investing and what the S&P
entails.
Dr James (02:01):
Nice one and maybe just to set the scene for
tonight.
What can everybody expect fromthis webinar this evening?
What are we going to address?
Anick (02:08):
We're going to have a chat about some of the myths
around the S&P 500 and even takea step back.
What is the S&P 500 and what isan index?
What are some of the thingsthat make it up?
Then we're going to have a bitof a chat about some of the
tools needed to assess whetherwe should use an index or
certain indices for investmentsand what makes up our investment
(02:30):
mix.
Dr James (02:30):
essentially, you know what?
Use the I word index just then.
I think that's a great place tostart right, Because, even
though that's one of thefundamentals of investing, I
feel that sometimes people havea few misconceptions around what
an index actually is.
Anick (02:47):
Yeah, so essentially it's a list of companies.
Now what that list is willdepend on so many different
criteria and you get so manydifferent lists.
So let's start with the S&P.
The S&P is the 500 biggestcompanies in America.
Now, it's actually not quite assimple as that, because what a
(03:13):
lot of people don't realize isit's the 500 biggest companies
that meet the S&P criteria.
So S&P are a company.
They create a list of 500companies and these are the
companies that fit their list.
I think it was about last year.
There was a really good bit ofresearch.
That said, of the typical S&P,73 companies should have been in
(03:34):
the top 500 and those 73companies represented about 2.1
trillion, which is about 25% ofthe Australian stock market.
But because they didn't fit theS&P criteria for profitability
and various other metrics,they're not actually included in
the traditional S&P 500, whichis quite interesting, I think,
(03:54):
because everyone assumes it'sthe 500 biggest.
But it's the 500 biggest andthat meet the criteria.
Dr James (04:00):
Well, it's interesting because Tesla wasn't in it, for
it is now, but it wasn't in itfor a long time, even though it
was this massive company.
So, yeah, it's good to justarticulate that a lot of people
believe it's the 500 biggest,but not necessarily all these
indexes.
They're all somewhat arbitrary,right like there's no, they're,
yes, they're, they're certaincompanies from certain, you know
(04:22):
, from certain countries,depending on the index, whatever
you look at.
But people always ask methey're like why do indexes
continue to grow?
And it's like they onlycontinue to grow because they
have the same set of companies,roughly speaking, relative to a
certain period of time last year, and, generally speaking, the
companies go up.
There's no magical propertiesabout it, it's just because they
keep using the same yardstick,which I always find quite
fascinating.
But anyway, not to interrupt um.
Anick (04:44):
So then one question people might have is why stick
my money in an index?
Or what even is investing?
When we talk about indexinvesting?
So to strip this back to theground level, we as investors
want to put our money intothings that hopefully grow over
time.
Why?
Well, people want a return.
(05:06):
People want to try and mitigateagainst inflation when it comes
to financial planning in thefuture.
Inflation is probably thebiggest risk we have.
So a quick analogy if we thinkback to 1920, back in the day,
um, eight pence bought you fourpints of milk.
By 1970, eight pence alreadybought you four glasses of milk.
(05:30):
Fast forward to today, andeight pence buys you 11
teaspoons of milk.
The point there is our moneygets eroded by inflation.
As inflation increases, thecost of everything becomes more
and more expensive.
So then that leads to thequestion what can we do to try
and mitigate it?
And one thing we can do isinvest, because when you look at
data sets over long periods oftime, you typically would expect
(05:53):
to see that investing, or stockmarket investing specifically,
to be a great hedge againstinflation.
Now, when we put our money intothings, what should we do it?
What should we put them into,Sorry, and this is where we
break down the asset classes andto cut a massive list of
(06:14):
screening criteria down.
We essentially want to put ourmoney into things that gives the
future expected cash flow.
Now, when we apply that filter,we're left with four main
things.
The first is publicly tradedcompanies, so the big companies
you mentioned Tesla before,Microsoft, Nvidia, and, and, and
, and.
As investors, we expect toreceive a future expected cash
(06:36):
flow in the terms of dividends,typically when they make a
profit or pay it out or somesort of capital appreciation.
The other three, for people whoare interested, are fixed
interest, bonds, property andcash.
But I'm going to focus on theequity piece in a moment.
So if we're putting our moneyinto a single company, well,
that's quite risky, not verywell diversified.
(06:57):
I'll come on to some pointsabout that in a moment.
So, rather than putting all ofour eggs in one basket, for
example, we can put it into anindex, a list of these companies
, to try and spread our riskaround.
So if company A has a stinkerand performance or the share
price plummets, we are mitigatedagainst that, essentially.
(07:21):
Now to expand a bit more on that.
Why do these indices matter toinvestors?
Well, when we think about whatinvesting is, there are two main
ways of doing it.
The first is active investing.
So if I'm an active investmentmanager, I say, James, you give
me your money, I'm going topredict the next Tesla or Nvidia
(07:42):
and because I have an army ofPhD analysts, we're going to
predict when they're going to goto the moon, buy it when it's
cheap and sell it when it'ssuper expensive and make a tidy
profit.
Sounds great in theory, butbecause of their perceived
expertise, the fees are actuallyincredibly expensive.
And when you look at the data,given how data-driven we are,
(08:06):
once you deduct fees, there'svery, very few active investment
managers who actually manage tobeat the market as a whole.
The other way of doing it istrying to predict a market crash
.
So again, if I'm an activeinvestment manager and, James,
you give me your money to manage, I might say there's a market
crash.
That's going to happen tomorrow.
Let's move to cash and when themarket starts to pick up again,
(08:31):
we'll invest.
And because of my army of PhDanalysts the brightest minds in
the world we can predict whenthat's going to happen.
Now let's for one moment assumethat I get this right.
I essentially have a 50-50chance of getting the call
correct or not.
Either there's going to be amarket crash or there's not Now.
At some point in the future I'mgoing to have to invest back
(08:53):
into the market Again.
There's a 50-50 chance ofgetting that right.
Either it was the rightdecision or the wrong decision.
Across those two events, my50-50 chance and 50-50 chance
essentially becomes 0.25.
Now, over our investmentlifetime and when we financial
plan, we assume you live untilage 100.
Statistically that's not likely.
(09:13):
So it's better to overball itthan underball it.
No one wants to run out ofmoney in retirement.
Dr James (09:20):
The likelihood is, you're not going to get there.
Anick (09:22):
So, across such a long time horizon, the chance of an
active investment managercontinuously getting those calls
right, the probability, becomesnext to nothing.
Don't get me wrong there willbe some active investment
managers who are truly, trulybrilliant.
The difficulty is we don't knowwhether that's skill or luck,
and by the time we have a dataset long enough to evaluate,
(09:44):
they're in the Bahamas, they'reenjoying their retirement,
someone else has come in andwe've missed our window of
opportunity.
So that leads us to whateventually became indexed
investing.
So people started to realizethat it's incredibly difficult
to consistently beat the market.
So what about just owning theentire market?
(10:04):
And this is where variousindices around the world were
born.
So the FTSE 100, the 100biggest companies in the UK, for
example, or the S&P 500, as Iwas mentioning before.
Different indices, differentlists of companies around the
world and people realize that byinvesting our money into these
indexes and people realize thatby investing our money into
(10:36):
these indexes that we canactually, on average, outperform
active investment managersbecause the fees to replicate an
index are actually reallyreally small Within the
investment piece as well.
So it can often be quite doomand gloomy.
Some of the challenges I get ofwhy we invest or against
investing at that.
Look at the news right now.
It's filled, full of a load ofdoom and gloom, essentially.
So people might turn around andsay I don't quite want to
(10:59):
invest just yet.
I want to wait until thingscalm down.
I'm just going to share myscreen a second and jump into
this, sure?
Dr James (11:09):
what it might be nice to do, annick, as well.
Uh, just whilst you're gettingthat up on your screen, it might
be nice to cover the differencebetween an index and a fund,
right, because people use theyoften equate the two terms, but
there's actually a distinctionthere and I feel this confuses
people.
But I'm sure you'll come on tothat at some stage.
Anick (11:27):
Yes, I actually have a bit about this in the moment
amazing, and then what we'll dois.
Dr James (11:31):
The next segue is to talk specifically about why
people get so excited about thes&p, the pros, and then,
obviously, the cons and thethings to know and look out for
which we'll come on to so let mejust share this.
Sure.
Anick (11:47):
Hopefully you're getting this?
Yeah, it's coming through Let mejust move myself out of the way
.
This is a headline around COVID.
Billions wiped off the stockmarket, the worst financial
crash since 2008.
Loads of doom and gloom in thenews.
I think, from memory, thisheadline was around the 18th or
(12:10):
19th of March 2020.
I think the bottom of the COVIDcrash was around the 26th, 27th
, somewhere around there.
Fast forward about eight monthsor so and the markets went to
all-time highs, but there's noheadline.
This is from the Guardian.
Actually, there's no headlineto say billions wiped onto the
(12:34):
stock market.
It's so easy to get caught up inthe hysteria over the stock
market and what's happening inglobal economies.
When it comes to us asindividual investors, these are
things that are so far out ofour control and for most of us,
it's not really going to make animpact to our investment
portfolios.
This is a really interestingchart.
(12:55):
Let me just move this bar outof the way.
What you're looking at here isessentially 1926 on the left
hand side and 2022 on the right,but we're looking at bull and
bear years.
A bull year is essentially it'sa bit of jargon, but it means
periods in which we've had aprolonged up period, and the
(13:17):
bear years are periods in whichwe've had a downturn.
Essentially Now, before we evendive into it, the takeaway for
me is the up years are so muchmore than the down years.
Anytime we have a negativeperiod, relatively compared to
history it doesn't last for thatlong and the downturn compared
(13:37):
to the rally we have after it is, you can't really compare it.
Look what happened here.
This was the Great Depression80% down in 27 months.
Imagine right now if the S&P orthe global stock market dropped
by 80%.
Imagine the headlines.
Yet when you consider theaverages across time, the stock
(13:59):
market here, which is actuallythe S&P in this example, has
still done about 10% on average.
Even considering this period intime.
We've never had a period inwhich we've had a negative with
no recovery.
There's always been a recovery.
Now, if I go on to the nextpage here, what we're looking at
and it's zoomed out, I know,but from 1970 on the far left
(14:22):
until 2023, and there's variousworldwide catastrophes and
global events COVID's over here,2008 crash here, the dot-com
crash here.
Yet despite all of this, thismarket's still at about 12%.
So people say to me but thistime it's different.
Dr James (14:43):
But is it?
Anick (14:44):
really Throughout history we've had issues and challenges
with investing and marketsstill continue to reward
long-term discipline.
For most people, the bestadvice will be do nothing, sit
tight, stick to a long-termstrategy.
Volatility and when markets godown, is a function of the
(15:06):
markets themselves.
It's not a bug Before we dodive into S&P.
It's just very useful to remindourselves of this before we get
caught up in some of the noisethat happens.
Let me just stop sharing myscreen a sec.
So, coming into what the S&P is, then there's been a move away
(15:33):
from this passive terminology inrecent time.
James, you mentioned about theindex terminology right at the
start.
Passive investing would assumethat we are truly passive.
There's no intervention beingmade and for the most part
that's not true.
So my example at the start ofthe S&P only being the 500
(15:53):
biggest companies that fit thecriteria.
You could argue that by havinga criteria in the first place,
that's not really passive.
Is it Because there's adecision in there?
Now the criteria of what makesup the S&P.
It's driven by marketcapitalization.
That's again a bit of jargon,but if you times the amount of
(16:15):
shares by the share price, itgives you a very large number of
a single company.
Now that's essentially themarket capitalization, or it can
be a metric of what thecompany's worth.
Now, if you list all of thosein the top 500 that fit the
criteria, that gives us theindex.
Other levels of other criteriaprofitability they'll look at
(16:41):
liquidity and for the S&P, ithas to be a US company.
Now some argue that, givenglobalization, it doesn't really
matter if someone's in the US.
The world is interconnecting,which is quite an interesting
take.
Now, I mentioned market capweighted, but because of that,
(17:02):
it means we can have adisproportionate impact on the
index as a whole.
Some of you may have heard ofterminology called the
Magnificent Seven, which areMicrosoft, invisio, Tesla, apple
and a couple others, which makeup essentially a third of the
weighting.
And because of that, ifMicrosoft has a bad day at the
(17:26):
office, the index as a wholewill drop massively because it
has such a large impact.
It has such a large impact andbecause of that as well, we see
sectors such as tech having ahuge, huge drag on the overall
index.
Typically, when we do look atthe S&P, it's quite cyclical as
well, so as new innovations cometo the market and new companies
(17:50):
are created to fulfill thatneed of society.
Really, these companies growbigger and we see a changing in
what's happening, and at themoment that's tech.
Previously it has beenhealthcare, finance, et cetera.
Now, when we consider why weshould invest in S&P 500, well,
(18:14):
if you want to invest incompanies to try and at least
beat inflation, you're gettingdiversification within US large
cap stocks, us large capcompanies.
Historically the S&P has beenstrong.
That old cliche stick it in theS&P.
James mentioned Reddit beforeNow.
(18:35):
This is actually an incrediblyinteresting point.
So the US they are incrediblyproud and because of that, you
see loads of people in forumssay believe in US companies.
We have a stellar track record.
Now, where this has actuallycome from is a load of books and
literature have always beenfocused on the US.
(18:57):
Why the US specifically?
Well, the US data the S&Pactually goes back until 1926.
And we don't have a stockmarket data set longer than that
.
So quite often we will use theUS stock market data as a proxy
for global data.
Now, because of that data setbeing available, more and more
(19:20):
US authors started writing a lotmore about what was happening
in the US, so we've had amassive amount of literature
that's been relevant towards theUS and the S&P and because of
that and given how it's gone, umit the, the people in the
reddit forums are constantlybanging on about the s&p and why
(19:41):
we should put money in the s&pessentially now within that as
well.
It's.
It's incredibly accessible.
There's low barriers forparticipation.
Most people now can log ontothe phone and invest in an S&P
fund.
It's incredibly liquid.
So when we think about propertyinvesting, for example, which
(20:01):
I'm sure many of you haveexperience with, the buying and
selling process is so slow andso painful and you can't just
sell off a wall of a house or aroof to try and liquidate your
money Because there are so manytrades constantly going on in
the S&P index itself.
There's constantly inflows andoutflows of money, which means
(20:22):
if you want to try and take somemoney out, it's actually super
easy, and when we compare it toback in the day paper trades, it
was difficult.
Innovation and tech has removedbarriers for for investing,
which means we can all do it satin, sat on our sofas at home
really it's the uh liquidity, Ibelieve, is the term right
(20:47):
exactly James et etfs exchangetraded funds, whereas once upon
a time they were mutual funds,weren't they?
Dr James (20:53):
so you had to go through the broker and there was
so much more.
Anick (20:56):
Uh, friction there, shall we say, and people forget that
only happened in the last 15years, yeah um tech and the, the
birth etfs, um have have comeon massively within the last few
years and it's quite excitingto think about what it's going
to move to in the future.
(21:16):
The question before what's thedifference between a fund and a
index?
So an index is literally just alist of companies, so you don't
directly invest in an indexitself.
But let's say you have the S&Pindex, you will have a fund
manager, the big players in theworld Vanguard, blackrock, etc.
(21:39):
Which I'm sure you've probablyheard of they will try and
create an S&P fund.
So they will buy masses ofshares in the S&P 500, and they
will get investors such as youand I to buy units within this
fund.
And when we buy units, we'reessentially buying part of that
(22:00):
index in whatever amount wedecide to do it.
Now, the fund manager willapply fees, and this is one of
the costs that are associatedwith investing and something we
need to be mindful of.
So there is a difference betweenan index itself, the list of
companies and the fund whichlooks to try and replicate the
(22:21):
index.
There will be a differencebetween the two and we call that
tracking error Again, a bit ofjargon, but tracking error is
the difference between the indexreturn and the fund return.
A good fund manager will have avery low tracking error or a
small amount of tracking betweenthe two, and typically that
will be their costs.
(22:41):
Now, if there's a bigdifference between it, I'd be
asking questions.
So one of the things you shouldbe looking at if you decide
index investing is for you, howclose are they to the index
itself?
How close is the fund managerto the index itself?
Because if they're miles off,then close are they to the index
itself?
How close is the fund managerto the index itself?
Because if they're miles off,then what are they doing?
It doesn't seem like they arereally index investing to me,
(23:03):
which is what we want to bedoing, because active investment
doesn't really work.
Dr James (23:07):
And can I just jump on that for two seconds, because
again, it's another flaw in thewisdom that is espoused and
thrown around.
Where you can just invest inthe S&P, I mean, yes, you do.
You invest in something thatreplicates the index.
That's what you're doing, right?
So, to be more correct there,well, you know, obviously this
(23:28):
would constitute financialadvice.
We're not going to do thistonight, but someone should be
really specific and say the fund, like what fund, actually
mimics the S&P to the greatestlevel of detail, because not all
S&P funds are created equal.
There's actually tracking errorthere we were talking about a
second ago, and I believe youcan find this information out in
the KID document, right, thekey investor information
(23:50):
document.
That's with every fund, but alot of times people don't know
how to decipher it.
Anick (23:58):
Yeah.
So if you look at at it, it canbe very overwhelming.
But read through it a couple oftimes.
So the key investor informationdocument, the fact sheets
between the two.
They'll give various metricsover investment, what their
charges are really important andwe're getting more and more
what I call closet tracker funds.
So take ESG investing or greeninvesting Quite often, this way
(24:26):
of investing will promotethemselves as only investing in
socially responsible companiesand companies that do good
things for the world.
Now, when you look underneathwhat they actually invest in,
most of them are actually justinvesting in some sort of index,
but slapping a very high fee on.
(24:48):
So it's something to be verycareful of.
Now, just coming back a momentto some of the other
implications of the S&P, it'simportant to realize what the
limitations are as well.
So I alluded to it before.
But that market capitalizationa handful of companies having
(25:10):
the biggest voices essentiallyis such a big concentration risk
.
So, for example, as of March2025 this year, the MAG-7 was
down 12%, ie negative 12%.
The other 493 was only downabout minus 0.5%.
(25:31):
So it's a huge differencebecause of a handful of
companies.
The other thing to rememberwith an S&P fund or S&P 500
index is that there's lack ofexposure to other types of
stocks, so there's no small cap,mid cap, international or
(25:52):
emerging markets and because ofthat it's so concentrated on the
US, which limitsdiversification.
In my world, we think ofdiversification as the closest
thing to a free lunch, and it'ssomething we should be shouting
about.
We don't want to put all of oureggs into one basket.
Dr James (26:14):
let me just share my screen again for a second yeah,
sure, and just while you'redoing that, just to add to what
you're saying, you know, ifsomeone has all of their money
in the s&p 500, which iscompanies that are primarily
based in america, well,companies that are based in
america, they do business allover the world, right?
But you're basically backingamerica to continue not just
(26:35):
thrive but outpace the rest ofthe world in terms of economic
growth, right?
But if you think about that fortwo seconds, like, america is
already what?
Like 50% of the global economy,something along those lines.
So in order for it to getbigger proportionally, it has to
continue to grow relative tothe rest of the world, right?
(26:57):
So you're basically saying, Ithink that America is going to
become 51% or 52% or 53%, right,and past a certain point, the
odds just kind of shrink, don'tthey?
You know what I mean.
You've literally got all yourmoney on the fortune and fate of
one country, and that, for me,is one of the biggest reasons
why I get the heebie-jeebieswhenever I see people just
(27:18):
blindly espousing that logic,which relates to what you were
saying a second ago.
Anick (27:22):
Absolutely.
And I challenge people and saywhere's the evidence that the US
continues to smash out of thepark year on year and is top of
the tree?
Because if the evidencesuggests that's the best way to
invest, then there's an argumentfor it, but there's no evidence
for it at all.
So let me just share this isthat on the screen?
It is so hopefully you shouldhave a very colorful chart um
(27:49):
showing yeah, by the way, are we?
Dr James (27:52):
I don't know if you're intending this or not.
Are we supposed to be able tosee what those little boxes say,
because you might need to zoomin more if not?
Or is it more just a generalpicture we're looking at?
Anick (27:59):
more, just a general picture.
Okay, I can zoom in a bit moreif it's a bit better, hopefully.
Hopefully, that might besomewhat better.
Yeah, what we're looking athere 2005 on the left-hand side,
highest returns per country andat the bottom, the lowest
returns, and this goes all theway to 2024.
Now, every single time I dothis, I take a completely
(28:21):
different path.
So let's start with Denmark 2015, top of the tree.
So the end of 2015, theyreturned 31%, smashed it out of
the park, did better thaneveryone else.
So if I'm an investor, I'mthinking, you know what Danish
stocks are the place to be.
I'm going to put all of mymoney into Denmark.
What happens?
(28:42):
2016?
They're literally bottom of thetree.
Austria, 2017, again top of thetree 45% in a single calendar
year, which is ridiculous.
It's huge.
2018, what happens?
Bottom of the tree, minus 23.
Ireland, 2019, 32% very good.
(29:03):
Ireland 2019 32% very good.
To be fair, the midway through11.5% for 2020.
Finland, 2018 top of the tree.
2019 bottom of the tree.
This is a very colorful chart toillustrate my point.
Yes, but it's actually beingput through statistical analysis
.
There's no pattern betweenwhich country comes out on top
(29:23):
and which comes out on bottom.
So by putting all of our moneyinto the US stock market, we're
taking an active bet on what'sgoing to happen.
Now, this is one for anotherwebinar, but markets are
incredibly efficient, and whatthat means is all new
information is priced in.
(29:44):
So if someone has informationthat I don't know the US stock
market is going to tank forwhatever reason, then we're
going to see that reflected inthe price.
Now, if you're actively choosingto invest in the US stock
market the S&P, in isolation,you're essentially saying that
(30:05):
you know more than thecollective participants of the
market, which is a lot, a lot ofpeople.
We can't predict what's goingto happen, so why limit
ourselves just to the US?
And this probably brings me onto my next point.
There's a world ofopportunities out there when it
comes to investing.
Capitalism is the mechanism inwhich bright ideas come to the
(30:28):
market and people find fundingto get their companies off the
ground, and whilst that's thecase across the world, it means
there's an entire global set ofcompanies to invest in, and we
can see that here.
If I come on to the next slide,James, I think you mentioned 50
odd, but we've got US here at61%.
Dr James (30:50):
Okay, wow, there we go .
Even bigger than I thought.
Anick (30:53):
Yeah, so this is literally the global stock
market in relative proportion.
So the US stock market makes upabout 61% of the world.
This little square here the UKmakes up 4%.
Now, to put some context onthose numbers, this box here,
Apple, also represents 4%.
(31:13):
I'll put it another way.
That is crazy.
Dr James (31:16):
Apple is the same size as the UK stock market, which
is that is crazy.
Anick (31:20):
Yeah, it is crazy.
Yeah, it is crazy.
So we're missing out on 40% ofthe world and I've got some
charts at the moment to explainwhat that diversification impact
can be.
So we're essentially cuttingourselves short from the rest of
the world by limiting ourselvesto the US stock market the
(31:47):
other thing as well the US byonly investing in the S&P 500,
we're missing out onfactor-based investing.
Now, again, this is an entirewebinar what factor-based
investing is.
But with Vidaire FinancialPlanning, our firm, we adopt an
evidence-based investmentphilosophy.
So all of our investmentdecisions are based on the
academic, peer-reviewedliterature we have today, not on
speculations or finger in theair approaches.
(32:09):
And there's an overwhelmingbody of evidence to say that if
we invest in companies withcertain characteristics so
smaller companies and valuecompanies and profitable
companies we can actually get ahigher expected return than the
market itself, which is it isgreat because we're taking the
principles of index investingwith the idea of doing better
(32:32):
than the market, but we're notspeculating on it.
Now, by only narrowing on theS&P 500, we're cutting ourselves
from higher expected returns,which is it's not logical.
We can see this here.
So when we talk aboutfactor-based investing, we're
looking at the growth of 10 000pounds from 1994, um until 2023
(32:55):
is when the data set went on to.
So, for example, the grey linerepresents a global stock market
, so even more diversified thanthe S&P 500.
And across this time, 10,000grows to 110,000.
But by having a factor-basedportfolio.
So those three factors Imentioned before to give a high
(33:16):
expected return, underpinned byNobel Prize winning research,
that 10,000 pounds over the sameperiod actually grows to
£151,000.
And that's only on that £10,000chunk.
It doesn't account for ongoingmoney into it.
So that's a ginormousdifference just off that chunk
there.
Now the bars in the middle showthe annual differences and we
(33:39):
can see it's a bit more of abumpy ride, which we would
expect.
Risk and return are relatedafter all.
We can't expect a higher returnwithout taking on more
volatility, essentially, um.
So again it we're sellingourselves short if we're
limiting ourselves to just thes&p 500 now.
The other point I mentionedbefore is diversification.
(34:01):
Being diversified duringdownturns can really protect us.
Let me just zoom out.
Hopefully that's showing finewhat we're looking at here.
So the green line is the S&P500 between 2000 and 2010.
And we can see the dot-comcrash here and the 2008
(34:24):
financial crash.
Here the US in particular gothit very, very hard, given what
happened over there and theirsubprime mortgages and how they
were packaged up.
Because of that, if youinvested concentrated in the S&P
500, you were hit quite hard.
Now this blue line is our VFP100% equity portfolio, globally
(34:47):
diversified essentially, but thesame asset allocation to 100%
stocks.
And we can see here that 2000s,at the financial crash, it
wasn't as bad.
Granted, it was relativelyclose.
But particularly over 2008 andbeyond, there's quite a bit of a
difference there and there's alot of that diversification
(35:08):
impact because the portfoliowasn't just invested in US
stocks.
There's actually quite a bit ofa difference between the two
and as investors, our moneywould have been, wouldn't have
been subjected to some of thatvolatility we've seen Now.
I appreciate that was a littlewhile ago, but this is
essentially the same sort ofchart, but year-to-date data.
(35:30):
So the orange line here, d,represents the S&P, and A, b and
C are our VFP 100 to 100%equity portfolio, the 80% equity
portfolio and the 60% portfolio.
So the 100's in blue, the 80%equity portfolio and the 60%
portfolio.
So the hundreds in blue.
The red is the 80% and thegreen is the 60%.
So those percentages representhow much is allocated to stocks
(35:54):
and shares.
And we can see because we decideto take a global market
capitalisation as our foundationbecause, as we've just seen
from the colorful chart with thecountries, we can't predict
what country is going to comeout on top and we're not in the
business of making activespeculations because that gets
us nowhere.
But by yes, the stock marketreturns over the last six months
(36:19):
haven't been the best comparedto what we've seen in recent
years, but by being globallydiversified we're actually a lot
better off than if we juststuck our money into S&P, and
diversification is so importantto get, to get these things
right for our money, especiallyif someone's about to retire or
before some life events.
(36:40):
If we don't have our portfolioset up rightly or before some
sort of business exit or sellingthe practice, then we could
potentially set we could bepotentially setting ourselves up
for failure.
Dr James (36:54):
Let me just stop sharing that yeah, so I mean it,
just it.
I think it just serves to drivehome the fact that you know
it's.
I guess one of the biggestthings that people say about the
S&P 500 is the returns rightare well, as you were pointing
out a second ago, uh, that canactually well what the data
(37:16):
would suggest.
We need to be careful aboutoffering uh, you know, you know
suggesting that someone will,something will continue to grow
prospectively.
It's not really how it works.
We can only really say, we canonly really make predictions on
the data that we haveretrospectively right, but that
(37:39):
data is as good as it gets.
That's all we have to makethose predictions right.
So if we have that and that'scertainly suggesting that
something will outpace somethingelse well, there's your odds
right there, or there's yourlikelihood right there, right in
front of you.
So I I mean I guess that is oneimportant thing to highlight
and factor-based investing whenhas that become a thing and like
(38:00):
when?
When did that uh began begin toappear as an investment
solution?
Anick (38:05):
So there's been various iterations of it.
The original person who broughtit to the market, who actually
wrote about it in scientificliterature, was a guy called
Harry Markowitz.
Now, I think his paper wasreleased in 1951.
It was in the 50s anyway.
Wow, and he eventually got anobel peace prize 20 years later
(38:27):
.
Um, because it was one of thosethings, no one really paid
attention to it.
But after he won the nobelpeace prize and more and more
research started being conductedaround it and people realize
it's actually a a very efficientway of investing Guy called Ken
French, gene Farmer, rob Mertonthese were people who were all
(38:51):
at the University of Chicago inthe US and they sort of came up
with each other and bounced allthe research off each other in
the 80s and 90s and between themthey have so many Nobel Peace
Prizes for their contribution tofinance as a whole and they've
changed how we invest in ourthoughts of investing.
Within the modern day it'sprobably still not used that
(39:13):
often.
To be honest, it's somethingthat's massively overlooked, and
I've got an academic backgroundmyself.
I have my own publishedresearch paper but when you look
at the evidence it's massivelyoverwhelming and we should be
asking ourselves why are weinvesting in this way?
It's yeah, I absolutely love it, and I go to town because I'm a
(39:35):
bunch of fun and read papers inmy spare time.
But that's just me.
Dr James (39:38):
Well, I guess I think part of the reason why maybe
other solutions aren't talkedabout as much is because you've
got these books that are theall-time classics on investing
and I I know this for factbecause they're over there
behind this whiteboard on thatbookshelf and you've got like
way of the turtle and one up onwall street and even books that
warren buffett warren buffetthas written, and a lot of these
(40:01):
books were all written in the60s and 70s and people just
didn't notice stuff.
Yet we still circulate themtoday as these all-time classics
, whereas the world has moved onright.
Anick (40:09):
Yeah, it has.
The world has massively movedon and I guess for some people
they like the premise of indexinvesting.
It's accessible.
Factor-based investing isn'talways available to people.
It can be, depending on howit's implemented, but it can be
quite hard.
And it can be, depending on howit's implemented, but it can be
quite hard and it can takequite a bit to get your head
around, and I hope I've given ahigh level overview.
That's understandable, but whenyou break it down into what
(40:33):
those companies and what thosefactors actually are, it does
get quite complicated.
So for some people beingperfectly content with a
market-like return, less fundmanager fees is acceptable and
that's fine and it might wellget them to a good retirement
outcome or a good life outcome,um.
But for some, factor-basedinvesting might just be that,
(40:53):
that thing that wants to chaseor go after that high expected
return, or might be thedifference between potentially
retiring a bit earlier.
Um, not everyone has hascontent or the access to it and,
like you say, the world's movedon massively and literature
content et cetera, hasn't reallycaught up to it.
(41:13):
Quite often any sources ofcontent still reference old
books from the 60s, exactly asyou say, though.
Dr James (41:23):
You know, another interesting thing to highlight
is and I know that you mentionedthis earlier, but just to recap
it, a lot of this logic,whether it's a factor based in
uh, 100% equities portfolio, orit's the s&p, it's all precluded
on the fact that 100% equitiesis suitable, right?
Because that is another thingthat we just need to throw into
(41:43):
the mix.
As you get closer and closer toretirement.
It doesn't matter whether,whatever index you're trying to
mimic, if it's 100% equities,because it's way too risky,
right.
Anick (41:54):
Yeah, so this is a really interesting point.
There's been a lot ofliterature about this.
What do we define as risk?
Now?
Some people would say it'svolatility.
Some people would say it's theuncertainty of outcome.
Now, depending on where youslice the maths, you can argue a
case.
If markets go down, then thehigher equity allocation will
(42:16):
give us enough punch to try andrecover, but it means a more
bouncy rise, and if you're inretirement, is that something
you can stomach?
If you can't, then there's nopoint in having the best
portfolio design and spreadsheet.
If if you're awake every nightand you can't sleep because of
what's happening in the worry,that that probably leads to a
(42:37):
question we should be askingourselves and what is the
purpose of investing, though, orwhat's the end point?
People who have listened to mebefore will know how much I
speak about point b, definingthat future life end point.
Now, once we take time to findthat, we can then take a step
back and say is this way ofinvesting, is this asset
allocation, is this fundsuitable as a tool to help get
(43:00):
us there?
And a a financial plan can begreat to work backwards from
this.
We have a three-dimensionalapproach to portfolio selection,
and it's the same for everyone,because the fundamentals are
the fundamentals.
The first is risk need, andthat is what rate of returns do
you need to achieve that point B?
So if you need to grow yourmoney by I don't know X percent
(43:23):
per year, then that would leadto a portfolio or an investment
of choice, a fund of choice.
The second dimension is what wecall risk capacity, and that's
your ability to withstandshort-term losses.
So if you're a young associateputting money in your pension,
you have such a long timehorizon, it doesn't matter if
(43:46):
the markets go down over a week,a month, a year when you're
talking decades Now.
If you're about to take outyour entire pension as a
retirement tomorrow and themarkets crash by 20%, it's not a
nice place to be.
So that needs to be balanced uptoo.
The third is what we call riskcomfort.
(44:11):
In the industry people mightknow it as attitude to risk, and
this is essentially some sortof subjective questionnaire to
understand how you feel aboutthe volatility.
Now I have a bit of a gripewith the profession as a whole
here.
As I'm sure you've probablyseen, if you open up an
investment portfolio, it'll askyou a question such as what sort
of investor are you?
And it'll throw out some sortof meaningless descriptors such
(44:32):
as cautious, safe, balanced,aggressive, whatever that means.
As a professional, I don't havea clue, so how does anyone else
?
But they're essentiallyattributing those meaningless
descriptors to volatility.
I how much the price goes up ordown.
So, by their definition, if wego for a safe fund and it's
predominantly cash by the timewe get to retirement because
(44:55):
we've been safe, that means ourmoney's safe right.
That's not the case at all,because inflation would have
ripped it a new one.
And all of a sudden we're nowin retirement, our money cannot
fund our retirement, our peakearning years are gone and we're
tricky.
We're in a tricky situation.
To me, that's risk, theuncertainty of outcome and what
(45:15):
could happen in the future.
So it's really important tobalance those three dimensions
of what means the most to youand what's relevant to your
situation.
Now, when it comes to buildinga portfolio, it's really
important to build an assetallocation that's right for you.
So, within the equity piece,look at international equities
(45:37):
and, if it's relevant, look atblending this down or diluting
it with various other assets Imentioned at the start.
There, watch out for closettracker funds.
You don't want to be payingmore fees in the investment
piece than you need to.
The other thing, which is superimportant have an objective,
grounded investment strategy andbeliefs.
(45:58):
Without a doubt, throughoutyour investment journey, you're
going to have downturns, marketcrashes, declines.
We're human at the end of theday, which means when we see our
money go down, we instantlythink oh, I don't like this.
What typically happens?
Markets go up, people see it atthe top and think this is great
, I want a slice of this.
(46:18):
The markets drop and people sayI don't like this anymore, this
is awful.
So they sell and that cyclicalbehavior ruins wealth.
Now, by being objective, havinga rules-based, systematic
approach to investing.
It means when times get hairyand they will, without a doubt
then we can go back to our rulesand say we know this was going
(46:41):
to happen and this is what wesaid we do.
That helps steer the course fora good, successful outcome.
And having high levelprinciples our guiding north
star.
It is so important and it'ssomething we bang on about to
our clients our high levelprinciples of what investing
means to us.
And if you go down that route,make sure you find someone who
(47:06):
aligns with your investmentphilosophy and strategy, because
that's really important as well.
You want synergy across theboard.
When we talk about investing, a lot of people say
we should just put all of ourmoney in the S&P 500.
Well, that's not necessarilytrue, and that's why today we're
joined by Mr Anick Sharma ofVidere Financial Planning.
Anick is a financial planner.
We're going to be delving intothe pros of the S&P 500, the
cons of the S&P 500, when itworks, when it doesn't, so that
(00:20):
you can make informed investmentdecisions.
And if you don't know what theS&P 500 is, we're going to cover
that as well.
So it's all good either way.
Looking forward to this one, I'malso happy to share that there
is free verifiable CPDassociated with this podcast
episode.
Whenever you finish the episode, all you have to do is click
the link in the podcastdescription.
It'll take you right throughthe Dentists Who Invest website.
(00:42):
You'll be able to complete ashort questionnaire and, once
passed, you fill in yourreflections and we'll go ahead
and email over to you yourverifiable CPD certificate,
which is entirely free.
What that means is this podcastepisode will be able to
contribute towards yourverifiable CPD hours during this
learning cycle, myth busting101.
(01:06):
We got to talk about thisbecause the number of people I
see out there, especially oninternet forums like Reddit who
have this misconception in theirhead.
Whenever it comes to theinvesting side of things, we
really wanted to devote a wholeentire webinar to it, and that
is is the S&P 500 definitivelythe best place to put your money
long-term?
It certainly is, if you askReddit, but there's a little bit
more to it than that, right,Anick, just a little bit more.
(01:29):
Hi James, how are you today?
Anick (01:31):
I'm good.
The sun is shining, life isgood.
Dr James (01:34):
Hey, that's what we like to hear.
Anick, there'll be some peopleon the webinar who know you and
some people who've yet to meetyou.
For the benefit of the latter,maybe it might be a nice place
to start to have a little bit ofan intro, or a re-intro, shall
we say yeah, sure.
Anick (01:45):
I'm a certified and chartered financial planner.
I help people retire, livelives, set up investments and
accounts to live fulfilled andmeaningful lives.
Essentially no thing or twoabout investing and what the S&P
entails.
Dr James (02:01):
Nice one and maybe just to set the scene for
tonight.
What can everybody expect fromthis webinar this evening?
What are we going to address?
Anick (02:08):
We're going to have a chat about some of the myths
around the S&P 500 and even takea step back.
What is the S&P 500 and what isan index?
What are some of the thingsthat make it up?
Then we're going to have a bitof a chat about some of the
tools needed to assess whetherwe should use an index or
certain indices for investmentsand what makes up our investment
(02:30):
mix.
Dr James (02:30):
essentially, you know what?
Use the I word index just then.
I think that's a great place tostart right, Because, even
though that's one of thefundamentals of investing, I
feel that sometimes people havea few misconceptions around what
an index actually is.
Anick (02:47):
Yeah, so essentially it's a list of companies.
Now what that list is willdepend on so many different
criteria and you get so manydifferent lists.
So let's start with the S&P.
The S&P is the 500 biggestcompanies in America.
Now, it's actually not quite assimple as that, because what a
(03:13):
lot of people don't realize isit's the 500 biggest companies
that meet the S&P criteria.
So S&P are a company.
They create a list of 500companies and these are the
companies that fit their list.
I think it was about last year.
There was a really good bit ofresearch.
That said, of the typical S&P,73 companies should have been in
(03:34):
the top 500 and those 73companies represented about 2.1
trillion, which is about 25% ofthe Australian stock market.
But because they didn't fit theS&P criteria for profitability
and various other metrics,they're not actually included in
the traditional S&P 500, whichis quite interesting, I think,
(03:54):
because everyone assumes it'sthe 500 biggest.
But it's the 500 biggest andthat meet the criteria.
Dr James (04:00):
Well, it's interesting because Tesla wasn't in it, for
it is now, but it wasn't in itfor a long time, even though it
was this massive company.
So, yeah, it's good to justarticulate that a lot of people
believe it's the 500 biggest,but not necessarily all these
indexes.
They're all somewhat arbitrary,right like there's no, they're,
yes, they're, they're certaincompanies from certain, you know
(04:22):
, from certain countries,depending on the index, whatever
you look at.
But people always ask methey're like why do indexes
continue to grow?
And it's like they onlycontinue to grow because they
have the same set of companies,roughly speaking, relative to a
certain period of time last year, and, generally speaking, the
companies go up.
There's no magical propertiesabout it, it's just because they
keep using the same yardstick,which I always find quite
fascinating.
But anyway, not to interrupt um.
Anick (04:44):
So then one question people might have is why stick
my money in an index?
Or what even is investing?
When we talk about indexinvesting?
So to strip this back to theground level, we as investors
want to put our money intothings that hopefully grow over
time.
Why?
Well, people want a return.
(05:06):
People want to try and mitigateagainst inflation when it comes
to financial planning in thefuture.
Inflation is probably thebiggest risk we have.
So a quick analogy if we thinkback to 1920, back in the day,
um, eight pence bought you fourpints of milk.
By 1970, eight pence alreadybought you four glasses of milk.
(05:30):
Fast forward to today, andeight pence buys you 11
teaspoons of milk.
The point there is our moneygets eroded by inflation.
As inflation increases, thecost of everything becomes more
and more expensive.
So then that leads to thequestion what can we do to try
and mitigate it?
And one thing we can do isinvest, because when you look at
data sets over long periods oftime, you typically would expect
(05:53):
to see that investing, or stockmarket investing specifically,
to be a great hedge againstinflation.
Now, when we put our money intothings, what should we do it?
What should we put them into,Sorry, and this is where we
break down the asset classes andto cut a massive list of
(06:14):
screening criteria down.
We essentially want to put ourmoney into things that gives the
future expected cash flow.
Now, when we apply that filter,we're left with four main
things.
The first is publicly tradedcompanies, so the big companies
you mentioned Tesla before,Microsoft, Nvidia, and, and, and
, and.
As investors, we expect toreceive a future expected cash
(06:36):
flow in the terms of dividends,typically when they make a
profit or pay it out or somesort of capital appreciation.
The other three, for people whoare interested, are fixed
interest, bonds, property andcash.
But I'm going to focus on theequity piece in a moment.
So if we're putting our moneyinto a single company, well,
that's quite risky, not verywell diversified.
(06:57):
I'll come on to some pointsabout that in a moment.
So, rather than putting all ofour eggs in one basket, for
example, we can put it into anindex, a list of these companies
, to try and spread our riskaround.
So if company A has a stinkerand performance or the share
price plummets, we are mitigatedagainst that, essentially.
(07:21):
Now to expand a bit more on that.
Why do these indices matter toinvestors?
Well, when we think about whatinvesting is, there are two main
ways of doing it.
The first is active investing.
So if I'm an active investmentmanager, I say, James, you give
me your money, I'm going topredict the next Tesla or Nvidia
(07:42):
and because I have an army ofPhD analysts, we're going to
predict when they're going to goto the moon, buy it when it's
cheap and sell it when it'ssuper expensive and make a tidy
profit.
Sounds great in theory, butbecause of their perceived
expertise, the fees are actuallyincredibly expensive.
And when you look at the data,given how data-driven we are,
(08:06):
once you deduct fees, there'svery, very few active investment
managers who actually manage tobeat the market as a whole.
The other way of doing it istrying to predict a market crash
.
So again, if I'm an activeinvestment manager and, James,
you give me your money to manage, I might say there's a market
crash.
That's going to happen tomorrow.
Let's move to cash and when themarket starts to pick up again,
(08:31):
we'll invest.
And because of my army of PhDanalysts the brightest minds in
the world we can predict whenthat's going to happen.
Now let's for one moment assumethat I get this right.
I essentially have a 50-50chance of getting the call
correct or not.
Either there's going to be amarket crash or there's not Now.
At some point in the future I'mgoing to have to invest back
(08:53):
into the market Again.
There's a 50-50 chance ofgetting that right.
Either it was the rightdecision or the wrong decision.
Across those two events, my50-50 chance and 50-50 chance
essentially becomes 0.25.
Now, over our investmentlifetime and when we financial
plan, we assume you live untilage 100.
Statistically that's not likely.
(09:13):
So it's better to overball itthan underball it.
No one wants to run out ofmoney in retirement.
Dr James (09:20):
The likelihood is, you're not going to get there.
Anick (09:22):
So, across such a long time horizon, the chance of an
active investment managercontinuously getting those calls
right, the probability, becomesnext to nothing.
Don't get me wrong there willbe some active investment
managers who are truly, trulybrilliant.
The difficulty is we don't knowwhether that's skill or luck,
and by the time we have a dataset long enough to evaluate,
(09:44):
they're in the Bahamas, they'reenjoying their retirement,
someone else has come in andwe've missed our window of
opportunity.
So that leads us to whateventually became indexed
investing.
So people started to realizethat it's incredibly difficult
to consistently beat the market.
So what about just owning theentire market?
(10:04):
And this is where variousindices around the world were
born.
So the FTSE 100, the 100biggest companies in the UK, for
example, or the S&P 500, as Iwas mentioning before.
Different indices, differentlists of companies around the
world and people realize that byinvesting our money into these
indexes and people realize thatby investing our money into
(10:36):
these indexes that we canactually, on average, outperform
active investment managersbecause the fees to replicate an
index are actually reallyreally small Within the
investment piece as well.
So it can often be quite doomand gloomy.
Some of the challenges I get ofwhy we invest or against
investing at that.
Look at the news right now.
It's filled, full of a load ofdoom and gloom, essentially.
So people might turn around andsay I don't quite want to
(10:59):
invest just yet.
I want to wait until thingscalm down.
I'm just going to share myscreen a second and jump into
this, sure?
Dr James (11:09):
what it might be nice to do, annick, as well.
Uh, just whilst you're gettingthat up on your screen, it might
be nice to cover the differencebetween an index and a fund,
right, because people use theyoften equate the two terms, but
there's actually a distinctionthere and I feel this confuses
people.
But I'm sure you'll come on tothat at some stage.
Anick (11:27):
Yes, I actually have a bit about this in the moment
amazing, and then what we'll dois.
Dr James (11:31):
The next segue is to talk specifically about why
people get so excited about thes&p, the pros, and then,
obviously, the cons and thethings to know and look out for
which we'll come on to so let mejust share this.
Sure.
Anick (11:47):
Hopefully you're getting this?
Yeah, it's coming through Let mejust move myself out of the way
.
This is a headline around COVID.
Billions wiped off the stockmarket, the worst financial
crash since 2008.
Loads of doom and gloom in thenews.
I think, from memory, thisheadline was around the 18th or
(12:10):
19th of March 2020.
I think the bottom of the COVIDcrash was around the 26th, 27th
, somewhere around there.
Fast forward about eight monthsor so and the markets went to
all-time highs, but there's noheadline.
This is from the Guardian.
Actually, there's no headlineto say billions wiped onto the
(12:34):
stock market.
It's so easy to get caught up inthe hysteria over the stock
market and what's happening inglobal economies.
When it comes to us asindividual investors, these are
things that are so far out ofour control and for most of us,
it's not really going to make animpact to our investment
portfolios.
This is a really interestingchart.
(12:55):
Let me just move this bar outof the way.
What you're looking at here isessentially 1926 on the left
hand side and 2022 on the right,but we're looking at bull and
bear years.
A bull year is essentially it'sa bit of jargon, but it means
periods in which we've had aprolonged up period, and the
(13:17):
bear years are periods in whichwe've had a downturn.
Essentially Now, before we evendive into it, the takeaway for
me is the up years are so muchmore than the down years.
Anytime we have a negativeperiod, relatively compared to
history it doesn't last for thatlong and the downturn compared
(13:37):
to the rally we have after it is, you can't really compare it.
Look what happened here.
This was the Great Depression80% down in 27 months.
Imagine right now if the S&P orthe global stock market dropped
by 80%.
Imagine the headlines.
Yet when you consider theaverages across time, the stock
(13:59):
market here, which is actuallythe S&P in this example, has
still done about 10% on average.
Even considering this period intime.
We've never had a period inwhich we've had a negative with
no recovery.
There's always been a recovery.
Now, if I go on to the nextpage here, what we're looking at
and it's zoomed out, I know,but from 1970 on the far left
(14:22):
until 2023, and there's variousworldwide catastrophes and
global events COVID's over here,2008 crash here, the dot-com
crash here.
Yet despite all of this, thismarket's still at about 12%.
So people say to me but thistime it's different.
Dr James (14:43):
But is it?
Anick (14:44):
really Throughout history we've had issues and challenges
with investing and marketsstill continue to reward
long-term discipline.
For most people, the bestadvice will be do nothing, sit
tight, stick to a long-termstrategy.
Volatility and when markets godown, is a function of the
(15:06):
markets themselves.
It's not a bug Before we dodive into S&P.
It's just very useful to remindourselves of this before we get
caught up in some of the noisethat happens.
Let me just stop sharing myscreen a sec.
So, coming into what the S&P is, then there's been a move away
(15:33):
from this passive terminology inrecent time.
James, you mentioned about theindex terminology right at the
start.
Passive investing would assumethat we are truly passive.
There's no intervention beingmade and for the most part
that's not true.
So my example at the start ofthe S&P only being the 500
(15:53):
biggest companies that fit thecriteria.
You could argue that by havinga criteria in the first place,
that's not really passive.
Is it Because there's adecision in there?
Now the criteria of what makesup the S&P.
It's driven by marketcapitalization.
That's again a bit of jargon,but if you times the amount of
(16:15):
shares by the share price, itgives you a very large number of
a single company.
Now that's essentially themarket capitalization, or it can
be a metric of what thecompany's worth.
Now, if you list all of thosein the top 500 that fit the
criteria, that gives us theindex.
Other levels of other criteriaprofitability they'll look at
(16:41):
liquidity and for the S&P, ithas to be a US company.
Now some argue that, givenglobalization, it doesn't really
matter if someone's in the US.
The world is interconnecting,which is quite an interesting
take.
Now, I mentioned market capweighted, but because of that,
(17:02):
it means we can have adisproportionate impact on the
index as a whole.
Some of you may have heard ofterminology called the
Magnificent Seven, which areMicrosoft, invisio, Tesla, apple
and a couple others, which makeup essentially a third of the
weighting.
And because of that, ifMicrosoft has a bad day at the
(17:26):
office, the index as a wholewill drop massively because it
has such a large impact.
It has such a large impact andbecause of that as well, we see
sectors such as tech having ahuge, huge drag on the overall
index.
Typically, when we do look atthe S&P, it's quite cyclical as
well, so as new innovations cometo the market and new companies
(17:50):
are created to fulfill thatneed of society.
Really, these companies growbigger and we see a changing in
what's happening, and at themoment that's tech.
Previously it has beenhealthcare, finance, et cetera.
Now, when we consider why weshould invest in S&P 500, well,
(18:14):
if you want to invest incompanies to try and at least
beat inflation, you're gettingdiversification within US large
cap stocks, us large capcompanies.
Historically the S&P has beenstrong.
That old cliche stick it in theS&P.
James mentioned Reddit beforeNow.
(18:35):
This is actually an incrediblyinteresting point.
So the US they are incrediblyproud and because of that, you
see loads of people in forumssay believe in US companies.
We have a stellar track record.
Now, where this has actuallycome from is a load of books and
literature have always beenfocused on the US.
(18:57):
Why the US specifically?
Well, the US data the S&Pactually goes back until 1926.
And we don't have a stockmarket data set longer than that
.
So quite often we will use theUS stock market data as a proxy
for global data.
Now, because of that data setbeing available, more and more
(19:20):
US authors started writing a lotmore about what was happening
in the US, so we've had amassive amount of literature
that's been relevant towards theUS and the S&P and because of
that and given how it's gone, umit the, the people in the
reddit forums are constantlybanging on about the s&p and why
(19:41):
we should put money in the s&pessentially now within that as
well.
It's.
It's incredibly accessible.
There's low barriers forparticipation.
Most people now can log ontothe phone and invest in an S&P
fund.
It's incredibly liquid.
So when we think about propertyinvesting, for example, which
(20:01):
I'm sure many of you haveexperience with, the buying and
selling process is so slow andso painful and you can't just
sell off a wall of a house or aroof to try and liquidate your
money Because there are so manytrades constantly going on in
the S&P index itself.
There's constantly inflows andoutflows of money, which means
(20:22):
if you want to try and take somemoney out, it's actually super
easy, and when we compare it toback in the day paper trades, it
was difficult.
Innovation and tech has removedbarriers for for investing,
which means we can all do it satin, sat on our sofas at home
really it's the uh liquidity, Ibelieve, is the term right
(20:47):
exactly James et etfs exchangetraded funds, whereas once upon
a time they were mutual funds,weren't they?
Dr James (20:53):
so you had to go through the broker and there was
so much more.
Anick (20:56):
Uh, friction there, shall we say, and people forget that
only happened in the last 15years, yeah um tech and the, the
birth etfs, um have have comeon massively within the last few
years and it's quite excitingto think about what it's going
to move to in the future.
(21:16):
The question before what's thedifference between a fund and a
index?
So an index is literally just alist of companies, so you don't
directly invest in an indexitself.
But let's say you have the S&Pindex, you will have a fund
manager, the big players in theworld Vanguard, blackrock, etc.
(21:39):
Which I'm sure you've probablyheard of they will try and
create an S&P fund.
So they will buy masses ofshares in the S&P 500, and they
will get investors such as youand I to buy units within this
fund.
And when we buy units, we'reessentially buying part of that
(22:00):
index in whatever amount wedecide to do it.
Now, the fund manager willapply fees, and this is one of
the costs that are associatedwith investing and something we
need to be mindful of.
So there is a difference betweenan index itself, the list of
companies and the fund whichlooks to try and replicate the
(22:21):
index.
There will be a differencebetween the two and we call that
tracking error Again, a bit ofjargon, but tracking error is
the difference between the indexreturn and the fund return.
A good fund manager will have avery low tracking error or a
small amount of tracking betweenthe two, and typically that
will be their costs.
(22:41):
Now, if there's a bigdifference between it, I'd be
asking questions.
So one of the things you shouldbe looking at if you decide
index investing is for you, howclose are they to the index
itself?
How close is the fund managerto the index itself?
Because if they're miles off,then close are they to the index
itself?
How close is the fund managerto the index itself?
Because if they're miles off,then what are they doing?
It doesn't seem like they arereally index investing to me,
(23:03):
which is what we want to bedoing, because active investment
doesn't really work.
Dr James (23:07):
And can I just jump on that for two seconds, because
again, it's another flaw in thewisdom that is espoused and
thrown around.
Where you can just invest inthe S&P, I mean, yes, you do.
You invest in something thatreplicates the index.
That's what you're doing, right?
So, to be more correct there,well, you know, obviously this
(23:28):
would constitute financialadvice.
We're not going to do thistonight, but someone should be
really specific and say the fund, like what fund, actually
mimics the S&P to the greatestlevel of detail, because not all
S&P funds are created equal.
There's actually tracking errorthere we were talking about a
second ago, and I believe youcan find this information out in
the KID document, right, thekey investor information
(23:50):
document.
That's with every fund, but alot of times people don't know
how to decipher it.
Anick (23:58):
Yeah.
So if you look at at it, it canbe very overwhelming.
But read through it a couple oftimes.
So the key investor informationdocument, the fact sheets
between the two.
They'll give various metricsover investment, what their
charges are really important andwe're getting more and more
what I call closet tracker funds.
So take ESG investing or greeninvesting Quite often, this way
(24:26):
of investing will promotethemselves as only investing in
socially responsible companiesand companies that do good
things for the world.
Now, when you look underneathwhat they actually invest in,
most of them are actually justinvesting in some sort of index,
but slapping a very high fee on.
(24:48):
So it's something to be verycareful of.
Now, just coming back a momentto some of the other
implications of the S&P, it'simportant to realize what the
limitations are as well.
So I alluded to it before.
But that market capitalizationa handful of companies having
(25:10):
the biggest voices essentiallyis such a big concentration risk
.
So, for example, as of March2025 this year, the MAG-7 was
down 12%, ie negative 12%.
The other 493 was only downabout minus 0.5%.
(25:31):
So it's a huge differencebecause of a handful of
companies.
The other thing to rememberwith an S&P fund or S&P 500
index is that there's lack ofexposure to other types of
stocks, so there's no small cap,mid cap, international or
(25:52):
emerging markets and because ofthat it's so concentrated on the
US, which limitsdiversification.
In my world, we think ofdiversification as the closest
thing to a free lunch, and it'ssomething we should be shouting
about.
We don't want to put all of oureggs into one basket.
Dr James (26:14):
let me just share my screen again for a second yeah,
sure, and just while you'redoing that, just to add to what
you're saying, you know, ifsomeone has all of their money
in the s&p 500, which iscompanies that are primarily
based in america, well,companies that are based in
america, they do business allover the world, right?
But you're basically backingamerica to continue not just
(26:35):
thrive but outpace the rest ofthe world in terms of economic
growth, right?
But if you think about that fortwo seconds, like, america is
already what?
Like 50% of the global economy,something along those lines.
So in order for it to getbigger proportionally, it has to
continue to grow relative tothe rest of the world, right?
(26:57):
So you're basically saying, Ithink that America is going to
become 51% or 52% or 53%, right,and past a certain point, the
odds just kind of shrink, don'tthey?
You know what I mean.
You've literally got all yourmoney on the fortune and fate of
one country, and that, for me,is one of the biggest reasons
why I get the heebie-jeebieswhenever I see people just
(27:18):
blindly espousing that logic,which relates to what you were
saying a second ago.
Anick (27:22):
Absolutely.
And I challenge people and saywhere's the evidence that the US
continues to smash out of thepark year on year and is top of
the tree?
Because if the evidencesuggests that's the best way to
invest, then there's an argumentfor it, but there's no evidence
for it at all.
So let me just share this isthat on the screen?
It is so hopefully you shouldhave a very colorful chart um
(27:49):
showing yeah, by the way, are we?
Dr James (27:52):
I don't know if you're intending this or not.
Are we supposed to be able tosee what those little boxes say,
because you might need to zoomin more if not?
Or is it more just a generalpicture we're looking at?
Anick (27:59):
more, just a general picture.
Okay, I can zoom in a bit moreif it's a bit better, hopefully.
Hopefully, that might besomewhat better.
Yeah, what we're looking athere 2005 on the left-hand side,
highest returns per country andat the bottom, the lowest
returns, and this goes all theway to 2024.
Now, every single time I dothis, I take a completely
(28:21):
different path.
So let's start with Denmark 2015, top of the tree.
So the end of 2015, theyreturned 31%, smashed it out of
the park, did better thaneveryone else.
So if I'm an investor, I'mthinking, you know what Danish
stocks are the place to be.
I'm going to put all of mymoney into Denmark.
What happens?
(28:42):
2016?
They're literally bottom of thetree.
Austria, 2017, again top of thetree 45% in a single calendar
year, which is ridiculous.
It's huge.
2018, what happens?
Bottom of the tree, minus 23.
Ireland, 2019, 32% very good.
(29:03):
Ireland 2019 32% very good.
To be fair, the midway through11.5% for 2020.
Finland, 2018 top of the tree.
2019 bottom of the tree.
This is a very colorful chart toillustrate my point.
Yes, but it's actually beingput through statistical analysis
.
There's no pattern betweenwhich country comes out on top
(29:23):
and which comes out on bottom.
So by putting all of our moneyinto the US stock market, we're
taking an active bet on what'sgoing to happen.
Now, this is one for anotherwebinar, but markets are
incredibly efficient, and whatthat means is all new
information is priced in.
(29:44):
So if someone has informationthat I don't know the US stock
market is going to tank forwhatever reason, then we're
going to see that reflected inthe price.
Now, if you're actively choosingto invest in the US stock
market the S&P, in isolation,you're essentially saying that
(30:05):
you know more than thecollective participants of the
market, which is a lot, a lot ofpeople.
We can't predict what's goingto happen, so why limit
ourselves just to the US?
And this probably brings me onto my next point.
There's a world ofopportunities out there when it
comes to investing.
Capitalism is the mechanism inwhich bright ideas come to the
(30:28):
market and people find fundingto get their companies off the
ground, and whilst that's thecase across the world, it means
there's an entire global set ofcompanies to invest in, and we
can see that here.
If I come on to the next slide,James, I think you mentioned 50
odd, but we've got US here at61%.
Dr James (30:50):
Okay, wow, there we go .
Even bigger than I thought.
Anick (30:53):
Yeah, so this is literally the global stock
market in relative proportion.
So the US stock market makes upabout 61% of the world.
This little square here the UKmakes up 4%.
Now, to put some context onthose numbers, this box here,
Apple, also represents 4%.
(31:13):
I'll put it another way.
That is crazy.
Dr James (31:16):
Apple is the same size as the UK stock market, which
is that is crazy.
Anick (31:20):
Yeah, it is crazy.
Yeah, it is crazy.
So we're missing out on 40% ofthe world and I've got some
charts at the moment to explainwhat that diversification impact
can be.
So we're essentially cuttingourselves short from the rest of
the world by limiting ourselvesto the US stock market the
(31:47):
other thing as well the US byonly investing in the S&P 500,
we're missing out onfactor-based investing.
Now, again, this is an entirewebinar what factor-based
investing is.
But with Vidaire FinancialPlanning, our firm, we adopt an
evidence-based investmentphilosophy.
So all of our investmentdecisions are based on the
academic, peer-reviewedliterature we have today, not on
speculations or finger in theair approaches.
(32:09):
And there's an overwhelmingbody of evidence to say that if
we invest in companies withcertain characteristics so
smaller companies and valuecompanies and profitable
companies we can actually get ahigher expected return than the
market itself, which is it isgreat because we're taking the
principles of index investingwith the idea of doing better
(32:32):
than the market, but we're notspeculating on it.
Now, by only narrowing on theS&P 500, we're cutting ourselves
from higher expected returns,which is it's not logical.
We can see this here.
So when we talk aboutfactor-based investing, we're
looking at the growth of 10 000pounds from 1994, um until 2023
(32:55):
is when the data set went on to.
So, for example, the grey linerepresents a global stock market
, so even more diversified thanthe S&P 500.
And across this time, 10,000grows to 110,000.
But by having a factor-basedportfolio.
So those three factors Imentioned before to give a high
(33:16):
expected return, underpinned byNobel Prize winning research,
that 10,000 pounds over the sameperiod actually grows to
£151,000.
And that's only on that £10,000chunk.
It doesn't account for ongoingmoney into it.
So that's a ginormousdifference just off that chunk
there.
Now the bars in the middle showthe annual differences and we
(33:39):
can see it's a bit more of abumpy ride, which we would
expect.
Risk and return are relatedafter all.
We can't expect a higher returnwithout taking on more
volatility, essentially, um.
So again it we're sellingourselves short if we're
limiting ourselves to just thes&p 500 now.
The other point I mentionedbefore is diversification.
(34:01):
Being diversified duringdownturns can really protect us.
Let me just zoom out.
Hopefully that's showing finewhat we're looking at here.
So the green line is the S&P500 between 2000 and 2010.
And we can see the dot-comcrash here and the 2008
(34:24):
financial crash.
Here the US in particular gothit very, very hard, given what
happened over there and theirsubprime mortgages and how they
were packaged up.
Because of that, if youinvested concentrated in the S&P
500, you were hit quite hard.
Now this blue line is our VFP100% equity portfolio, globally
(34:47):
diversified essentially, but thesame asset allocation to 100%
stocks.
And we can see here that 2000s,at the financial crash, it
wasn't as bad.
Granted, it was relativelyclose.
But particularly over 2008 andbeyond, there's quite a bit of a
difference there and there's alot of that diversification
(35:08):
impact because the portfoliowasn't just invested in US
stocks.
There's actually quite a bit ofa difference between the two
and as investors, our moneywould have been, wouldn't have
been subjected to some of thatvolatility we've seen Now.
I appreciate that was a littlewhile ago, but this is
essentially the same sort ofchart, but year-to-date data.
(35:30):
So the orange line here, d,represents the S&P, and A, b and
C are our VFP 100 to 100%equity portfolio, the 80% equity
portfolio and the 60% portfolio.
So the 100's in blue, the 80%equity portfolio and the 60%
portfolio.
So the hundreds in blue.
The red is the 80% and thegreen is the 60%.
So those percentages representhow much is allocated to stocks
(35:54):
and shares.
And we can see because we decideto take a global market
capitalisation as our foundationbecause, as we've just seen
from the colorful chart with thecountries, we can't predict
what country is going to comeout on top and we're not in the
business of making activespeculations because that gets
us nowhere.
But by yes, the stock marketreturns over the last six months
(36:19):
haven't been the best comparedto what we've seen in recent
years, but by being globallydiversified we're actually a lot
better off than if we juststuck our money into S&P, and
diversification is so importantto get, to get these things
right for our money, especiallyif someone's about to retire or
before some life events.
(36:40):
If we don't have our portfolioset up rightly or before some
sort of business exit or sellingthe practice, then we could
potentially set we could bepotentially setting ourselves up
for failure.
Dr James (36:54):
Let me just stop sharing that yeah, so I mean it,
just it.
I think it just serves to drivehome the fact that you know
it's.
I guess one of the biggestthings that people say about the
S&P 500 is the returns rightare well, as you were pointing
out a second ago, uh, that canactually well what the data
(37:16):
would suggest.
We need to be careful aboutoffering uh, you know, you know
suggesting that someone will,something will continue to grow
prospectively.
It's not really how it works.
We can only really say, we canonly really make predictions on
the data that we haveretrospectively right, but that
(37:39):
data is as good as it gets.
That's all we have to makethose predictions right.
So if we have that and that'scertainly suggesting that
something will outpace somethingelse well, there's your odds
right there, or there's yourlikelihood right there, right in
front of you.
So I I mean I guess that is oneimportant thing to highlight
and factor-based investing whenhas that become a thing and like
(38:00):
when?
When did that uh began begin toappear as an investment
solution?
Anick (38:05):
So there's been various iterations of it.
The original person who broughtit to the market, who actually
wrote about it in scientificliterature, was a guy called
Harry Markowitz.
Now, I think his paper wasreleased in 1951.
It was in the 50s anyway.
Wow, and he eventually got anobel peace prize 20 years later
(38:27):
.
Um, because it was one of thosethings, no one really paid
attention to it.
But after he won the nobelpeace prize and more and more
research started being conductedaround it and people realize
it's actually a a very efficientway of investing Guy called Ken
French, gene Farmer, rob Mertonthese were people who were all
(38:51):
at the University of Chicago inthe US and they sort of came up
with each other and bounced allthe research off each other in
the 80s and 90s and between themthey have so many Nobel Peace
Prizes for their contribution tofinance as a whole and they've
changed how we invest in ourthoughts of investing.
Within the modern day it'sprobably still not used that
(39:13):
often.
To be honest, it's somethingthat's massively overlooked, and
I've got an academic backgroundmyself.
I have my own publishedresearch paper but when you look
at the evidence it's massivelyoverwhelming and we should be
asking ourselves why are weinvesting in this way?
It's yeah, I absolutely love it, and I go to town because I'm a
(39:35):
bunch of fun and read papers inmy spare time.
But that's just me.
Dr James (39:38):
Well, I guess I think part of the reason why maybe
other solutions aren't talkedabout as much is because you've
got these books that are theall-time classics on investing
and I I know this for factbecause they're over there
behind this whiteboard on thatbookshelf and you've got like
way of the turtle and one up onwall street and even books that
warren buffett warren buffetthas written, and a lot of these
(40:01):
books were all written in the60s and 70s and people just
didn't notice stuff.
Yet we still circulate themtoday as these all-time classics
, whereas the world has moved onright.
Anick (40:09):
Yeah, it has.
The world has massively movedon and I guess for some people
they like the premise of indexinvesting.
It's accessible.
Factor-based investing isn'talways available to people.
It can be, depending on howit's implemented, but it can be
quite hard.
And it can be, depending on howit's implemented, but it can be
quite hard and it can takequite a bit to get your head
around, and I hope I've given ahigh level overview.
That's understandable, but whenyou break it down into what
(40:33):
those companies and what thosefactors actually are, it does
get quite complicated.
So for some people beingperfectly content with a
market-like return, less fundmanager fees is acceptable and
that's fine and it might wellget them to a good retirement
outcome or a good life outcome,um.
But for some, factor-basedinvesting might just be that,
(40:53):
that thing that wants to chaseor go after that high expected
return, or might be thedifference between potentially
retiring a bit earlier.
Um, not everyone has hascontent or the access to it and,
like you say, the world's movedon massively and literature
content et cetera, hasn't reallycaught up to it.
(41:13):
Quite often any sources ofcontent still reference old
books from the 60s, exactly asyou say, though.
Dr James (41:23):
You know, another interesting thing to highlight
is and I know that you mentionedthis earlier, but just to recap
it, a lot of this logic,whether it's a factor based in
uh, 100% equities portfolio, orit's the s&p, it's all precluded
on the fact that 100% equitiesis suitable, right?
Because that is another thingthat we just need to throw into
(41:43):
the mix.
As you get closer and closer toretirement.
It doesn't matter whether,whatever index you're trying to
mimic, if it's 100% equities,because it's way too risky,
right.
Anick (41:54):
Yeah, so this is a really interesting point.
There's been a lot ofliterature about this.
What do we define as risk?
Now?
Some people would say it'svolatility.
Some people would say it's theuncertainty of outcome.
Now, depending on where youslice the maths, you can argue a
case.
If markets go down, then thehigher equity allocation will
(42:16):
give us enough punch to try andrecover, but it means a more
bouncy rise, and if you're inretirement, is that something
you can stomach?
If you can't, then there's nopoint in having the best
portfolio design and spreadsheet.
If if you're awake every nightand you can't sleep because of
what's happening in the worry,that that probably leads to a
(42:37):
question we should be askingourselves and what is the
purpose of investing, though, orwhat's the end point?
People who have listened to mebefore will know how much I
speak about point b, definingthat future life end point.
Now, once we take time to findthat, we can then take a step
back and say is this way ofinvesting, is this asset
allocation, is this fundsuitable as a tool to help get
(43:00):
us there?
And a a financial plan can begreat to work backwards from
this.
We have a three-dimensionalapproach to portfolio selection,
and it's the same for everyone,because the fundamentals are
the fundamentals.
The first is risk need, andthat is what rate of returns do
you need to achieve that point B?
So if you need to grow yourmoney by I don't know X percent
(43:23):
per year, then that would leadto a portfolio or an investment
of choice, a fund of choice.
The second dimension is what wecall risk capacity, and that's
your ability to withstandshort-term losses.
So if you're a young associateputting money in your pension,
you have such a long timehorizon, it doesn't matter if
(43:46):
the markets go down over a week,a month, a year when you're
talking decades Now.
If you're about to take outyour entire pension as a
retirement tomorrow and themarkets crash by 20%, it's not a
nice place to be.
So that needs to be balanced uptoo.
The third is what we call riskcomfort.
(44:11):
In the industry people mightknow it as attitude to risk, and
this is essentially some sortof subjective questionnaire to
understand how you feel aboutthe volatility.
Now I have a bit of a gripewith the profession as a whole
here.
As I'm sure you've probablyseen, if you open up an
investment portfolio, it'll askyou a question such as what sort
of investor are you?
And it'll throw out some sortof meaningless descriptors such
(44:32):
as cautious, safe, balanced,aggressive, whatever that means.
As a professional, I don't havea clue, so how does anyone else
?
But they're essentiallyattributing those meaningless
descriptors to volatility.
I how much the price goes up ordown.
So, by their definition, if wego for a safe fund and it's
predominantly cash by the timewe get to retirement because
(44:55):
we've been safe, that means ourmoney's safe right.
That's not the case at all,because inflation would have
ripped it a new one.
And all of a sudden we're nowin retirement, our money cannot
fund our retirement, our peakearning years are gone and we're
tricky.
We're in a tricky situation.
To me, that's risk, theuncertainty of outcome and what
(45:15):
could happen in the future.
So it's really important tobalance those three dimensions
of what means the most to youand what's relevant to your
situation.
Now, when it comes to buildinga portfolio, it's really
important to build an assetallocation that's right for you.
So, within the equity piece,look at international equities
(45:37):
and, if it's relevant, look atblending this down or diluting
it with various other assets Imentioned at the start.
There, watch out for closettracker funds.
You don't want to be payingmore fees in the investment
piece than you need to.
The other thing, which is superimportant have an objective,
grounded investment strategy andbeliefs.
(45:58):
Without a doubt, throughoutyour investment journey, you're
going to have downturns, marketcrashes, declines.
We're human at the end of theday, which means when we see our
money go down, we instantlythink oh, I don't like this.
What typically happens?
Markets go up, people see it atthe top and think this is great
, I want a slice of this.
(46:18):
The markets drop and people sayI don't like this anymore, this
is awful.
So they sell and that cyclicalbehavior ruins wealth.
Now, by being objective, havinga rules-based, systematic
approach to investing.
It means when times get hairyand they will, without a doubt
then we can go back to our rulesand say we know this was going
(46:41):
to happen and this is what wesaid we do.
That helps steer the course fora good, successful outcome.
And having high levelprinciples our guiding north
star.
It is so important and it'ssomething we bang on about to
our clients our high levelprinciples of what investing
means to us.
And if you go down that route,make sure you find someone who
(47:06):
aligns with your investmentphilosophy and strategy, because
that's really important as well.
You want synergy across theboard.
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