Jess
Kia ora, my name is Jess. I'm in the external communications team here at the FMA and you're joining me in our Jess learns to Invest Podcast series. I'm 27 years old and to be completely honest, I don't know anything about investing. So, if you are like me and you find it a little bit overwhelming, follow me in this journey, I'm going to be having a new guest speaker every month.
I'm super excited to introduce our first guest on Episode 1 of Jess learns to invest. I'm so excited to have Sim here, the founder of Girls that Invest, I thought who better to help me on my investing journey than Sim. So, we're going to kind of do an investing basics today and I'm really, really excited to learn about how you started. Not only do you have a book, you have the leading investing podcast worldwide. I heard you are also young New Zealander of the year, this year? Ohh my gosh, I'm a little bit star struck a little bit. Thank you so much for coming on the podcast today. Before we kind of kick off and do our little investing 101, just tell me, where your investing journey started. Like, when did you think I'm gonna start investing?
Sim
Great question and thank you for having me on. This is so awesome. I love the name, by the way of the podcast. Catchy I love it. I started my journey when I was in University.
Jess
Wow, so quite young.
Sim
Yeah, quite a few years ago. And I remember. I didn’t grow up with parents that were very, that were very financially savvy in terms like saving and they're very good at like, you know, live below your means. We didn't have a lot glowing up until, you know, as their salary slowly started to increase. My mum's a teacher and my dad's an engineer.
Then, slowly, over time as things improved when they would like, you know, spend a bit more. So they would only buy cars in cash and if they couldn't afford it, then we don't get a nice car. So yeah, a lot of times growing up at school, I could tell my parents were here cause it would be the squeaking like van, like, screeching down the road. And I'm like, my dad's here to pick me up.
They were always like save, save, save and so I always believe that's what you need to do. You go to university, you get a good job and you save and that's the way to grow your wealth. But I think it was in university. I had a friend told me that like, hey, like one of my friends is investing and he's been able to pay off his medical school loan by investing. And the first time I heard that I was like, well, that guy's dad works in finance and my family doesn't, so it's not for me. I'll never learn. And I kind of put it to the side. And then in university I had a few finance papers that I took, in the University of Auckland, they make you do electives for papers that are outside of your degree. Because I was studying healthcare, I was becoming an optometrist so very different. And then I went on and I was like, I like this. So I did some executive education papers from Yale. Which are free to do. And it was on financial markets and it was for me to understand like I need to get this money thing sorted. And I remember watching the lectures and getting angry because I was like, this stuff is so much easier than I thought. And I was like, why did I spend so many years kind of pushing to the side this investing thing like I used to think of portfolio was a physical book.
Jess
I still kind of do. I’m not going to lie.
Sim
Well that’s what this episode is all about. I used to think a portfolio was like a physical book that, you'd open up and have like clear files.
Jess
Yup I can picture it. Yeah, yeah.
Sim
So that's how I started. And you know, I I took the education, I took the time. And I started investing and it just grew from there. I was able to purchase my first home from investing at 23. And so that was how my journey began.
Jess
Yeah, that's so interesting that you said that because I had a some upbringing in the sense of my parents taught me how to save. And I'm very good at saving. Not to boast but I think I’m good at saving. But never have I thought about investing. My kind of mindset is like I work super hard for my money. So there's a bit of fear and anxiety about spending it and putting it somewhere that I can't see it, so that it's really interesting that that's kind of how you started as well. So I'm kind of Keen to know where did Girls that invest come out of this. Did you start by investing and then you kind of could see the benefit of it. And then you thought you were going to educate other people. Like, how did you get into the space of educating women? It's just so cool, like to make something that in my mind is quite a hard topic to understand and you're making it understandable for people.
Sim
I think for me it ended up being like a light bulb moment when as I was going through my investing journey and it was, this was around 2020 when I started looking for more communities like mine, you know, COVID had hit. Yeah, I was liking I really enjoyed being an investor, but now I'm stuck at home kind of online, so I try to find online investing communities because it's fun to be able to share with other people. You know what you're doing, looking at what they're doing and I couldn't find anything that spoke to me. There were online communities, but they were very like finance broey. If I can say that. Like very like crypto focused or like Elon Musk focused and there was nothing wrong with those things. But I was just like, this is really I don't relate to this and when I would go to investor events you know pre 2020, I just wouldn’t go because, these investing clubs were so I don't know like masculine.
Jess
Yeah, you do kind of picture men in suits investing. I'm like, I don't fit Into that kind of world.
Sim
Yea you know, like I'm gonna, I'm gonna wear a top and jeans. White sneakers like I don't feel like I belong here. Yeah, and that was my own mental, you know, barrier and I don't think anyone would have been like, get out. So that's when I realised if there wasn't a community I could find of other female investors like maybe I can just make it and share what I’m reading.
So coming from a healthcare background, I was like in the healthcare world, we learned by looking at research papers and we look at studies and based on the studies, that's how we treat a disease and you don't say this person has an eye problem. Let me give them. You know this drug cause it feels right. You go. OK. The studies have shown this is the best way to do it. So I started this podcast called Girls that invest and I got my best friend to join me and we would just read these studies. She worked in finance. I had the healthcare background, we would read these studies and go okay the studies show like these are the best ways to invest or these things work or this is what analysts are saying and just by sharing new information In an easy to understand way. I think it just really resonated with people that were looking for that.
Jess
Yeah, it's so cool. Because when I started kind of looking into it and and when I read your book, I was kind of terrified because the topic itself just seems quite overwhelming to me. And I'm like, yeah, like you said I feel like I just don't fit into, that world. I love how you compare it to other things and It makes it understandable. And so that's what I'm really keen to do today is just kind of break it down into simple terms so that people can maybe feel a little bit less scared like me.
Sim
Exactly. Yeah I'm so excited.
Jess
So let's kick off by could you give me, like, a little brief explanation of just what is investing? Cause I feel like everyone's got their own perception of what it is, you know, that I just picture a building with like screens that have numbers on it with little up and down arrows. I’m sure its totally not like that at all. I'm sure you can do it online these days. But i’m like what actually is it?
Sim
Honestly, I think we all had that experience growing up. Like if you watched movies like. The big short. Wolf of Wall Street. They don't make it seem accessible. And you look at those, and if you don't relate to that, you go while I guess I just keep saving my money. Yeah, and not investing it. I think a simple way to think about investing is that it's just the vehicle where you put in money on the hopes not the guarantee, but the hopes that it gives you a return. So you put in $100 into a vehicle and you would hope that maybe that turns into 110 dollars. That's all it is, and what that vehicle is can be different types of asset classes, so it can be. I'm sure we'll talk about it could be shares, it can be property, it could be a expensive handbag that goes up in value. Like investments in themselves are a loose term. But the idea is you're putting money in in the hopes that more money comes out the other side.
Jess
Yep, I think a lot of people's fear is that there's not going to be more money out the other side. I was wondering, like, if someone like me who's, like, just starting out, would you say it would be a good idea to invest, like a little amount if you're beginning, or does that not matter too much, how much you're putting?
Sim
I think the amount you put in makes a huge difference, because if you can put in a small amount that you are comfortable losing. And I say comfortable losing not because you will 100% lose it. But you know, you don't wanna be putting in your whole life savings. You want to start off with a small amount and then as you see those shares go up or down, you'll start to realise. Am I investing in something that is in alignment with my risk tolerance and I think that’s a really good way to think about investing cause it's a spectrum of risk, so you can have some investment styles like investing in bonds or even investing in term deposits where you know these are cash or cash equivalents where your money is not going to go up and down to much.
And then you might move over into the middle, where you investing in funds which are basket fills of lots of different companies and some companies go up. Some companies go down, that kind of balances it out. And that has more risk, but also a little bit more return. And then you keep moving down the scale and that's where you have like individual companies or cryptocurrency or growth stocks that can do really well, but also can drop quite a bit. And so, since there's a spectrum of investing, you can sit anywhere on the spectrum and be an investor. You don't have to be all the way on this end.
Jess
Yeah, right. So if you're not a very risky person, like I don't. I'm very careful about all the decisions I make. You can still invest you don’t have to go for the most risky option. You can kind of play it safe and kind of dip your toe into it.
Sim
I like to think of investing like going to the gym and really feels the exact same for me, where if you go to the gym, you're not gonna go straight to the weight section where all the guys are and you're not gonna start, you know, lifting the weights the way they are, you are probably gonna start on the treadmill and your probably start by walking and then you might make it an incline walk. Then you might start running, but you know you start off on one side. Your both still at the gym, but you know you don't have to start all the way at the end.
Jess
That is such a good way to put it. I never would have thought about it like that. I think you touched into this a little bit, but what are the different types of investments that people can make. Because you talked a little bit about handbags as well and I never would have thought that that would be an investment. And now I'm like, cool, I might have a reason that I can go and buy an expensive handbag.
Sim
Take what I say with a grain of salt with the handbags. But the way that you can invest is there's different styles and I like to think of investing like a menu. And when you go to a restaurant, there is a menu of different things and one of the things you probably heard about is stocks or shares. And they're the same thing, they are just different terms. There is so much jargon in the investing world.
Jess
Yep, that's the hard part for me is all the jargon.
Sim
I feel like they make it so difficult for no reason. Like they'll say things like so and so has raised $1,000,000 in capital when you're like, WOW, capital raise, that sounds really impressive. It just means they raised money.
Jess
OK, I didn't actually know that.
Sim
It just means they've gone around to investors and said, hey like the way girl guides go around and like, get money to fundraise for something like your just fundraising money, like capital just means money.
Jess
That’s so interesting I didn’t know that.
Sim
So there’s a lot of Jargon that gets thrown around.
Jess
I think that's also what kind of like puts people off a little bit is that they all the terms are like I, I don't know what different things are like stocks and the stock market are different things. But I'm just like, how do you explain that they're different? Yeah. What are they?
Sim
That's such a good question. We've got different types of styles of investing. You've got shares or stocks. And think of them like a small piece of a company. And let's say this company A and they sell phones and they sell laptops and you go okay. I wanna buy a small piece of them and it's like owning 1 brick of that company. And if the company does well over time, then hopefully the value of the small piece goes up and they give it to you like an online certificate. You just own a little certificate that says you own a very small percent. Owning one share of a company doesn’t mean that you can go into the store and be like, hey, I think we should change this like I'm an owner. I wanna change that. There's probably millions and millions and millions of shares, but you get to own one of them. And if the share does well or poorly your money does well or poorly. So that's one way to think about shares and then another investment that you may have heard of is what we call bonds and bonds are lower risk than shares. But unfortunately at lower returns.
And bonds are when you get to act like, um, a bank and you get to say. Hey, I will loan you $1000 and usually it's the government or large corporations that you give this money to you. And they say thank you so much. Thank you for the $1000. I will pay it back and I'll give you like maybe 2% or 3% or 4% worth that. Now usually governments and large companies aren't going to risk losing your money. But on the downside, you won't get much return because you're not risking that much. Yeah, so that’s shares and bonds. You might think to yourself okay. Well, maybe I could invest in shares, but like how? Where would I even begin? Like, what's a good share? What's a bad share? What's an ethical share? And it gets quite overwhelming. And so people invented what we call funds, which are a basket full of lots of different shares and rather than picking and choosing a company that would be really good or really poor cause It's very difficult to predict. You can invest in a piece of the basket and by buying a piece of that basket, you're buying a piece of all the companies in that fund.
Jess
OK. Yeah.
Sim
So if you've heard of like the NZ X50 and you invest in an NZX 50 fund, you've got a basket filled with the top 50 companies in New Zealand. And so maybe one company does really well a single year, but maybe another company does poorly. It balances out a lot more because you've got a basket of. 50.
Jess
Right. So when someone’s like choosing a company to invest in, do you kinda recommend that people do their research and and choose something that they're passionate about rather than just wanting to make money fast? I'm just gonna pick, you know, like, how do you even start? Cuz like, I'm starting to understand it, but I'm still, I just wouldn't even know what step one would be in terms of choosing.
Sim
Step one would be thinking about what it is that you want to achieve and then working backwards. So it sounds counterintuitive, but rather than saying. You know what should I invest in to make money? It's what is the goal that I want and then I work with? Because if you are someone that says hey, and maybe in 10 years time I wanna have a house deposit and I want to invest for that. What you invest your money in will be different than if someone says hey, I'm investing until I'm 65 for retirement. Because you have a longer period of time to invest and so you might be able to invest in more higher risk asset classes compared to someone that's investing for 10 years because you've got a shorter time frame. So determining your goal and saying, well, I'd like to have, I'd like to retire early. I'd like to retire by 50 rather than 65 because wouldn’t that be nice. And then I need to have X amount to retire. Maybe you need $700,000. Maybe you need $1,000,000? That sounds like a lot of money, but once you determine how much you need and you determine, at what time frame you're working with, you can then go backwards and use calculators or even figure out okay. Well, to do that I should probably invest in X or Y. Someone that is maybe you know already an investor and they're thinking I need to pull my money out next year. They probably gonna not be investing in a lot of individual companies because the market moves up and down a lot for individual companies, so they might be, moving their money into bonds and more lower risk investments because we need that money next year and imagine if it was 2019 and you needed to pull your money out in March 2020 and then the market crashes, that's very scary.
Jess
Yep. Yeah, I could you explain a little bit more about the markets crashing because it sounds scary, right? And that kind of also is like, well, do I want to put myself, put my money into my hard-earned money into something that's yet gonna go? What do you do when that happens?
Sim
That's a really good question. If you ever go to like a family BBQ or an event. And you say like ohh, I'm thinking of investing in shares usually there's always like an uncle that just comes out of the woodworks and he's like, wow this thing called shares is risky and investing in shares. Like I had a friend who lost all his money in the 89 crash or this crash. You know, there's so many stories like that. And I always like to say in those instances, you should ask a couple of questions. The 1st is.
What did they invest in when they lost all their money? Did they put their money in a fund that invested across hundreds and thousands of companies? Or did they have all their money in one or two companies that they were hoping would do well, that they didn’t really do that much research in? And the second question is, did they listen to their financial advisors because the advisers at every single crash will often say if you're investing in a broad market fund, so a fund that's investing in lots of companies. You know, like the NZX 50 or the S&P 500, which is the top 500 companies in the US. If they're investing in these broad market funds, they should hold those investments. They shouldn't pull it out when the shares go down.
Jess
OK. Yeah, cause people sort of panic, right when that sort of thing happens. And so they just want their money back.
Sim
So a lot of people like in the 2008 crash, that's a crash that we remember to some degree. We saw it go down. And if you pulled your money out in that moment, you would have solidified your losses and been like, you know, I just need to get out im scared.
If you spoken to a financial professional, they would have said, hold on to it. Give it time. You have invested into the right kind of assets to begin with. It's in alignment with your risk profile, just hold on. Don't look at it. And there's a study done that looked at the best performances with investors. It was done by an investment company called Fidelity in the US and they found the people that have made the best investments. Their investments had the highest returns. Were people that had past away. Cause they weren't touching their funds. They weren’t moving them around.
Jess
Interesting so its better once you have invested to leave it there?
Sim
Buy and hold.
Jess
Yeah, OK. That's really good advice because yeah, you do hear those stories, right? But yeah, crashes when people want their money out, and it's all of that panic. But yeah, that's really good advice.
Sim
And while you can't guarantee that your money will not lose value, and at that's part of the risk with investing, you can't have you know your cake and eat it too. You can't be like, give me all the returns, but no risk at all. But you can manage that risk by saying, well, I don’t want to take on too much risk. So I'll invest in those, you know, lower risky, less risky asset classes.
Jess
Yeah, and why? Why is investing so important? Because yeah, like I said, it's kind of I'm 27 and it's only kind of recently that I've sort of been interested in it and I'm still sceptical of it. And for others who are listening, Why would I even start? Like, what's? What's the importance of it?
Sim
The best way to think about the importance of investing is to maybe look at the alternative which is keeping the money in cash and being like, well, let's just save it and this is a stat that's more relevant to women, but we see male friends do it too, where 69% of woman's wealth is kept in cash. We like cash. It makes us feel safe. And you know, for a lot of our parents, it's a it's a similar journey. Besides trying to own one property, they'll keep everything in cash too. The issue of keeping your money in cash is the thing called inflation, which when we first started to talk about inflation at Girls that Invest people were like what is this word? And now over the last few years because we've experienced such high inflation, it's like an everyday term, but for those that are listening in and still not quite sure on on the definition of it.
Inflation is the idea that the value of your money loses purchasing power overtime. So what you can buy with $10 ten years ago is a lot less than what you can buy with $10 today.
Jess
It’s like when people used to buy houses, the house prices years ago, it's like mind blowing.
Sim
Or even like a cup of coffee like you can buy maybe one coffee for $7.00 now if you get like you know an alternative milk.
But, you know, 10 years ago, you could buy 2. So it's the same $10. You just can't buy as much. And usually inflation is around 2 to 3% every year. Thats normal we expect that and it chips away. But what it means is that if you have $1000 in your savings account and that account is earning, no interest that’s 2% of the value that’s chipping away every single year.
Jess
Wow. Yeah, that's crazy. Cause all my savings are sitting in this one savings account, so I'm kind of like mentally taking notes. I should be doing something with it.
Sim
And if you have an interest rate on it and you'll be earning some interest. That's awesome. But you also want to make sure the interest rate that you earning matches or is more than the inflation rate. So last year inflation is you know no matter where you live in the world, if it's more than 3%, but you're online interest account is giving you 3%, then you're not really making any money, even though it feels like it. And so the reason why people invest is because interest rates are usually around 2 to 3% on average. And this isn't a guarantee because past performance does not guarantee future success. If you expect that the market makes a 7% return and inflation chips away 2% of it. You have a 5% buffer. And so that's why people invest rather than just keeping it all in cash.
Jess
So if people are listening and they are like me and they kind of relate to to what I was saying about having just one account with all my savings in it. Where would you tell them to start? So like obviously you should, I I believe In like doing your research before you just go out there and start investing. But is it a good idea to sort of have a rainy day fund as well? Like I imagine wouldn't just throw all that savings at investing, well, I would be too terrified to do that but that.
Sim
That would be so scary. Imagine if like your car broke down or you needed, like, an emergency tooth canal or something and those things are not cheap. You don't want to have that money tied up in shares, but you have to then sell and hope that someone else on the other side buys it at the time that you need, and you have to transfer that money into your normal account. That can take a couple of days. And so when you're investing the way that I like to do it is I like to have three months of cash, three months of cash that I would need to survive. So yeah, my mortgage, my bills, my groceries have that in a savings account in my bank account that I can just pull if I need it.
And I think that gives me so much comfort. Cash does feel good. Yeah, just to know, like it's there if anything happens and you can just, you know, get out of any situation or help out someone in need. So I always like to have three to six months in that and then once that has built up, then I believe that investing is a really good option because on top of that, you don't really if you don't really need that cash and you're thinking okay, I'd rather put it towards that goal that I have, whether it's to retire early to get a home deposit you know. Maybe I have kids and I want to star putting money aside for my children and then that money can start going towards the goal that you've set for.
Jess
Yeah, cool. And if people have, like, I paid off my student loan this year which was such a nice feeling. But if people out there are still paying off their student loan and have got mortgages and things, that shouldn't be a reason to just not invest right? That shouldn't hold us back from investing.
Sim
There's two things to think about when you're weighing up where should I put my money? When you invest a small amount when you're younger, what you experience is this thing called compound interest, which is every single year. Your investments that you've put in the $10 a week that makes lets say 10% return just for the sake of easy numbers, because 7% would do my head in trying to do that math you click.
Jess
Yea I’m not good with numbers.
Sim
You make let's say 10% return on that, you know $10. That's awesome, but the year after that you not only make a 10% return on your initial $10, you also make a 10% return on the 10% that you made the year before. So that starts to go up overtime and you experience the sort of exponential rate of growth. Which on average is not a guarantee but on average can look like the money that you invest starting to double every 10 years. And so the more 10 years that you have, the better your investment outcomes look like.
And if you're investing for a few decades, then you need to start putting in a bit more money to have the same return. The other thing that you want to think about is what we call the 7% rule. So if you have debt, not all debt is bad debt. And I think that was a really hard thing to wrap my head around.
Jess
Yeah, because you tend to think debt is a bad word. Like you don't want debt.
Sim
Yeah, right. And to be debt free is like this mental I don't know, mental clarity. And your like I don’t want that get off me. And debt growing up can feel like a really bad thing, but you over time like learn that there is good debt and bad debt and it is okay to not pay off all of your good debt before you start investing.
Now that sounds, really confusing.
Jess
Yeah. Give me an example of good debt.
Sim
Good debt is things that can um in New Zealand that can be your student loan. Some people like to pay them off. Because you know it does help with being able to get a larger home loan if you want to buy a house one day. So there's other reasons why you might wanna pay off your student loan, but things like student loans and things like a mortgage that has an interest rate of less than 7%, those are things that you can still keep paying off. And also start investing. You don't have to yet own a home completely outright before you start investing, because it's going to take a while.
Now if you, you know your mortgage on your house is like 6% or 6.5%, it's getting closer to that 7% mark, that's when you might go, you know this year I might wanna focus on paying down that mortgage because if you expect that the shares that you make only around about will give you a 7% return. But paying down your debt pays that off by 6.5 that's very similar, whereas if your mortgage is like 2%, you're one of those lucky people that locked in.
Jess
I was gonna say that sounds nice.
Sim
And your mortgage is at 2%, but you could make more money in the share market at 7% then you might take that money and invest it.
Now bad debt is usually debt that is at a higher rate than 7%. So this is things like car loans. This is things like credit card debt. This is things like, you know, the buy now pay later options that you still need to pay off. And if you don't, there's a high interest rate associated with it. That's the sort of stuff you wanna pay off 1st. Because otherwise, if you're investing, it's a little bit like pouring water into a bucket with a leaky bottom.
Jess
So if somebody's listening and their thinking this sounds really good, I want to look at investing, what kind of tools are their? Cause I know there's some sites online right that are quite user friendly. Where would you go?
Sim
It can seem really overwhelming. If you Google, how do I invest and you type that into Google you get so overwhelmed if you click on one thing and your like you're like wait, what is this about and you like click on an article and then you go in and by the end of the day you'll like you feel like you've learnt all these words and you get analysis paralysis. And you get overwhelmed and you go onto Netflix and you're like this is a problem for another day. Yeah, I'll sort this out later. And so I think the best way to learn how to invest is to take a look at yourself and figure out how do you like learning because someone might say, I'm just a fast reader I need written content and to that I would say we've got the sorted website.
Jess
Yea Sorted is great.
Sim
Sorted you know, has so many great written articles, it’s really easy to understand. And you can learn from that. You might then go, well. No, I don't like reading I'm on the go, I'm quite busy, but I drive a lot and I'm an audio learner, and in the answer to that, it's podcasts, podcasts like these. Really great place to learn and for someone else they might say I like video content, you know, and then that's a case of finding reputable videos online that you can watch. So it really comes down to what your style of learning is. And then once you figure that out, going okay, let's make sure that where I'm going is something that I trust. Something that you know has good reviews.
Jess
The trust parts really important as there’s so many scams. That scares me as well. Yeah, making sure your choosing a good source.
Sim
But you can't go along with sorted. I think when you're a beginner, they have a good glossary of terms they have calculators and they also really focus on, you know, what's your goal. Do you want to pay down your debt? Do you want to get a mortgage? Do you want to retire? Using the calculators lets you figure out you know good places to begin. And with the fear of scams and the fear of am I gonna be, you know, led astray. FMA has a lot of resources to where they share information and you know there's been times where I've seen something I've been not too sure. I've searched it up on the FMA website and it tells me everything I need to know.
Jess
I was also keen to kind of know. If someone is listening and they're still not kind of sold on the idea of investing, cause I know a lot of people think investing is gambling. Can you talk about that a little bit. Cause that's kind of where my brain went when I first heard about investing as well.
Sim
Which makes sense because again, you think about the movies you think about, you know, what you see online, and I promise you investing is not having like 5 different screen with all these numbers and the arrows and the, you know charts that is not what the everyday investor looks like. And if that is what it took for me to invest, I'm too lazy for that. I don't wanna wake up at 5:00 AM and be at the same time zone as the American markets like that's too much. Investing is not like gambling. But there are different styles of investing that can seem that way. And so there's the style of investing called speculative investing, where you buy something because you just kind of cross your fingers and hope that it will do well because either your friend told you about it, fomo investing is big.
I know that the FMA did a report that came out and showed that almost one in three young people bought shares and investments based off of the fear of missing out.
Jess
It’s such a big thing for our generation hey.
Sim
And so there's that kind of style of investing where you put some money in, cross your fingers and go God I really just hope this doesn't go to 0 and that can feel like gambling. And to a degree I think that is, you know, not the best option if you want to grow long term wealth in a slow and sort of sustainable way. But gambling is also something that you do without a lot of research. There's only luck involved. You can't like um, study gambling, as far as I'm aware.
Jess
Yea I don’t think you can.
Sim
You can like maybe try and guess if someone has a Poker face or not, but decides that.
Jess
Yea, It’s all random, isn't it?
Sim
It's all random. At least you hope it is. And then with investing, you know you're looking at funds or you're looking at shares and you're doing research and you're looking at these reports. If you find an individual company that you like, you're looking at their balance sheet. And so there's a lot more research involved, and therefore there's a lot more choice, whereas gambling is purely chance.
Jess
So I feel like we've done a really good high level of sort of what investing is and different types of investments. Could you talk a little bit about investing strategies? Like the difference between long term investing for example, short term investments and things like that?
Sim
Of course, so the main two investment styles in the investment world. You can think of them as like. I always imagine them as like the apple and the Android drama. Like there's two sides, very strong.
Jess
Yup you either loveee apple.
Sim
Or you love android right. Or you just hate Apple. You know, there's just something really intense about these. And the two identities in the investing world are the passive investors and the active investors.
Jess
Yeah, I keep hearing the terms active and passive. But I feel like I haven’t grasped each Concept in terms of finances.
Sim
Well, it's it's very in the name and and so there's two sides of investors that think that their investing style is right. The answer is neither is right or wrong, but there are pros and cons of both of them. The active investors are people that think I can pick and choose companies that I think will do well, and I can guesstimate where they're going to go and what's going to happen long term. So I'm going to put my money into that. And so active fund managers are people that, you know, they spend their whole day working on speaking with different companies, speaking with customers, speaking with clients and figuring out what is the best portfolio that I can make for my investors, for my clients. And they're going to spend a lot of time doing research. So they're going to charge a little bit more money, and doing so doesn't necessarily mean they're higher fees will result in more better outcomes, but for some people, you know, they want that more of a hand held approach.
The other style of investing is passive investing, which is the belief that you can't figure out where the market is going to go. So rather than trying to beat the investing market, rather than trying to beat what the share market is going to do, you just want to invest in it. If it does well, your shares do well. If it does poorly, your shares do poorly. And that's when they use often like computerised systems where it will track an industry like the S&P 500 or the NZX. And so your portfolio is just made-up of those companies. It's computerised. So it's a lot cheaper. So those are the two types of investment styles and you might go well, which one is better? And it's hard to say. But again, we like using our research. We like using what studies say and studies have found, the NSP study found that over a 15 year period they tracked active fund managers and passive funds, and they found that 92 to 98% of active fund managers could not beat the market over a 15 year period.
Which to me means that if there are some that do beat the market and they're sure their fees might be worth it. But if the professionals can't, beat the market. Then I don't think they can pick and choose the companies that are gonna beat the market in the long term. Maybe in the short term, but over the time frame and each year that goes by that likelihood of knowing where a company is going to go is very tricky.
Jess
And for a new investor is having a diverse portfolio a good thing to sort of focus on? And I know you talked a little bit about that already, but yeah, is that a good thing to focus on and then what exactly does that mean?
Sim
That's such a good question, when you compare active vs passive investing styles, studies have found that if you're going to actively invest and you're going to pick and choose, you should at least pick and choose 25 different companies to have in your portfolio. That is a lot of research.
Jess
That's a lot yea.
Sim
Yeah, it’s a lot of time, energy. And you have to get it right 25 times. Which is very overwhelming. And so that that is an option. If someone thinks I want to take that pun, you know that's one way of doing it. My personal preference is diversifying in a passive way. Because I really like to imagine myself as just a lazy investor where I pick and choose funds that have baskets. Sorry, funds that are baskets with lots of different companies in them, and that way my companies are across all different 11 sectors. So in the investing world there's 11 sectors that you can think about like education, healthcare, real estate, IT and in some years maybe IT as a sector does really well like in the last couple of years. But you know five years before that IT wasn't doing very well and we had better performances seen in things like healthcare and real estate. And so rather than trying to pick and choose what companies are doing well, pick and choose which sectors are doing well, I would rather invest in a fund with hundreds or thousands of companies and let the diversification do its work. Because if you imagine it being 2020. If I had just invested in like real estate companies and hotels and like airline stocks, I would be very upset.
Sim
But if you'd invested in like this new up and coming company called Zoom that not many people had heard about and Microsoft you're shares would have done really well. But by investing in a basket, even though my airline shares did poorly those little Zoom shares that I had in that basket did well, and it balanced it out.
Jess
OK. Yeah. I kind of get that now cause I'm thinking like people might listen to that and be like, oh my god, that's terrifying. Cause you can't predict those things like COVID and stuff. Like who knew that was going to happen. And if you've already had shares in something like an airline company, you'd lose out. But if you have shares in all sorts of different pleaces then there's no need to kind of have that panic.
Sim
Yeah. And it just means that you don't have to spend all the time researching and keeping up to date. I'll use an example if you'd bought a share of a company where they were selling bikes which had big screens on them. That was a really cool, important thing in 2020 when everyone was at home. You can exercise outside of the gym, so all these people bought these bikes. Now that bike company thought this is awesome everyone's buying these bikes. Let's make more bikes and let's hire more people and let's just double down on these bikes, not really thinking about, will people want these when everything opens up again? And so that company's share price tanked because they had to lay off a lot of staff because they bought all these extra, you know, machines and manufacturing items and so if I had thought I'm gonna invest in this because I think this is where it's going. It's really difficult because you can't predict what like a management of a company is going to do. So I like to think okay, I'll take a risk by having that in a fund. But if it doesn't do so well, I don't have to keep reading the news and going ohh wait, they've just laid off 10% if their staff, now I have to quickly sell my shares.
Jess
And things change right? It goes up and down. So even if it's down here at the moment and something happens it could always come back up again, right? Yeah. OK. I feel like I'm sort of getting it.
Sim
Does it still seem confusing?
Jess
I thinks it’s still a little bit overwhelmed, but I think it's just the stigma of it. You know, and like going up. What I found really interesting in the first pages of your book that I really like related to was in movies, how women are kind of seen as not being good with their money. And I found it really interesting. One of my favourite movies is that Confessions of a shopaholic. She can't pay her rent. She just shops and things. So I think maybe it's just that stigma there. It's just there. It's just getting rid of it and not having that fear, I think. And then, like you say, yeah, just making sure I actually do my research and then some of the anxiety will go away.
Sim
Did you also think about how you are a good saver and that's the first part. That's the difficult part, because you know, it's all well and good to learn how to invest, but if you don't have the money to invest that's a huge issue and you know, for some people that is something that they cannot help and that's a completely different story. But for a lot of us, there is possibly like an extra $10 we can invest a week. But we will save it and will be really good saver, but we think that we can't be good investors.
Jess
That's so true cause my mindset is kind of like i've gotta have a lot of money, right to be an investor. I've gotta be, you know, super-rich to start investing. But that's not the case. And I think a lot of people feel that way as well.
Sim
I feel like that was absolutely my thought process growing up and it was only when I heard the idea that investing isn't what you do when you're wealthy investing is what you do to grow your wealth. That really hit home for me. I thought you would invest like once you have the nice house and the car and you had a boat outside. Like what do I do with this spare cash.
But you know, even our governments, like when we think about how they're making sure that we can retire, we don't give them our KiwiSaver for them to save it, we give them our KiwiSaver and they invest it. And even they know that investing is the best way long term, slowly and surely overtime to give you that nest egg.
Jess
That's a good thing that you talk about KiwiSaver as well, because I think sometimes I just forget that KiwiSaver is an investing kind of tool. Some people are investing and they don’t even realise they are. So its not as scary right.
Sim
Exactly your already investing. So whenever you started your KiwiSaver, that's when you started being an investor.
Jess
Ohh so I can already say im an investor that’s actually kind of cool.
Sim
It's important.
Jess
Thank you so much for your time today. I feel like I've learned so much. But for anyone who's listening, they made it this far. Thank you for listening this far if you made this far. What would be your one tip. Your main take away if someone forgets everything, they have learnt in this episode, they can go away with one little bit of advice.
Sim
I think the one piece of advice, that I wish I had gotten earlier when I started my journey is you don't need to know everything about investing to be an investor. You don't need to wait because I think what I see a lot of my own friends do and probably something that we did ourselves was, we would think well I need to know it all before I put in a single dollar into my investing account like I need to be able to have like a degree in investing before I can start investing and the truth is most people start off with a bit of knowledge. They listen to a podcast, they read a book. They do what they do to feel comfortable and long as you have your parameters. As long as you know why your investing, How much you want to invest and what sort of goal that looks like and what your risk profile is? Then you can work backwards and you can always change your investing style. You can start with a little bit of money and go. I really want to buy these shares and you go in and maybe they didn't do so well, and you're like okay. That's fine, because now I can change, I can pivot. I think 1 of the biggest fears people have is how I start investing is how I will invest for the rest of my life. And that's not the true way that you'll invest. When I started, I invested in, you know, things that I don't invest in anymore. When I started, there were companies I invested in that, you know, overtime I was like those don't really align with me. And I sold them and most of My Portfolio now is funds that I believe in and It's something that can be a set and forget option. It's not something that you have to worry about all the time.
Jess
To wrap up, could you quickly tell people? Where to go to get more information because obviously you have an amazing podcast. But do you have any other tools and things that you would tell people to head over to.
Sim
If you like reading the book girls that invest is a good place to start. It's very simple. It's only 250 pages and It's explained in a way that after you read the book, you should be able to invest, and we have a lot of people read the book and go okay what else is there? And I'm like, this is enough to be an investor, but it's the idea of Oh my God, I I just need to know everything. Promise you ask any investor out there. We don't know everything in the market, but we know enough to invest based on our list tolerances.
Jess
Awesome. And I can say I thought it would be hard read but it was actually an easy read. And it's funny, you're funny as well. I love that there’s a few Kardashian jokes in there. And I just love that cause I'm like all about having a little bit of humour in a topic that can be quite serious.
Sim,
Why not?
Jess
Yeah, why not? It was so great having Sim on the first episode ever of ‘Jess learns to invest’. I hope you learnt as much as I did today. If you want to find out more about Sim, go and give girls that Invest a listen on wherever you get your podcasts. You can even head to their website www.girlsthatinvest.com. We'll see you next time.
Disclaimer: The content of this podcast is of a general nature and it not financial advice. The thoughts and opinions of guest speakers are not those of the FMA. The FMA recommends that our audience seeks advice and respect to investing from a regulated financial adviser. The FMA does not accept responsibility for any loss that any person may suffer from following it.
