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#7 - Is Investing a Risky Business? with Louise Fitzgerald

Transcript from interview #7 - Is Investing a Risky Business? with Louise Fitzgerald

Nicole:   0:04

Welcome to the I ALSO Want Money podcast, where our mission is to democratize, demystify and demasculinize making money. I'm your host, Nicole Kyle, and I'm here with my co-host, Sophie Holm and ally, Harrison Comfort.

Nicole :   0:28

Today on I Also Want Money, we are very excited to host Louise Fitzgerald. Louise is a fully qualified, independent financial adviser. What we love about Louise is that she's on a mission to help people make better financial decisions. I think this is particularly exciting because it's our opportunity to ask some of those, maybe what, we fear are basic questions about how we get started investing. What's smart, what isn't? So for a little bit of context, Louise works at Horlock Holdcraft Financial Consultants, and we're really looking forward to having her here today. Now, for an episode like this, we do want to offer a disclaimer, which is, this is not personalized investment advice, and it should not be interpreted that way. This podcast is not regulated, we are speaking informally with a certified financial advisor regarding generalised considerations, which might not necessarily be applicable to your situation. Our hope is that this discussion helps bring a context for how we should be thinking about putting our money to work. We're very excited to welcome Louise Fitzgerald to you. The podcast today, Louise, thank you so much for being with us. 

Louise Fitzgerald:   1:33

Thanks for having me.

Nicole :   1:34

Louise, just to begin our conversation and appreciating that, certainly, in my case, I'm coming from the perspective of... I haven't really started investing. I know I'm behind the curve, and should be attacking this. When you normally kick off a meeting with someone who is new to thinking about wealth and investing, what is the first thing that you want to know?

Louise Fitzgerald:   1:56

The first thing really is looking at their histories. So although they might not have invested in the past, it's looking at if they've built money up somewhere, well, they've got savings. Or they might have other properties or if they've had anything like that, if it's a property, it's a form of investment. If it's a savings they built up, they've got the capability of doing an investment, but maybe they don't have the right mindset for it. So then it's looking at what their emotions are around money, how they look at it, how they view it. If they've had past experiences that have maybe switched them off investing, or anything like that. Or not themselves, maybe they've got partners or parents who have had bad experiences with money in the past. All that sort of stuff can have a real impact on how people view money. So very early on, we're trying to establish what their risk appetite is, though we would ask them to fill out questionnaires which asked them statements about different things, and that can give us a good idea about how people think about money in the very first instance. Then we can help them from there. in terms of putting portfolios or investments together. You can't really do a lot if you don't know how people feel about money. You need to know that before you can put them in the right position.

Sophie:   3:07

So just picking up on that. In terms of risk, reward and understanding risk appetites. Can you just explain that a little bit more? Demystify what does that mean when you say risk appetite, risk reward, preferences, etcetera?

Louise Fitzgerald:   3:23

Sure. Okay, so we look at risk appetites on a scale of about 1 to 10. That's a basic way to do it. So if you're not open to taking any risk on the stock market, you're really not comfortable investing at all. You're a one on a scale of 1 to 10 and really, you should just have all your money in cash. But you gotta be open to the fact that that's gonna be decreasing in value with inflation. You know, inflation goes up every year around about 2.5%. And if all your money is just holding cash, then £100 now, is going to be  £100 in 10 years time. And then you can slowly tick up the scale. So, you know, 2,3, 4 to 5 out of 10. As you go up that scale you're steadily increasing your exposure, or your happiness to invest in exposure to things like that. So, as you go higher up the risk scale towards the five out of 10, you'll be holding the less in cash, but more in the way of sort of low risk investments. So things like Gilts, which are government bonds. They're really low risk, fixed interest all those sorts of things, are low risk investments. And as you move further up again... so if you go above five out of 10 sort by a six, seven out of 10, then you could start seeing more in equity holdings. So that's holdings in companies in the country that you're in, further upfield, you can hold your money in equity all over the world. You know, US equity. If you really want some high risk stuff in there, you can try some Japanese equities, Asia, Asia Pacific equities. But you won't see any of that in your portfolio until you're going higher up the risk scale. But you know, the younger you are as well, the more time you have. If you have a long time horizon in mind, then you can afford to take a little bit more risk with your money because, as you know, the stock markets are taking a bit of a dive recently. But if it's long term money you're saving, you've got time for that to come back up again, and the stock market's already showing a bit of recovery today, so that will just come with time.

Sophie:   5:14

How important... so you're talking all about the emotional relationship to money that people have. But how important are other characteristics? Like your age, your sex, your life goals?

Louise Fitzgerald:   5:29

Yes, so all those sorts of things have a massive impact on the amount of risk you are willing to take. You've got to have in mind, if it's for a particular goal that you're not happy to forfeit any of that money for that particular goal, then you would have to stay down with the lower end of the risk scale. But age is a big factor, too, you know. And the younger you are, you've got more time on your side, so you can ride out dips in the market. Women generally tend to have more of a cautious approach to investing. As yourselves had said, that is, it's more of an emotional thing. They're more cautious about money. They like to keep it in a safe as they can, essentially in a bank account or in something where they can visibly see it, and they know that nothing's gonna be happening to it. That's fine to an extent. But you can't be sitting there with thousands and thousands of pounds in a cash account. You need to be doing something with some of that money if you're getting into bigger numbers. Otherwise it won't really be doing you any favours. You won't be seeing any returns, really, especially with interest rates at [near zero] percent. You won't be getting anything back, really. And if you want to use that full covering maternity leave all covering salary when you might be taking a break from work, you need to have that in mind, and have a plan before that time comes around, so you can put those things in place.

Harrison:   6:45

On the basis that women tend to live longer, and if you look at earnings charts, they tend to have their salaries peak earlier than guys, could you make the argument that women should be more risk seeking than guys when it comes to investing?

Louise Fitzgerald:   7:07

You could make the argument, but I think a lot of women wouldn't agree with you on that one. Yeah, potentially, because their earnings, like you say, they peak higher, then they should probably expose themselves to higher risk when they're younger. But it's getting younger women to get in that right mindset and to actually open themselves up to that sort of thing. But then, they are probably thinking about things... if we're gonna be having a career break or I'm gonna be doing this, or going to be doing that. All those things helped women to probably think: oh, I don't know if I would be open to losing this sort of money, or if I'm gonna be investing, then I'm really not sure if that's the right thing for me. I think it is confidence. It really is having confidence. To open yourself up to investing, and realizing that it is not all risky, risky stuff. You know that you can have lower risk investments and still have a really good performing portfolio.

Nicole :   8:00

Louise, I think it's fascinating and really reassuring that you said, you start out conversations with clients by trying to get to know them as a person and trying to understand their emotional relationship with money. It is, at least in my experience, my assumption is that financial advisors won't do that. That's why I don't go to them. I'm worried about my own ignorance coming across and just making me seem non-credible and it just being a non-starter in that case. So I think it's really cool that you're exploring the emotional relationship with money, as an indicator of what to do with someone's investments and how to help them manage that money. And you said there a moment ago. It's all about getting women into that mindset, to investing. In your experience, what is the key to getting into that mindset?

Louise Fitzgerald:   8:53

I think it is understanding. I think if you throw the world stock markets at someone, if they really have never invested before, they sort of think, Oh, no, no, I don't know what that means. So therefore, I'm gonna stay completely clear of it. Until you can really sort of break it down help them understand what the FTSE 100 is. It's just 100 companies, the 100 biggest companies in the UK. That's what it's made up of. And it's just the returns of those companies, shown in the graph. But until they understand that, I think that's the first step of getting them to be more confident in investing. If you don't understand something, you stay clear of it. You're not going  to throw your money at something that you've got no confidence in. I think getting women, generally, to understand how investments work, how products work too. You know, things like ISAs, pensions, savings accounts, deposit accounts, and all those sorts of things. Women should be seeking out financial advisors more. They've had a bad rep in the past, but the whole profession has been completely overhauled and it's definitely more about, getting to know your clients and doing right by your clients. We have such long term clients on our books, that we're all about the long game for people. We want to be taking them on when they are younger and seeing them all the way through their financial lives, right in there to retirement. I think a lot of firms do that, too, but it's really trying to get the clients in the door when they're in their twenties when their  potential is rising and rising and rising. And then helping them to do things like save for houses and start families, seeing them all the way through their retirement and things like that.

Sophie:   10:27

So you talked about a number of different types of funds or products right there, but just taking a step back... the concept of a rainy day fund and how much you should be saving, what is too much money in your bank account? And is there any kind of rule of thumb around ratios of savings versus investing?

Louise Fitzgerald:   10:50

Yeah, definitely have a rule of thumb for emergency funds, so rainy day funds or emergency funds, whatever you wanna call it. But essentially, that should be money that you've got set aside. So that if you lost your job, or you were at work, for whatever reason, you could cover your your expenditures for 3 to 6 months I know a lot of people don't have that sort money saved anywhere, but at the minimum, you should have say, three-to- six months of your salary saved in the savings account. And that should not be invested. But that should be in a cash account, just a savings account. A bank account that you can easily get your hands on if you were made redundant tomorrow. So you got a buffer sitting there on anything above that. Anything above, say, six months salary... if you're starting to have, 12 months salary sitting in a savings account, you should really start to be looking for some other places for that extra six months salary to go. And then really, anything about that, if you're starting to build up more and more and more cash savings, that is just sitting there. Maybe two years or three years of your salary just sitting in a savings account. That's the point when you need to be looking elsewhere and doing something better with that money, because you're not gonna be seeing much return on it.

Harrison:   11:58

How would you respond to somebody who said well, I only have £500 or £1,000. They just said, you know what? It's not even worth it because I don't have that much to put it, anyway?

Louise Fitzgerald:   12:09

I would say start with that. And if you're getting to the point where you put aside a savings account anyway, and you've built up those savings, you must have been saving on a regular basis, or an ad-hoc basis to get that amount saved in a savings account. If you can save regularly, you can save into investments on a monthly basis so you can start with the £500 you got over your six months salary, and then you can just keep paying monthly into it.

Nicole :   12:31

Yeah, it's interesting this link between savings and investing, and I think one of the things we've observed when we talk to our friends and other millennial women  is that there's this assumption that our approach with savings should be our same approach as investing. And I think that's where the low risk profile or low, low risk tolerance, I should say, maybe comes into play. So what type of different attitude would you suggest women adopt to their investing fund versus their savings account?

Louise Fitzgerald:   13:07

It is difficult to say, because until risk profiles are established, we would do that by way of a questionnaire, and actually, that's a really helpful tool because it asks people questions and it's just asking your gut reactions whether you agree or disagree with statements. People will always be up to complete that without even really thinking about it. But then we would plug those through a system, and it would tell us the risk score, and some women want to think they're really low risk, but maybe it's a five or six out of 10 in which you might think you're low risk, but actually what you told me is that you have the potential to invest in higher risk areas. What are your thoughts on that, what are your feelings about that, and what are your aversions to that? And then we'd address those aversions and try to help them to understand. But it's not the most high risk assets that you'd be invested in. But I think people think investing is just if you have a lot of money, or it's just if you're a certain age, but it's really for everybody.

Nicole :   14:06

So here's a limiting belief, Louise, that I have that I'm hoping you can help me overcome. With my assumption, as someone who I think Sophie, between the two of us, I am more risk averse. And my limiting belief is, I think, because I'm risk averse, I could never make money through investing. Like only people willing to take that high risk reap those high rewards.

Louise Fitzgerald:   14:34

That's not true. Admittedly, you can get higher rewards if you're willing to invest in some higher risk investments. But if you're right up that top end of this scale, you're going to see some really sharp drops, too, so you gotta be open to all that volatility. But if you're taking low risk, have low exposure to investment risk, there are still some really great funds and investments out there that you can invest in. They are low risk, there are certain elements and characteristics that bring the risk profile of the funds right down. But that doesn't mean you're not gonna get any money back. You know, you can invest in these low risk areas and you can still get about 2 to 5% return. It is just knowing the right place to look, and that's that's what we do as a job. We know the places to look for clients. Whatever risk profile, and how to get them good returns, based on however low or however high their risk profile is.

Harrison:   15:24

One of the scariest things, or maybe disappointing things, is when you do invest, you put money into the market, in the near term, when you see it go down. This would be a pretty relevant time at the moment. How do you advise your clients or talk to them in terms of helping them manage when the market goes down?

Louise Fitzgerald:   15:48

Yes, as I'm sure you are probably aware of, the markets have gone down, and I've certainly spoken to a few clients in the past week that are a bit concerned about it. But really, there's nothing you can do. The best thing to do is to ride it out. People say, should I sell all the  money out of my investments? And actually, no. That's the worst thing you could do. If you start to sell your money when markets are down, all you're doing is crystallising that loss. And, you know, you  are never gonna make that money back. But if you can leave the money in there, the markets will start to go back up, and we'll start to get your money back. If anything, when markets are low, you wanna be paying into it. But people don't always do that. And if you're an experienced investor, that's when you'd start to do that sort of thing.

Sophie:   16:31

So I've definitely paid more [into my accounts] in this downturn to optimize opportunity. 

Louise Fitzgerald:   16:41

Yeah, well done!

Sophie:   16:42

Thank you.   

Nicole:   16:43

Gold star, Sophie! 

Sophie :   16:46

Yeah, you too. You did your first one! Are there any basic rules of investing in a downturn or recession? And are there particular products that are good in a downturn that you should keep an eye out for?

Louise Fitzgerald:   17:03

In terms of actual products that are good, essentially, it's the actual investments themselves that are going to be what you're looking at. So it doesn't really matter where you're investing if it's in, savings accounts, the ISAS,  pensions or whatever general investment accounts. It's all about the investments within those accounts. But that's not really a rule of thumb in terms of when you're paying in a recession. Most people like to think they can play the market. And they think is this as low as it's ever gonna get? I'm gonna throw my money in now. That never works, because the next day is gonna be down another 5%. So people like to think they play markets, but really, they're totally unpredictable.

Sophie:   17:42

So I have definitely taken an approach. And that's thanks to Harrison because he's hammered that approach into my head of incremental investing. So I wasn't comfortable six months ago investing at all. So I started with, £2000 or £3000, and then I've added up and topped up more my ISA and also my pension  accounts. Why is the incremental approach to investing something that you often hear referenced?

Louise Fitzgerald:   18:10

Yes, even if people pay in lump sums of money, we were generally phase investments in over, say, 3 to 6 months. Because if you put all your money into an investment, say someone paid £10,000 into a stocks and shares ISA in January, then they've looked back and gone, really? I should have waited, and I should have done it at the end of March because I would have got so many more shares for the same amount of money that I paid in. But if you try and start thinking like that, then you're going to try and start playing the market. And then, you know, that's just been a gambling with your money. Unless you're happy to do that, I wouldn't suggest it. Incrementally paying in on a monthly basis means that every time you pay in, if you're paying on the 30th of every month, the stock market will be doing different things every time your money goes in. And if they're lower at that time, you get more shares for your money. If it's higher at the time, you get less shares for your money. But paying in like that is the best thing you could do. And that's called pound cost averaging since it means you can spread out. You know the risk will be spread out because the portfolio is always gonna be performing differently at a different time,  every different day, in fact. If you paid one amount on Monday, and tried to do the same amount on Tuesday, you'd get different amount of units, so monthly is a good way to do it. It is a good way to make the most of stock market exposure, but it's also just a good habit to be in, and you know, monthly savings is a great way to build up savings accounts.

Nicole :   19:33

Louise, I have two hypotheticals I want to get your perspective on. So let's say we have character A, Who has three months of income saved and has a very low risk tolerance.   

Harrison :   19:50

Can we give character A, a name? 

Nicole :   19:55

Character A's name may be Nicole. Well, I'm pretty pretty close to that. Um, and then you have character B who has maybe six months of their income saved and, thus, and as a result, a higher risk tolerance. What would be the one thing you'd advise character A to do tomorrow? And what's the one thing you'd advise character B to do tomorrow? To start growing their wealth and investing?

Louise Fitzgerald:   20:24

The one with three months savings is low risk, and the one with six months savings is high risk? 

Nicole:   20:28


Louise Fitzgerald:   20:29

So the three months low risk one, I would say, build up your savings a little bit more until you've got six months there. And then you could look further upfield when you've got six months of your salary. If you're a low risk investor, I would suggest that you should have a little bit more in savings, in cash before you start to look upfield. For the high risk investor, if they've got six months of the salary already put aside, and they're happy to go see a financial advisor, or going to see a bank, or going to see someone, working how much you're willing to put into investments. First of all, whether it's gonna be a lump sum or monthly amount, and then and then do something about it. Get something set up and go for it.

Sophie:   21:05

So if you have set up your own account,  and you feel quite comfortable with that and you're getting familiar with the terms and you're getting familiar with different providers and what they're offering, etcetera. How often do you recommend that you look at your portfolio and do any optimization, if you think it's required?

Louise Fitzgerald:   21:24

Definitely do not do it daily. That's the worst thing you can do. Some people do it monthly. Some people do it quarterly  or six months, or annually. Quarterly's probably a good bet. It's difficult to see in the short term how well funds are performing because you've got enough data there. So, if you're looking at it quarterly, the first quarter I wouldn't really make any changes, but you can at least just see how things are going. And then after six months, that's probably when you're to get a good idea or if I should be making any changes or not. But really, you could probably stick it out for a year before you can properly evaluate how your funds have performed. But some people don't ever look at them. And they just come in to see and go: I haven't looked at this, what's it doing now? But I'd say quarterly is probably a good bet.

Harrison:   22:13

When clients come to you and they haven't started investing and after working with you, they have started, do you notice any difference in them?

Louise Fitzgerald:   22:22

Yeah, they're definitely more open to opportunity, I think. We essentially  financially educate people. When they come to us, they've never done investing before. We show them how that works, take them through the process process. And once they've done it for the first time, and they get more comfortable with it and they start to see, they start to understand a bit more how it works, and how returns work. They generally come back to us with either, I've got some more money.What should I do with it? Or I've got an inheritance, what should I do with it? And actually, I'd like to up my risk profile or reduce it or I'm not sure if this is right for me. They start to have more of an input into the financial decisions that we would have had before. It's really good to see, because until that point, they just come to us and say: I've got some money, I've got no idea what I should be doing. Or I got this pension, but I've had it for 30 years, and I've got no idea what's in it. But then, after that, they start to take a bit more of an active role in what their money is doing.

Sophie:   23:21

Looking at savings accounts and maybe going back to the scenario that Nicole was outlining before, the suggestion to keep a three months to six months salary in your rainy day fund in your savings account. What are the different types of savings accounts?

Louise Fitzgerald:   23:38

Obviously, put that in your bank account. I mean, you can have it in low risk investments if you want, in a money market fund, say, but  we would still call that stock market exposure to some extent. But if you just want it as cash in the bank and you don't want to be subject to any sort of investment risk, it needs to be in a savings account or cash in your bank. But a savings account can just be in the current account or a savings account that you got with your bank. I know the interest rates are pretty shoddy at the moment, but you can get sort of some deposit accounts that are a 30 day notice account, so you have to give 30 days notice before you get your money out. Then you start to see a little bit better interest rates, but,  still at the moment, they are quite low. But you're putting that money away, and that's not meant to be getting you return. Really, it's just meant to be holding its value so that you can get to it if you need it, and you can get to it straight away. And that's why I would suggest having that in an immediately accessible account.

Sophie:   24:34

Yeah, and at what point do you pay debt versus start investing or putting it in savings? All of these things. We're playing around with a word or sentence called I also. So I also want to be more financially savvy, or I also feel good about having done my recent investments. Do you have an I also that you would like to share with the audience, or the world?

Louise Fitzgerald:   25:01

Okay, I'll say I'm also passionate about money. You know, you should be doing more with it and love it. Love your money! You know, it's not just a salary cone in a pay packet  every month. Do something with it, be productive with it.

Sophie:   25:14

Yeah. I also love money.

Nicole :   25:16

Yes. And not being ashamed to say it. 

Louise Fitzgerald:   25:18

Yeah, exactly!

Nicole :   25:20

I think that's really, really important.

Sophie:   25:22

Well, Louise, thank you so much, are there any final comments that you want to bring forward?

Louise Fitzgerald:   25:28

Being more open about doing more with money, you know, be a bit more excited about it and do something productive with it. And if you're not comfortable, going to see someone who can help you with that.

Sophie:   25:37

Yeah. Amazing. I love that.

Nicole :   25:39

Thank you so much. Louise. This has been really helpful. I know for me personally.

Louise Fitzgerald:   25:44

It's been great. Thanks so much for having me.

Nicole:   25:46

Thank you for listening. If you like what you're hearing, join us in the #IALSO movement. This means, take to your social platforms and post a #IALSO  statement. Follow us on Instagram at IALSO podcast. And, of course, subscribe. This podcast is produced by Harrison Comfort, and the theme tune is by Malin Linnea.

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