Can I keep investing in the same ETFs forever? How your strategy should change over time

Melissa Balacharige (0:00)

The biggest mistake that you can make is being defensive too early.

Jess (0:03)

How do I actually retire on that money I'm investing?

Melissa Balacharige (0:06)

The last thing you want to do is be in a position whereby you're selling shares at the wrong time. We can't control what markets do, but what we can do is have a plan B in place. Every decision that you make from this point onwards makes a significant difference. That's the beauty of investments. You can adjust your plan as your circumstances change. What's the capital I need in order to have a successful retirement? And am I there yet?

Jess (0:32)

Thanks so much to MLC for sponsoring this episode and helping us keep all of our content free.

Welcome back to Get Started Investing, a show that helps you make the most of your money. I'm Jess and this year I finally started investing after spending years completely avoiding thinking about money. Naturally, as a beginner, I do have plenty of questions about investing and as it turns out, so do you guys. So each week I sit down with an expert to answer them for us. This week, we're tackling how should your investment strategy change as your goals and timeframe change. The episode was actually inspired by a question from one of our listeners, Ben. He's 21 and he's investing in a high growth geared ETF. He may be young, but is actually already thinking ahead. He wants to know when should I start de-risking my portfolio? I'm 32 myself and investing for the long term, so I haven't really thought about when or how my strategy might need to change. So today I'm sitting down with financial advisor Mel from Shadforth. We're going to explore what investing can look like at different ages and over different time frames and then also what might change as you get closer to needing the money, because that's the fun part, right? Alrighty, let's get into it. Mel, welcome to Get Started Investing.

Melissa Balacharige (1:37)

Thanks for having me.

Jess (1:38)

I'm very excited to sit down with you today.

Melissa Balacharige (1:40)

So am I. Lots to unpack.

Jess (1:43)

Lots to unpack. So we've had a question come in from a lovely young man called Ben. I want to play it for you just to get right into things and kick this episode off because like most questions that come in, I had a very similar question myself given where I'm at in my journey. So I'll just play it for you and then we can get into it.

Ben (2:02)

Hey Jess, I'm Ben. I'm 21 and I'm fully invested in GHHF. I'm keen to understand what my strategy should be between now and retirement. Is the 4% rule still apply to a leverage product? Also, how would somebody go about de-risking or exiting a leverage strategy as retirement approaches? Thanks for that.

Jess (2:18)

Thanks Ben. If you guys have a question, we can send it on in and we'll get someone like Mel in to answer it for you. On that one, reason it stood out to me too, also in leveraged ETFs, global Australia, emerging markets. I want to broaden this conversation. We'll definitely answer your question Ben, but I want to broaden the conversation and understand how to think about your portfolio over time because I think I've come into this journey myself and just been told, for my age, for my timeframe, high growth, that's the best thing to be looking at right now, diversified, all of that. But I genuinely hadn't really thought about what that looks like over time. Like how do I actually retire on that money I'm investing and how does that strategy evolve over time? So I just want to get into that and then get down to more answering specifically about the leveraged ETFs as well. Ben mentioned the 4% rule.

What is he talking about with the 4% rule? Yeah.

Melissa Balacharige (3:15)

So it's really like a retirement spending guideline.

So if you think about in your 20s, you start off quite young, you're on a low income, you're accumulating, you're making small incremental deposits or investments and you lend that compound over time and then you get to retirement and you've got this nest egg and you've got to go, okay, well, what can I actually spend from this next egg to make sure that it's going to last me my entire lifetime? So when I speak to investors or clients, I always say, okay, well, we've got a goal that A, we don't want you to run out of money.

Jess (3:47)

Ideal.

Melissa Balacharige (3:48)

And so we say, okay, well, we want your money to last at least your life expectancy plus five years because that's going to give us a buffer. And a good rule of thumb is 4%.