Potentially thematic index investing can provide all that we seek in pursuit of a good return, but hopefully with less risk. So what is it?
In order to fully understand what thematic investing is, you need to lay a good platform. So today, before we answer this question, we’ll cover some basics – there’s something for everyone today really.
Thematic index investing appears to give us all that we seek when we believe in a broader theme that could materialise in the future, but with diversification that ultimately could mellow out the bumps along the way. Biotech, blockchain technology, electric vehicles, space, renewables – often the opportunity is in the theme, not just a few companies everyone’s already heard of. Thematic investing carries some risks however, and this is why it shouldn’t be considered as part of your core wealth-building strategy. What happens if the theme you’re banking on doesn’t happen? What if, perhaps during the rebalance of the portfolio, the winners are cut off too soon? What if your emotions get the better of you, just like it can with individual shares, you may capitulate, then potentially sell at a low point.
Investing carries risk – but by far, the biggest risk there is, potentially sits with the investors who only started their journey within the last 12 months. What happens when the thrill is gone, and 100% annual returns are no longer available? Will investors keep on climbing up the risk spectrum in search of a returns their minds have grown addicted to, or will they simply exit this space, downtrodden and dejected with no desire to get involved ever again?
Dean Anderson, founder of Kernel Wealth, joins me in a quest today to answer the basic questions first, like:
What is index investing?
What is the Core/Satellite approach to investing? Check out another episode on this topic here.
What is thematic investing?
What role can our emotions play when investing in the current climate and what’s the danger, really.
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