GABY ROSENBERG | from Blossom

In this episode we explore the world of fixed income investments, for those looking to balance their portfolio and mitigate risk. I'm joined by Gaby Rosenberg, co-founder of the Blossom app, to discuss the crucial role of Fixed Income in your investment strategy.

Fixed income is often overshadowed by the more glamorous stock market. Many people are not sure about what Fixed Income actually means when they see this asset class in their superannuation statement. Gaby explains the workings of bond markets and how fixed income can secure your financial goals, from saving for a house to planning for retirement.

She shares her journey from working in tech startups to launching the Blossom app, a platform that democratizes access to fixed income investments with as little as $5. She explains the intricacies of bonds, interest rates, and the power of compounding returns. With Blossom, investors no longer face high minimums, steep fees, or long lockups that traditionally limits access to fixed income markets.

Phil and Gaby delve into the nuances of different types of bonds, including government and corporate bonds, and how they contribute to a diversified portfolio. They discuss the impact of recent market volatility on bonds and how a well-managed fund can navigate these choppy waters.

Gaby challenges the notion that fixed income is as an asset class for the older generation, highlighting how fixed income is a strategic move for investors of all ages, especially for those with medium-term financial goals. She emphasizes that fixed income isn't just about capital preservation; it's about smart financial planning.

I hope you'll be inspired by Gaby's passion for making financial resources accessible to everyone, not just high-net-worth individuals. Her insights on women in finance and the opportunities for female investors in the tech space are particularly enlightening.

Gaby Rosenberg is the Co-Founder of Blossom. She is an advocate for social responsibility, and women in tech & finance. Gaby previously worked in a range of operational roles across multiple leading tech start-ups. Whilst nearing the end of a Startmate Fellowship in 2020, Gaby identified an opportunity in the fixed income market, a previously closed-market for every day Australians full of high minimums, high fees and long lock up periods.

And so, Blossom was born - an app accessible for all - regardless of socio-economic status, race or gender, offering no account fees, 5.95% p.a. targeted returns, no minimums. Gaby leads the Blossom team on a mission to leave your savings and the environment better than they found them.

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EPISODE TRANSCRIPT

Balancing Acts: The Role of Fixed Income in Your Portfolio

Having both bonds and stocks in your portfolio can lower overall risk

Chloe: Shares for beginners Phil Muscatello and FinPods pods are authorised reps of Moneysherpa. The information in this podcast is general in nature and doesn't take into account.

Gaby: Your personal situation when the market goes crazy like it did in Covid. Sometimes both bonds and stocks can be affected, but they often move in opposite directions over the long term. and the reason that this happens is because they're affected by different things. So, touching on bonds, interest rates are important. How safe the bond is to be paid back is important. Expectations for pricing going up is important. By having both bonds and stocks in your investments, you can kind of lower the overall risk of your portfolio. So it's like having a, safety net around a trampoline to protect your money.

Phil Muscatello talks with Gaby Rosenberg about fixed income investing

Phil: G'day and welcome back to shares for beginners. I'm Phil Muscatello. In some of our recent episodes, we've been talking about risk and what it means for your portfolio construction. You might have heard about the risk curve, that shows the relationship between risk and return. Today we're going to be talking about fixed income and its place in a balanced portfolio with Gaby Rosenberg from the Blossom app. G'day, Gaby How are you?

Gaby: Very good. Thanks for having me.

Phil: Thank you very much for coming on. I always like looking into all these little nooks and crannies of the finance industry and fixed income. Some listeners might know that I go on this, about this a little bit too much, but I think it's worthwhile knowing about. Gaby is the co founder of the Blossom App, a fund that gives investors access to fixed income fund securities. Gaby is an advocate for social responsibility and women in tech and finance. Gaby previously worked in a range of operational roles across multiple leading tech startups. So tell us a bit about yourself, Gaby about you and your background.

Gaby: Thanks, Phil.

Gaby and Allie founded Blossom in 2021 to democratize access to fixed income investments

So I'm the co founder of Blossom app, as you mentioned. A little bit about me is I'm a twin. My sisters are actually also twins, so we're two sets of girl twins. In my immediate family, it always comes in handy as a bit of an icebreaker or a fun fact about me.

Phil: Are you in one of those families where they say, why doesn't dad ever say anything?

Gaby: Yes, that's exactly us. Well, it depends where you are. But no more or less, it's mum that runs the house, that's for sure. So my sister Allie and I, as you mentioned, we launched Blossom in 2021, and we had the aim to democratize access to returns from fixed income investments. And then before blossom, I was working at a couple of different tech startups. So one in the wellness space and then one in the automotive industry, which is both of those were really fast moving, early stage startups with really small teams. And that's where I learnt a lot of the experience that's helped me to date with Blossom. And then whilst nearing the end of a Startmate fellowship in 2020, my sister and I, we identified the opportunity in the fixed income market. And it's three years later now, and Blossom is now managing over $45 million.

Phil: Did you have any experience in financial services before that? I mean, where did the idea come from to look at fixed income as a service? I guess so.

Gaby: I didn't have financial services experience work wise, but I did study finance at university. I did a commerce degree, as did my sister. And it basically was bred out of COVID So we were sitting at home, all the family was together, working from home like everyone else was. And we were kind of using the time to get on top of our personal finances. And because our whole family are finance professionals, dad, uncles, cousins, brother in laws, everyone, they're always bringing really fresh and innovative ideas for discussion around the dinner table. And one week it was fixed income. And Ali and I jumped on it straight away and we were figuring out, okay, how do we utilize this as an investment for ourselves? And we were just found high minimums, high fees, long lockups, and it just wasn't an opportunity available to us, even though it was the best opportunity for the time where interest rates were zero and the stock market had crashed and the crypto bubble had burst. And so we were kind of thinking, how can we open this market up for ourselves? How can we open it up for some of our friends and colleagues as well? And then that's where the seeds were planted for the business.

It's super important for investors to stay across what fixed income is

Phil: I always like to think about fixed income, especially when you open up your superannuation statement. So many people, their eyes glaze over when they see that their money is put into equities and infrastructure and real estate and fixed income. And I just think it's really important for people to understand what it actually means. Do you feel that way as well?

Gaby: Definitely feel that way. Echoing your sentiments for sure. It's super important for investors to stay across what fixed income is, and there's a few reasons for that. One is diversification. It's just very simple. Helps an investor to diversify their portfolio. Two, it can provide a really steady and predictable income stream for investors. And three, as well. It means that you'll better understand what's in your super fund that helps you plan for your retirement. And retirement planning is extremely important, no matter how old you are. But I think what's important to mention as well is that fixed income isn't a new concept. So you have governments, you have corporations, high net worth individuals. They've been using fixed income for years. And, it's one of the first things that we see when high net worth investors, as soon as there's global uncertainty or volatility in the market, they're liquidating their risky assets, and then they're allocating to fixed income. So we want to see everyday investors stop being left behind here, and we want to give everyday investors the ability to, when they see a little bit of volatility in the market, to be able to liquidate some of their riskier stocks and move into fixed income as well.

Phil: So, seeking refuge, in other words?

Gaby: Yes, seeking refuge or the flight to safety, however you want to call it.

Blossom doesn't have a government guarantee, so we don't guarantee returns

Phil: So, in my introduction, I did mention the risk curve. So, whereabouts on the risk curve would you place fixed income between as compared to cash, for example?

Gaby: So, cash generally sits behind a government guarantee. And with blossom, we don't have a government guarantee, so we don't guarantee any of our returns. But what we do have is a very well diversified strategy that we believe in. We've also had 100% positive months since inception, and that's inception in 2021. So while we don't have a government guarantee, we do have a couple of key risk mitigation strategies in place. And one of those is our, not so secret weapon, who's, our expert tried and tested fund manager. His name's Christian. He has an incredible mind. He has 20 years of fixed income experience. He was managing $30 billion under management for the UBS desk. He was heading up the APAC region, and then he went out on his own. And he now has $700 million under management of blossom, comprises 45 million of that. So that's one key risk mitigator, and then the second one is our underlying portfolio. So the Blossom fund itself is diversified across more than 518 exposures. We have an average rating of the bond portfolio as triple b being investment grade. So we're ultra conscious of the investments that we're making, and we're extremely happy with our returns to date.

Phil: Okay, let's dig in just a little bit more deeply into those investments. I'm assuming that it's going to be government bonds, corporate bonds, and so forth would be the majority. Is that the case?

Gaby: Exactly. So we have semi government, government and corporate bonds. We have a bit of cash. We have mortgage backed securities and more.

Phil: So, like government bonds. I mean, that's when a government issues bonds to fund government activity. And they're reasonably highly rated, aren't they?

Gaby: Yes, absolutely. A bond is a way for a company or a government to borrow money from investors, and then in return, the investors are paid interest on the money that they've loaned. So, for example, if we want to talk about government bonds, let's say that the government wants to issue a bond because they want to build a new stadium. They issue the bond to raise money to build that stadium, and then they're going to use me as their investor. So let's say they issue a bond for $1,000, and then they promise to pay me back after five years. And then to make the bond attractive, they're also going to pay an interest rate of 5% every year just to keep things easy. So $50 every year, 5% of my $1,000 investment. And then once the bond reaches maturity, which means the end of the investment period, after five years, I receive my full $1,000 back, plus I get to keep all the interest from the five years as well. So at the end of the day, the government gets to build their stadium. I got my full $1,000 back, plus I get to keep the interest. So it basically just keeps everyone happy.

Phil: M I had a guest once who explained it to me, with investing, you can either own it or loan it. And I guess we're on the loan side of the equation here, aren't we?

Gaby: We are absolutely on the loan side.

Phil: And presumably then the corporate bonds, they're going to go through different ratings or different quality, aren't they?

Gaby: Yes. So everything is rated. There are, research houses who provide these risk ratings, and that makes it easy for me as an investor to understand which bonds have higher risk and which bonds have lower risk before I'm making any investment decision. And it's actually quite simple, because the higher the bond rating, the more likely I am to receive my interest payments and my initial money back, which is called my principal. And the highest rated bonds being the high a's, so AAA, and then the high b's as well. Triple B. Those are all considered investment grade, and that just means that they have a low risk of default. So you can kind of think of it like an exam. So the high A's and the b's are all really good marks.

Phil: And I guess the companies that aren't quite so strong are going to be paying a higher rate of return. But there'll be an increase in the risk involved.

Gaby: Absolutely. So the lower rated the bond is, you need to make it worth the while for the investor to want to make that investment. So it's generally going to be higher risk, but the return will be higher as well.

Phil: And presumably the same thing works for governments as well. Some governments are more risky than others.

Gaby: Absolutely. The australian government is aaa rated, and that's deemed because we don't think the australian government is going into liquidation anytime soon. So it's generally not going to be the highest return, but it's a very safe bond.

Phil: Fingers crossed.

Gaby: Fingers crossed. Yes, we could find ourselves with insurmountable debt like the US government one day, but boy, I hope that doesn't happen.

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A mortgage backed security is like a piece of many people's home loans

Phil: So what is a mortgage backed security? You've mentioned that in the recipe for the fund. What does that actually mean?

Gaby: A mortgage backed security is like a piece of many people's home loans, bundled altogether. So when you invest in it, you're basically getting a share of the interest that those homeowners are paying back on their mortgages. And, it's a nice way to earn money from real estate without buying a house. But it's important to remember that exactly like stocks work, the value of your investment can go up and down depending on how people are going with paying off their mortgages. So it's something to keep in mind.

Phil: Yeah, you can invest in real estate and not have to pay any maintenance as well, which is great.

Gaby: Unheard of.

Phil: That's right.

You mentioned your investment manager previously. Give us a little bit of an insight into how that works

So I just wanted to hark back. You mentioned your investment manager previously. So what was their name?

Gaby: Christian.

Phil: Christian. What's Christian actually doing? I'm presuming it's not like being a stockbroker and trading stocks every day, in and out. He's going through a process of choosing which of these investments are going to be suitable for the fund. Give us a little bit of an insight into how that works.

Gaby: So, Christian receives the money, and he pulls all our investors funds together, and then he basically has a really big job to allocate that money into investments that he deems will either go up or will return money. And therefore, we have money at the end of the year to distribute back to investors. And he has a whole different remit of fixed income tools at his disposal. So, as we mentioned before, he has the cash, he has the semi government and corporate bonds, he has the mortgage backed securities, and his whole role is to, I guess, try and read the market. So figure out all the different levers in the fixed income market. So it's interest rates and it's inflation, and it's volatility across the high risk bonds versus volatility off the lower risk bonds. And he basically needs to ensure that we're able to pay 5.95% per annum returns to our investors every day. And that's a key differentiator of blossom. So we post our earnings every day in the app, and it's something that our investors love. So you can log in, you can check your transaction history, you'll see your every day, and then it becomes a little dopamine hit every morning.

There have been problems with bond investing as interest rates have risen

Gaby: So it's Christian's job to try and read the market and anticipate the volatility. And the volatility has come from interest rates, but they've all been interest rate hikes that have been predicted by Christian. So I think the, enemy to the bond market is fluctuating interest rates. Absolutely. And this is where we can be thankful for a really tried and tested fund manager, because even in times of volatility, where there's destruction in the market, there's always opportunity in other parts of the market. And that's what Christian's done really well to navigate in the last twelve to 18 months. So we've still had 100% positive months since inception, despite probably the most volatile two years in bond history. And so we're hoping things can continue in the same fashion so, Gaby you.

Blossom app helps consumers invest in fixed income for short term goals

Phil: Mentioned that one of the reasons why you looked at starting the blossom app was because you found it very difficult for individual investors to invest into this sector. What did you find? What are the kind of products that are available?

Gaby: So, exactly when we first launched the business, it was because we were dealing with the difficulty of the situation ourselves that we wanted access to fixed income, but it wasn't feasible. It wasn't something that we could afford.

Phil: Are there no etfs that do this sort of thing?

Gaby: No, there definitely are, and that's what I'm very happy to get into. So we have to kind of separate it a little bit, because to access fixed income directly, so to go and buy a bond or a mortgage backed security, it can be very difficult for a retail investor. So you have to choose the right bond to buy, which is a whole separate market to the stock market. The minimums are extremely high. You need to find a good broker, which is hard to do, and then there's going to be high transaction costs there, and on and on and on. There's just layer after layer. But that's why there are companies that can provide easier access through funds, one of them being etfs, where they're basically just pooling a whole bunch of fixed income assets into one place and investing in fixed income funds. And its ease depends on your familiarity with investing in general. So if you're used to investing, then it's going to be pretty easy for you. But if you're new here, it can be a little tougher. So there are fixed income funds out there for everyday investors with lower fees, and there's minimums around $500. But how the funds are communicated can still be a little intimidating for a newbie. The best opportunities that we've found so far with the really top quality, expert fund managers with incredible past performances, they can still be hard to understand, but they're also difficult to access. So some have lockups of three months, some have high fees, some have minimum investment amounts of 100 grand to 250 grand. So our entire goal with blossom is to bring the very best opportunities to the market with the lowest barriers to entry. So $5 minimums, we have no sign up, transfer or withdrawal fees. And then, as I mentioned before, we're posting your earnings daily as well.

Phil: So, looking at someone's portfolio, and of course, this is general advice, don't take any advice from us here, but what role can fixed income take in people's portfolios?

Gaby: So when the market goes crazy like it did in Covid, sometimes both bonds and stocks can be affected, but they often move in opposite directions over the long term. And the reason that this happens is because they're affected by different things. So touching on bonds, interest rates are important. How safe the bond is to be paid back is important. Expectations for pricing going up is important. By having both bonds and stocks in your investments, you can kind of lower the overall risk of your portfolio. So it's like having a safety net around a trampoline to protect your money. And a lot of our customer base are using blossom to save up for their financial goals that are in the medium term, so they understand the targeted earnings we're posting every day, and then it's helping them plan for the next six to 18 months. So we see customers use us to meet a goal with a specific date or deadline. So it's a house deposit is the most common, or there's a holiday, or there's a car, there's a wedding. So I think fixed income and using it as a tool for shorter to medium term savings goals are really important.

Phil: Yeah, it is that short term thing, isn't it? Because it's no good if you're planning for a wedding or a trip or m something that's three years in the future, by putting all your money in the stock market, is it? Because that's not the kind of place you just don't know where the market is going to be in two, three years or whatever your time horizon is.

Gaby: Absolutely. Otherwise. With fixed income, I think it gets a bad rap that it's only an asset class for older people. But if you start thinking about these medium term goals, then I feel like it carves out a really nice space for how you should use this within a balanced portfolio. Yeah.

Phil: Why do you think it's got that reputation that it's only for m oldies?

Gaby: Because they have no time left to take risk, is my blunt answer. And so they want to go in the most conservative, most predictable place, because it's all about capital protection rather than taking risks on anything. And I think there's a funny rule of thumb I once heard where you should have the same percentage of your portfolio allocated to fixed income as your age. So if you're 60, you have 60%. If you're 70, you have, 70%. If you're 20, you have 20%. But it's always something that we've seen high net worths and corporations and governments use, no matter what their age is. So we're really keen to see retail investors fall into line in that space.

Phil: I think it's a wonderful thing, the disruption that's happening now in the financial services space, that people are taking opportunities now and seeing these opportunities and seeing these pain points, and the technology isn't now allowing so many new, disruptive kind of businesses. Do like what you're doing. I mean, you must be very proud of yourself.

Gaby: Very proud. Very proud. We do have a long way to go. But I agree with the whole move to democratizing different markets through technology. I think we've seen it work really well for us. Stocks, Aussie stocks, even in crypto as well. And I think we're in a better place if we can get more sound financial resources into the hands of everyday people, and instead of just high net worths.

Blossom is a savings app that targets a 5.95% per annum

Phil: So let's have a deeper look into blossom. Give us a bit more of an overview of blossom, how it works. And I wanted to also ask, you mentioned that you can see the interest each day. Does that mean it's compounding daily?

Gaby: So our earnings compound daily, and they're posted daily. Blossom is a, savings app that targets a 5.95% per annum. And I think I've explained the reason why we started the business to try and democratize fixed income. And how we've done that exactly is we've created the Blossom fund, and we provide access to the Blossom fund through the Blossom app. And from there, you can download the app, you can transfer your money in. And then we post earnings every day, and we compound earnings every day depending on how much you have in your account. Some of the benefits of the app is no sign up, transfer, or withdrawal fees. We have $5 minimum. So if you want to get started with $5 or $500,000, the world is your oyster. And then we post those earnings daily as well. So we have lots of savings functionality within the app as well. We have auto grow, we have recurring transfers, and we're basically trying to help Aussies reach towards their financial goals sooner.

Phil: What is autogrow?

Gaby: Autogrow is a savings feature within our app. And how it works is, let's say you choose to round up your purchases to the next whole dollar. So if you spend $4.50 on your morning coffee, even though my morning coffee is $5.50 at the moment, which just crushes my soul every morning, but let's say it's $4.50, we'll set aside your spare fifty cents, and then you just keep spending as usual, and we keep rounding. And then once a week, we'll sweep your roundups to your blossom account. And then this is basically how we're helping you work towards your financial goals with every purchase. And it works really well for some people where they like to know that they're making consistent contributions towards their goal without even thinking about it. But other people prefer recurring transfers, which we also have in the app. And it means that you can just automate a transfer daily, weekly, fortnightly, or monthly, just based on your preferences. We just launched Blossom for business, so you can sign up not only as an individual, but also on behalf of your company or your trust, or your self managed superfund. We launched that about three months ago, and we've seen a lot of excitement so far from our community, which is very good to see. And we have, to date, 13 and a half thousand customers and $45 million under management.

Phil: You mentioned community. Is there a community? And are you talking to people that are users of the Blossom app?

Gaby: We're talking to people every day. We have a very engaged cohort. They're very excited at the moment because we release savings challenges every so often. So if you set up a recurring payment of $500 in the month, then we're going to choose a few lucky winners to also give them $500 to top up their payment. So we've gotten good feedback about that.

Phil: So what's the future looking like for the Blossom app?

Gaby: We have a very exciting year in 2024. We have huge new product and features being released all throughout the year. Our headline product is a new investment option within the app targeting a higher return. So we're very much looking forward to launching that at the end of Q one. But right now, we have thousands of Aussies targeting 5.95% per annum and working towards their financial goals. And so if anyone needs more information, you can head to our website where you can download the app. Make sure to read the pds, the TMD, the faqs. Our website is blossomapp.com. And also, just feel free to get in touch with our team anytime through the live chat or if you have any questions.

20% of female investors feel intimidated about investing, study says

Phil: You're very passionate about women in tech. What do you see as the biggest opportunity for, women working in this space?

Gaby: I think the biggest opportunity is the new entrance of real strong female finance figures that we've seen appear in the last, let's say, two to five years. I think that for women investors specifically, and this is through data, this isn't coming from me, that the finance space and investing can be really intimidating. There was a study run by abs and a study run by fidelity in the US that said something stupid like 20% of female investors feel too worried to get started because they don't understand any of the lingo. And I think that there's amazing figures in australian tech as well who are trying to change that. There's a couple of different podcasts that are for women, by women, like really doing their bit to break down barriers of investing. One I love is called you're in good company. That's an equity mates media podcast. And then there's a whole bunch of other female finance groups that, are demystifying homeownership, demystifying etfs, demystifying bonds, demystifying stocks. And I think that that's a really exciting and fantastic place to start for those wanting to begin investing.

Phil: And it's just really important to understand that it's not as hard as people think because I work with a lot of people in the industry, and you see women especially who work often in the marketing arms of these tech startups, and they suddenly have to learn about investing and what's going on in investing. And they go, I didn't realize it was that easy. Not saying it's easy, but it's not as difficult as what they thought it would be, 100%.

Gaby: And I think I also had this trouble when I started investing in the beginning, and I thought that you had to go all in on your afterpay shares, for example. And I thought it needed to be a, $10,000 investment. Otherwise, what's the point? And then I found funds and I was like, wow, here's an opportunity where I can just find a fund manager that I believe in. I can ensure that the risk is similar to the appetite that I have for risk, and then I can start with a $5 investment and build it over time. So I think that was a big learning curve for me as well. And I think the more people that understand that, the more people will feel comfortable to make their first investment and then really take control of their financial future from there.

Gaby Rosenberg: Thanks for listening to shares for beginners podcast

Phil: Gaby Rosenberg, thank you very much for joining me with this episode.

Gaby: Thanks for having me. It was great to be here.

Chloe: thanks for listening to shares for beginners. You can find more@sharesforbegners.com if you enjoy listening, please take a moment to rate or review in your podcast player or tell a friend who might want to learn more about investing for their future.

Any advice in this blog post is general financial advice only and does not take into account your objectives, financial situation or needs. Because of that, you should consider if the advice is appropriate to you and your needs before acting on the information. If you do choose to buy a financial product read the PDS and TMD and obtain appropriate financial advice tailored to your needs. Finpods Pty Ltd & Philip Muscatello are authorised representatives of MoneySherpa Pty Ltd which holds financial services licence 451289. Here's a link to our Financial Services Guide.