| Welcome to the August Issue of the Dashboard Newsletter.
The past month has been reasonably quiet from an economic news front – perhaps as a result of some light distraction from the Olympic Games. Rio de Janeiro has claimed the bragging rights to being the first South American Country to ever host the modern Olympics. Whilst estimates vary, it is believed that the cost of this title is somewhere in the vicinity of NZ$15 billion. This sounds a lot, but if you consider the logistics involved it is easy to see how it could quickly add up. Aside from the obvious infrastructure spend (stadiums and accommodation), the daily running costs are massive too. A simple thing like feeding the 10,500 athletes requires 30,000 meals to be prepared every day. That's of lot of food to organise... Congratulations to the New Zealand team who at the time of writing are sitting 14th on the medal table with a total of 2 golds and 6 silvers. Despite a few disappointments (the 7's team had a chance to increase that tally), this is a great effort for a country with a small population and limited financial resources. As always, we have boxed well above our weight and can hold our heads up with pride. Back to financial matters, the biggest development over the past 30 days has been in the interest rate space. On the 3rd of August, the Reserve Bank of Australia reduced their official cash rate by 0.25% to a record low of 1.50%. Shortly after, the Reserve Bank of New Zealand followed suit and reduced our rate to 2.00% – also a record low. I feel like a broken record every time I write about this – it has been a downward trend for nearly 10 years now. "Lower for longer" seems to be changing to "lower forever" with signals for further cuts to come later in the year. Interestingly, this has not flowed straight through to deposit and mortgage rates the way it typically does with little change in either of these. The Reserve Bank is still grappling with the fine balance between managing inflation, exchange rates and housing prices with only one tool – interest rates. There is a stand-off developing between the Reserve Bank and the Government as each wants the other to do more in an effort to get the balance right. Hopefully common sense prevails and this leads to them sitting around the table and working closer together in the future. New initiatives like the higher "loan to valuation" restrictions of 40% for property investors can be very effective tools to cool the speculation in the housing market and are relatively simple to implement and monitor. There is also talk of higher "loan to income" restrictions. It's just a matter of the 2 parties sitting around the table and deciding whose responsibility it is to implement these measures. The Reserve Bank has taken the lead on this and will implement the new 40% LVR from 1 September 2016 (although some banks are already imposing this now). Reserve Bank governor Graeme Wheeler justified his decision to increase the LVR for investors stating that "A sharp correction in house prices is a key risk to the financial system, and there are clear signs that this risk is increasing across the country". Overseas, the American unemployment rate continues to fall (currently 4.9%) and the recent employment data surprised on the up side. There were 255,000 jobs created in July, following on from 292,000 in June – both figures materially bigger than originally forecast. This has resulted in almost unanimous consensus that the USA will increase their interest rate by 0.25% by the end of the year – if not at the September meeting then at the December one. (Remember that even with an increase of 0.25% they will remain at unusually low rates of 0.50% and have some way to go to get back to a "normal" rate). This is in contrast to the falling Australasian interest rates and may create some volatility in exchange rates in the next while (another commentary that I feel like a broken record on...) The past month has seen strong returns from share markets with most markets up between 2% and 4%. Surprisingly, European markets (including London) continue to perform very well post Brexit – something I haven't quite got my head around yet. Despite our interest rate cuts, exchange rate movements have been relatively muted – with the exception being the British Pound which continues its downward spiral falling another 3%. Here are the numbers: |
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Taking into account all of the above, the obvious question is "how does this impact my Select Wealth Management investment"? Well, I've been saying for some time now that good investment opportunities are fewer and further between, and future returns are likely to be modest relative to some of the really good years we have enjoyed since 2009. Over the past 18 months we have been "taking some of the profit" from portfolios and moving to a slightly more conservative bias. We have also been including fund managers with a capital protection bias. Your portfolio is being actively managed and your best tool to manage risk and extract good returns is asset allocation (or good diversification). As always, if you have any questions about your portfolio or want to meet to review your investment, please don't hesitate to contact me – I am here to help. Finally, a quick update on our Giving Back campaign. As you may recall, we are supporting Olympic swimmer Emma Robinson for the second half of 2016. Emma's event is the 800m freestyle, and she swam in her heat race on Friday morning last week. Emma finished 16th (out of 30) and unfortunately didn't qualify for the final race (top 8). But it was awesome to watch Emma at the pinnacle event of swimming, and Isaacs Financial Planning is very proud to be involved with such a champion athlete. As always, thank you for referring your family, friends and clients which enables us to run our Giving Back Fund and support great people like Emma. Check out our progress at mifinancialplanning.co.nz/giving-back Until next time, keep well. Dave and the team at Isaacs Financial Planning dave@mifinancialplanning.co.nz |
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This newsletter is intended for general distribution and does not constitute personal financial advice. Copy of my primary disclosure statement and secondary disclosure statement.