| Welcome to the August issue of the Select Wealth Management Dashboard Newsletter.
There is no shortage of news to write about over the past 30 days, so I'll rip straight in. The general theme of my newsletter this month is going to be "uncertainty and how to deal with it". The fact is that there is a great deal of uncertainty in the world at the moment. From an investment perspective, some people see this as a concern, whereas others see it as an opportunity. As is usually the case, I don't see it as either. I simply view it as part of the investing process – what I call "white noise".
We'll start close to home with local politics. "Jacindamania" has resulted in a massive bounce in the polls for Labour, and suddenly the election looks like it might be an actual contest. Setting your political leanings aside for a moment, let's consider how this creates uncertainty from an investment planning perspective. Labour want to build more affordable houses, crack down on property speculators, and invest in public transport. Invest in companies that provide low cost housing and public transport, and divest in all property speculation companies, and you're in the money if Labour form a government. Invest in those same companies, and you're out of the money if they don't. The uncertainty of the election result could mean a materially different outcome to the investor who positions their portfolio based on whether they think Labour will form a government or not. You could fall on the right side of this outcome, or you could fall on the wrong side– and the fact is that you can never be sure what the outcome will be (refer Brexit and Trump...) Further abroad, Kim Jong-un of North Korea and Donald Trump have engaged in a genuinely concerning war of words, with threats of missile attacks on Guam (a territory of the United States) met by a response of "fire and fury". Throw in the fact that the rhetoric about Russian interference in last years' US Elections is increasing, and you have genuine political uncertainty abroad. In financial markets, the US FED has made clear that they plan to start reducing their balance sheet (in other words not rolling over the US Government Bonds as they fall due) "relatively soon". This is a positive development (think of it as you and me paying down our mortgage), but it does create some uncertainty on how this affects the broader economy and markets. There is even some uncertainty in our local property market with house prices increasing at a far more modest rate (nationally) than has been the case over the past 5 or so years. Anecdotally there is even evidence to suggest price falls (significant in some cases) in several Auckland suburbs. According to realestate.co.nz, there was also a "record fall" in new listings in July. Despite all this uncertainty, share markets have experienced very little volatility this year. Don't be alarmed to see this change moving forward. On the 10th of August, the S&P500 (the USA share market) fell by 1.1%. It was only the 3rd time this year that there has been a change of more than 1% – up or down – on any given day. Compare that to 43 times last year, and 67 times in 2015. Given all the current uncertainty, I would expect that we will see more volatility in the markets for the rest of the year. So how do you manage this uncertainty and volatility? Diversification. The following diagram from Carl Richards illustrates the point perfectly: 
You see, the trick is to avoid the trap of trying to predict the outcome of all the uncertainty. Don't try to be smarter than the market. It is an approach where you openly admit, "I don't know." This admission of uncertainty allows you to focus on being vaguely right instead of risking being precisely wrong. Remember, your diversified portfolio should not be designed to make you rich quick. It shouldn't even be designed to try to "beat the market". It should only ever be designed to achieve your long term goals – whether that's supplementing your retirement income, or buying a beach bach. From a market perspective, the past 30 days have been a bit mixed. The range has been from -4% (Germany) to +4% (Hong Kong). Exchange rates have been a bit mixed too with modest moves (1%) down against the US$ and AUS$, but largely unchanged against most other trading partners. House prices eke up a bit, and interest rates remain largely unchanged. Here are the numbers: |
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In terms of your Select Wealth Management investment, you would recently have received your performance reports for the quarter ending 30 June. The performance for the quarter has been modest (in line with expectation), but year to date numbers remain strong. I meet with researchers JMIS tomorrow, and will let you know if there are any material changes being made in next month's newsletter. In the meantime, feel free to contact me if you have any questions or want to meet to review your portfolio. Finally, thank you once again to all of you that have referred your family, friends and colleagues to Isaacs Financial Planning. Thanks to your support we have had a great start to our Giving Back campaign with the Wellington Free Ambulance. We have raised just over $800 in the first month of the campaign, and hope to make a meaningful contribution to this amazing organisation. You can follow our progress at www.mifinancialplanning.co.nz/giving-back.html . Until next time. Warm regards 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.