| Welcome to the final issue of the Select Wealth Management Dashboard Newsletter for 2017. Hopefully you have all your Christmas shopping under control by now, so you can settle into a nice relaxing holiday season...
As is customary, I'll finish the year by reflecting on my predictions that I made in January for the year 2017. It has been a super eventful year – started by President Trump's inauguration back in January (that seems a lifetime ago now...), and a surprise election result here in New Zealand. All said and done though, I am pleased to report that 2017 delivered another year of good investment returns. Over the years, I have run at about a 60% accuracy rate with my predictions (not exactly a stellar number). Let's see how I did in 2017. (Predictions are in black and actual outcomes are in red): 1. Given that there is an election later this year, let's start with local politics. National (under new Prime Minister Bill English) will be trying to secure a fourth consecutive term. This has not been achieved since Keith Holyoake's government in 1972 (45 years ago), so it would be remarkable feat if they get there. At the moment, it seems unlikely that any other parties are serious challengers, so I feel that this election is theirs to loose. However politics is fickle and things can change very quickly. So long as National avoid any major scandal, I think they'll get home (despite the historic odds being stacked heavily against them). But I think it'll be a very close race in the end, and Bill and his cohorts will need to play a smart game and ensure they don't drop the ball along the line. I guess it was closer than I anticipated. I wouldn't go so far as to say that National dropped the ball. They just got trumped by a very cunning Winston Peters and rejuvenated Labour Party. Prediction – 0 : Reality – 1. 2. The sideshow (and potential wild card) will be Gareth Morgan and his party – The Opportunities Party. He'll grab as much media attention as he can, but in the end he'll fall short – much like the Dot Com sideshow a few years ago. I'll claim this one. Gareth did get all the media attention he wanted, but his party didn't get the required 5%. Let's see if they are still around in 2020... Prediction – 1 : Reality – 1. 3. 2017 will be a busy year for international politics too. In particular, there are a round of European elections coming up this year including the Netherlands (March), France (April), and Germany (August). The main point of interest to come from this will be to see if any other EU member nations follow the British example and look to exit the EU. This would be a concern and would have the potential to cause material disruption. My gut feel is that European leaders will avert this danger, in part by increasing the rhetoric about the pain they intend to inflict on Britain for their disloyalty to the block. So I think there will be a lot of "noise" around European politics all year, but once the dust has settled there will only been minor changes and normal order will resume. This was something that I was really quite concerned about at the beginning of the year. More disruption in the EU could have caused material market volatility. Thankfully I was on the money with this one, and whilst there was a change of Government in France, there were no major changes in political positions with respect to the EU. The current EU member states are watching Britain under severe pressure with their Brexit negotiations, and I think it's fair to say that the EU region has become more stable over the past year. A good outcome all round... Prediction – 2 : Reality – 1. 4. Interest rates are always an important consideration as they dictate mortgage and term deposit rates. The New Zealand official cash rate starts the year at 1.75%, and I imagine it will end the year in a very similar position. If there is any movement, I envisage it will be a small increase (as opposed to a decrease). We have in fact gone the whole year without any movement at all in the Official Cash Rate. 12 months on and we still find ourselves at 1.75%. Great for people with a mortgage, but not ideal for deposit holders... I'll claim this one, and I fancy you may hear a similar prediction from me next year again too. Prediction – 3 : Reality – 1. 5. The rate in the USA however is likely to increase. It starts the year at 0.50%, and the FMOC (Federal Open Market Committee) have indicated they want at least a couple of hikes of 0.25% each to get to 1% by the end of the year. If we don't get this, then we know things aren't going as well in the USA as they had forecast / hoped. The US economic data continues to be strong with unemployment at historic lows and GDP (Gross Domestic Product) increasing throughout the year. The most recent quarterly GDP number was 3.3%, which is slightly higher than the long term average of 3.22%. So there were in fact 3 rate increases in the USA, leaving the rate at 1.25%. I'll claim a point here for picking the direction, but I'll give reality a point too given I missed the number of hikes. Prediction – 4 : Reality – 2. 6. This next one is something that will affect us all. I think 2017 will be the year where serious debate about the pension age will begin. John Key's resignation has opened the door for this debate, and election year is bound to force this issue to the surface. It is a very real issue that has been well documented, and it seems unlikely that it will be avoided. As part of this debate, look out for signals that KiwiSaver will become compulsory, and that member and employer contribution rates will increase from the current 3% (think Australian super at 9.5%). The changes won't take place in 2017, but the intention to make changes in the future will become clear. This is something that I am extremely passionate about and interested in. My concern is around compulsion and means testing KiwiSaver against the pension. There is no talk of the means testing yet, but 2017 did see the debate start about retirement age, KiwiSaver compulsion and increases in KiwiSaver contributions. The new government has also committed to making contributions to the Super Fund in 2018 for the first time in nearly 10 years too. This is an extremely important debate, and one that needs to be had. But there is a risk of getting this totally wrong with severe unintended consequences. Once again – I'll claim a point on this and watch developments with interest. Prediction – 5 : Reality – 2. 7. I have to throw in a prediction about my beloved Phoenix. When I saw the signings of Gui Finkler and Costa Barbarousos at the beginning of the season, I believed we were genuine title contenders under Ernie Merrick's guidance this year. But alas – the wheels came off and we are now languishing near the bottom of the table. It's a bitter pill to swallow. I still have a small glimmer of faith, but I think realistically we will struggle to make the play-offs or semi-finals. I would happily be proven wrong on this one though... I'll claim my point, but I find this too painful to talk about. Shocking! Prediction – 6 : Reality – 2. 8. In terms of the NZ$, I think we will weaken slightly against the US$ and Euro. We start the year at 0.71 cents against the US$ (down from the highs of 0.84 cents in 2014). My view on the downward trend in the medium term has not changed, and I believe that we will continue to see the NZ$ weaken against the US$ this year – albeit at a modest rate. I'll settle for anything under 0.70 cents by the end of the year. The British pound is more difficult to pick. It has already fallen to 0.58 pence – about half its value compared to the 0.30 pence it was for much of the first decade of the 21st century. Under normal circumstances you would think that this represents an opportunity and that a reversion back to the norm was likely, but with the reality of Brexit taking grip this year it's not too hard to imagine that the weakening continues. I'll hedge my bets here, and say that we finish were we started – about 0.58 pence. Well – I've just snuck in with the US$ under 70 cents (we're at 69.89 at time of writing). The Euro has fallen significantly though – down from 67 cents a year ago to 59.81 cents now – so your Spanish holiday has become a lot more expensive. And despite a painful Brexit process, even the GBP has moved to 52 pence. What this all illustrates to me is that these currency moves are more a reflection of a weaker NZ$ (as opposed to a stronger US$, GBP or Euro). I'll claim a point for the US$ call, but give reality a point for the Euro and GBP moves (which were sharper than I expected). Prediction – 7 : Reality – 3. 9. Finally a prediction on the share markets. My starting point is that I think there will be a lot of volatility this year – a lot. There are several reasons for this. With all the political activity coming up, markets will react to headlines that will no doubt fill the papers from time to time. Donald Trump's unpredictability will also surprise markets at times. Some of his tweets will create concern, others optimism. Throw in the reality of Brexit starting to bite, coupled with normal market cycles and rising interest rates, and you have a recipe for volatility. So it will be important to remember that this is all a normal part of the investment process and to remain disciplined in your approach. Despite the volatility throughout the year, I believe that we will have another year of modest positive performance – in the region of 4% to 6%. That puts the S&P at about 2,325 at the end of 2017, the NZX50 at about 7,325, and the Euro Stoxx 50 at about 3,420. I'm pleased to report that I was quite far off on this one. Despite all the major events of 2017, markets continued to display historically low levels of volatility. I can't emphasize enough how important it is to remember that this is not normal. When market volatility returns (and as sure as the sun comes up in the east and sets in the west it will), don't be alarmed. Volatility is part of the investment process. Not only was there no volatility, but returns were well in excess of my expectations too. The S&P currently sits at 2,675, NZX at 8,360 and Euro Stoxx 50 at 3,560. Stellar returns. Even though I picked the direction, I can't claim a point here given how far I missed the magnitude by. Prediction – 7 : Reality – 4. So all in all, a reasonable effort with predictions – more right than wrong anyway. |
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The end of the year also brings to an end our Giving Back campaign with the Wellington Free Ambulance. Thanks to all your support and introductions to friends, family and colleagues, I am very pleased and proud to report that Isaacs Financial Planning will be making a donation of $2,783 to the amazing people at Wellington Free Ambulance. Thank you for being a part of this and making a difference. We will soon be announcing the next campaign for the first 6 months of 2018. And remember that if you have any suggestions for a Giving Back campaign, we would love to hear from you. You can learn more at www.mifinancialplanning.co.nz/giving-back.html . Finally, and most importantly, a big THANK YOU to you – our valued clients – for your continued support throughout 2017. Wishing you the most enjoyable Festive Season, and looking forward to another great year in 2018. Merry Christmas! 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.