| Welcome to the final issue of the Select Wealth Management Dashboard Newsletter for 2020. What a year. For those of you that have been receiving my newsletter for many years, you would know by now that in January every year I make predictions for the year ahead, and in December I reflect on those predictions. My record over the decades has been reasonable. (By reasonable I mean that I get more right than wrong - only just). But given the year that 2020 turned out to be, I don't fancy my chances this year. I don't think anyone could have predicted 2020. But let's see how I went anyway – prediction in black, outcome in red...
1. Let's start with the most significant event of the year - the elections. Both the USA and NZ have an election towards the end of the year. Will Trump and Ardern secure second terms, or will there be changes? In America, it looks like it'll be Trump vs either Joe Biden, Bernie Sanders or Elizabeth Warren. Remarkably, Liz Warren is the youngest of this pack at age 70, followed by Trump at 73, Biden at 77 and Sanders at 78 years old. I'm picking Trump vs Biden, and I think it'll be a very close race that comes down to the wire. But in the end, I think it's Trump's to lose. There is enough instability in the world right now, and I think the American public will vote for "no change" in an effort to retain some semblance of normality - if that's what you can call it. So, failing an implosion (which with Trump is always a possibility), I think it'll be 4 more years of the same. Closer to home, I think that Jacinda (aged a mere 39 years by comparison) will retain her status as preferred Prime Minister. However, the party vote could be close and forming a coalition government could be a challenge (as it was last time). But again, I'm picking that the public choose not to rock the boat and it's status quo for 3 more years here too. I got the Trump vs Biden call, but missed the actual result - a Biden win. And Jacinda Ardern brought the Labour party in for a second term, but it was far from a close race - it was a record landslide. So on balance, I'll claim a half a point on this one. Prediction ½ - Reality ½ 2. Have you ever heard the term "Deepfake"? Deepfake is basically software which can take an existing image or video of someone, and replace the persons face with someone else's. It's incredibly convincing and very difficult to tell the difference between reality and Deepfake. As an example, have a look at this https://www.youtube.com/watch?v=VWrhRBb-1Ig YouTube clip. My next prediction is that this year there will be a significant "Deepfake event". I imagine that this will probably be in the form of a scandal to do with the US elections - probably a candidate being falsely represented. Or perhaps something to do with the Royal family. But at some point, there will be a significant event of someone denying footage that they will claim is Deepfake. A more positive use of this technology is the possibility of bringing back to life old movie stars. Don't be surprised if this year we get a blockbuster staring a Deepfake James Dean or Marilyn Monroe. I can't claim any points here. There was a small scandal in the US Elections where there was audio footage of Nancy Pelosi speaking very slowly and slurring her words which was found to be faked. But nothing like what I expected. Perhaps my call is a few years too early on this one. I still think the James Dean or Marilyn Monroe movie is coming some time in the future... Prediction ½ - Reality 1½ 3. A few years ago, the only topic people wanted to talk about was Bitcoin. Since then, the boom and bust crypto currency has gone relatively quiet. But I sense there might be a re-immergence of the subject again this year. The Bitcoin price is currently US$8,824, and forecasts for the next 12 months range between US$3,000 and US$100,000 - which suggests that nobody really understands the value of it. I have no interest in trying to guess a future price for Bitcoin, but my prediction for the year is that Crypto Currencies get a lot more airtime this year. I predict that somewhere in the world, a Government will launch a crypto currency this year. I'm going to claim another ½ point here. There is no Government Crypto Currency yet, but there has been significantly more discussion about this at a Government level in 2020. USA Federal Reserve Chairman Jerome Powell has acknowledged that significant resources have been applied to the investigation of a CBDC (Central Bank Digital Currency). He says that when it comes to a digital currency, "it's better to get it right than be first", and that it "should be a complement to, and not replacement for cash, and current private sector digital forms of the dollar". Powell claims that about 80% of all Central Banks around the world are now exploring digital currencies, so it seems inevitable that some of them eventually have their own one. And in case you're wondering, the Bitcoin price is currently US$19,051. Prediction 1 - Reality 1½ 4. Interest rates in New Zealand are at records lows. The Official Cash Rate (OCR) starts the year at 1.00% - the lowest it has ever been. This means that a 1 year term deposit only offers you a miserly 2.60%, and you can get a 1 year mortgage at an incredible 3.49% (conditions apply). I can't see a great deal of movement in the OCR over the next 12 months. If it does move, I imagine it will be upwards - but the move would be modest, perhaps 0.25%. However, despite this fact I think that mortgage rates will go up over the course of the year. I can't imagine you will get a 1 year mortgage rate at 3.50% at the end of this year anymore. So my prediction is that 1 year mortgage rates increase to something more like 4.50% by year's end. Well, I couldn't have got this more wrong. Your mortgage only costs you about 2.50% now, and the days of 3.50% deposit rates seem a lifetime ago. You'd be lucky to get 0.90% now. COVID caught us all out on this one! Prediction 1 - Reality 2½ 5. Could it be the year of my beloved Wellington Phoenix?! They have toyed with me so many times in the past by showing great promise and then falling apart by the end of the season. But this time is different (do I hear a Yeah Right)? Given that this is the vote that I always cast with my heart and never my head, I'm going to stick with my guns and say that we make the grand final this year. (This prediction has been a recurring black mark on my scoresheet over the years, but I actually believe it might come true this year...). Aahh - another year of agony. I loved my Phoenix more than ever this year. They were brilliant. But the reality of being based in Australia for the last 3 months of the competition took its toll, and they were bundled out in the play-offs. Next year is the year. Next year... Prediction 1 - Reality 3½ 6. I suppose the one that you are all interested in is what the markets will do over the next 12 months. The answer of course is that nobody knows, but here is my best educated guess. The first point to note is that the elections (particularly in the US) will test the markets nerves. The uncertainty that comes with elections will create uncertainty in share markets - so expect volatility. Don't be surprised to see a fall of 10% in any given month. Any signs of Elizabeth Warren winning will cause material disruption (she has made clear she has corporate America in her crosshairs - particularly big tech companies). But in the end, I believe that market performance will be average. I do not believe that there will be a recession in the USA, New Zealand, the UK or Australia. I believe that the world will continue to grow modestly, and this incredible technological revolution that we have been in since the birth of the internet will continue. All said and done, I pick market returns of about 4%. To measure this, lets use the MSCI ACWI World index as a proxy (this index measures the returns of share markets across 49 different countries and is recognised as the most comprehensive measure of global shares). The index starts the year at 270.47, so the 4% target suggests a closing value of 281.50. Let's see how close I get... Where to start? What a roller coaster ride the markets were in 2020. Did we have a fall of 10% in a month? Absolutely. In fact, we had a fall of 31% in a month at the height of the COVID panic - the fastest ever 30% decline in history. At that point, you would have been forgiven to think that markets (and your investments) had a very long road home to recovery. But incredibly, only a very short 9 months later, here we are with some very healthy gains for the year - around 14% based on the MSCI index. So the actual outcome far exceeded my expectations - despite a global pandemic. This is a really good reminder of why trying to "time the market" or "pick the market" is a dangerous game. In the short term, markets are extremely unpredictable. But over time - despite any short term noise - markets deliver good outcomes. Prediction 1 - Reality 4½ Not my finest effort, but then circumstances were extraordinary. Ironically, I opened my January newsletter with a quote from Warren Buffet, "Predicting rain doesn't count. Building arcs does". As it happened, this was possibly the most relevant prediction of them all, for 2020 has been a stark and cruel reminder of why "building arcs" is important. Irrespective of investment returns for the year, having a Financial Plan was the most important thing this year. And probably will be in the future too... Here are the numbers for the past 30 days: |
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The COVID disruption throughout the year has sadly disrupted our Giving Back program too. Usually we are able to support 2 worthy causes each year, but unfortunately this year we were only able to support 1 cause. However, I am pleased to confirm that we are able to make a donation of $2,622 to the incredible team at Birthright Kapiti. So thank you for your referrals throughout the course of the year - I really appreciate it and it does make a small difference in some people's lives. So that's it for 2020 - a year that I think many people are happy to put behind them. All that is left for me to do is to wish you a very happy Festive Season. I hope you get to spend some quality time with friends, family and loved ones. From the team at Isaacs Financial Planning, thank you for your continued support - we really appreciate it and do not take it for granted. See you in 2021. 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.