| Welcome to the February issue of the Select Wealth Management Dashboard Newsletter.
Wow – what a rollercoaster ride 2018 has turned out to be so far. After a year of extremely low volatility in 2017, it seems 2018 is determined to make up for it by delivering extremely high volatility. It started with January delivering a 7% return - the strongest share market returns for the first month of a year since 1997 (over 20 years). This was then followed by a sharp sell-off in February of 10% (the 10% threshold meeting the technical definition of a "correction"). All said and done, we are pretty much back where we started at the beginning of the year – albeit we took the scenic route... You will no doubt have seen and heard the sensationalised headlines in the media – for some reason they love reporting when the markets fall by 4%, but they never seem to come up with catchy headlines when the markets rise by the same amount. So to balance this, I thought I would outline some facts: Fact 1: Share market corrections (a fall of 10% or more) are in fact relatively common. Since 1945, there has been a "correction" of 10% or more every 3 years on average (Forbes). In recent times we have had corrections in February 2018 (-10.18%), June 2015 (-11%), June 2011 (-11%) and March 2010 (-14%). So that's in keeping with the long term average. Fact 2: The average time for share markets to recover from a 10% correction is 4 months (Forbes). That means that even though you suffer a paper loss for a while, you should be back on the right side of it relatively quickly. Fact 3: The fundamentals that are driving economies have not changed that significantly since last month, so there is no reason to believe that the outlook has deteriorated – certainly not to the magnitude that this correction suggests. Yes, inflation has ticked up a bit, and yes this means that global interest rates will possibly rise a bit quicker than originally expected. But global growth is still strong and companies are still making good profits. On the surface of it, it's business as usual. Remember that the underlying value of a company changes slowly – only its share price gyrates daily. Fact 4: We feel losses more acutely than we remember gains. Sure, your investment might have fallen in value a bit in February, but don't forget it rose in value a lot in 2017. So does this recent correction concern me? I'll answer by saying this – I would have been more concerned if there was no correction in 2018 and markets simply continued to race ahead. That is unsustainable, whereas this correction has released the pressure valve. Let me be clear – I understand that no one likes losing money - least of all me. And if your investment is losing money, our firm is losing too (our fees are linked to the value of your investment). So our interests are perfectly aligned here. But this recent correction is not a signal to make wholesale change to your portfolio – that would be a trap. The key is to position your portfolio well before an event – not after. And if we have been doing regular risk profiling and reviews, your portfolio will easily withstand this correction. At times like these, I always remember a quote that I once heard that sums it up perfectly: Don't just do something, sit there! Carl Richards also sums it up perfectly in this little picture: 
Here are the numbers: |
||||||
|
||||||
In terms of your Select Wealth Management portfolio, there have been no material changes over the past month. We continue to be comfortable with our portfolios, and do not need to make any wholesale changes at this stage. Over the past 18 months, we have been taking some risk out of portfolios by introducing more conservative fund managers, and in some cases also reducing exposure to share markets. This has served us well. I meet with independent researchers JMIS in March for our quarterly review, so may have some updates next month. But at this stage, there is nothing to report. Finally, an update on our Giving Back Program. I am pleased to confirm that we have had a great start to the year (Derek in particular has brought on several new clients), and as such have managed to get the Giving Back campaign for Warwick off to a good start. You can follow progress at www.mifinancialplanning.co.nz/giving-back.html . As always, thank you for your continued support and the referrals of friends, family and colleagues. We really appreciate it. Warm regards Dave and the team at Isaacs Financial Planning dave@mifinancialplanning.co.nz |
||||||
 |
||||||
This newsletter is intended for general distribution and does not constitute personal financial advice. Copy of my primary disclosure statement and secondary disclosure statement.