| Welcome to the July issue of the Select Wealth Management Dashboard Newsletter. I often find writing this newsletter a bit of a challenge in terms of getting the balance right between providing technical information and offering practical useful tips. For instance, this month I could write about how the Reserve Bank is starting to unwind its very easy monetary policy, and my thoughts on the implications this may or may not have on the broader economy. Whilst this is interesting (to a geek like me anyway...) I'm not entirely sure that sharing this with you will have a direct positive impact on your financial wellbeing. What would you do with this information?
So this month, I'm going with some practical tips. I read an article recently that I really loved and want to share. It's a great reminder of how simple financial planning really is. I feel like a bit of a cheat because this is a "copy and paste" and not my original work, but in this case I feel it's warranted. Here it is... Top 10 Rules for Money - Barry Ritholzt Thinking about money - saving it, spending it, and most of all, how to invest it - is something I have spent decades doing. This has led to recognizing several fundamental truths about capital. 1. Investing Is Both Simple and Hard: The basic premise behind successful investing is easily understood: "Invest for the long term, be diversified, watch your costs, and let compounding work its magic." But following through can be challenging. Humans are plagued by an inability to just "sit there and do nothing." Failing to do nothing leads to costly errors and loss of capital that erode returns. Understanding what is required is very different than being able to perform, regardless of circumstances, for decades on end. This leads us to: 2. Behaviour Is Everything: The inability to manage emotions and behaviour is the financial undoing of many. To paraphrase William Bernstein, "the extent you succeed in finance is based on your ability to suppress your limbic system. If you can't do that, you're going to die poor." Even the greatest stock pickers will underperform if unable to control their emotional impulses. Allowing those emotional hot buttons to get pressed is how people go wrong in investing. There are no shortcuts, secrets or get rich quick schemes that work, except for my 3-day workshop where I reveal the secrets of the ultra-rich for the low, low price of $4,995. Sign up here. 3. Moderation In All Things: Think of the majority of the assets in your portfolio - hopefully a diversified, global mix of funds — as the basic meat and potatoes of investing. You can add seasonings, herbs, and vegetables to spice it up and add some flavour. Want to do some early stage investing in tech start-ups? Maybe some real estate speculation? Perhaps a few private equity investments in non-public businesses? Maybe even a fun trading account? I don't have a problem with any of that as long as it meets two conditions. First, you should understand that the odds of success are against you. Many billions of dollars are aggressively competing in the same space for returns. The professionals are always searching for an edge, and even with one, there are no guarantees of success. Second, it should be a smallish chunk of your liquid net worth, perhaps about 5% to 10%. That is enough to provide you a little fun and intellectual stimulation. Some might even discover a knack for such investing. But the amounts should be small enough that if the investment doesn't work out it won't affect your financial plan. 4. Risk and Reward Are Inseparable: Risk is best defined as the probability of your returns differing from your expected outcomes. The problem is that many investors want better-than-market returns while assuming minimal risk. But returns are a function of the risks assumed - if you want better returns, you have to take more risk. There is no free lunch. 5. Spend Less Than You Earn: Budgeting is simple: Income goes on this side of your household balance sheet, expenditures on that side. Make sure the latter is lower than the former. It's that easy! I have zero tolerance for the spending scolds who tell you never buy a boat, don't get a new car (especially a sports car), and avoid buying lattes. This is lazy, ignorant and poor advice given by charlatans and frauds who do not understand math or finance. If they did, they would add the magic phrase: "...if you cannot afford it." But if you can, then spend your money however you like but preferably thoughtfully. People often skip purchases they can afford out of misplaced guilt. 6. Leverage Kills: Using borrowed money for nearly anything is the negative manifestation of the three prior rules. Yes, get a mortgage to buy a house you can afford. But never use borrowed money to buy speculative assets that are subject to further capital calls. 7. Understand Your Role: The markets are populated by all kinds. There are traders and investors, hedgers and speculators, and everyone has different risk tolerances, time horizons and financial goals. Do not assume what any of America's 800 billionaires have to say about investing is especially relevant for your needs. Their goals are likely different than yours. 8. Be Aware of Your Limitations: What gets so many investors into trouble "is not what we don't know, it's what we know for sure that just ain't so." Understanding the limitations of your cognitive errors and belief systems is just the start. It's also important to know what inadequacies you have financially, emotionally and behaviourally. Operating outside of your own capabilities is a good way to run into trouble. 9. Own It: You are responsible for own financial well-being, not the Federal Reserve, the government or whichever huckster is yelling the loudest on TV at the moment. You alone accept responsibility for your investments and spending. The sooner you take ownership of your financial circumstances, the better off you will be. 10. Invest In Yourself: This is the most important investment you can make. Educate yourself, develop an expertise and add to your professional skill stack. And invest in your future by making sure you fully fund your retirement accounts every year. Make those long-term investment needs before spending on short term wants (that's as much of a scold as I can muster). My final admonition is the most important rule: "Behave!" As noted throughout, ill-advised decision-making and poor behaviour are the biggest reasons why many fail to meet their financial goals. All of the above either directly or indirectly refers to behavioural issues dressed up in the lexicon of finance. So there it is. Such simple stuff, but incredibly powerful if given fair consideration and put into practice. Feel free to share this with you kids and grandkids - they are not being taught these life skills in school... In terms of the markets, the past month has been mixed. Share markets ranged between -3.66% (Hong Kong) to +1.33% (America). The NZ$ was much stronger against the US$, but much weaker against the AUD$. Most notably, mortgage rates increased noticeably with ASB's 3 year rate now 3.29%. For many home owners, this would be the first time they have ever experienced a mortgage rate increase, and I suspect it'll be a shock to the system for many. Could this be the catalyst for the housing market to cool off? Time will tell. Here are the numbers for the past 30 days: |
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In terms of your Select Wealth Management portfolio, you will be receiving your June quarter performance reports soon (if you haven't already). I'm pleased to confirm that there was another quarter of sound performance. Stand out performers for the quarter were Scottish Mortgage Trust (17%); APN Property AREIT (10.6%); Apostle Dundas Global Equity Fund (9.5%); and Nikko AM Concentrated Equity Fund (6.25%). I remain 100% satisfied with the performance and service delivery of Select Wealth Management at this stage. If you have any questions about your performance report, feel free to contact me to discuss them. Finally, a quick update on our Giving Back program. After a successful campaign for Volunteer Hutt earlier this year, I am pleased to announce that for the second half of 2021 we have decided to support Leukaemia and Blood Cancer New Zealand. Sadly, Isaacs Financial Planning has had several friends and clients of the business affected by this dreadful disease in recent years, and this campaign is in honour of these folk. There are about 21,000 New Zealanders living with Leukaemia on any given day, and about 7 people a day are diagnosed with leukaemia or a similar blood condition. Sadly, this is the most common cancer among young people in New Zealand. A donation to Leukaemia and Blood Cancer New Zealand will help them with their efforts to:
As always, thank you for your continued support and referrals of friends and colleagues that makes this program possible. I really appreciate it. 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.