| Welcome to the June issue of the Dashboard Newsletter - the first newsletter I have written in "Level 1". What a crazy few months we have had. Before writing this, I reflected on some of my comments from my February and March newsletters. I find incredible how we went from "a rumour of some strange illness in China", to "this thing is real", to "the world will never be the same again", to "level 1 where things are more or less back to normal" (except of course for international travel). All of this in the space of a few months. There may still be more water to flow under the bridge (particularly in 3rd world countries), but for now New Zealand should celebrate the fact that we seem to have eliminated the medical threat of Covid 19. Phase 2 will be re-igniting the economy.
I love marshmallows. I really do - I love them! You could be forgiven for wondering what that statement has to do with the challenging investment environment we find ourselves in. And it really is a challenging investment environment - interest rates are historically low, share markets are volatile and easily spooked, a question mark hangs over commercial property as more people experiment with working from home, and all indicators are that the world is currently in a very deep recession. So who cares about marshmallows, right? Well, Walter Mischel cared about marshmallows - very much. Walter was the Sanford Psychology Professor who pioneered the Mischel Marshmallow Experiment. You will almost certainly have seen this experiment (or iterations of it) at some point. The basic concept was simple. Take a young child (between 3 and 5 years old), put them in a room with a plate. On the plate is a single marshmallow. Explain to the child that they have 2 choices - either eat the single marshmallow right now, or wait a while, and they get to have a second plate with several marshmallows. Then excuse yourself from the room to go "do some work", and leave the child in the room with the single marshmallow. In the original experiment, Professor Mischel also offered some tips to the children on how to avoid the temptation of 1 marshmallow now - tips like don't look at the marshmallow, think about something else, etc. The reaction of the children ranged widely - as you would expect. Some ate the marshmallow before the Professor had even closed the door behind him, others held out the full 10 minutes (the outer time limit of the experiment). Others held out for a while, but eventually caved in to temptation (the average time being around 6 minutes). So despite identical circumstances, different people responded in different ways. The findings of the study where a bit more predictable though. After decades of following these children through life (and later generations put through the same study), it was conclusive that there was a very clear correlation between those who waited for the second marshmallow, and various measures of success in later life (measures such as personal health, educational attainment, career success, personal wellbeing). In other words, this series of experiments proved that the ability to delay gratification was critical for success in life. So the obvious and simple analogy from an investment perspective is that your investment value today is the single marshmallow, and if you ride out this current volatility and uncertainty, your investment value will be the equivalent of more marshmallows in the future. And history has proven this to be the truth time and time again. So if you are relatively young and have time on your side, take Professor Mischel's advice - don't focus on the investment, busy yourself with something else, and come back to more marshmallows in the future. You will not be disappointed. The reality however, is that some investors do not have time on their side. Some investors need their investments to live off now, and the current investment environment is a lot more challenging for this group of people. This is where having a robust financial plan and reviewing it regularly (at least annually) is so important. The formula is simple: 1. Get a plan. And stick to it. This should cover retirement planning (how much are you likely to need in the future), and investment planning (what you should invest in to achieve this). 2. Do it sooner rather than later. There's little value in planning for your retirement once you reach the age of 65. That's when you need to start eating marshmallows, not figuring out how many you need... 3. Review your plan regularly. Your investments should always be suitable for your lifestage - aggressive when you are younger, more conservative as you age. Regular reviews will ensure this. The fact that you are receiving this newsletter means that you have most likely been doing the above, and that your investment will be suitable for your lifestage. That does not mean that it will be immune to volatility - no investment is. But it does mean that your investment will behave within the parameters that we agreed upon at the annual review, and that it is appropriate for your lifestage. If you are not confident of this, then I am not doing my job properly. And if that is the case, then you need to call me so that we can meet to rectify this. The past month has seen a continued recovery in share markets around the world, with all the major markets advancing between 0.25% (Hong Kong) and 10.44% (Germany) for the month. Share markets are still down from their peeks of February this year, but have clawed back a significant portion of the initial 30% fall. Most share markets are now down between 7% and 17% from their February highs. The NZ$ and AUD$ strengthened against all trading partners over the past month, and term deposits rates fell desperately low. A 1 year term deposit rate is now a painfully low 1.80%. Here are the numbers: |
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In terms of your Select Wealth Management portfolio, we have been very active over the past month. Changes to portfolios were specific to each client, but general themes were to use cash to buy fixed interest, property and shares, and to sell investment domiciled in US$. I am pleased to report that so far, these changes have added value. We continue to monitor portfolios carefully, and stand ready to act if required. Finally, a quick update on our Giving Back program. We are starting to get back to some normal business activity again, so we are getting some renewed traction on our Giving Back program. We currently have $750 accumulated, and have extended the program for Birthright Kapiti to the end of 2020. Hopefully we can make a meaningful contribution to their cause by the end of the year. Thank you for your continued support and the referrals of your friends, family and colleagues - they are greatly appreciated. You can follow progress of the campaign at https://mifinancialplanning.co.nz/giving-back.html Until next time, keep safe. 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.