| Welcome to the March issue of the Select Wealth Management Dashboard Newsletter. There's plenty to discuss this month, so I'll rip straight in.
The biggest talking point over the past 30 days has been the proposal by the National Party to raise the superannuation age to 67. This is a debate that has been bubbling away for many years now, but has finally worked its way to the surface and will no doubt be one of the biggest election issues later this year. The changes are proposed to be phased in, and will only take effect in 20 years' time. This means that nobody born prior to June 1972 will be affected. The proposed change has sparked heated debate on both sides. Some feel this is unavoidable, others feel they have been cheated out of 2 year's pension entitlement. The reality is that this is economically unavoidable. With changes in our nation's demographics (the aging population) and longer life expectancy, it is unreasonable to expect that superannuation entitlements would remain unchanged indefinitely. Similar changes are taking place across most western countries – Australia to increase to age 67 by 2023, USA to increase to age 67 by 2027, United Kingdom to increase to 68 by 2046, Ireland to increase to 68 by 2028, France to increase to 67 by 2023, Netherlands to increase to 67 by 2024, the list goes on. So by comparison, New Zealand's entitlement still looks pretty attractive. As it happens, my wife and I are both right in the age slot that means we will be the first "lot" of New Zealander's not to receive the pension prior to age 67 – so we are both the worse affected. And yet we don't begrudge the proposed change and accept that it is prudent and necessary. Bill English and his party have played this perfectly from a political perspective. It takes a bold government to propose a change like this in an election year. Pushing the pain out 20 years has softened the blow, and may just be enough to keep voters on side and get them through another election. Time will tell. Something else worth considering as a result of all of this is how your KiwiSaver account may be affected in the future. It is important to remember that your KiwiSaver account carries some political risk, and like the pension age can be tampered with in the future. This is why our advice has always been to contribute as little as possible (typically 3% for PAYE employees) to get the maximum benefit from the employer contribution and government member tax credit. At this stage, there is no incentive to contribute 4% or 8% to KiwiSaver – it would be smarter to save this excess amount into a similar investment that does not carry the same political risk. I mentioned earlier that I don't begrudge the current proposed changes to the entitlement age, but I certainly would begrudge a government that proposed that my pension entitlement should be means tested against my KiwiSaver account. Whilst there is no indication to suggest that this is going to happen, it is not impossible, so I choose to expose as little of my wealth as possible to this risk. (I need to put a legal disclaimer in here to remind you that my comments regarding KiwiSaver do not constitute "personalised advice" – they are simply comments of a general nature. If you want "personalised advice" about KiwiSaver, please feel free to contact me or an Authorised Financial Adviser). Further abroad, Warren Buffet recently released his annual letter to investors. There are some great snippets of wisdom in his letters, and they are well worth a read. I was buoyed by his enduring optimism – a firm believer that potential is unlimited and good companies will continue to create wealth into the future. He states "American business – and consequently a basket of stocks – is virtually certain to be worth far more in the years ahead. Innovation, productivity gains, entrepreneurial spirit and an abundance of capital will see to that. Ever-present naysayers may prosper by marketing their gloomy forecasts. But heaven help them if they act on the nonsense they peddle". I love his pragmatic view of the world. Another big development this week is that the FMOC (the committee that set the USA's interest rate) meet on the 14th and 15th of March again. Expectations were always that USA interest rates would increase this year, but the timing was uncertain. Initial thoughts were that the first increase would only come in May or June, but there is some belief that the rate may be raised sooner (at this meeting). The economic data in the USA continues to be robust affording the committee the option to potentially raise the rate now. Whilst this could cause some short term pain for share and bond markets, it is important to remember that this is a healthy development. It re-enforces the fact that the US economy is strong and requires no stimulation. A side effect of rising rates in America is a weakening NZ$. The NZ$ has fallen from 73 cents in February to 69 cent now – a move of nearly 5% in 6 weeks. This is a great outcome for New Zealand investors who have investments domiciled in US$ – essentially a tailwind of 5%. The NZ$ has in fact fallen sharply against most major currencies over the past 30 days – AUS$, GBP and Euro. Most share markets on the other hand have had relatively muted moves over the past month with little change. The Dow Jones (American share market) briefly broke through 21,000 for the first time ever in early March, and remains near record highs now. This is testament to Mr Buffet's quote "American business – and consequently a basket of stocks – is virtually certain to be worth far more in the years ahead". Here are the numbers: |
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In terms of your Select Wealth Management investment, there have been a few small changes to the model portfolios in March. These are changes designed to account for potential rising interest rates, with assets that have exposure to long term interest rates being sold in favour of assets with no or little exposure to long term interest rates. Your next performance report is due at the end of March, so keep an eye out for these in early April. Remember that these reports can be received online now, so if you haven't already registered for online reporting I encourage you do – it's a great service. In closing, a big thank you for all the referrals to your friends, family and colleagues – we really appreciate it. We have had a great first quarter thanks to your support, and remain on track to raise enough money to buy an "Airvo" breathing machine for the children's ward at the Hutt Hospital. You can follow our progress at mifinancialplanning.co.nz/giving-back.html . Until next time, keep well, go the Nix, and bring on 5 days of good weather for a test match at the Basin Reserve! 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.