| Welcome to the May issue of the Select Wealth Management Dashboard Newsletter. With Easter and Anzac day, the past 30 days have been a bit less productive than usual. Hopefully these holidays presented an opportunity for you to take some time out and spend it with friends and family. We have now entered the long winter stretch in earnest with only 1 more public holiday (Queens Birthday on 3 June) between now and the end of October. Not my favourite time of year to be honest...
I'll start this month's newsletter with the recent cut to the Official Cash Rate (OCR). On 8 May, Reserve Bank Governor Adrian Orr announced that New Zealand's Official Cash Rate would be cut by 0.25% to 1.50%. This is a record low - the New Zealand OCR has never been below 1.75% since it's inception in 1999. Whilst some commentators had expected this, it caught me by surprise. I saw little reason for the cut right now and thought perhaps the Reserve Bank would sit on their hands a bit longer and save some ammunition in case they need it in the future. However, there you have it. They cut now, and it is becoming clear that there could even be more rate cuts in the foreseeable future. The effect this had on mortgage and deposits rates was relatively muted. Rates did come down, but not by much. Mortgage holders continue to benefit by these low rates, and can now get a 2 year mortgage for as little as 4.39% (or a special rate of 3.89% if you have a big deposit). This is verging on "free" money. Deposit holders on the other hand continue to suffer. If you are willing to lock your money into a 2 year term deposit, you are rewarded with a modest 3.2% BEFORE tax. Assuming a 30% tax rate, this is meagre 2.24% after tax - not much incentive to defer your spending now and save for the future... The only conciliation for deposit holders is the fact that inflation remains very low at 1.50%. So at least your deposit is still maintaining it's purchasing power for the future - just. Against this backdrop, CoreLogic released their Quarterly Property Market & Economic update for March 2019. This points to a softening property market with sales volumes down, and the average home price increasing by a modest 2.6% for the year - a very small increase relative to the past decade or so, and not a great deal better than the 2 year term deposit rate. Auckland property prices actually fell by 1.5% for the year (in fact there have been anecdotal reports of far greater falls in value with this Stuff article suggesting falls of up to 30% in some areas). All said and done, a very soft property market with an equally soft outlook moving forward. This raises the very real challenge of where to invest your money right now. Deposit rates barely retain your purchasing power, property is not the "safe bet" that it used to be (there may be some real pain when mortgage rates eventually do start going up and people need to service the oversized mortgages that are out there), and share markets have become more volatile in recent times too. What to do? Our view is still that a well diversified portfolio of cash, bonds, property and shares is still the best approach. However, our expectation for return has reduced and you have to be realistic about the fact that your investment is not going to have double digit growth every year. It's tough, and more than ever we have to bend down and pick up every 0.1% extra return we can find. The other point to note is that now more than ever, you need to proactively manage the things you have got control of. Share markets, property prices and interest rates will do whatever they do - it is entirely out of your control. However, how you manage your personal finances is entirely within your control and will have a far more material impact on your financial wellbeing. If you have debt, use this opportunity of low interest rates to pay it down as quickly as possible. If you are nearing retirement, get a financial plan and review your saving rate. If you are in retirement, manage your budget and make sure you have a robust financial plan so that you can understand how long your life savings is likely to last if you draw down on it. The simplest decisions now (like paying $100 per fortnight more on your mortgage or reviewing that gym subscription you haven't used in months) can have a surprisingly material impact on your wealth over time. Another thing that caught me by surprise over the past 30 days was the Labour government kicking Capital Gains Tax to touch. I was certain that a CGT of some description was going to be introduced. But there you have it - Prime Minister Ardern has made clear that there will be no CGT in a government that she leads. I imagine most New Zealanders will be pleased with this outcome - particularly those with a second property or a small business. In terms of the markets, the past 30 days have seen mixed results. Share markets were mixed, with New Zealand being the strongest performer with a 3.4% gain over the past month. At the other end of the spectrum, Hong Kong's market was down 4.5% as trade tensions between China and the USA resurfaced. The NZ$ weakened against most trading partners after the rate cut announcement, down by as much as 2.5% against the US$. Here are the numbers: |
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In terms of your Select Wealth Management portfolio, there have been no material changes in the past 30 days. You should by now have received your tax report. (If you haven't and you need a copy of this, feel free to contact me). I also meet with researchers JMI Wealth later this month for the quarterly review, although I am not expecting any material changes recommended. I suspect for now it will be more of the same, and patience should be rewarded in the end. Finally, a quick update on our Giving Back program for Loren Harvey. The past month has been good and we are approaching our target of $2,500 to buy Loren the ultimate baking package experience. You can learn a bit more at www.mifinancialplanning.co.nz/giving-back.html. As always, thank you so much for the referrals of your friends and family - keep them coming... 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.