| Welcome to the May issue of the Select Wealth Management Dashboard Newsletter. It's been an eventful month with lots going on, but the most exciting thing for me is I get to go watch my beloved Wellington Phoenix play footy at the cake-tin this weekend! It's been a very long time between drinks for Phoenix fans, and hopefully they come out in force and put together an impressive crowd for the game. It should be a nice shot in the arm for local bars and restaurants too, with over 15,000 people expected to be in Wellington for the event. Win win all round.
For this month's newsletter, I want to take a closer look at house price increases. Everybody is talking about it. Every time you turn on the radio, go online, or have dinner with friends, this topic comes up. Commentators are having a field day with it, politicians are grappling with it, home owners are loving it, renters are hating it - it affects just about everybody. So it's no wonder it's such a hot topic. According to www.propertyvalue.co.nz most recent data, the average price of a home in New Zealand rose 17.8% in the year from 1 May 2020 to 30 April 2021. This means the average home price increased from $739,539 to $871,375. For Wellington City, this increase was even higher at 21.4%, with the average price moving from $894,710 to $1,085,924. So if you own a home in Wellington, it's reasonable to feel $200,000 richer than you were a year ago. No wonder people love property as an investment, right? It's interesting to compare this against share market performance though. 5 or 10 years ago, you never heard anything positive about share markets in the media or at BBQ's - it just wasn't discussed. But that does seem to be changing a bit now (perhaps thanks to KiwiSaver and Sharsies), and there is more balanced information in the media now than before. Even so, most people wouldn't realise that share markets have actually performed significantly better than the New Zealand residential property market over the past year. Here are the facts: Performance of global share markets:
So on average, a basket of shares performed nearly twice as well as local property. But most people wouldn't be aware of this fact because shares receive far less media attention. It's not surprising though - to me the reasons for this are quite clear. For a start, not everyone is affected by shares the way they are by property. In New Zealand, most people either own a property, or are trying to buy a property - so we are hyper sensitive to the property market. The same can't be said about shares. Equally as important, I think the value of these investments has a big impact too. The average price of a home is around $1 million, so if this increases by 20%, you feel $200,000 richer. That's a lot. But for the relatively small number of people who do own shares, their portfolio is often much smaller than $1 million. So if you own say $100,000 worth of shares, and this increased by the same 20%, you only feel $20,000 richer. That's still great - but it's not as impactful as your house price increase. In fact, your shares could have a 40% return resulting in an increase in wealth of $40,000, and you would still not feel the wealth effect as much as your home. So for the vast majority of people, house price increases undeniably have a greater impact on "wealth perception" than anything else. And this is great, but you also have to balance this against the old adage "You can't eat your house". An increase in your house value doesn't always equate to a more comfortable retirement. The only way this increase can positively impact your retirement is if you can extract some capital by downsizing. For many people, this is a legitimate strategy, but for some it isn't. Remember that if your house has gone up in value a lot, the one down the road you want to buy probably has too... That's why the best strategy still is to have some diversification - own a home, own some shares, have some cash, hedge your bets. It may sound boring, but it's almost certain to ensure that you finish the race... A closing point on the matter is the fact is that if you owned any assets in the past 12 months (property or shares), your wealth will have increased materially. That's great, and you can celebrate the fact and enjoy this moment. But I can't emphasize enough that you need to be realistic about your expectations moving forward. The returns we have enjoyed in the past 12 months are exceptional, and it would be unrealistic to expect these to continue indefinitely. In terms of the markets, the numbers were mixed over the past 30 days. Mortgage and deposit rates remain largely unchanged (although you can get more than 1% for a 2 year term deposit for the first time in a while), and share markets were mixed (London's FTSE100 performed best at 2.24% and Japan's Nikkei worst at -5.6%). The NZ$ was stronger across all trading partners, and house prices had another sharp move upwards. Here are the numbers for the past 30 days: |
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In terms of your Select Wealth Management portfolio, the most significant change is the fact that AMP are winding up the AMP Capital Ethical Leaders Hedged Global Fixed Interest Fund. We are in the process of researching suitable alternatives, and we'll be in touch soon if you have exposure to this fund and need to make any changes. Finally, a quick update on our Giving Back program. We are now approaching the last month of the campaign for Hutt Volunteer, and I am very pleased to confirm that we are on track to reach our target for this great charity. We are also looking for candidates for the June to December campaign, so if you know of a charity or family in need and would like to suggest them, please don't hesitate to contact me. We have received 2 suggestions so far - Good Bitches Baking and the Leukaemia and Blood Cancer NZ - both amazing charities doing great work in the community. We'd love to hear from you if you want to add another for consideration. You can learn more at https://mifinancialplanning.co.nz/giving-back.html As always, thank you for your continued support, and the referrals of family and friends - 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.