| Welcome to the April issue of the Select Wealth Management Dashboard Newsletter. Last month I wrote about the fact that the past 3 years have been extremely tough from an investment perspective and that many Balanced Funds have delivered little to no return over this 3 year period. This month I thought I would expand on this concept, but put this 3 year period in context against longer term returns.
I recently read a great article written by Morgan Housel. The following is an extract from this: "Ernest Shackleton's ship, the Endurance, became stuck in Antarctic ice. Before long it was crushed, ruined. Shackleton and his 27-man crew then spent 19 months - from January 1915 to August 1916 - rowing 800 miles to safety in tiny lifeboats, with night time temperatures hitting 10 degrees below zero (-23c). They were constantly frozen, soaked, hungry, and sleep-deprived. They survived - and all of them did survive - on an occasionally captured seal and foraged seaweed. It's one of the most astounding survival stories you'll ever hear. But, for me, the most emotional part of the book Endurance came at the end, when Shackleton's crew finally made it to a whaling station on South Georgia island, 1,600 miles east of Argentina. Author Alfred Lansing writes: Every comfort the whaling station could provide was placed at the disposal of Shackleton (and crew). They first enjoyed the glorious luxury of a long bath, followed by a shave. Then new clothes were given to them from the station's storehouse. They were then served a hot meal and slept for 12 hours. Can you imagine? Can you imagine how good it must have felt to have a bath, a hot meal, and a warm bed after being constantly frozen and starving for 19 months? Even if the water was lukewarm and the food was half stale, that must have been one of the most pleasant and fulfilling evenings anyone has ever experienced. A weird thing in life is that everyone strives for a good life because they think it will make them happy. But what actually brings happiness is the contrast between what you have now and whatever you were just doing. The best drink you will ever taste is a glass of tap water when you're thirsty. The best food you will ever eat is fast food when you're starving. The best sleep you will ever experience is when your newborn finally sleeps through the night. Money is a lot like this, too. The richest you'll probably ever feel is when you get your first paycheck, and your bank account goes from $5 to, perhaps, $500. The contrast that generates might be greater than going from $10 million to $20 million. Going from nothing to something is so much more powerful than going from a lot to super a lot. The contrast, not the amount, is what makes you happy." I think we can all relate to this idea of positive contrast bringing happiness - we've probably all experienced it. What we need to acknowledge though, is that the converse applies too - negative contrast. When we have something, and it is taken away from us, this negative contrast is extremely powerful too. In fact, I would argue it's possibly even more powerful. In the past year, I have spoken to so many property owners who feel disappointed, sometimes even aggrieved, that the value of their property has fallen 20% recently. Last year they had a property worth say $1 million, and today it's only worth $800,000. So in their mind, they have "lost" $200,000. This has been taken from them and they have experienced negative contrast. It leaves a real sense of disappointment and dissatisfaction. But if you re-frame the thinking, you might see it in a slightly different light. If the same property owner considered what the property was worth 5 or 10 years ago, they would realise a couple of things:
The same principal applies with investment returns. Seeing your investment fall in value and stutter along is extremely frustrating and disappointing - it's negative contrast. No one wants to see their investments fall in value. But it will happen from time to time - it's inevitable. And when it does, it helps to take a step back and reflect on the longer term performance, and the longer term outlook. This might ease the sense of dissatisfaction. Despite periods of poor performance and negative contrast, a well constructed diversified portfolio, along with a sound financial plan, is still the best shot at a happy retirement for most people. There might be periods where we feel a bit lost at sea like Shakleton and his men, but a bit of resolve and a healthy dose of patience and discipline is usually enough to get us back to shore. In terms of the markets, the past 30 days have been extremely strong. The fear of contagion of bank collapses in the USA seems to have receded, and share markets have rallied on the back of this. Most share markets are up about 6%, with New Zealand being the laggard only up 1%. At the same time, the NZ$ has weakened against most of it's trading partners. All of these factors are positive for the typical Balanced Portfolio in New Zealand - some welcome good news. Short term mortgage rates (floating rates to 1 year) continue to rise, with floating rates now above 8%. This continues to put pressure on house prices which fell another 1% last month (according to propertyvalue.co.nz). Those on New Zealand superannuation got their annual pay increase this month, and it was a decent one too. The benefit for a married couple increased by 7% from $37,024 per annum after tax to $39,676 per annum after tax. What an amazing country we live in to ensure that every single retiree has this base income to live a dignified life. Here are the numbers for the past 30 days: |
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In terms of your Select Wealth Management portfolio, the 31 March quarterly performance reports will be with you shortly. I am very pleased to confirm that the returns have been solid for the quarter, and we are slowly making our way back to the shores of previous highs in 2021. I am also pleased to confirm that in the past month, Makowem & Isaacs Financial Planning has been re-negotiating the fee that Select Wealth Management charges our clients, and we have managed to secure another fee discount for our clients. We already have material discounts in place for clients (particularly for clients with smaller account balances of under $250,000), so the new discount will only affect clients with larger balances of over $250,000. If you would like to know more about this, please do not hesitate to contact me. Finally, a quick update on our Giving Back program. We only have a couple of months left on the campaign for the Nurses at Lower Hutt Hospital, and so far we have raised $1,200 towards their coffee machines. We're doing all we can to raise as much as possible for this cause - these guys are saints. Thank you as always for the introduction to your friends, family and colleagues which makes this program possible - we really appreciate it! To keep track of the Giving Back program visit https://mifinancialplanning.co.nz/giving-back.html That's all for now. Chat again soon Warm regards Dave and the team at Makowem & 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.