| Welcome to the final issue of the Select Wealth Management Dashboard Newsletter for 2024. 2024 was the "Year of the Dragon" in Chinese culture, which is believed to foster growth, progress and abundance. I'm not convinced that the majority of New Zealanders would feel they've enjoyed a year of abundance (things have been tough for a lot of people), but I am pleased to report that we did at least enjoy some good growth from investment returns for the year.
2024 threw up some interesting and crazy stuff (as every year seems to). Extreme marathon runner Russ Cook became the first person to run the full length of Africa. His 16,100km run took him 352 days - an average of about 45km per day! That's more than a marathon every day for nearly a year - incredible! In politics, Britain voted for a change and Kerr Starmer of the Labour Party becomes the new Prime Minister. Claudia Sheinbaum makes history by becoming the first ever female President in Mexico, and South Africa's ANC Party are unable to secure a majority for the first time since the end of Apartheid in 1994 (they form a coalition with other parties). Trump has a busy year - he becomes the first ever President (former or sitting) to be convicted of a crime (falsifying documents), then he gets shot in the ear, then he gets re-elected. You wouldn't read about it... But the one that excites (and kinda scares) me the most, is the positive and incredible advancements in medical treatments of neurological conditions. Noland Arbaugh, a 30 year old quadriplegic, became the first human to receive a brain implant from Neuralink, Elon Musk's brain-computer interface startup. Arbaugh said in May that the coin-size chip, made up of more than 1,000 tiny electrodes that recognize and code signals from a Bluetooth connected digital device, has changed his life. It allows him to have nearly full control of a computer using his thoughts. I'll say that again - he has nearly full control of a computer with his thoughts! INCREDIBLE! While some people are busy solving incredible problems like that, I struggle to get 50% of my predictions right every year. Let's see if I can fall on the right side of average this year... Predictions from January in black, actual outcome in red below: So here goes... Prediction 1 - Inflation The past few years have been dominated by the "cost of living crises" - or in other words, inflation. In the western world, inflation has been at the highest levels seen since the 1970's. Last year saw a welcomed decline in inflation rates, but some pundits believe that this year inflation will be "stickier" and remain stubbornly high. I'm in the camp of lower inflation this year. My predictions are:
I'll claim the direction - inflation came down in all jurisdictions as I predicted. I was pretty close with the USA and UK, but didn't pick the magnitude by which inflation would fall in NZ and Australia. I'll claim half a point, and happily trade the other half for the lower than predicted inflation here... Prediction ½ - Reality ½ Prediction 2 - Elections: 2024 is a historic election year with a total of 50 countries going to the polls - most notably India, the UK, Russia and USA. Global politics is becoming more and more divisive with a growing rift and intolerance between those on the left and those on the right - something that has been concerning me for some time now. The art of common sense and compromise has been lost in politics. Doing the right thing for your constituents has become less important than proving that your opposition is doing the wrong thing. The echo chambers of social media play a big role in this negative spiral. In the interest of time, I will only comment on the USA election. The incumbent is Joe Biden of the Democratic Party. My starting position is that I think the Republican Party will oust the Democrats in 2024. But the interesting thing will be who will be fronting the campaign. The primary elections are in March, and at this stage, Joe Biden is the front runner for the Democrats, and Donald Trump for the Republicans. It was scary last time around in 2020 that these were the 2 best candidates - it's terrifying now. Failing one of these candidates withdrawing (Biden) or being disqualified (Trump), I believe we are in for another 4 years of Trump at the helm - not a particularly good outcome, irrespective of your political leanings. In the perfect world, we would have some surprise candidates win the primaries (i.e. neither Trump or Biden) to come in with some fresh perspectives and ideas. But I think the likely outcome is that we need to brace ourselves for 4 more years with Trump... it could get wild. Nothing to say about this other than I'll claim my point and move on. Prediction 1 ½ - Reality ½ Prediction 3 - Interest rates: Interest rates have a material impact on all our lives. It influences mortgage rates, deposits rates, inflation (cost of goods and services), and investment performance. The past 2 years have seen strong headwinds in this regard - rapidly rising rates across the globe. This year, I believe that trend turns and rates start to ease. Here's my best guess:
Once again, I'll claim the direction - rates came down in all jurisdictions as I predicted. And this time I'll claim a full point for being pretty close with the values too (within 0.50% in all cases). Very happy with that! Prediction 2 ½ - Reality ½ Prediction 4 - Housing market: According to propertyvalues.co.nz, 2022 and 2023 saw house prices decline by -7.1% and -3.5% respectively. Will it be 3 in a row, or will we see prices stabilise this year? New Zealand had net migration of 130,000 in 2023 - that's a whole bunch of extra people that need a home. Put another way, that's an increase in housing demand. The current government is making property investment more attractive by reducing the brightline test back to 2 years, and allowing interest deductibility again. Throw in some interest rate reduction (lower mortgage rates), and I believe you have a recipe for a strong housing market. I'm picking prices rise between 5% and 7%. That implies an average house price (according to propertyvalues.co.nz) of $956,000 to $974,000 by the end of the year. Sadly I am well off on this one. The average house price (according to propertyvalues.co.nz) is currently $910,374. That makes 2024 the 3rd year in a row that property prices have fallen (although very modestly this year). Good for first home buyers, not so good for home owners... Prediction 2 ½ - Reality 1 ½ Prediction 5 - Global conflicts: The 2 most significant conflicts are the Russia / Ukraine and Israel / Hamas conflicts. Next month, the Russia / Ukraine conflict enters its third year (initial invasion on 24 February 2022), and the current Israel / Hamas conflict has now been going on for 5 months. The humanitarian cost in both cases has been tragic. Unfortunately, it is difficult to see the Russia / Ukraine conflict ending in 2024. Russia (more specifically Putin) will never admit defeat or concede, and Ukraine are unwilling to budge. The only way this ends this year is if the Western allies (EU and USA) stop sending financial and military aide to the Ukraine and they run out of resource. This is unlikely. So sadly, I predict that this tragedy is still playing out at the end of 2024. I'm more optimistic about the Irael / Hamas conflict. Israel is coming under more and more pressure (from opposition and allies) to find a diplomatic resolution. I think that a diplomatic solution can be brokered here - perhaps at the cost of Israeli Prime Minister Benjamin Netanyahu. A final note on global conflict - don't be surprised to see a bit of civil unrest in the USA around election time - not wholesale conflict, but some unpleasant headlines. Unfortunately I was right about Ukraine / Russia. There has been no let up, although President Elect Trump seems confident he can broker a deal here. Let's hope he's right. I'll claim half a point here. The Israel / Hamas conflict is also still very much active, although there have been promising signs in the last few days of potential resolution. Read about this optimism here and here. As much as it seems we may only be weeks away from resolution, I don't think it would be reasonable to claim any points here... In terms of civil unrest in the USA, 3 assassination attempts on a presidential candidate seems to tick that box... So I'm going to be very generous and claim another half a point on this. Prediction 3 ½ - Reality 2 Prediction 6 - Investment Markets: I guess this is the only prediction that you are really interested in. What is the performance of your investment going to be this year? I'm pleased to say that I am feeling uncharacteristically optimistic about the year ahead. At the end of last year (October / November), I was very bullish about portfolio returns for the coming year (2024). As it happened, November and December 2023 delivered some stellar returns, essentially eating a bit into this year's returns. But I am still feeling confident about the year ahead. If a fall in inflation and interest rates do in fact eventuate, then portfolios should deliver solid results. In the past 50 years, the S&P500 (American share market) has had an average return of 16.7% in the 12 month period after interest rates peak. So falling interest rates typically bode well for share markets. My prediction is that listed property is the best performing asset class. Shares and fixed interest do well, and cash is the laggard. To measure this, I'll use the weighted average returns of the following investments:
I think it's points shared here. I was close with the actual return of property, fixed interest and cash, but way off with shares (very happy to be wrong when returns far exceed expectations though...). Half a point each... Prediction 4 - Reality 2 ½ Prediction 7 - Sport: The main sporting events this year are the Paris Olympics, and the T20 world cup cricket (jointly hosted by the USA and West Indies for the men, and Bangladesh for the woman). I think America are clear winners in the Olympics with over 100 medals, and China in second place with under 100 medals. New Zealand struggle, and get fewer than 10 medals. As a cricketing purest who loves the 5 day game, I find the T20 to be the "hit & giggle" format. But it is undeniably the show piece of the sport, and this tournament will attract much attention. There is any number of teams that could win the men's tournament (India, New Zealand, South Africa, England, Pakistan), but Australia will be the team to beat. Australia is also my pick for the women's tournament. And could this be the year of my beloved Phoenix. Perhaps if I say it enough years in a row, it'll eventually come true... America first with 126 medals, China second with 91. I'll claim that, but it's all downhill from there... New Zealand surprise with a stunning 20 medals. India with the men's T20, and New Zealand surprise the world by winning the woman's. My beloved Nix make the semi finals and sell out Westpac, but miss out on the big dance through an extra time goal from Melbourne Victory. Heartbreak, pride, joy - all in 120 minutes. What a rollercoaster! I can't claim any points here... Prediction 4 - Reality 3 ½ So there you have it - a marginal victory for me this year. They are few and far between, so I'll celebrate this one and head into next January's forecasts with a modicum of confidence... Here are the numbers for the past 30 days: |
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In terms of your Select Wealth Management portfolio, you will be receiving the December performance reports in early January. I am pleased to confirm that it has been another quarter of sound performance. Share markets continue to lead the way, but property funds have had a challenging quarter. All said and done, a solid quarter rounds out a very strong year of performance. As always, feel free to contact me if you have any questions about your report. Finally, I am pleased to confirm that our Giving Back campaign for Life Flight has had a great couple of months, and we have managed to raise just over $2,100 so far with a week or so to go. After a relatively slow start to this campaign, we are delighted to be able to make a meaningful contribution to this great organisation. Thank you for your continued support by referring your family and friends to Makowem & Isaacs Financial Planning to enable this initiative to continue. We will be announcing our new campaign for January in next month's newsletter. Check out https://mifinancialplanning.co.nz/giving-back.html to learn more in the meantime. That's it from me for the year. Thank you once again for your custom and support over the year - we really appreciate it. Wishing you and your loved ones a fantastic Festive Season, Merry Christmas, and prosperous New Year. See you in 2025. 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.