| Welcome to the February issue of the Select Wealth Management Dashboard Newsletter. I've been thinking a lot about what a challenging few years it's been for investors lately. We've had to deal with COVID, geopolitical unrest, high inflation, soaring interest rates, the list goes on. Throw in all the negative headlines seen on mainstream and social media, all the forecasts about recession, and a healthy dose of human emotion, it's no wonder that there has been some investor fatigue - patience has been tested to the extreme.
The culmination of all of this was a dreadful year of return in 2022. I found this chart recently which highlights just how bad 2022 actually was. The chart plots the returns of stocks and bonds over the past 45 years. It is divided into 4 quarters. In the top left corner are the years where stocks lost, but bonds gained. Top right are years where both stocks and bonds gained. Then years where stocks gained, but bonds lost, and finally years where both stocks and bonds lost in the bottom left corner. 
The first observation is that most of the dots are in the top right corner - years where both stocks and bonds gained. This stands to reason as most years are good investment years - why else would you invest... Next most (8 dots), was years where stocks lost, but bonds gained. On a few occasions (4 dots), stocks gained, and bonds lost. However, only once in the past 45 years did both stocks and bonds lose - in 2022. And not only did they both lose, they lost big - more than 10% each. That's why a typical "Balanced Portfolio" fell in value by about 10% in 2022. Under extreme environments like this, you can be forgiven for questioning your investment strategy. Abandoning your long term plan and running for the exit can be temping. But at these times patience is more important than ever. Patient investors who held their nerve and remained invested were rewarded in 2023, with stocks and bonds both delivering positive returns (24% for stocks and 5% for bonds). So in 2023, your typical Balanced Portfolio recovered the losses suffered in 2022. Albert Einstein famously said, "Compound interest is the eighth wonder of the world. He who understands it, earns it ... he who doesn't ... pays it." The simple concept of compounding returns is the most important thing that matters for the long-term investor. In today's busy world, we are consistently bombarded with distractions and can become preoccupied with other things. As an investor, you are subject to even more distractions. Markets are up. Markets are down. A recession is coming. It's a bull market! Constant noise that can distract you from your long-term financial plan. All these things create clutter in our lives, which overwhelms us, makes us more emotional, less rational, and distracts us from what really matters. Sticking to a diciplined, strategic long term plan removes all emotion and allows compound interest to works it's magic. Successful retirement recipe - 2 thirds stocks, one third bonds, simmer for 30 years... It really is quite simple. On a more lighthearted note, I read these quotes recently that I found to be compelling so I thought I would share: "A great way to understand yourself is to seriously reflect on everything you find irritating in others." - Kevin Kelly "The thing that is least perceived about wealth is that all pleasure in money ends at the point where economy becomes unnecessary. The man who can buy anything he covets, without any consultation with his banker, values nothing that he buys." - William Dawson "Your calendar is a better measure of success than your bank account." - James Clear "Write your obituary, then work backwards to live it." - Warren Buffett In terms of the markets, the past 30 days have been very strong for share markets. Most major markets were up around 3% to 4%, with the Japanese Nikkei standing out at 8%. New Zealand was the only market down over the past month (-0.64%). House prices remain stable compaired to a month ago, and mortgage and term deposit rates eked down slightly. Here are the numbers for the past 30 days: |
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In terms of your Select Wealth Management portfolio, there is nothing material to report at this stage. We have not made any material changes to any portfolios over the past while, nor have we introduced or removed any fund managers this month. Performance remains in line with expectation, and we remain comfortable with the fund managers we currently have exposure to. The only forced change we will be experiencing in the next short while is the closure of the APN AREIT (PIE) Fund. If this affects you, you will hear from us in due course. Finally, a quick update on our Giving Back program for Ellie's Rescue and Rehome. We have had a good start to the campaign, and have raised about $700 so far towards this great cause. As always, thank you so much for the introduction to your family and friends to allow us to continue this initiative - 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.