| Welcome to the first issue of the Select Wealth Management Dashboard Newsletter for 2022. I hope the new year has started well for you!
It's that time again where I have a crack at making a few predictions for the year ahead. You'd have thought that by now I would've learned not to bother - it's a mugs game... As economist John Galbraith famously said, "The only function of economic forecasting is to make Astrology look respectable". But it's a habit I've had for over a decade, so I may as well continue - and it'll give us something to chuckle about in 12 months' time when we reflect on it. So here goes... Prediction 1 - Interest rates: I'll ease my way in this year by starting with interest rates. The OCR (Official Cash Rate) in New Zealand starts the year at 0.75%, and the FED rate in the USA starts the year at 0.25%. I predict that there will be 2 x 0.25% rate increases in New Zealand by the end of the year (taking the rate to 1.25%), and 3 x 0.25% rate increases in the USA (taking their rate to 1.00%). The biggest impact this has for most people is the effect that has on mortgage rates. At the moment, you can secure a 1 year mortgage rate of about 3.65% (assuming you have 20% equity). If I'm right about the OCR, expect this same 1 year mortgage rate to be closer to 4.25% by the end of the year. Prediction 2 - Housing market: If you owned a property in 2021, your wealth will have grown materially. The average house price in New Zealand increased by nearly 25% during the year, and currently stands at $1,006,632 (according to propertyvalue.co.nz). But I think 2022 is going to be a lot more challenging for the property market. Mortgage rates went up sharply in 2021, and are likely to go up a bit more in 2022 (if I have prediction 1 correct). Reserve Bank data suggests that there is $210 billion worth of mortgage debt due to roll off fixed rates this year. All of that will need to be refixed at materially higher rates. Add to the mix the fact that lending criteria for banks are far more restrictive now (amendments to the Credit Contracts and Consumer Finance Act, new LVR restrictions and potentially new Debt to Income ratios), and I think there are headwinds for property. I imagine values finish the year more or less where they started, or perhaps slightly below - something in the region of 0% to -5%. Prediction 3 - Bitcoin: I'll be the first to admit - I don't know what Bitcoin is. I don't understand it, and I don't invest in it. So it seems crazy to even be commenting about it. The price of a Bitcoin is currently US$42,692, and depending on whose forecast you read, it could be anything from US$25,000 to US$110,000 by the end of the year. I'm not going to even hazard a guess as to where in that range it lands. But I will say this - at the moment, El Salvador is the only country in the world where Bitcoin is legal tender. I predict that by the end of 2022, there will be at least 1 other country to adopt Bitcoin as legal tender too. Prediction 4 - Sport: There are some significant sporting events in 2022 - the Winter Olympics, Woman's Cricket World Cup, Commonwealth Games, and of course my beloved Phoenix winning their first ever A-League title (I live in hope). But the most significant sports event of the year is the FIFA World Cup in Qatar. Can France defend their title? Can England break their 56 year drought? Will Brazil or Argentina do it for South America. It's anyone's guess this year - particularly given that there is always a chance that Covid throws in a curve ball and results in a few key players missing out unexpectedly... But I'll take a stab and say either France or Brazil lift the trophy this year. Prediction 5 - Space travel: I've always been intrigued by the vastness of space and the opportunities this presents. I also marvel at how advanced space travel has become in recent times - I mean we're planning on sending humans to Mars this decade! In doing my research for writing this newsletter, I read this survey from Ipsos where 14% of respondents expected aliens to visit earth in 2022... I'm not quite that sold on the space thing, but I do have a prediction. With the Space Tourism race heating up, I predict that there will be more civilian fare-paying space travellers in 2022, than official astronauts. Prediction 6 - Investment Style: A few years ago, the big debate was which investment style was superior - more expensive Active Investment Management (funds that employ people to make active stock picking choices), or low cost Passive Investment Management (funds that use algorithms to mimic certain indexes, e.g. the S&P500 or NZX50). Opinions were divided, and the debate was never categorically settled. Personally, I have always felt like there is room for both - some years, an Active style will outperform, other years the Passive style will prevail. My prediction for 2022 though, is that good Active Managers will outperform their Passive counterparts. My rationale for this is because I think there is going to be a lot of volatility in markets this year, and this should favour Active managers. To measure this, I'll use some funds (that are comparable in all aspects except the active vs passive style) as benchmarks. The matchups will be:
Prediction 7 - Markets: Share markets go up, and share markets go down - we just don't know in which order. I believe that this year they will go up and down throughout the year - a lot. I.e., I think there will be volatility this year. There will be a lot of headlines that will scare and excite investors - interest rate hikes, Covid developments (good and bad), midterm elections in the USA, tensions between China and Taiwan, Russia and Ukraine. So lots for the markets to consider. I also think that there will be material divergence between various markets - some will do well, others not so. But once the dust has settled, I believe we'll see modest share market growth in aggregate - something in the region of 0% to 5%. To measure this, let's take the value of 5 markets as at 1 January 2022, and see where they finish at the end of the year:
So there you have it - my musings for another year. Remember - don't pay too much attention to my predictions, or anyone else's for that matter. There is nowhere near enough certainty in predictions to base investment decisions upon. The only prediction I can make with any degree of certainty is this: For those of you who are not retired yet: if you save more of your income, you will accumulate more wealth. For those that are in retirement: If you draw down too much on your retirement savings, it'll expire before you do. If you don't draw down enough, you will take it to the grave and never enjoy it's benefits. Neither of these are good outcomes. Just like these statements, a good financial plan is very simple and should help you get the balance between saving and spending about right. Save enough to secure your retirement, and then make sure you spend it when you do retire... 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 soon. Shares and property had a solid quarter of performance, but fixed interest delivered marginally negative returns in the face of rising interest rates. If you have any questions about your performance report, please do not hesitate to contact us – we are here to help. Finally, a quick update on our Giving Back program. I am very excited to announce that for the first 6 months of 2022, we will be working with HUHA - Helping You Help Animals. HUHA is New Zealand's leading no kill shelter and dedicated to the rescue, rehabilitation and re-homing of animals in need all over New Zealand. HUHA is dedicated to teaching empathy to the community and providing shelter for those less fortunate animals that struggle to survive in today's disposable culture. The sanctuary is fun and interactive in many ways, designed to encourage our community to be proactive and take responsibility for the welfare of animals and the protection of our unique environment. HUHA also responds to national and international disaster relief emergencies such as the 2019 Nelson Bush Fires and the 2020 Australian Bush Fires. HUHA is in the process of developing a purpose built community hub for animal rehabilitation, education and national disaster relief on land they own on the Haywards Hill. It is well under way and they will be opening their doors to the public in the months ahead. Makowem & Isaacs Financial Planning aim to make a small contribution towards this fantastic facility and cause. You can learn more about the great work that HUHA do at https://huha.org.nz To keep track of the Giving Back program visit https://mifinancialplanning.co.nz/giving-back.html Thank you for your continued support. 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.