| Welcome to the November issue of the Select Wealth Management Dashboard Newsletter. Every year at about this time, I find myself saying "I can't believe the year is nearly over!". But there you have it... I really can't believe that another year is nearly over.
Time is odd like that. Small increments of time can often take ages. Like when you're on hold to a call centre for 5 minutes with elevator music playing, it feels like it's never-ending. Or the half hour wait in the doctors waiting room can feel like forever. But then a year can slip by in an instant. It's odd. But this phenomenon is found elsewhere too - the phenomenon of small change going unnoticed in the short term, but big change resulting from it in the long term. It's actually quite common. Imagine the person starting a new diet. In the past, they have eaten McDonalds 3 times a week, and they commit to changing this to a fresh salad instead. It's a small change. After 1 week of the new regime, they feel no better or worse, and they haven't lost any weight. They have also found it a bit of a nuisance making salads 3 times a week. But they decide to stick with it - after all, they promised themselves they'd give this a good crack. Another week goes by, and still no results. But making salads is getting easier now they've had some practice. Week 3 is pretty good. There's a bit more of a spring in their step (or are they just imagining that?). And some of the salads they've learned to make are actually quite tasty too... Time goes by. Before you know it, a year has passed and they're feeling great. They have loads more energy, can fit their favourite pair of jeans again, and love eating salads. That's the magic of compounding. If they measured their success after 1, or 2 or even 3 weeks, the exercise will have been deemed a failure. They will have reverted back to old habits, and no benefit or change will have resulted. But with a bit of persistence, and the magic of compounding, the exercise was always going to be a success - it was inevitable. You could apply this concept in so many different scenarios. The folk at the COP26 Climate Summit are looking for solutions to climate change by making wholesale, fundamental change - big picture stuff. And that's great - hopefully they come up with some unique solutions. But in the meantime, we all have a role to play by making small incremental changes in our daily lives which can compound over time. These small changes are incredibly powerful. But nowhere is the magical power of compounding more obvious than financial planning and investing. The reality is that financial planning and investing is in fact incredibly simple. All it requires is discipline to allow compounding to work its magic - i.e. the discipline to stick to the diet. So much focus in investing is on what people can do right now, this week, maybe next month. "What are the best returns I can earn?" seems like such an intuitive question to ask. But like the diet, that's not where the magic happens. If you understand the math behind compounding you realise the most important question is not "How can I earn the highest returns?" It's, "What are the best returns I can sustain for the longest period of time?" That's not to say good returns don't matter. Of course they do. Just that they matter less than how long your returns can be earned for. "Excellent for a few years" is not nearly as powerful as "pretty good for a long time." And few things can beat, "average for a very long time." Average returns for an above-average period of time leads to extreme returns. It might seem odd to say that at Makowem & Isaacs Financial Planning, we aim to deliver you average returns. But this is our objective - average, predictable returns. Because if we can consistently do this, then we should achieve all your financial goals and fulfil our financial plan over a long period of time. I think we all win if we can do that. In terms of the markets, the big change in the past month has been interest rates. Mortgage rates have moved up sharply with a 1 year rate now around 3.50%; 2 year rates at 4.15% and 3 year rates at 4.40%. This is going to be an extremely rude awakening for some households at some point. Imagine a mortgage of $500,000 rolling off a 2.99% rate and being faced with a new 4.15% rate. They would have to pay an extra $5,750 per annum in interest costs. That's a lot! Term deposit rates also crept up over the past month, and for the first time in a while you can get 3% - 4% for good quality New Zealand corporate bonds on the New Zealand bond market. Share markets had a good run - New Zealand being the outlier with a -0.45% return, and the NZ$ rallied strongly against all trading partners. Here are the numbers for the past 30 days: |
||||||
|
||||||
In terms of your Select Wealth Management portfolio, there is not too much to report this month. Performance has been in line with expectation, and we are keeping an eye out for interesting bond issues to include in our portfolios. Finally, a quick update on our Giving Back program. Thanks to your wonderful support and generous referrals, and the hard work of the team here at Makowem & Isaacs Financial Planning, I am pleased to say that our campaign for Leukaemia and Blood Cancer New Zealand is on track to being one of our most successful campaigns since we started the program in 2016. It's great to be able to support this awesome cause. You can follow the progress of our campaign at https://mifinancialplanning.co.nz/giving-back.html As always, thank you for your continued support and referrals of friends and colleagues that makes this program possible. I really appreciate it. Warm regards Dave and the team at Makowem & Isaacs Financial Planning dave@mifinancialplanning.co.nz |
||||||
 |
||||||
This newsletter is intended for general distribution and does not constitute personal financial advice.