| Welcome to the November issue of the Select Wealth Management Dashboard Newsletter. Well here we are at the end of November already. Another year almost wrapped up. It's been an interesting year so far from an investment perspective. The might of the American share market has prevailed, with the S&P500 up an impressive 17% year to date. But not everywhere has fared quite so well. Closer to home, the Aisa Pasific region has been mixed with the New Zealand, Australian and Hong Kong share markets all in negative territory year to date, but Japan the outlier with a whopping 28% return. Over in Europe, it's also mixed with the London stock exchange flat year to date, but the French and German markets up over 10% each. So a very diverse range of outcomes - a good reminder of the benefits of diversification.
At a more granular level, my observation has been that New Zealanders are being affected in different ways by the sharp rise in interest rates we have experience in the past 18 months. Property owners' wealth has been diluted from the fall in value of their property/ies. This pain is doubled for people who also have a mortgage which re-fixed at a much higher rate. On the other side of this, you have deposit holders who are enjoying higher returns on their term deposits for the first time in a decade, and first home buyers who are feeling like home ownership might be a possibility again given the better entry prices. Everyone has been affected by the high inflation rate, and the "cost of living crises". There is no doubt that the supermarket run is materially more expensive than before. Most business owners that I speak to have also said that it has been a challenging year for them, and that they have battened down the hatches and are just trying to keep their powder dry. So all in all, 2023 seems to have been a pretty challenging year for a lot of people. This backdrop reminded me of an important lesson I once learned from author Morgan Housel - "Save like a pessimist, but invest like an optimist". I manged to find this 10 minute video of him speaking to the subject - worth a watch if you can find the time. The basic premise is that human beings typically have both optimistic and pessimistic tendencies, and the key is to balance these properly. An extract from the interview: "One of the biggest obstacles investors face, I think, is the seduction of negativity. I think we are hardwired through evolution to be extra reactive to bad things because overreacting to that rustling bush would make you more likely to survive than under reacting to it if it happened to have a tiger behind it, even if that was unlikely". This is clearly a healthy pessimistic trait which has served our species very well. But we need to be careful that this pessimism doesn't spill into our investment approach. When it comes to investing, people seem to be sceptical of optimism and drawn towards pessimism and fear. There is a saying "Bears sound smart, Bulls make money". You always sound smarter if you're bearish. People want to hear how the expert is pointing out all of the things that could go wrong - this makes it seem as though they are on your side, looking out for you. But the reality is that all the evidence points to continual innovation, progress and improvement. We've gone from horseback to Electric Vehicles, smoke signals to mobile phones, star gazing to space travel. Medical innovation has eradicated diseases like smallpox and polio, which 100 years ago would have been a death sentence. Global poverty continues to decline with more than a billion fewer people living below the International Poverty Line of $2.15 per day today than in 1990. As we speak, the smartest minds in the world are working on solving the problems that the world faces today - mainly around climate change. And in all probability, they will come up with the solution. And that's why share markets have delivered such good returns over the past 50 years, and will almost certainly do the same again in the future. Invest like an optimist. That's not to say we won't have periods of challenging investment environment. We're in the midst of one right now. The past few years have been as challenging an investment environment as I've encountered in my 20 years of investing experience. It really has been a slow, tough grind. But this is not to be unexpected - we know these periods will occur from time to time. It's all part of a natural healthy investment cycle. The challenge is to avoid the temptation to allow your pessimistic tendencies to cloud your investment judgement because of the environment. Now is the time to hold your nerve and continue to invest like an optimist. To not over-react to the rustling bush. And that's where the other part of the lesson comes in - save like a pessimist. If you do this, you will always have the financial means to ride out any of the curve balls that life (or the markets) throw at you. And curve balls are inevitable - you can be sure you'll get them. That's why financial planning is so important. If you have a plan which can clearly demonstrate that you have enough savings to achieve the things in life that you want, then you should always have the confidence to invest like an optimist. No amount of volatility or perceived uncertainty should derail a sound financial plan. Save like a pessimist. In terms of the markets over the past 30 days, it really has been a game of 2 halves. After a rotten end to October, November has started exceptionally well. This has mainly been driven from data coming out of the USA confirming that inflation is falling faster than expected, and that the central bank (the FED) is unlikely to raise interest rates any further. This sentiment is flowing through to many other western countries, and consensus now is that the next interest rate move is likely to be a cut rather than another rise (although opinion on when this might happen varies). Markets have responded very positively to this development. House prices in New Zealand also seem to be stabilising, and there seems to be some signs of life in the property market. Volumes of listing has increased sharply, and the average time to sell is reducing. This is a really positive development. Mortgage and deposit rates remained more or less unchanged over the past month. Here are the numbers for the past 30 days: |
||||||
|
||||||
In terms of your Select Wealth Management portfolio, there have not been any material changes in the past month. We remain more or less neutral in our asset allocations - i.e. not overweight in any particular asset class. The only exception is a slight underweight to property still. We remain very constructive on fixed interest with current interest rates offering very attractive returns for investors. The prospect of declining interest rates are also a good reason to lock in the current attractive yields on offer today. Finally, a quick update on our Giving Back program. Our campaign for the Billy Graham Youth Foundation is going really well, and we are now very close to our goal of $2,500 (we have about $2,200). We are looking at options for our next campaign (January to June f 2024), so if you know of any individuals or organisations that you think would be suitable candidates, please do not hesitate to contact me so that we can include them in our considerations. As always, thank you for the introduction to your family and friends which enables us to keep this program running. To keep track of the Giving Back program visit https://mifinancialplanning.co.nz/giving-back.html 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.