Welcome to the September issue of the Dashboard Newsletter. It's hard to believe that by the next time I write this newsletter, we should know who will form the next government for New Zealand. With just over 3 weeks to go until the general election, the campaign trail is in full swing. Functions are being held up and down the country, adverts being run on radio and TV, and billboards defaced in every suburb. Last night saw the first leaders debate, and people are getting ready to head to the polls. With the MMP system, it would take a brave person to bet too heavily on the outcome - coalition negotiations can throw up unexpected and interesting results. The only thing that I am willing to take a (small) wager on is the fact that I think the voter turn-out will be higher than usual. No doubt we can debrief in next month's newsletter... For this month's newsletter, I want to spend a bit of time on our approach towards investing. Investment psyche is an interesting thing. If you ask 10 people what the objective of an investment is, the answer more often than not will be something like "to get the best return". On the surface of it, this looks reasonable and an entirely understandable approach. At Makowem & Isaacs Financial Planning, we consider another factor too. We want "to get the best return we can for a given level of risk". You see, if all you consider is the "best return", then you really need to take very big risks. That's the relationship between risk and return - to get very high returns, you need to swing for the fences. Sure, swinging for the fences might get you a home run, but it might also strike you out. We take our responsibility as custodians of our client's wealth too seriously to risk striking out. So our objective is not to get "the best return". Our goal is to deliver a predictable, consistent return which will achieve the objective of your Financial Plan. In order to do this, we only have to deliver an average return over the longer term. Anything above average is a bonus. I once read that the most valuable personal finance asset is not needing to impress anyone. This holds true in many instances, and certainly informs our investment approach. When we put in place a Financial Plan, we first establish what your risk tolerance is. Once we understand this, we use market data from the past 120 years to understand what the expected average return for this risk tolerance is, and what the best and worst possible returns for this risk tolerance could be. We then construct a portfolio with the sole objective of staying within the parameters of the best and worst case outcomes, and delivering the average return in the fulness of time. If we can achieve this, the Financial Plan will work, which will result in an enjoyable retirement. So we follow a very disciplined, structured approach towards investing. We take into account asset allocation (how to spread your money across the asset classes - shares, property, fixed interest and cash), currency hedging (how much of your money should be exposed to foreign exchange risk), tax treatment (such as PIEs and Foreign Investment Funds), economic forecasts, current interest rate movements, and investment costs. This gives us a strategic framework to construct a portfolio. We try avoid the temptation of making decisions or changes based on emotions or biases. We review our thinking every 3 months through a formal investment committee meeting, and measure our performance against peers in the market. Sometimes we are disappointed because our returns are below average. When this happens, we dig deep into the data to better understand why we have under-performed, and if there are any apparent actions that need to be taken to rectify the situation. More often that not, we hold conviction in our position, and ride out the cycle. Occasionally change is required (e.g. a change in asset allocation, currency hedging or fund manager). Other times we are pleasantly surprised and our returns are materially above average. When this happens, we dig deep into the data to better understand why we have out-performed, and try to replicate this in the future. We pat ourselves on the back for a moment, and then get back to the task of looking after our client's financial wellbeing. But most of the time we achieve our long term objective of delivering an average return. This is the outcome that satisfies us most, as we know that delivering consistent, predictable, average returns over time will fulfil Financial Plans. In terms of the markets, they have been mixed over the past month. Share markets have been quite "choppy" with biggish moves both up and down on any given day. All told, they are largely unchanged over the month though (the exception being Japan and London markets being up 5% and 4.6% respectively). Interest rates have settled relative to the big moves we have seen in the past 18 months. Mortgage rates crept up a bit, but only on the margins. Property prices fell a bit more, although this data does have a lag effect. Anecdotal evidence is that the property market is beginning to wake from its slumber - something that will please all home owners. Here are the numbers for the past 30 days:   I meet with researchers JMI Wealth this week for their quarterly investment review. They continue along the theme of slight over-exposure to fixed interest at the expense of property and shares - a theme which is consistent with several other research firms too. Some new funds are being introduced in the fixed interest sector to accommodate this position. 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 up to just over $1,000 for this great cause. I am confident that we will achieve our goal of $2,500 by the end of the year. 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

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