All we seem to hear is negativity about the financial markets but the reality is that the year has been pretty good for the majority of New Zealanders who have invested.
Let’s put things into perspective and look positively at what has passed this year.
- Interest rates have fallen to historical lows. This makes it easier for those with a mortgage to meet mortgage repayments and if they desire, keep payments at the same level as two years ago and in doing so, pay off the mortgage in a shorter timeframe, thereby saving thousands in interest.
- The reduced interest rates have resulted in lower term deposit rates but we still have some of the highest interest rates in the world relative to our credit rating. On average, New Zealand term deposit holders are getting an interest rate about 4 times higher than those in the USA.
- House prices are starting to stabilise around the country (with a few notable exceptions) and we are once again seeing rapidly escalating house prices in the main centres - in particular in Auckland.
- Inflation is low which is fantastic as inflation is probably the biggest destroyer of purchasing power for retirees living off income and capital.
- The NZ sharemarket has a number of high quality high dividend paying companies which consistently pay out dividends greater than 5% before tax. Not only do they partially replace bonds as an income source, but they have also produced a capital gain over the past 12 months.
- Our currency is still high based on long-term rates but it is at least starting to stabilise around current levels. Our high dollar has meant it has been a fantastic time to be investing offshore as our dollar buys more investment than previously. If over time our dollar weakens against other currencies, then a good gain can be made.
- Despite all the negativity, the local stock market and a number of international stock markets have performed well and a number of managed funds have produced excellent returns in the 12 months to the end of September.
- There has been a tightening of regulatory controls on investments and this will result in greater transparency and improved reporting. There is also an increased focus on investment product fees and this will see some fees reduce over time.
- KiwiSaver continues to be a huge success and this bodes well for the New Zealand capital markets.
There are still a large number of financial issues that the world needs to resolve and a number of economies are not out of the economic mire yet. However, the dire predictions of large scale economic collapse that were being bandied around at the beginning of the year have not materialised. The world financial markets have continued to do their thing and adapt to new challenges and find a way for the financial world to continue. The financial markets are actually pretty resilient and despite the rhetoric from some, a resolution is usually found for most issues.
Talk to your Milestone adviser regarding any queries you have on the markets or your investment portfolio.