The US Elections and Your Investments

We’ve all now come to grips with the result of the U.S. election. Given the polls just before election day, the outcome was a surprise, to say the least.  The result has been compared to Brexit, which was one that was similarly surprising.

Perhaps we are less sceptical. Living in the world of financial markets, we know that probability is only ever as the name suggests.  It represents something that is likely or probable to occur, and so is very different to the word certainty.

Markets quickly adjusted yesterday as reality set in. Overnight, S&P 500 futures markets were down. It has rebounded today though, and is up 1.4% at the time of writing.  All that means is that, ironically, investors don’t know what this means.  Will the American business community reign Trump in, or will he be allowed to follow through on his election campaign promises?  Trump won’t be able to pass law, but he will be able to put a block on securing trade deals (such as the TPPA), for example.  Many New Zealanders that are anti-TPPA would also be very anti-Trump, and yet he’s very likely to kill the deal that they didn’t like.  It shows how complicated this election really is.

From the perspective of your portfolio, it’s intriguing to look at the relationship between the US president and investment returns. Historically, markets have done better when a democrat is president rather than a republican (9.7% growth as compared to 6.7%). However, the same data shows the markets do best when the republicans control both the House of Representatives and the Senate.

Source: http://time.com/money/page/2016-presidential-election-clinton-trump-affect-finances/

After this election, the republicans hold the House, the Senate and the presidency.

But there is more to the data. When the US president has a negative approval rating the markets have done 4% better than when the country gives the president positive ratings.

In reality, the data indicates that the relationship between investment markets and the presidency is a fairly weak one. What drives markets are businesses that innovate, solve problems and continually provide better goods and services at lower prices. Businesses have been doing this for hundreds of years and will continue to do so for many more.

Someone almost universally regarded as being one of America’s worst presidents was Warren Harding, the 29^th US president (1921 – 1923). Amongst his many blunders, he appointed a number of corrupt officials.  One of his cabinet secretaries went to prison for corruption. [1]

How did he get elected? Author Malcolm Gladwell suggested in his book Blink that people believed Warren Harding would be a good president because he appeared stately and presidential.  It was a “blink” decision. [2]

Why do we bring this up? Only because between 1921 and 1923, the Dow Jones returned around 32%. [3]

“Conventional wisdom says a president’s economic policies matter greatly to Wall Street. But… investors since the Great Depression have managed to make money in war and peace and under successful and failed administrations.” ^[4]

Many of our clients are invested in portfolios built to last 20 to 30 years. Over that time frame, both good times and bad times are a given. That is the nature of capitalism which funds, what we can see in retrospect, are both worthwhile and worthless economic ventures. We believe history shows us that a globally diversified, low cost portfolio is a ship that can and will survive the storms of politics, because it is founded on the success of business. Presidents come and go, but business in aggregate has never gone out of business, and won’t in the future, whatever president-elect Trump does.

So we encourage you to relax, to tune in to the news as an interest, but know that your long term plans are based on something much more solid and stable than politics. 

[1] http://time.com/money/page/2016-presidential-election-clinton-trump-affect-finances/
[2] https://en.wikipedia.org/wiki/Teapot_Dome_scandal
[3] http://content.time.com/time/specials/packages/article/0,28804,1879648_1879646_1879696,00.html
[4]http://www.automationinformation.com/DJIA/dow_jones_closing_prices_1921_to_1930.htm

Avoiding the pitfalls of Kiwisaver.

I came across this article online when browsing. It's a very interesting look at the double edged sword of managing your Kiwisaver without professional advice, and the attitudes of everyday Kiwis towards Kiwisaver.


Original Article by Susan Edmunds Here

"Massey University's Claire Matthews is speaking at today’s New Zealand Capital Markets Symposium, at AUT, about her paper on KiwiSaver member behaviour, which looked at what drives people to choose certain funds over others. She said some of the research results were surprising.

Previous studies have shown that savers opted for bank funds because they could see their KiwiSaver balances online. But Matthews’ study said it also seemed to prompt people to move away from banks. “It’s odd. We’re speculating that it’s because they are able to check the balance, they can see when there is a downturn, they’re not happy and go somewhere else. It’s not a very good way of managing your KiwiSaver.”

She said it might be a sign of KiwiSavers’ inexperience. “It will be interesting to see whether that continues or whether it changes as people become more used to KiwiSaver and seeing ups and downs.”

Providers’ fees were having a significant effect on which funds KiwiSavers chose to put their money in, Matthews said. But she said it was unclear whether they completely understood them. “People are going to be looking at the fees, whether they’re making good comparisons or not is unclear…. Sometimes you pay higher fees for higher returns.”

Matthews said savers were definitely not getting enough advice. “KiwiSavers are disadvantaged because they are making decisions that are long-term and have the potential to have significant impact on their retirement lifestyles but they are unable to access the advice they need to ensure they are making the right decisions.”

As we can see, there are many aspects to consider with Kiwisaver, some becoming fairly complex. When faced with the challenges of going it alone with Kiwisaver, people can understandably make spur of the moment decisions that could affect their long term financial future. Kiwisaver is designed to be a long term savings programme, and previous research has demonstrated that not enough has been done to help Kiwis understand the aspects they need to know to get the most out of the programme. One previous study for instance, has shown that over 30% of Kiwis get their Kiwisaver advice from their own family or friends.

Kiwisaver can be a great long term boon to your future in retirement, and that's why we're here to help with professional Kiwisaver advice. Our Investment Specialist Ross Wallace offers market leading experience with Kiwisaver and can simply and effectively help you make the best decisions for your Kiwisaver needs, taking your unique financial circumstances into account. He can bring clarity to a lot of the confusing issues surrounding Kiwisaver and help you get the most out of it.

Don't hesitate to ask us your Kiwisaver questions below, or at enquiry@sprattfinancial.co.nz.

The official site of Kiwisaver.

Our official Investments Page. 

Ross Wallace's Profile and Contact Details.

New Zealand's Unique Investment Advantages

As New Zealanders, we should wake up each morning thankful to live in such a beautiful country. Our scenic wonders are unmatched and we are internationally regarded as a prime and sought after tourist destination. However, our environment and our people aren't all we have to offer. New Zealand also offers unique advantages in business, and our investment environment is safe and prosperous. This article will investigate why New Zealand is a great place for your investments.

Key Awards and Statistics

An under reported fact is that New Zealand has recently ranked first in the world in three investment categories:

1. Protecting Investors (World Bank Doing Business Report 2013)
2. Starting a Business (World Bank Doing Business Report 2013)
3. Lack of Corruption (Transparency International Corruption Index 2012)

Anti corruption agency Transparency International continues to rank New Zealand as Number One for honesty and integrity in its public sector, having now achieved this status for seven consecutive years. Thus, New Zealand offers an unmatched record of safety for your investments that currently no other country can match.

Our economy is in a stronger position than many western economies, having weathered the brunt of the world economic crisis and emerged in a healthier state when compared to states in the European Union and the USA. Whilst no economy can be said to be invulnerable, we are relatively isolated from the travails in Europe and the US and have strong ties to emerging and thriving economies in Asia.

We boast a wide range of free trade agreements with other nations, a simple tax code (the third lowest in the OECD in terms of time taken for taxpayers to comply with tax obligations, December 2010) and an absence of import tariffs or Government subsidies, facilitating both domestic and foreign investment.

List of Nations New Zealand has Free Trade Agreements With:

- China
- Australia
- Vietnam
- Phillipines
- Cambodia
- Brunei
- Indonesia
- Hong Kong
- Myanmar
- Thailand
- Malaysia
- Laos
- Singapore
- Chile

Negotiations are also under way with India, Korea, Russia, Belarus and Kazakhstan, and New Zealand is a key driver behind the Trans Pacific Partnership.

A 'Can Do' Culture

If you need an environment that fosters success, banishes negativity and finds innovative solutions all built upon a foundation of entrepreneurship, dedication and hard work, New Zealand is the place. As a smaller nation of less than 5 million people, New Zealand achieves big on the world stage even with fewer resources than its chief competitors. This is a testament to the attitude of the New Zealand people and the positive business environment they have cultivated, in which more is made from less and we seldom take no for an answer!

Esteemed Position and Strong Currency

Finally, New Zealand is among the top 20 rated sovereign nations in the world. Standard and Poors gives New Zealand an AA+ Local Currency Rating, an AA foreign currency rating and an AAA T&C assessment. Furthermore, the New Zealand dollar is trading very strongly against the $US the Pound Sterling and the Euro, meaning that making New Zealand dollars through investments will go a long way in the international marketplace.

Source Credit: http://www.nzte.govt.nz/en/invest/new-zealands-investment-advantage/

If you are interested in making investments and taking advantage of our country's unique advantages, email Ross Wallace (Authorised Financial Adviser) at ross@spratt.co.nz.

Find out more about our investment services.

Ross Wallace (AFA) profile.