Let’s have a dose of investment realism for 2016

The investment market is becoming more topical for financial journalism as the twin drivers, being demographic change and KiwiSaver, provide greater demand and a more concerned participant.

Unfortunately the quality of journalism is often light in rationale and progressively hysterical as events occur which drive negative sensationalism.  Namely China, (slowed growth); The Federal Reserve (.25% interest rate rise) and the price of oil (new low).  Other factors are sure to arrive over time, such as a presidential election.

Anyone with half a brain should realise that all emerging economies should slow at some point.  If New Zealand investors were totally reliant on Fonterra as their only equity holding (and that wouldn’t occur if they were a client of FoxPlan) perhaps the commodity market is an issue.  The New Zealand total market capitalisation however is about half of 1% - I would expect New Zealand investors to understand this and be somewhat more internationally diversified.  Less than 1% of US exports go to China and as China depreciates its currency – the world experiences greater bargains for its consumers – through Chinese imports.

The US interest rate rise from zero to .25% will make about as much difference as a sneeze in a hurricane – in fact expectation has been positively expectant in markets around the world for some time.  It is hard for us in New Zealand to imagine a .25% OCR.  I’m sure we wouldn’t have thought the world was ending – going from zero to .25% and yet markets driven by negative sensationalism somehow see negatives in both these occurrences.

Finally – the price of oil.  Sure the energy sector has been negatively affected, but the rest of us are celebrating, including most businesses and the farming sector.

From a financial advisory perspective what is of most importance is an abiding philosophy.  The more your investment policy is dictated by lifetime planning and the less you engage with each day’s apocalypse the greater calm you will have and less emotional volatility fatigue driven by journalism’s series of catastrophist drivel.  Markets are cyclical – that’s what they do and more importantly what they have always done.

Happy New Year