If property in Auckland is shooting the lights out then how have equity markets performed.

Since the global financial crisis in 2008 – “the best in my forty years”, it’s the first time I’ve seen the S&P 500 dividends exceed US treasuries yields. That’s right – dividends (the returns provided by company profits allocated to its shareholder). We are seeing record highs with dividends and record lows with fixed income investment (Bonds and Cash) (NZ). The last 30 years has seen the yields on cash and government bonds having managed from high double digits in the 80’s to high single digits during the 90’s  to mid single digits last decade and down to record low single digits over the last few years. Since July 2008 interest rates have more than halved and term deposit rates have fallen sharply (assisting residential property) (US). On the other hand the S&P 500 is trading nearly  four times where it was 20 years ago (without dividends) – but paying a dividend three times higher. The S&P500 is at a level of over ten times higher than 30 years ago  and paying a dividend of four times. Unfortunately many investors have missed this huge growth in US company market capitalisation and profitability. Why? Fear, scripting and poor knowledge of market behaviour. These roadblocks have a tremendously negative affect upon people’s ability to grow or maintain wealth. I believe this will get worse! Volatility is most often mistaken for risk, and risk mistaken for loss. Financial markets (the equity, the property (commercial) market, the Bond market) are cyclical and volatile. Prices move up and down. However, as I’ve just provided – declines are temporary and increasing values are permanent (within equity funds). But people mistake those temporary declines for loss – incorrect. The average time frame it takes equity markets to recover – from high to low back to record highs – is 40 months. That includes all recessions (bear markets) since 1926 – including the Great Depression, the Asian crisis, the Second World War and the Global financial crisis.

US small companies (without counting dividends) have grown by 12% on average (mean reversion). Large US companies 10%. The NZX50 (NZ’s top 50 companies) has outperformed US and Australia during my time in the financial services business (40 years).

What a shame so many new investors (KiwiSaver accumulators) have been in default funds through the greatest boom in equities (multiple sectors) in my lifetime. They will never see the likes of this again. It will be a once in a lifetime.

PS: The reason I refer so often to US markets and US statistics is two fold.

1. They have long term statistics (facts and performance history)
2. The US capital markets dwarf all others (47% vs 7% - the next highest which is UK)