Our Changed Financial World
If you are holding bank deposits as long term investments and hoping that interest rates willincrease sometime soon…..be set to be disappointed. Most NZ economists are predictingnegative interest rates (at wholesale/bank level) will be a new reality. Offshore, the FederalReserve in the USA has recently changed its base policy for dealing with inflation and ratherthan use the tool of increasing interest rates to dampen spending, have indicated they willendeavor to achieve an “average” 2% inflation (i.e. allow inflation to go higher than this) beforeit next looks to increase interest rates.
A startling reversal of traditional thinking and pointing to US interest rates staying low for muchlonger periods of time. In turn this policy will inhibit our Reserve Bank from raising levels (whenthe coming negative cycle passes) because high NZ interest will almost certainly push up thevalue of the Kiwi dollar, an anathema to an exporting nation.
Expect many years of low interest from bank deposit and some are forecasting a decadeahead.
To increase returns, it is necessary to increase risk and you can sensibly do this by investing in a well diversified portfolio encompassing NZ and international bonds and share investments. How much risk you wish to take is the important question. For instance a rule of thumb range of return is as follows:
- Conservative allocation: 3 – 5% p.a.
- Moderate allocation: 5 – 7% p.a.
- Growth allocation: 7 – 9%p.a.
Your timeframe for investment and general feeling about risk will be a guide to the style of diversified investment appropriate to consider.
Active portfolio management
There is an age old debate as to whether passive management of a portfolio is better than an active approach. We believe there is a place for both styles although favour an active approach currently. To be able to move quickly between investment sectors, to introduce positions such as gold and silver in and out of a portfolio, to actively manage the currency position are all required at the moment and will not only add value but defend against markets moving south. Risk mitigation or protecting against the downside are critical parts of a good actively managed, well diversified portfolio.
What to do?
We would love to assist you in your decision making process. Through software analysis we can project expected returns based upon 15 years of actual past outcomes. We can also look to worst case scenarios so that you can assess how you might feel/react were there to be crisis investment events in future. In other words we can show you outcomes looking at the good, the bad and the very bad that allow you to make an informed decision as to whether there maybe another investment alternative to bank deposit.
Our clients are all health professionals like you and many have been following our advice process for 20 years or more. It is no trouble to arrange discussion with one of these clients if helpful.
Please contact us if you would like a (zoom) meeting to assess. This generally takes about an hour and is without cost or obligation.