From an investment point of view there was a simple but stark reality – if another Christchurch strength quake hits a major NZ city like Wellington, some NZ based investments will get clobbered.
For investors there is a simple solution – make sure you are diversified on and offshore.
Are you chasing high returns ?
If so there is a little trap waiting out there for you – some of last year’s best performing funds are heavily weighted to NZ investments - beware ;
Over weighting to such a small economy as NZ could easily be an investor’s undoing if we are clobbered by foot-and-mouth disease, or another bad earthquake
Prudent investors must ponder Wellington’s shake - how close to a major disaster was it ?
In 2012 the NZ share market fund we use returned over 30%
In 2012 the global share funds we use returned 15%
So far in 2013 – seven months – the NZ share market fund we use has returned 10%
So far in 2013 – seven month – the global funds we use have returned 19%
Last year’s best investment is often this year’s worst.
But isn’t NZ doing better than many other global economies?
It depends who you listen to, and maybe what you want to hear (no rose coloured glasses please). John and Bill have had to lead NZ out of the global credit crunch, the Pike River disaster, and through the Christchurch quakes, so they have had to keep it a positive slant on things, at least as much as they can.
However it’s not a matter of NZ doing a bit better than some other countries, or some other countries doing a bit better than NZ. The matter is investors would be most unwise to have heavy concentration of their funds in NZ for all reasons given above.
The economy to watch is the USA
Like or lump the USA, it is still the world’s major economy by far, and their economy
is doing quite a bit better than anybody expected.
Did you know they are still the world leaders in technology, and are expected to be self-sufficient in oil by 2020. They have lot of relatively cheap natural gas too. This is important for the US economy as they run on energy - with plentiful moderately priced energy, their economy is likely to do better.
U.S. outlook raised by Moody's
America is pulling out of its economic malaise, slowly but surely, according to the Moody's Investors Service rating agency.
Moody's as raised its outlook on U.S. debt to stable, shedding the negative outlook that it has maintained for nearly two years.
The move reflects a decline in the U.S. budget deficit, which is expected to continue to shrink over the next few years, in conjunction with a moderately improving U.S. economy, Moody's said in its report released late Thursday.
Moody's also affirmed its top rating -- Aaa -- for the U.S. government, noting that the USA's debt trajectory is on track to meet the criteria laid out in August 2011 for a return to stable outlook.
All in all, it sounds as if there are other places outside NZ that are OK to invest in.
A salutary lesson for investors
Certainly I am no doomsayer, and I wish the good people of Wellington a life free of any major quakes.
However the prudent investor and adviser would, as always, take note of what is happening around them and diversify accordingly.
Diversify widely across bonds property and shares in NZ and offshore.
A word of caution about property – many New Zealanders already have a lot of money tied up in their own homes, often in rental properties, and sometimes listed property trusts as well.
If you already have a lot of property in NZ, then concentrate on buying quite a lot more bonds and shares offshore than you have in NZ.
This article was supplied by Alan Clarke who is the author of a book entitled “Retire Richer” which is a practical guide for everyone age 25 to 85.
Alan also writes regular articles on www.acfs.co.nz
Alan is an independent authorised financial adviser (AFA) and his disclosure statement is available on request and free of charge.