December 2024 Christmas Newsletter

As we approach the end of the year, we’d like to take this opportunity to reflect on the past 12 months and share our final update of 2024.

Despite global markets facing challenges, including rising interest rates, geopolitical tensions, and inflationary pressures, investment portfolios on the whole have seen positive returns. We are pleased to have delivered great news to many of our clients.

The company itself has seen changes as well, with farewells, fresh faces, new initiatives, and steady growth. All of this is building up to an exciting 2025.

Before you get too busy with your last-minute shopping, Christmas BBQs, and road trips, we would like to leave you with a few final thoughts about your finances and investments.

• Plan a 2025 budget: Create a detailed budget outlining income, expenses, and savings to manage your finances effectively. Regularly review and adjust your budget to adapt to changing circumstances.

• Set clear financial goals: Establish short-, medium-, and long-term financial goals to guide your decision-making and resource allocation. Break down large goals into smaller, achievable steps to stay motivated.

• Automate savings: Make saving a habit by setting up automatic transfers to your savings or investment accounts. Consider using a budgeting app to track your spending and savings progress.

• Seek financial advice: Consult your financial adviser (Trilogy) to gain expert guidance and personalised strategies. A qualified financial adviser can help you develop a financial plan/strategy tailored to your specific needs.

  
  

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Market Update

Global markets have displayed remarkable resilience in 2024, as would have been reflected in many of your portfolios, with the S&P 500 leading the charge. This US benchmark index has surged nearly 30%, marking one of its strongest performances in recent history. However, it’s important to temper your expectations after such periods of growth. Exceptional years are relatively rare, with the S&P 500 exceeding this year's performance only 17 times in the past 74 years.

European markets, while positive overall, have underperformed global peers. The pan-European Stoxx 600 index has remained relatively flat for the year, in stark contrast to the strong gains seen in the US and Chinese markets. This underperformance can be attributed to ongoing economic concerns and political instability in the region.

Emerging markets have also shown resilience and growth potential. The MSCI Emerging Markets Index has delivered robust returns, driven largely by a surge in Chinese equities. China's stock market rallied over 20% in the third quarter alone, fueled by coordinated stimulus measures from the Chinese government.

Closer to home, the New Zealand market has also demonstrated impressive growth. The S&P/NZX 50 Index has posted a 14.2% annual increase as of November 2024, reflecting the strength of the local economy and investor confidence.

Local interest rates have also seen a significant reduction over the past year. The Reserve Bank of New Zealand (RBNZ) has cut the Official Cash Rate (OCR) to 4.25%, down from 5.5% earlier in the year. The Reserve Bank’s actions are in response to declining inflation, which reached 2.2% in the third quarter of 2024, and concerns about economic conditions. Financial markets are pricing in further cuts, with expectations of the OCR reaching around 3.25%-3.5% by the end of 2025. These lower interest rates are expected to support the housing market, with steady gains in house prices anticipated, and provide relief for mortgage holders in the coming year.

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Office Shutdown 2024

Trilogy’s last day of business for the year will be Friday, 20 December 2024, and we will be back on Monday, 6 January 2025.

For any urgent enquiries during this period, please contact us at info@trilogyfs.co.nz. We will respond as soon as possible.

Planning any transactions before the holidays? Let us know by December 17th so we can get them sorted.

Thanks for sticking with us in 2024! We appreciate your trust and support. We would also like to wish you and your family a Merry Festive Season and look forward to continuing to work with you, refreshed and recharged, in 2025.

Kind regards,

Trilogy Team

P.S. Below is a refreshing cocktail recipe to help you chill out this summer.

Tropical Summer Breeze 🍹

A light and fruity cocktail perfect for warm days.

Ingredients (Serves 1):

• 45 ml white rum (or vodka for a milder option)

• 90 ml pineapple juice

• 30 ml orange juice

• 15 ml coconut cream (optional for a creamy twist)

• Splash of soda water

• Ice cubes

Garnish:

• Fresh pineapple wedge or slice of orange

• Mint sprig

Trilogy Investment Update - November 2024

New Zealand interest rates and inflation

Adrian, our lending specialist, provides his insights about the current market environment in regards to interest rates and inflation.

Read further for further information on his points.

• 50 basis point cut in the OCR. The Reserve Bank of New Zealand (RBNZ) surprised markets with a larger-than-expected 50 basis point cut to the Official Cash Rate (OCR) in its October meeting. This significant move brought the OCR down to 4.75%, its lowest level since February 2023. The RBNZ's decision was driven by a combination of factors, including slowing inflation and a softening economy. Though headline inflation is sitting at 2.2%, domestic inflation remains at around 4.9%, due to increases in areas such as rent, local authority rates, insurance costs, and the price of pharmaceuticals.

• Mortgage rates are available from 5.59%. This is dependent on loan duration and bank.

• November 27th is the date for the final OCR meeting of the year. Based on the assessment of the RBNZ, they will decide whether to raise, lower, or maintain the OCR to influence interest rates and overall economic activity.

• Economists are anticipating a 50 to 75 basis point cut at this meeting. Floating and fixed rates are likely to fall following this announcement.

Donald Trump has been elected President of the United States

Donald Trump has secured victory in the 2024 U.S. presidential election by surpassing the crucial threshold of 270 electoral votes, defeating his Democratic opponent, Vice President Kamala Harris.

This marks a remarkable political comeback for Trump, who will return to the White House nearly four years after leaving office.

Key points of Trump's victory include:

1. Battleground states: Trump won critical swing states such as Pennsylvania, Georgia, and North Carolina, which were instrumental in his path to victory.

2. Senate control: Republicans have also gained control of the Senate, further strengthening Trump's position.

3. Historical significance: Trump's victory makes him the first former president to reclaim the White House in over 130 years (since Grover Cleveland).

There have already been reactions in the financial markets as a result of this election.

• Major US and European stock markets surged immediately following the election result. Wall Street's key indexes opened at record highs, with the S&P 500, Dow Jones, and Nasdaq reaching new peaks. The small-cap Russell 2000 index climbed approximately 4.8%, marking its highest level in nearly three years.

• The election results had varying impacts on different sectors. Banking stocks, including major institutions like JPMorgan Chase, Bank of America, and Goldman Sachs, saw significant gains of 6-10%. Oil stocks experienced a 3.5% increase, while renewable energy companies like NextEra Energy and First Solar faced declines. Tesla's stock price surged by 12.5% following Trump's announcement of appointing Elon Musk to lead a government efficiency commission. Cryptocurrency-related stocks also saw substantial gains, ranging from 11% to 21%.

• The US dollar strengthened against other currencies, while gold prices retreated slightly. Bitcoin reached a new all-time high of $75,281 USD, boosted by Trump's pro-cryptocurrency stance. Internationally, Chinese stocks faced pressure due to escalating US-China tensions, while Russian assets saw gains, with the Moscow Stock Exchange index up by 3.3%.

But what does this mean for us here in New Zealand? Here are the key takeaways:

• Trump's proposed tariffs, particularly on imports from China and other countries, could impact New Zealand's exports to the US. Higher tariffs may make New Zealand goods, such as dairy and beef, more expensive for American consumers, potentially reducing demand. Changes in US trade policies could force New Zealand to carefully navigate its trade relations to maintain economic stability, given its significant reliance on foreign trade.

• A stronger US dollar due to higher US interest rates could lead to a weaker New Zealand dollar. This has mixed implications for New Zealand: it could benefit exporters by improving their returns but could also increase costs for importers who source goods priced in US dollars.

• Diversification is crucial in investment portfolios to mitigate the impact of sector-specific risks. Some active investment managers may see the current market situation as potential opportunities.

• The global bond market is expected to experience significant shifts, potentially impacting New Zealand investors. Rising inflation pressures and increasing Treasury yields in the U.S. may influence New Zealand's bond market, affecting both government and corporate bonds. While NZ inflation-indexed bonds currently offer attractive real yields, investors should consider the potential for yield curve steepening and the need for careful duration management in their portfolios. The strengthening U.S. dollar could impact currency exchange rates, affecting returns on international bond holdings. New Zealand investors may need to reassess their fixed income strategies, balancing the opportunities presented by potentially higher yields against the risks of increased inflation and economic policy shifts.

Global Market Update

Recent economic data from major economies shows a mixed picture of recovery and ongoing challenges. As the Reserve Bank of New Zealand reduced its Official Cash Rate to 4.75% as inflation returned to its target range, Australia's inflation remained above target despite a strong labour market. In the United States, the economy grew by 2.8% year-on-year in the third quarter, with inflation moderating close to the Federal Reserve's target. Meanwhile, China's property market showed signs of recovery, supported by significant stimulus measures.

As the U.S. presidential election approached, market volatility has increased, with global interest rates rising due to concerns about U.S. public debt and stronger-than-expected economic data. Central banks worldwide have been cutting interest rates in response to easing inflation and slowing economic growth, with the U.S. Federal Reserve expected to follow suit at a more measured pace. China has implemented various measures, including interest rate cuts and a stimulus package, to stabilise its economy and property market, highlighting the ongoing efforts of major economies to navigate the current economic landscape.

Cyber Smart Week

New Zealand recently celebrated Cyber Smart Week. It’s a week dedicated to raising awareness about being safe online. The theme for this year was “Don't give to The Scamathon,“ as Kiwis have been unknowingly giving scammers $3.8 million weekly (according to www.cert.govt.nz).

In today's digital age, safeguarding your personal finances is crucial. Cyber threats like phishing scams, malware, and data breaches can compromise your sensitive information, leading to identity theft and financial loss.

Here are some tips to protect yourself:

• Be cautious of suspicious emails.

• Avoid clicking on unfamiliar links.

• Use long, strong, and unique passwords for all online accounts.

• Turn on two-factor authentication (2FA) for your bank, email, and social media accounts.

• Set your devices and apps to update automatically.

Remember, a proactive approach to cybersecurity can save you from significant financial and emotional distress.

PIR Letters

Some of you might have received a letter regarding a change in your Prescribed Investor Rate (PIR). We’d like to remind you that this is a normal process and is part of what the Inland Revenue Department (IRD) does to ensure you’re paying the correct amount of tax.

A PIR letter is a notification from the IRD informing you of your prescribed investor rate (PIR). Your PIR determines the amount of tax you'll pay on your investments held within a Portfolio Investment Entity (PIE). You'll receive a PIR letter if you've invested in a PIE or if your income has changed significantly, as your PIR is calculated based on your annual income. It's crucial to provide your correct PIR to your PIE provider to ensure accurate tax calculations.

Did you know?

• As part of Trilogy’s financial advice process, we offer clients the opportunity to complete a FinaMetrica risk questionnaire. This comprehensive questionnaire is a tool used to assess an individual's investment risk tolerance. The system profiles investors based on their risk tolerance (emotional capacity), risk required (to achieve goals), and risk capacity (level of risk that can be afforded).

• If you prefer a more flexible investment option than KiwiSaver, you can explore unlocked investments. These investments allow you to withdraw funds at any time and contribute ad hoc amounts, providing greater control over your money. Talk to us if you’d like to learn more.

• If market volatility is a concern for you, dollar-cost averaging is a strategy you may want to consider. Dollar-cost averaging (DCA) is an investment strategy where you invest a fixed amount of money in a specific investment at regular intervals, regardless of the market price. This strategy can help to reduce the impact of market volatility, as you buy more shares when prices are low and fewer when prices are high.

• As an investor, you will periodically receive custodian reports. These are detailed statements provided independently by the custodian directly to their clients to report their holdings at least twice a year.

If you have any queries or concerns about your financial, investment, and retirement planning matters, please feel free to give our office a call on 09 553 8928 or email us at info@trilogyfs.co.nz. If you are looking at getting mortgage advice, including refixing your mortgage, Adrian is happy to provide you with great mortgage advice. Get in touch with him via email (adrian@trilogyfs.co.nz) or phone (021 765 550).

Kind regards,Trilogy Team

Trilogy Investment Update - October 2024

As we navigate a complex global economic landscape, a convergence of significant events is shaping the financial landscape. The recent Reserve Bank of New Zealand (RBNZ) decision to cut the Official Cash Rate (OCR) has provided some relief to borrowers, while the milestone of KiwiSaver surpassing 100 billion New Zealand dollars in Funds Under Management (FUM) underscores the growing importance of retirement savings. Meanwhile, the looming US elections and their potential impact on trade policies and global markets, coupled with the ongoing conflict in the Middle East, Ukraine, and the possible impact on oil prices, can add further layers of uncertainty to the economic outlook. Amidst all this uncertainty, global equities, global infrastructure, and global property asset classes have performed well over the last few months, providing sound returns to investors.

New Zealand interest rates

The 0.50% cut to the New Zealand official cash rate (OCR) this Wednesday is welcome news for many. This brings the cash rate down to 4.75% from 5.25%, the first time the cash rate has been less than 5.00% since March 2023.

The central bank believes that inflation is now within its target range and that the economy has excess capacity. This decision follows a 25-basis point cut in August and comes despite economists' expectations for a smaller cut. Financial markets reacted positively to the announcement, with the stock index rising and the Kiwi dollar falling. While inflation is expected to be on target, economic activity and the labour market have continued to weaken, raising concerns about unemployment and deflation. Economists have differing views on whether interest rates are still too restrictive. The RBNZ remains confident that its current policy stance is appropriate and will continue to monitor the economy to determine future rate changes.

It’s important to note that lower interest rates resulting from the OCR cut can significantly impact savers. Savers may experience reduced returns on their savings accounts, term deposits, and other fixed-income investments. This can lead to diminished purchasing power, due to inflation outpacing lower interest rates, and potentially increased financial risk as investors seek higher yields. These factors can make it more difficult to grow wealth and achieve financial goals in a low-interest-rate environment.

KiwiSaver surpasses $100 billion in funds under management

This milestone underscores the scheme's role in securing New Zealanders' financial futures and promoting long-term savings habits. The $100 billion mark represents a substantial increase from previous years (up 19.3% from last year), reflecting the increasing number of KiwiSaver members and the consistent growth in contributions. This milestone is a positive indicator of the scheme's success in encouraging individuals to save for their retirement and to make prudent investment decisions.

Despite this, KiwiSaver still lags behind Australian Super, both in terms of fund size and average account balance. Where the average KiwiSaver balance is around $33.5k, the average Australian Super balance is about $250k*. This is largely due to Australia's longer history with superannuation, its compulsory nature, and higher contribution rates (employer’s contribution currently 11.5% per annum, increasing to 12.0% per annum in 2025).

While KiwiSaver has made significant strides, catching up to Australian Super's maturity and size will require deliberate action. Increasing mandatory contributions progressively—perhaps from 3% to 4% and then to 6%—can significantly boost savings. Encouraging employers to match contributions and simplifying the KiwiSaver system can also enhance its appeal. By prioritising financial education and offering a wider range of investment options, KiwiSaver can better cater to diverse savings goals and potentially achieve growth comparable to Australia's established superannuation system. However, this will necessitate sustained commitment and a focus on continuous improvement.

*(Deloitte Average Balances to 30 June 2023, rounded to the nearest $100. People with zero superannuation are not included in average data.)

Positive NZ Business Outlook

The latest ANZ Business Survey results for September 2024 indicate a positive outlook for the New Zealand economy. Business confidence surged by 10 points to +61, while expected own activity rose by 8 points to +45. These positive indicators suggest that businesses are more optimistic about the future and anticipate stronger performance in the coming months.

However, challenges remain. While experienced own activity rose slightly, it remained negative at -19, indicating that businesses are still facing short-term difficulties. Employment intentions fell by 5 points to -20, suggesting a cautious approach to hiring. Additionally, pricing intentions rose for the second consecutive month, indicating persistent inflationary pressures. Despite these challenges, the overall survey results suggest that the worst is over and we can be cautiously optimistic about the New Zealand economy.

US elections

The US presidential elections are as tight as ever, and at this point in time, there are only a handful of of key ‘swing’ states that could decide the next US President. These states are: Arizona, Georgia, Michigan, Nevada, North Carolina, Pennsylvania, and Wisconsin. It will be interesting to see what policies each candidate can bring to the table to win these states over.

It’s important to acknowledge that economic policies implemented by different administrations can have varying short-term and long-term impacts. For example, some economists argue that certain economic policies, such as tax cuts or government spending, can stimulate growth, while others may raise concerns about debt and inequality.

Ultimately, the performance of the U.S. economy is a result of a complex interplay of factors, and attributing it solely to the party in power can be misleading. On the whole, the US stock markets have performed okay during either administration in recent history.

US markets

The US stock markets have been experiencing a period of volatility, reflecting a complex interplay of economic, geopolitical, and corporate factors. While there have been some positive developments, overall sentiment remains cautious. However, the US markets have been very strong over the last 12 months. Major indices, like the S&P 500, have experienced a significant upward trend over the past year. Many US corporations have reported strong earnings in recent quarters, often exceeding analysts' expectations. Additionally, many companies have maintained healthy balance sheets with strong cash reserves and manageable debt levels. This financial stability has positioned them well to weather potential economic challenges.

The Fed Reserve cut its benchmark rate by 0.5% last month and is expected to cut interest rates further. Falling interest rates are usually good news for borrowers, banks, and governments as the cost of borrowing comes down. The Fed has indicated it might reduce interest rates by another 25–50 basis points in the next Federal Open Market Committee (FOMC) meetings (November, December).

Oil prices

The ongoing geopolitical tensions in the Middle East, particularly the escalating conflict between Israel and Iran, pose a significant threat to global oil stability. The region is a major oil producer, and any disruption to production or transportation routes could lead to supply shortages and price spikes. The ongoing conflict has the potential to escalate, further exacerbating these risks.

Additionally, the lingering geopolitical implications of the Russia-Ukraine war continue to influence oil prices. While the direct military conflict may have subsided, the ongoing tensions between the two countries, as well as their broader geopolitical rivalries, can impact oil supplies and prices. Russia is a major oil producer, and any actions by the Russian government that could disrupt its oil production or exports could have a significant impact on global markets. Moreover, the ongoing conflict has led to increased geopolitical uncertainty, which can deter investment in the energy sector and contribute to price volatility.

As a net importer of oil, New Zealand is heavily reliant on international markets for its fuel supply. Higher oil prices would lead to increased costs for fuel, impacting transportation, energy generation, and manufacturing sectors. This could result in higher prices for goods and services, including food, as transportation costs are passed on to consumers. Additionally, the increased cost of living could put pressure on household budgets and potentially impact economic growth.

Key Takeaways

• Markets often operate in cyclical patterns, characterised by periods of growth and decline. Understanding these cycles can help investors make informed decisions and avoid impulsive reactions to market fluctuations.

• We believe anyone who is over the age of 18 and below 65 should be in KiwiSaver to harness the benefits of the scheme (e.g., annual government contributions, employer contributions, tax efficiencies, etc.). If you are not already in KiwiSaver, just give us a call and we can help you get it setup.

• Even if the cash rate is falling, there are still attractive investment options available. Talk to us for more information about the best options to take advantage of the current economic environment.

• If you're investing for the long term using a dollar-cost averaging strategy, volatility can actually work in your favour. Volatility can create opportunities to purchase assets at discounted prices, which can enhance your long-term returns.

• A goals-based investment approach, which involves breaking down your investment goals into short-, medium-, and long-term horizons, can help reduce risk and improve your chances of achieving financial success.

• With declining interest rates, if you are thinking about taking on or refixing your mortgage, now is a good time to talk to our Mortgage Specialist, Adrian Dale (adrian@trilogyfs.co.nz). Adrian works with all the major banks, and non-banks, and can provide good advice to meet your future requirements.

  
  

If you have any queries or concerns about your financial, investment, and retirement planning matters, please feel free to give our office a call on 09 553 8928 or email us at info@trilogyfs.co.nz.

Kind regards,

Trilogy Team