By MARY HOLM -
The "invest offshore" message was loud and clear the other day, after news broke that somebody might have released foot-and-mouth disease on Waiheke Island.
By the time you read this, the claim may have been proved a hoax. Here's hoping so. If that's the case, take warning from it.
If it's still not clear whether the threat is real, now is the time to review how much of your savings are in overseas investments. If an outbreak has been confirmed, cross your fingers.
There's nothing like a threat of this sort to bring New Zealanders face-to-face with the country's vulnerability.
A food-and-mouth outbreak could cut gross domestic product by $6 billion in the first year and $10 billion in the first two years, according to a paper by the Reserve Bank and Treasury.
"The loss will continue to increase because potential output is permanently lower," the paper says. "What is not accounted for is the impact of such an event on the financial sector."
One thing is certain, that impact would be huge. The typical New Zealander, with a job, house and savings all in this economy, would be kicked in the guts. His or her neighbour, with considerable overseas savings, would be somewhat less affected.
The easiest way to invest overseas is via a New Zealand-based fund that invests in world shares.
"Hang on a minute," you might be saying. "Those funds have performed really badly lately."
That's true. In the first few years of this decade, world share values plunged, and the rising Kiwi dollar made that even worse for local investors.
In the past year or so, returns have gone back into positive territory, but the performance has still been eclipsed by the New Zealand sharemarket. However, the very fact that this decade's performance has been bad should actually encourage offshore investment.
Though I strongly disagree with trying to time markets – because we simply don't know what will come next – history shows that you're better to get into a type of investment that has been performing badly lately than one that has been performing well. There's more room for growth.
But how do we know there will be growth? We don't, in the short term. But it's important to look at the longer term. Any investment in shares or a share fund should be over several years, preferably more than 10. Over shorter periods there's a fairly big chance that you will lose money.
Since 1970, world shares have grown on average 11.5 per cent a year, including dividends, compared with 11.6 per cent in New Zealand.
It seems likely that in the future, too, long-term performance in the two markets will be similar.
What's more, there's a reasonable chance that world shares will do well when New Zealand ones don't and vice versa.
As reported in this column a few months back, a study of the 120 three-month periods in the past 30 years found that both world and New Zealand markets grew in 65 of the quarters, and both dropped in 18 of the quarters. But in the remaining 37 quarters, when one dropped the other rose.
In other words, if one market falls, there's a two-in-three chance the other is rising.
If the economy is crippled by foot-and-mouth or some other disaster it would be a comfort to have offshore investments that are growing.
Mary Holm is a seminar presenter, author of Investing Made Simple and publisher of Holm Truths, a quarterly newsletter for employees, clients and superannuation scheme members. Her advice is of a general nature. She can be reached at maryh@pl.net.
Source: Stuff, NZ
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