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Central Financial Planning
The solid share market returns in 2024 imply a general market expectation of better economic times ahead.
Market Commentary
Intro
2024 delivered strong returns for diversified portfolios despite a challenging global economic backdrop. In New Zealand, the S&P/NZX 50 Index gained 12.2% for the year. However, workers and households faced slowing growth, inflation, high interest rates, and rising unemployment. This disconnects between markets and the real economy reflects investors' focus on future expectations, with markets pricing in optimism for better economic conditions ahead.
Political Changes and Ukraine Conflict
Donald Trump won a second term as US president after a turbulent election, defeating Kamala Harris. His administration's potential policies, such as trade tariffs and immigration reforms, could impact markets, though campaign promises often face challenges in implementation.
In Europe, political instability persisted. Germany’s coalition government collapsed, prompting February elections. In France, a no-confidence vote ousted the Prime Minister, replaced by Francois Bayrou. Meanwhile, Ukraine’s war enters its third year, showing no resolution in sight.
Republicans Return to Power
With Republicans controlling the White House, Congress, and the judiciary, the Trump administration has unprecedented power. Historical parallels suggest significant policy changes could follow. Initial market reactions were positive, with the S&P 500 rising 2.5% post-election. However, widespread tariffs or deportations could increase inflation, leading the Federal Reserve to slow or halt interest rate cuts.
Currency Markets
The Republican victory boosted expectations for US growth, potentially strengthening the US dollar. At the end of 2024, the NZD/USD exchange rate was 0.5640, continuing a long-term decline from its 2014 peak. Historical exchange rate trends show that external factors, not just US policies, shape currency movements.
Fluctuating NZD

The first period (blue line) spans 12 years from June 1973 to March 1985, showing the NZ dollar's sharp decline against the US dollar, falling from $1.40 to below $0.50. This period was marked by economic stress, with the 1973 oil shock driving high inflation and low growth. Recovery began with the David Lange-led government’s 1984 reforms, including floating the NZ dollar on 4 March 1985.
The second period (orange line) covers 1985 to 2005, following economic reforms that drove sustained growth in the 1990s. During this time, the NZD/USD rate averaged 0.5711, ending slightly above $0.72.
The third period (green line) runs from 2005 to 2024, encompassing crises like the Global Financial Crisis, Christchurch earthquakes, and Covid-19. These events left a legacy of high inflation and low growth. Over this period, the NZD/USD rate averaged 0.7043, ending at $0.56 in December 2024, well below its 2014 peak.
Digital Currencies

Bitcoin’s 1,200% surge from 2020 to 2024 highlights its speculative nature. Unlike traditional investments, cryptocurrencies lack intrinsic value or expected cashflows. Bitcoin’s volatility is extreme, with 296 instances of single-day losses exceeding 5% compared to just five for the S&P 500. While speculative assets like Bitcoin can be attractive to some, they are unsuitable as reliable hedges or safe investments.
The More Things Change
Despite political shifts in the US, good businesses will continue to thrive globally. While uncertainty may rise, long-term investment principles remain unchanged: focus on diversification, quality assets, and risk management. Speculation, whether on cryptocurrencies or politics, is no substitute for a disciplined approach to investing.
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