2023 Returns

[Bjauck]

Interesting thread.....good to know I'm not the only one who does this annually. For the sake of participating in this thread +5% for me across everything....not one of my better years, but there is something else I want to explore.

Per the Black Monday thread IIRC SailorRob you mentioned that equities (i.e. S&P500) outperform property over a long enough time period or words to that effect. I then posted a link to the S&P500 returns and an inflation calculator. I recall having this debate with my father eons ago re shares vs property and I took your position then. But then life and marriage got in the way and one just 'had' to buy a house. I ran my numbers from mid 1997 to mid 2023 (which is a long enough timespan for such a measurement) on my family home transactions. Nominal return was +8% CAGR, after deducting ownership opex and adjusting for 2 x equity injections. This reduces to +5.6% CAGR when adjusted for NZ inflation.

IMO there is NO WAY I could have achieved this level of return on equities over that timeframe and the S&P calculator confirms it. It helped being mortgage free since 2006 and I was lucky enough to ride a couple of waves despite the awful first 5-6 years for NZ property. No interest or rent payments since 2006 has been liberating and likely destroys the own vs rent argument from a weekly cashflow viewpoint. I'm sure others have had a similar experience and whilst my father did not articulate well the 'why' to buy eons ago....I can see why now. Counterpoint: this is simply my anecdote and it may not be representative of broader market data. Something I have focussed on since 2000 was "profits are in the buying"...the selling confirms/crystallises your earlier decision. I'm no property guru; I was lucky.

Owning your own home can be tax efficient too - no income tax is charged on its net imputed rent (after costs) value to you. Plus no capital gains tax, nor stamp duties are payable. Whereas rent is paid from net income (after tax) . So as income tax as a proportion of income continues to rise, and if pension fund tax, capital and capital gains continue as they are now, housing will be even more attractive as a repository of wealth.

1997-2023 was a good time to own a house. Median value Houses now cost more multiples of median income than back in 1997. In the next 26 years, I wonder How likely will it be to see a similar growth in multiples of median incomes to buy a median house?

According to sharesight my financial portfolio return was 7.5% gross, about the same as the return from Smartshares NZTop 10 ETF. So I am content, as I had several large term deposits for most of the year, one of which was invested in the last few months in NZ shares. My largest holding(IFT) and second largest now (MCY) certainly helped pull the average up. I sold my remaining ATM at the beginning of the year which helped too.

[iceman]

I've had the worst year in decades. Have property and shares spread over 5 countries so a bit hard to be exact. But I believe my returns are somewhere between 2-5%. Much of it good but 39% of my share portfolio in NZ is in 1 stock that went backwards 18% this year, after going up roughly 160% in the last 2 years.
All about time frames. 2023 looked at in isolation, was a bad one for me.

[Muse]

I've had the worst year in decades. Have property and shares spread over 5 countries so a bit hard to be exact. But I believe my returns are somewhere between 2-5%. Much of it good but 39% of my share portfolio in NZ is in 1 stock that went backwards 18% this year, after going up roughly 160% in the last 2 years.
All about time frames. 2023 looked at in isolation, was a bad one for me.

all about time frames indeed. 2023 was a sensational year for my portfolio. 2022 was tough work. preceded by 3 good to v good years before that.

[JBmurc]

Returns for the calendar year 2023 across all financial assets. You can leave out the family home but that's it.

So you can't have 100k with 50k in a term deposit and 50k in stocks and then post about your stocks returns, you have to count the lot.

Value at the beginning of the year vs the end. If you have added significant money or withdrawn then this needs to be factored in by the 'time weighted' calculation (not easy). As the USD NZD was practically a wash it shouldn't matter much in calculations.

I returned just over 20%, this is not including my Sberbank position which was up 43% in USD (as I can't sell it). Quite a significant underperformance but that's in the context of having outperformed by over 30% last year.

The biggest factor by far however is that in returning 20% vs the market 24/25% my portfolio trades at less than 10 x earnings vs the market at North of 25 I believe. Thus returns have been driven by multiple expansion rather than EPS performance. This point is absolutely critical to understand going forward.

I can't recall what my portfolio was at the start of the year(pure guess around 10% up mostly from this month) .... will have an exact Taxable position for 23/24Fy mid next year.. see if I can keep the 50% av gain going .... I did realise a large gain from a stock I had been sitting on for sometime

Property going of homes down around 5%

[SailorRob]

I can't recall what my portfolio was at the start of the year(pure guess around 10% up mostly from this month) .... will have an exact Taxable position for 23/24Fy mid next year.. see if I can keep the 50% av gain going .... I did realise a large gain from a stock I had been sitting on for sometime

Property going of homes down around 5%

Yeah would be great to be able to keep the 50% CAGR going.

Buffett - the world's greatest investor when in his prime managed 31.6% for 13 years.

50% CAGR has turned 100k into nearly 14 million in just 10 years.

Bloody good going.

Would be ridiculous to have any money in property when you can average 50% a year in the stock market though.

[SailorRob]

all about time frames indeed. 2023 was a sensational year for my portfolio. 2022 was tough work. preceded by 3 good to v good years before that.

Yes the one year return doesn't mean a lot, what do you call sensational roughly speaking?

[SailorRob]

I've had the worst year in decades. Have property and shares spread over 5 countries so a bit hard to be exact. But I believe my returns are somewhere between 2-5%. Much of it good but 39% of my share portfolio in NZ is in 1 stock that went backwards 18% this year, after going up roughly 160% in the last 2 years.
All about time frames. 2023 looked at in isolation, was a bad one for me.

Yep it's the long term that matters - one year in isolation for anyone doesn't mean much. Process vs outcome.

[SailorRob]

Interesting thread.....good to know I'm not the only one who does this annually. For the sake of participating in this thread +5% for me across everything....not one of my better years, but there is something else I want to explore.

Per the Black Monday thread IIRC SailorRob you mentioned that equities (i.e. S&P500) outperform property over a long enough time period or words to that effect. I then posted a link to the S&P500 returns and an inflation calculator. I recall having this debate with my father eons ago re shares vs property and I took your position then. But then life and marriage got in the way and one just 'had' to buy a house. I ran my numbers from mid 1997 to mid 2023 (which is a long enough timespan for such a measurement) on my family home transactions. Nominal return was +8% CAGR, after deducting ownership opex and adjusting for 2 x equity injections. This reduces to +5.6% CAGR when adjusted for NZ inflation.

IMO there is NO WAY I could have achieved this level of return on equities over that timeframe and the S&P calculator confirms it. It helped being mortgage free since 2006 and I was lucky enough to ride a couple of waves despite the awful first 5-6 years for NZ property. No interest or rent payments since 2006 has been liberating and likely destroys the own vs rent argument from a weekly cashflow viewpoint. I'm sure others have had a similar experience and whilst my father did not articulate well the 'why' to buy eons ago....I can see why now. Counterpoint: this is simply my anecdote and it may not be representative of broader market data. Something I have focussed on since 2000 was "profits are in the buying"...the selling confirms/crystallises your earlier decision. I'm no property guru; I was lucky.

Thanks for the contribution,

Regarding the property - a few points. You have taken one single property and compared against an index of 500 companies. There will always be thousands of examples both ways that come out far better off and you do suggest this in your post.

Your situation is interesting however, you talk about ownership OPEX but not CAPEX and over 26 years I would expect that you would have spent many hundreds of thousands on upgrades and maintenance but some do get away with not doing this.

A friend of mine bought a place in Whangarei for $344k in 2016. Sounds great but he needs to sell for $610k to break even with what he has spent on Capex and adjusting for inflation. Currently no offers.

The biggest point I would like to make is that you are comparing perhaps the worst 26 year return for the market in 100 years (or close to it, generally over 26 years the return would approximate 10%) and the best 26 years for property in 4 to 500 years of data, which has come about from massive multiple expansion from 3 x median incomes to 9/10 times and to 40 to 60 times earnings.

Point being the market can spit out 8% for the next 26 years, but consider this. Let's call the median house in NZ 800k. For it to compound nominal for the next 26 years at 8% you are talking 6.4 million for the Joe blogs house in the suburbs.

Now the only way this can happen is for NZ median income to skyrocket due to massive productivity gains, huge inflation (then it's not real anyway) or deeply negative interest rates with banks willing to lend. The median income to prices would have to be higher than they have ever been anywhere in the world in history by many times.

Remember the SP500 calculator only tells you what your return would have been from 1997, in reality you pumped money into the house investment over the whole time period and this would need to be compared to dollar cost averaging into an equity index fund.

My overall point is that yes NZ property has kept up over the last 25 years somewhat - but to do so it has had to increase in multiples to the highest we have data for, where the market has not. This for obvious reason cannot continue.

[Bjauck]

…
My overall point is that yes NZ property has kept up over the last 25 years somewhat - but to do so it has had to increase in multiples to the highest we have data for, where the market has not. This for obvious reason cannot continue.

However bear in mind that this is NZ, and any talk of tax reform to tax the wealthier by way of capital gains, inheritance, wealth, stamp duties, gift duties is currently electorally toxic.

So it is possible that home ownership rates could drop below 50% with the wealthy owning the rest as tax efficient investments. In that case the multiples of median or average household income it takes to buy a median house would be less relevant.

[kiora]

Reasonable boost over the last month

Portfolio over the last year
Equities:11.4%
FUM:18.14%

Over last 9 years as yearly too short a time period
Rural properties/syndicates
9.9% compounding annually since 2014

The direct equity portion of the investment portfolio has consistantly underperformed FUM over last 10 years but I'm relaxed about that.
There are other reasons to have direct equity investments (transparency,liquidity,knowledge of the markets)