A lot has changed in the two weeks since Milford’s Head of Wealth Management, Philip Morgan Rees, spoke with Ryan about how to navigate volatile markets. Since then, Trump’s tariff announcement was worse than expected, and the market is reacting to the possible threat of a global recession. Phil picks up the conversation to dive deeper into the current economic situation, and what it means for investors.
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Bridge talks Business: 8 April 2025
Episode Transcript
Ryan Bridge
Kia ora and welcome to Episode 28 of Bridge talks Business with Milford. Any guesses what we’re talking about today? Maybe the weather? Maybe the Warriors? No. Two words. Trump and shares. First, here’s your top five business bits.
1. Liberation Day was the worst case scenario stuff. The tariffs were bigger than expected and also based on a flimsy calculation. Basically, countries being penalised for selling more to America than buying from them, which has more to do with comparative advantage than tariffs.
2. The US effective tariff rate is now the highest in 100 years, higher than the Smoot Hawley tariffs in the 1930s that are often attributed with making the Great Depression worse.
3. US consumers will bear the brunt of this. Tariffs are basically attacks on them. This has led many forecasters to predict a US and global recession. That’s so long as the tariffs remained in place, of course, and as we all know, Trump has been known to change his mind.
4. Some countries are willing to negotiate, but not yet all of them. China’s hit back with a 34% tariff. That could risk them becoming isolated due to the retaliation measures.
5. And the result of all of this? A sharp sell-off in share markets, with the broadest risk-off move in markets since the Covid pandemic in March 2020. Investors are now no longer complacent about the risks of this Trump administration.
All right, it’s time for our chat. Now, a couple of weeks ago, we caught up with Phil Morgan Rees from Milford, and I know a lot of you loved hearing from him. We spoke about how volatility can affect you. Two weeks ago, we didn’t know what Trump’s tariffs were going to be. There was a lot of uncertainty about them. We had a dip in the S&P 500, but it rebounded. We were talking about potentially stickier inflation for the United States, expectations of slower growth. And here we are two weeks later. We know what the tariffs are. They’re worse than expected, and we’ve seen markets in a bit of a tailspin. So, we thought it’s time to get Phil back for another chat. Don’t forget that this segment is informational only and should not be considered financial advice. Phil Morgan Rees is the Head of Wealth Management here at Milford. Phil, welcome.
Phil Morgan Rees
Thank you very much.
Ryan Bridge
Great to have you.
Phil Morgan Rees
Great to be here.
Ryan Bridge
Just a little bit of water’s gone under the bridge since we last spoke.
Phil Morgan Rees
Yes.
Ryan Bridge
So, give us the lay of the land. What’s happened since we last spoke?
Phil Morgan Rees
Well, Trump’s tariff announcements were worse than everyone expected. That’s really the long and short of it. So, we’ve gone from a situation two weeks ago when we last spoke where there were concerns in the US about slowing growth. There was uncertainty around what the Trump tariff announcement would mean to global reaction, reaction across the world, increasing concerns about slowing growth, now globally, not just the US, and concerns about higher inflation. And what’s happened is because of those two factors, stocks have repriced and really quickly. And markets, as we know, don’t like uncertainty, right? One of the things we learn is markets are forward-looking. They like a level of predictability. And so if you think about what I said, the announcement was a shock. So, that’s going to impact markets. And secondly, markets don’t really know now whether this current position is one of those headline-grabbing, hardline Trump negotiating positions which will be watered down, or whether it’s the start of a lengthy and damaging trade war, which could end up with slower global growth, increased inflation globally. And if you put those two things together, stagnation and inflation, you end up with stagflation, which is tricky to get out of.
Ryan Bridge
We spoke last time about our inexperienced investors and our more experienced or seasoned investors – they will be probably reacting in potentially similar ways to the news that’s going on, depending on how close to retirement you are. So, how will they be feeling about more volatility?
Phil Morgan Rees
I think it’s fair to say the hardest hit will be the newer investors and those close to using their money. And I’ll talk about everyone else a little bit later. So, newer investors, we talked about them last time, and we said volatility is the price we pay for higher long-term returns – but they’re looking at quite a sharp drop in their holdings. They’re experiencing it right at the start of their journey. I think the first thing I would say to them is you haven’t done anything wrong. You haven’t made a mistake, what I’d like you to do is understand what’s going on. It’s harsh because you’re taking a lot of pain before you’re taking the gain.
Ryan Bridge
You haven’t seen the good yet.
Phil Morgan Rees
No, you haven’t seen any of the good, and actually, you’re taking the pain. So if you’ve come off a term deposit, which is a fixed amount, predictable, it’s a fixed rate of interest, it’s a fixed amount that you get back after a fixed period, and you’re probably expecting markets to go up and down a bit, and you acknowledge that you’re in this for the long-term gain that you’ll get from investing in markets. You’re going to be worried because you’re looking at a diminution in the value of your money. But I really encourage you to think you’ve not made a mistake and you haven’t done anything wrong. What’s happening here is you’re getting a harsh early lesson in how markets work. The last thing I want any new investor to do is to panic and crystallise a loss. We touched on this last time. If my money drops 10%, and I cash in, I crystallise that 10% loss. And seasoned investors will know you just have to be patient to wait for markets to recover. And you could even crystallise a loss by de-risking. So de-risking is where you reduce the amount of equities in the investment you’re holding. But what that actually then means, so you have to think about it quite carefully, is I’ve reduced the amount of equities that I’m holding, which means I’m reducing the upside, having already taken the downside of holding that quantity of equities. So, the reality is that seasoned investors will know to be patient and to wait for markets to bounce. But I also mentioned those close to using the money. So, normally when you come to using your money out of an investment, you’ll have a plan around that as to how to do it. So that shouldn’t be affected because your plan will have accommodated what you’re going to do. If you haven’t had a plan, then I would encourage people to take only what they need and to allow the money to work with the market as it rebounds.
Ryan Bridge
Because they have no option but to crystallise.
Phil Morgan Rees
They’re going to be using the money.
Ryan Bridge
They need the money.
Phil Morgan Rees
Absolutely. So, I’d encourage them to think about taking only what you need.
Ryan Bridge
So, if I’m thinking now – I’m relatively young – about my future, there are ways to actually plan so that if an event like this happened when I’m turning 65 or whenever I want to get my money out, you can plan so that you’re not having to crystallise those losses or to the extent.
Phil Morgan Rees
Absolutely. I always advocate people thinking in three life stages. So, accumulation is the early stage of our investment journey. So, KiwiSaver investor would be a classic example. I’m accumulating for the long term. Then you’ve got the pre-retirement phase, which is 10 years before you start using the money. It could be any age, whatever your age is. Then you’ve got the retirement phase. So always think in those three phases. And in the pre-retirement phase, it’s all about making sure that you’ve got a plan for using the money in a way where you don’t get caught by a situation like this. Precisely, your point – you’re spot on.
Ryan Bridge
So, what about everyone else. We’ve spoken about the newbies, we’ve spoken about the experienced. What about the rest of us?
Phil Morgan Rees
So, I think in all cases, understand what’s happening. And we talked about this last time. Understand how it’s impacting your long term plan. If you’re a long term accumulator, again, let’s mention KiwiSaver. If you’ve got 10, 15 years to go in KiwiSaver, think of it this way. What you’re doing probably is paying into your KiwiSaver every two weeks. And you’re now buying into your investment or buying units in your KiwiSaver scheme at about the same price you were a year ago. So, the S&P is probably back where it was around the middle of April. And that’s dollar cost averaging. So, continue to enjoy dollar cost averaging. So as I said, understand what’s happening to your money. Understand how it’s impacting your plan. Understand what things you can be doing. So dollar cost averaging is one. But also what we see this as, is an opportunity to maybe revisit your risk tolerance. Are you truly comfortable at this level of risk and volatility? But also what we see a lot of people doing at times like this is turning to advice. So, talk to an adviser, see what they can offer you, how they can help you.
Ryan Bridge
When you say talk to an adviser, who should we ask for advice? Who can we ask for advice? Who’s a responsible person to ask for advice rather than Uncle Jim? Wise as he might be.
Phil Morgan Rees
True. So all advisers are authorised by the Financial Markets Authority. At Milford, we’re a financial advice provider. And we’ve got a number of advisers. And their role is different to say a portfolio manager. One way to describe it is the difference between the two. So, you’ve interviewed a lot of portfolio managers on your podcast. And actually, what’s happening there is we give that portfolio manager our money, and they invest that money and manage that money in accordance with the specific objectives of the fund that they have. The adviser on the other hand will work with you to find out which fund is suitable for you. And then your plan for getting out of your investment when you come to use it and everything in between. And everything in between could include investing in installments, for example. So now would be a time where I would expect advisers to be advising their clients to invest in installments. What you’re doing there is you’re chopping up your entry point to making sure that you’re not caught at a disadvantageous time. So, you’d be investing, say, 20% now, 20% in a month, and so on and so on. That’s investing in installments. We touched upon dollar cost averaging, which an adviser would talk about. An adviser would also work with you. You asked me the question on a pre-retirement plan. So, how do we get to the point where when I’m ready to use the money, the money’s there, I’ve got a plan, and it doesn’t matter what markets are doing. Or finally, they can help with the retirement investment strategy, which is all about providing you with the income that you need, the liquidity that you need when you need it, but also a plan for growing your capital, because frankly, if you’re planning at 60, retiring at 65, your life expectancy is another 20 years. So, you’re going to want to grow that. So an adviser can help you do all of those things. Start how you get in, how you get out, everything in between, but work with you in periods like this and reassure you and help you understand what’s happening, and that pullbacks are a normal part of investing, albeit this one’s severe.
Ryan Bridge
Yeah, how normal are they? Ones this severe, like we spoke about the correction versus the bear – how often would you typically expect those?
Phil Morgan Rees
Over the long term, on average, you’d expect a correction every one to two years, and a bear market, say, every six years. So if you have that in the back of your mind, as part of your long term plan, it gives you a pretty good context to say, Okay, well, I know my plan is a 10, 20 plus year plan, and I know that these things will come along, so I just need to make sure firstly I understand it. I understand what that means to my plan, but also I’ve got a plan to use the money when I need to, and I’ve got a plan for liquidity as I need it.
Ryan Bridge
So for those people who have been watching and listening, for some people, they will do nothing. There will be no response to this because as you say, they have planned for it. But for others, there might be some adjustments, or as you say, maybe just re-evaluating how much risk you’re prepared for, and if this feels like too much for you, then you can change.
Phil Morgan Rees
Yeah, to answer your question, it depends, right? It depends on your circumstances, it depends on the impact on you, but always understand what’s happening. So get in touch with us if you need to understand what’s happening, because a firm like us will always let you know what’s happening and what we’re doing about it, which is equally important. But also understand how it impacts your plan. Understand whether you may want to revisit your risk tolerance, but also you may want to take advice. But I think when we have these situations, one of the things I always tell clients is, please remember that my KiwiSaver is with Milford. My family’s life investments are with Milford. My three children’s investments are with Milford. So, we’re in the same boat. It just so happens that as employees, we’re paddling a little bit faster right now.
Ryan Bridge
Well, let’s hope that I don’t have to see you again anytime soon. Let’s hope that this all calms down. But if we do need to see you again, then I know that our audience very much enjoys having you. So, thanks for being on with me again.
Phil Morgan Rees
Very welcome. Pleasure to be here.
Ryan Bridge
Well, it was great to have Phil back on the podcast. That’s Phil Morgan Rees. He’s the Head of Wealth Management here at Milford. And don’t forget, if you are feeling uncertain and you’re wanting more information, that is a good thing. It’s good to be armed with information. And luckily, the Milford team have sat down for an in-depth discussion about the market volatility. You can find that discussion at milfordasset.com/the-investing-place. Don’t forget, you can like, follow and subscribe this podcast. You can download it as well. I look forward to seeing you next week.
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