2018 Second Quarter Market Commentary

Many of the year end stock market reviews you may have read this month followed a typical pattern, highlighting dazzling performance of the equity markets, setting arbitrary forecasts and sector bets for 2018, and positioning portfolios for the “Five Stocks That Can’t Miss.” We believe all of this focuses your attention on all the wrong metrics, setting you up to inevitably fall short and possibly damage your long term plan.

The summary for 2017 is simple. Every major asset class was positive last year. That makes two years in a row when every asset class has been positive. This is one of the most obvious bull markets of the last

Even though the major asset classes were all positive in 2017, value tilting sectors lagged the overall US market. For many portfolios, our allocation to energy and real estate dampened returns in 2017.


Most of our clients will ask us about valuations, or if we are at a top in the market. With hubris we admit that we don’t know what the new year will bring and will focus instead on the durability of your portfolio.

Our belief is that long term wealth is created and preserved by owning companies that grow earnings. We select companies that have positive free cash flow, actually selling a product or service at a profit and
using the cash to either invest in growth or pay to shareholders in the form of interest or dividends.

According to LPL Research, 2017 was the first year since 2010 where the S&P 500 Index, global
developed countries and emerging markets all had positive earnings growth.  Expectations are for that growth to continue in 2018.

What does all this information mean to you? In reality – not much. The overall economic environment and the arbitrary returns of any stock market index has very little to do with your ability to live a life of significance. Unless your desired outcomes have changed, we plan on maintaining your asset allocation strategy as we move into 2018, with perhaps some rebalancing.

Why don’t we sell energy and real estate and rotate into technology? It is helpful to remember that 2017 market returns were above average (by about triple) and unlikely to represent an average annual return going forward. Strategic asset allocation is a powerful risk management tool when building a portfolio, and in order for it to work, not everything can be going up at the same time.

Our job is to help you focus on what matters and what is important. Our commitment is to meet with you this year to review your unique life situation with the desire to help you Plan, Preserve and add Purpose. We are prepared to have uncomfortable, but essential conversations with households that are falling short of their stated goals. We are also prepared to talk with clients who are far outpacing their goals about how their excess can be used to impact their life of significance.

The Value of Contentment

"He who is not contented with what he has, would not be contented with what he would like to have." - Socrates

I recently came across the above quote in a book.  While it was not the first time I have seen it, I’ve been thinking about the topic of contentment recently, so it stuck out.

Think back to a time in your life when you really wanted something, whether a pay raise, bigger house, nicer car, or target balance in your bank account or investment portfolio.  If you ultimately achieved your target, did it permanently satisfy you in the way you expected?  Or was the satisfaction temporary, soon replaced by a new or bigger desire?

We will all attain varying level of career success, wealth accumulation, notoriety or recognition, material possessions and life experiences, and all of them will fluctuate over the course of our lifetimes. 

But contentment can be found in our current circumstances, and even in any circumstance.  If we find ourselves anxious, envious, greedy, unhappy, ungrateful, or dissatisfied in our situation, what we may need is not “more” or “nicer” or “bigger” anything--as that may only magnify our current state.  Our best course of action may simply be deciding to be content with what we already have.

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I know what it is to be in need, and I know what it is to have plenty. I have learned the secret of being content in any and every situation, whether well fed or hungry, whether living in plenty or in want.

--Phillipans 4:12

“Be content with what you have; rejoice in the way things are.

When you realize there is nothing lacking, the whole world belongs to you.”

Lao Tzu

“I am content; that is a blessing greater than riches; and he to whom that is given need ask no more.”

Henry Fielding

“Wealth consists not in having great possessions, but in having few wants.”


“I have learned to seek my happiness by limiting my desires, rather than in attempting to satisfy them.”
John Stuart Mill



Me:        Hello, this is Josh Mudse with Munn Wealth Management. How can I help you?

Caller:   Good morning Josh. This is Will Grimm. You work with my brother, Jake.

Me:        Of course, he mentioned he thought you might be calling. How can I help you?

Caller:  Josh, I want to be honest with you. I HATE talking with financial advisors.  

After almost 20 years serving individuals and families, receiving this phone call from a client referral proved the adage: “you have never heard or seen it all”. After taking a breath, I first thanked Will for his candor and asked him if he could explain why he hated talking with advisors. His answers were an honest download of previous experiences. After time to reflect on our conversation, I believe many people share similar reservations.

Top 3 Reasons Why People Hate Talking with Financial Advisors

1.       Product focused: The first financial representative that Will met with a decade ago sold him an annuity. Don’t jump to the conclusion that I am against all annuities. There are very good reasons to use annuities as part of a retirement income plan. Like most people engaging an advisor for the first time, Will did not know the right questions to ask to fully understand what he was buying and the representative did not fully explain the product he was selling. 11 years later and Will is still waiting out the time period when he can cancel the annuity without a penalty. 

You might have noticed that I did not refer to this financial professional as an advisor. That is because this person was a registered representative (salesperson) of a securities company, and earned his fee from commissions. Again, I am not condemning the system of paying for advice through commissions as long as they are disclosed and the buyer understands that they are in a sales transaction, not receiving objective financial advice. 

2.       Not good at answering questions: Will has been attending the financial dinner seminar circuit and found an advisor that he thought was knowledgeable and might be a good fit for his stage in life. After an initial meeting, the advisor prepared a proposal for Will to consider hiring their firm for financial planning and investment management. Based on his previous experience, Will had specific questions about a few details in the proposal.

The advisor provided generic answers with lots of financial jargon. It is easy for advisors to quickly jump on answering a question to prove how smart they are, verbally downloading an encyclopedia of details on a financial topic. Will walked away with the impression that the generic answers were what the advisor thought he wanted to hear and did not apply to him specifically. 

3.       Horrible listener: I will fully admit that being a good listener is tough and I have lots of room to improve. Financial advisors tend to ask questions and then selectively listen for the answer that helps them make their point. Will provided important details in his conversation that were key facts about his family dynamics and concerns that the advisor could have used to inform his answers to Will’s questions. Will felt those details fell on deaf ears and that the advisor did not really understand him or his situation.

How do we at Munn Wealth address these common reservations when talking with a referral from our clients?

·         Our team consists of four Certified Financial Planners, two Certified Public Accountants and one Certified Financial Analyst. We all work under the fiduciary rule, putting client interests above our own.

·         When you walk through our office, you will notice that are doors are usually open. Our team regularly stop in to ask each other how they would address specific client concerns. Even though every client has a dedicated advisor, the entire team is available to help analyze a scenario and explore possible solutions. We know we do not always have an answer to every question. We work with each other to research those questions and how they apply in each situation. 

·         An initial conversation with us is going to start with a few important questions before we jump into proposing solutions. Our goal is for you to talk about 70% of the meeting, which means we are listening 70% of the time.

You might still have some questions about how that conversation might unfold. In reality, every conversation is different and impossible to illustrate here. Our goal is to truly understand your desired outcomes and how you make decisions about money. Then we can get to work creating a plan with you that we know will need adjustments over time. If you want one question that usually results in a good conversation:

Why is money important to you?

Try it out with your spouse. Or your parents. Or your kids. Or maybe even your boss. No matter the response, follow-up with another question, something as simple as: Can you tell me more about why that is important? As you listen to the answers you will get a better understanding about that person.


•       This material is intended to be educational in nature, and not as a recommendation of any particular strategy, approach, product or concept for any particular advisor or client.  These materials are not intended as any form of substitute for individualized investment advice.  The discussion is general in nature, and therefore not intended to recommend or endorse any asset class, security, or technical aspect of any security for the purpose of allowing a reader to use the approach on their own.  Before participating in any investment program or making any investment, clients as well as all other readers are encouraged to consult with their own professional advisers, including investment advisers and tax advisors.  Munn Wealth Management can assist in determining a suitable investment approach for a given individual, which may or may not closely resemble the strategies outlined herein.


You just died - now what?

by David Munn, CFP

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Imagine you just died as you clicked on this link.  Besides emotional trauma, which of the following will be true of your family?

●     They will need donations to pay for the funeral and other final expenses

●     They will struggle financially for the foreseeable future

●     Your surviving spouse will need to work more than he/she would like

●     They will need to move out of their current home for financial reasons and potentially move in with family

If you identified any of the above statement as being true, I have bad news and good news.  The bad news is that there is a serious gap in your planning and you are doing your family a significant disservice.  The good news is that it can be easily remedied. 

It is not my objective to impose guilt or shame on anyone, but we do need to acknowledge the reality and severity of this topic.

The reality is that you will die.  You could die . . . right . . . NOW. 

Still with me?  Good.  So you survived, but please understand your next breath is not guaranteed.

The severity lies in the fact there is no “re-do” button when you die and the consequences of poor planning could be significant, as the above list shows. 

All too often an unexpected death is followed by a pleading for donations and support on GoFundMe or YouCaring.  Is this because the deceased did not recognize his own mortality, or because he didn't take the time to responsibly plan for his family?

Perhaps that's a harsh question, but it pales in comparison to the challenges the unprepared survivors will face, which only adds to the grief of their loss.

Now the good news.  Life insurance--which can potentially remedy all the financial woes described above--is cheap for healthy individuals.  By utilizing a single term policy for a limited number of years, you can provide financial protection for your family through a time period the need is greatest.

A common mistake is to collect a hodgepodge of various life insurance policies--frequently from different agents and friends--that total to a less than adequate death benefit, but still cost a sizable premium to keep in force.  This in inefficient and wasteful.  A single policy will almost always be preferable to multiple ones.

When done in the context of a proper financial plan that determines the right type and amount of coverage for the right amount of years, life insurance is extremely affordable.  A common rule of thumb--for what it's worth--is for working spouses to purchase coverage equal to 10x their annual salary, up to certain limits.  Non-working spouses typically should also have coverage, albeit lesser amounts.

If you recognized a lack of preparation while reading this, it’s time to do something.  Schedule a meeting with a trustworthy advisor who will help you make good decisions and protect your family.


Maximizing Your HSA

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Whether you are young, old, starting a family, or retiring, you are likely being impacted by rising health care costs. According to one study, medical costs are expected to increase by 6.5% through 2017, much higher than the pace of general economic inflation. In addition, the average deductible for people with employer-provided health coverage has more than tripled over the past decade, from $303 in 2006 to $1,077 in 2015 (benetworthy.com).

One of the increasing trends to plan for rising costs of health care is the number of people choosing to be on a High Deductible Healthcare Plan (HDHP) where they have the ability to save in a Health Savings Account (HSA). You can sign up for an HSA through your employer’s health plan or on your own. They can be funded through direct deposits from your paycheck or self-directed contributions to your account.  Here are the powerful short and long term tax advantages that have made HDHP’s and HSA’s so attractive.  

Not only are all your contributions tax-deductible for the year that you make them, but they are also tax-free when withdrawn for qualified medical expenses. In case a light bulb didn’t just go off inside your head, let me repeat that. As long as you use the money on qualified medical expenses, not only are your contributions tax-deductible, but your money grows tax-free and withdrawals are tax-free. 

There is likely not another tax opportunity like this! Like all tax deals, the IRS puts a limit on how much you are allowed to benefit. For 2017, the contribution limits are $3,400 for individuals and $6,750 for a family, with an additional $1,000 catch-up provision for those age 55+ (Learnvest.com).

Most people use a debit card linked to their HSA to pay for out-of-pocket medical expenses throughout the year. If you don’t use the entire account, your funds will accumulate year after year, and you may have the option to invest a portion in mutual funds, depending on your HSA provider. A good rule of thumb is to keep a year’s worth of healthcare expenses in cash—if you are actively funding the account--and invest the rest for growth. This provides the opportunity to pay for all your medical expenses with completely tax free dollars. 

In certain situations, you might benefit from paying all medical expenses out-of-pocket, allowing the entire HSA to remain invested for long-term growth.  Consider that if you invested $6,750 each year and it compounded tax-free with 7% returns. After 10 years you would have access to $93,000 of tax-free money. After 15 years, you would have $170,000!

This will put you in a position to cover future and/or retirement health care expenses with tax-free dollars, particularly during a time of life when those expenses may be elevated. The list of qualified health expenses is vast, ranging from doctor visits, co-pays and prescription drugs, to vision care, orthopedic shoes, hearing aids, long-term care insurance premiums (limited) and Medicare parts A, B, C and D. 

With this potential, an HSA doesn’t have to be just a healthcare account, it can also serve as a supplemental retirement account--one you never knew you had. As a financial planner, it excites me to help clients identify opportunities like this to plan for their financial future. 
Do you have access to an HSA? Are you maxing it out? How else could you be better planning for your financial future? 



•    This material is intended to be educational in nature, and not as a recommendation of any particular strategy, approach, product or concept for any particular advisor or client.  These materials are not intended as any form of substitute for individualized investment advice.  The discussion is general in nature, and therefore not intended to recommend or endorse any asset class, security, or technical aspect of any security for the purpose of allowing a reader to use the approach on their own.  Before participating in any investment program or making any investment, clients as well as all other readers are encouraged to consult with their own professional advisers, including investment advisers and tax advisors.  Camelot Portfolios LLC can assist in determining a suitable investment approach for a given individual, which may or may not closely resemble the strategies outlined herein.
•    These materials contain references to hypothetical case studies.  These are presented for the purpose of demonstrating a concept or idea, and not intended to be interpreted as representing any specific person.  Such representations are not intended to substitute for individual investment advice, even if the case study appears to have similar characteristics.  
•    A443

Lessons from an "old" man

A newlywed couple was walking down a dusty country road outside a little town they were visiting. While admiring the beautiful scenery, they came across a small, run-down trailer.  Sitting on the porch in a rocking chair was an old man being fed by a middle-age nurse.

The couple marveled at the old man and quietly wondered about the life he had lived.  With their curiosity being too much to ignore--and with no demands on their time--they approached the porch and greeted the man and his nurse.  Upon hearing the visitors, he sat up and motioned for them to join him on the porch.  

As they shook his hand, they realized he was blind.  His skin seemed to barely hang on his bones and his voice was raspy and shaky.  

“Sir,” the young man started, “we can see that you have lived a long and full life.  What wisdom can you offer a young couple that is just starting out in life together?”

“Ah,” the old man replied.  “You are wise to seek my advice, as I have much to offer.  But seeing that my time is short, I will tell you the one thing you must remember to truly get the most out of life.”

“Always eat, drink, and smoke what you desire. I haven’t eaten a fruit or vegetable since I was little boy.  I gave up water for alcohol years ago; and I’ve smoked 3 packs of cigarettes a day since I was 16. I’ve never been sick or gone to the hospital.  It is only now--in my old age--that my body is failing me.”

“Now if you’ll excuse me, it is time for my nurse to carry me to my bed.”

The young couple thanked him and stepped off the porch, still processing what they had just heard.  Just as the door was about to close behind the man and his nurse, the young wife ran back and called out, “Sir, if you don’t mind my asking, how old are you?”

The nurse stopped and turned around so the man could face the woman.  “Why, I don’t mind you asking at all.  I’m proud to say that last week I turned thirty-five years old.”  With that, the door shut and the two disappeared into the trailer.    

As absurd as this story may appear, I would contend that I regularly observe financial behavior that is equally foolish.  Here are some generic examples:

  • Mistake: We should follow their advice (from a friend, neighbor, or family member)--or do what they did--because they appear to be wealthy.

    Truth: More often than you might guess, if someone appears to be wealthy, they’re not. They may have high income that supports their lavish spending, but they have little savings and still live paycheck to paycheck.  Or they may even be going into debt to support their lifestyle. Regardless, you should never justify your financial decisions by someone else’s decision.
  • Mistake: We should follow his advice--even though it’s contrary to conventional wisdom--because he seems to know what he’s talking about and he’s doing it with his money.

    Truth: If something has been proven over time, perhaps it has some legitimacy, though it could still be a “one hit wonder”.  But making a financial decision based on the persuasive argument of an unproven maverick is a recipe for disaster.  
  • Mistake: That approach may have worked for the last 100 years, but this time is different.

    Truth: Disregarding time-tested principles to follow your own, revolutionary conclusions is likely dangerous and foolish.  Proceed with caution and make every effort to limit the collateral damage to those around you.

There are five principles that transcend time, culture, class, and religion, and will help ensure you are moving in the right financial direction:

  1. Spend less than you earn (common sense that’s not so common)

  2. Avoid the use of debt, with limited exceptions (i.e. an affordable mortgage)

  3. Build margin (save something with every single paycheck; no exceptions)

  4. Set long-term goals (it will change your financial behavior for the better)

  5. Give generously (counter-intuitive, but it’s absolutely true)

Certainly there are other wise practices that, when applied properly, can accelerate and/or protect your financial progress, such as diversification, an appropriate investment allocation, and having the right amount of life insurance, but their application will vary from person to person.  

These five transcendant principles are as true and relevant today as they were 100 years ago, and they can be understood and followed by a child. If someone tells you to deviate from one of these, remember the story of the “old” man. Things are not always as they appear.


2017 First Quarter Market Commentary

Waiting for Proof


What a difference a year makes!  While 2016 started with a large drop in the equity markets, 2017 started with a continuation of the market gains experienced after the election with very little interruption.  Yet, we still have not seen any progress on the tax reform or health care reform, which many (including me) believe are the primary drivers in moving the market higher over the last several months.  The healthy skepticism we expressed last quarter remains and time is likely running short for results to happen before the market loses patience. 

Based on the data we have seen so far, it doesn’t appear the economy has accelerated like many expected.  The Federal Reserve raised rates another .25% in March and expects two more increases this year, but we continue to expect moderate & sluggish economic growth, which will make that third increase very difficult.  The market seems to be agreeing with us now as the 10-yr bond yield has dropped quite a bit since the rate increase in March. 

To top it off, there have been significant headlines in Europe, China, North Korea, and now Syria – none of which have seemed to faze the market.  Corporate profits are expected to be significantly higher for Q1 2017 than a year ago, which seems to be the focus of the markets (rightfully so).  Oil has been relatively stable and energy companies are starting to show some profits, which is a significant turnaround from last year.

The S&P 500 and Dow Jones Industrial Average experienced strong returns in the first quarter and bonds experienced some small gains, as 10-year yields moved down slightly for the quarter.  But underlying these numbers, the overall market was actually experiencing some turmoil as select parts of the market are actually down for the year.  We could probably dust off a commentary from several quarters ago as the positive returns on the S&P 500 are being driven by a small number of very large companies, creating a false perception that everything is rosy.

We are not fooled, nor are we worried.  But we are cautious and expect to have some better buying opportunities in the near future, allowing us to deploy some of the dry powder we have accumulated in many of our strategies.


·       Employment continued to be steady with the unemployment rate at 4.5% in March. (U.S. DOL)

·       Low oil & gas prices continue to save money for consumers, but the savings have been shrinking.

·       We believe energy markets have stabilized and are near equilibrium.  We expect oil to stay in the $40-$60 range in 2017.

·       Housing has continued moderate--but choppy--growth.  Low interest rates have helped keep prices affordable.  (Barron’s)

·       Economic growth continued in the fourth quarter, but dropped to just 2.1% as we expected.

Challenges & Risks

·       Economic growth will likely trend in the 2% range in our opinion.

·                                Interest rates – the Federal Reserve raised interest rates again in March and expects 3-4 increases this year.  We believe this is more than the economy can handle and believe it should only raise twice.

·       Government regulation is a potential huge drag.  Health care costs are continuing to rise significantly & government interference in several areas (finance, education, energy) continue to limit economic growth.  Will this improve in 2017? 

·       China, Europe, North Korea – we expect these three to capture significant headlines in the coming year. 

·       Oh, let’s add Russia to this list!

While we have certainly enjoyed the positive run in the market these last two quarters, we know the market will experience some volatility at some point.  Trying to time that is futile.  Instead, we have sold some positions due to high valuations and are sitting on some more conservative holdings to take advantage when the market creates buying opportunities. 

We consider ourselves very blessed to serve you and hope your 2017 is off to a great start!

Sources:  1)      Bloomberg  2)      Barron’s


Past performance may not be indicative of future results. Therefore, no current or prospective client should assume that the future performance of any specific investment, investment strategy (including the investments and/or investment strategies recommended by the adviser), will be profitable or equal to past performance levels.  This material is intended to be educational in nature, and not as a recommendation of any particular strategy, approach, product or concept for any particular advisor or client.  These materials are not intended as any form of substitute for individualized investment advice.  The discussion is general in nature, and therefore not intended to recommend or endorse any asset class, security, or technical aspect of any security for the purpose of allowing a reader to use the approach on their own.  Before participating in any investment program or making any investment, clients as well as all other readers are encouraged to consult with their own professional advisers, including investment advisers and tax advisors.  Camelot Portfolios LLC can assist in determining a suitable investment approach for a given individual, which may or may not closely resemble the strategies outlined herein. A401