The Gift of Story

by Laura Noble Walker, JD

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A friend of mine was recently packing up her home of 20 years as she and her husband prepared to downsize in preparation for retirement.  She came across an answering machine!  Anyone still have an answering machine?  There were 23 messages on the answering machine; they were all from my friend’s grandmother who prior to her death 5 years ago would call often “just to stay in touch and make sure my friend and her family were happy and doing well.” The emotion my friend was experiencing as she listened to several of the messages was apparent…sad her grandmother was no longer with her, but joyful to hear her beloved grandmother’s voice. 

I lost my grandmother many years ago.  There have been times when I wish I could ask for her advice or get her perspective on a situation.  She was strong in her faith and had a significant role in my personal faith journey.  I do have her Bible; the pages worn and marked with her handwritten notes; her notes have helped to tell me her story. 

The impact of story.  Who we are, what we have experienced, the lessons we have learned...they matter; they tell our story.  And stories are meant to be shared.   

As an estate planner, I often share with clients and their families the statistic that 90% of families fail to keep their family and their wealth together for more than three (3) generations.[i]  This statistic is not necessarily the result of inadequate traditional financial and estate planning, but more likely the failure to emotionally prepare the family for the wealth they inherit.  One way to possibly overcome this is to provide the family with pre-inheritance experiences where the family can work together, make decisions together and have fun together!  A recent study re-confirmed that families are more comfortable in discussing legacy than they are inheritance because legacy captures family traditions, stories, life lessons and values.[ii]

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As we approach the holiday season, and we gather with our families, might we take the opportunity to ask our loved ones meaningful questions such as:

What are three of the most exciting events of your life?  The most disappointing or challenging?

What are the most important lessons you have learned in life?

Who has been an influential person in your life?

These questions can be asked of family members at all stages in life:  children, young adults, mature adults and seniors.  Consider documenting these conversations in the form of letters or audio recordings.   Documenting these conversations can allow them to be enjoyed in the future and shared with generations of your family. 

[i] Perry Cochell and Rod Zeeb, Beating the Midas Curse, Second Edition 2013, Page 13

[ii] Allianz American Legacies Pulse Survey, 2016

Starting at the Heart

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Think about a normal experience in a financial service business: your insurance agent offering a special product, a stock broker taking buy and sell orders over the phone, your investment advisor explaining what all the colors on your pie chart mean for your portfolio.  Most conversations identify a risk or need you have and the professional offers a solution to mitigate the risk or meet the need. You then sign the paperwork, get your monthly or quarterly statements, and maybe get a check-in call or review to see how that product or investment has performed as of late. This is the expectation that many potential clients have as they walk through our door, often with their guard up, unsure if we can help them, and weary of having their issue explained away by some product or plan.

When you start with surface level questions and answers you will typically get a solution that addresses surface level issues. We have found that our clients are searching for something greater from their financial advisor relationship, even though they don’t know exactly what it is or if it is even available.

With past experiences setting the tone, prospective clients want to get straight into the numbers and can be surprised when we direct the conversation elsewhere. The question I love to ask is, “what is most important to you?” At first, prospects may wonder why I asked this question and how that will help them get their money invested and growing. But after refocusing, they relax and appreciate that I am taking the time to ask about what is important in their lives.

In many cases the answers involve family, church, traveling, knowing they can retire, providing for aging parents, sending kids to college, purchasing a home, or saving for retirement. These are all wonderful things to care about and typically come relatively quickly to mind. Of course they do, they are IMPORTANT to you!  

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To understand them more I need to get under the surface and ask a deeper question:  “Why is that significant for you?” Typically it takes a moment or two of reflection before they dive in, sharing that their church has helped them through difficult challenges over the years, they want to provide for their kids in ways their parents did or couldn’t do for them, they see others not able to stop working and want to enjoy an active retirement before they get too old, or they know others who have given to an organization that helped them and they want to be charitable as well. With each answer there is a story of how something impacted them over their life. As they begin to share at a deeper level, they recognize this is a different financial services experience. They often have no expectation that a financial advisor would ever ask them that question or take the time to understand their deeper needs and values.

My desired outcome for working with clients is to be their trusted advisor. As that trusted advisor, I want them to know that I know and understand what really motivates their financial decisions. At this stage of our first meeting, I push just a little more and pose to them, “If you were living the life that you just described, what would that provide you?” Stumped, they often ask me to repeat the question so they can focus their thoughts. Then they lean back in their chair, look up or at each other and start to ponder. The next few moments are silent, sometimes uncomfortable, but always immensely productive. The responses I have heard usually follow one of the following themes – freedom, community, peace of mind, meaningful life, joy or purpose. As you can see, the deeper we go the answers move from thoughts to feelings. The feelings you identify and desire to experience are the foundation we ultimately focus on when building your financial plan.

The numbers and data are important. Investment philosophy and estate documents are important. I remind each client that what is equally, if not more important, is measuring whether we are arranging your financial life in a way that meets your deepest desires. So we discuss what measurements we should have in place to hold them accountable for living the life they truly desire.  If we fail to do this, they have saved and spent on the wrong things and their life looks no closer to what their heart expressed was significant to them.

Having an advisor relationship focused on heart level conversations has many great advantages for both clients and advisors. Clients can experience a deeper, more trusting relationship with their advisors that ultimately may lead to having conversations about things that truly matter to them, and less about pie charts and economic indicators. When focused on these things they experience a natural, internal motivation to carry out the plan that they put together with the advisor. As an advisor I gain a great appreciation for the client. My clients are motivated out of their own desires and my role is to help hold them accountable to themselves. With a clear purpose that we can use as a guide, it is easier to make financial decisions that align with your life of significance.

2018 Second Quarter Market Commentary

In January we published our Winter Market Review, stating that the major equity markets were in the most obvious bull market of the last century. As if on cue, the S&P 500 index laughed at our article and dropped about 10% in 10 trading days.  For the remainder of the year, the S&P 500 index has been trading in a range that bottoms at approximately 2580, the same basic price it traded at in November of 2017, as illustrated in the following chart. The S&P 500 index (light blue line) is now trading near the top of the range (orange box), and above its own 190 day simple moving average (dark blue line). 

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We do not forecast the capital markets. Our investment management approach looks to build portfolios of companies with high free cash flow based on actual earnings. We do evaluate individual companies in the context of the broader macro-economic environment. As the financial news continues to invade our limited attention spans, our clients have been sharing a few similar concerns.

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To help answer the four questions above, we can first look at the current strength of a broad stock index and then examine the current strength of corporate earnings. As opposed to making a forecast, we try to be objective and evaluate the evidence-in-hand to determine the probability of good things happening relative to the probability of bad things happening in the equity markets.

Value Line has been providing market research and data since 1931. The Value Line Geometric Composite Index is the original index that the firm released, and launched on June 30, 1961. It is an equally weighted index using a geometric average. Because it is based on a geometric average, the daily change represents the median stock price change.

So how does this average compare to the last time stocks formed a top and entered a new bear market? If we look at the index 139 after the S&P 500 hit the high in 2007 versus the same chart 139 days after the peak in 2018, it is obvious that our current situation is much more favorable than in 2007. Using simple moving averages of 120-170 days, the chart on the left clearly shows the index rolling over, increasing the odds of bad things could happen. The chart on the right is almost the exact opposite, with all of the slopes of the moving averages moving up.  

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Our second data dive is a look at the strength of corporate earnings. Equity markets are efficient pricing mechanisms when measured over the longer term. As earnings updates are announced, economic data and geo-political events unfold, market participants immediately update their opinion on the impact of that information on the companies they own. To gauge the health of corporate earnings, we can look not just at current price for a company, but we can also look at future earnings estimates to gauge business momentum. Aggregating this information for all companies in the S&P 500 Index allows us get reasonable insight into the health of the market as a whole.

The following table details the average earnings growth estimated by analysts following companies in the S&P 500 index. As estimates are revised, the average is re-calculated each month. The most recent calculation shows that earnings are expected to grow by more than 15% in the fourth quarter of this year. With strong earnings estimates, it is unlikely that the U.S. economy would see a recession until late 2019 at the earliest.

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With seemingly bullish evidence-in-hand, does that mean equity markets will continue to move higher?  Will the S&P 500 move to new all-time highs as we have seen in the technology sector and small cap stocks? The answer is: To Be Determined. We feel the current probability of good things happening in the equity markets is better than bad things happening.

Does all of this information mean that you should change your asset allocation and invest more into the stock market? The answer is maybe. Market outlook is never enough of a reason to change your investment plan. 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 live a life of significance.

Disclosures:

• 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. 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.

• Any charts, graphs, or visual aids presented herein are intended to demonstrate concepts more fully discussed in the text of this brochure, and which cannot be fully explained without the assistance of a professional from Munn Wealth Management. Readers should not in any way interpret these visual aids as a device with which to ascertain investment decisions or an investment approach. Only your professional adviser should interpret this information.

• The S&P 500 is an unmanaged index used as a general measure of market performance. You cannot invest directly in an index. Accordingly, performance results for investment indexes do not reflect the deduction of transaction and/or custodial charges or the deduction of an investment-management fee, the incurrence of which would have the effect of decreasing historical performance results.

• The Value Line Geometric Index is an unmanaged index used as a general measure of market performance. You cannot invest directly in an index. Accordingly, performance results for investment indexes do not reflect the deduction of transaction and/or custodial charges or the deduction of an investment-management fee, the incurrence of which would have the effect of decreasing historical performance results.

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.”

Epictetus

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

WHY PEOPLE DESPISE TALKING WITH A FINANCIAL ADVISOR

CALL TRANSCIPT:

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.

Disclosures:

•       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.

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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? 

 

https://www.benetworthy.com/best-retirement-account-didnt-know/
https://www.learnvest.com/2014/12/is-an-hsa-right-for-me/

Disclosures:
•    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