Our Quarterly Report

Our Quarterly Report “Happiness will never come to those who fail to appreciate what they already have.” Rewald, Sebranek, & Frawley An Independent Firm April 2018 Sticking to the Fundamentals 2018 has been a roller coaster ride—up nearly 7%, down over 10%, back up nearly 8% and then down 5%. All this action in just a few months. The result is U.S. stocks—as measured by the S&P 500 Index—are down slightly under 1% year to date. This fluctuation wasn’t anything new and something we have all experienced before. It’s at moments like these that we like to get back to the fundamentals and what our group believes to be the basics and the backbone of successful investing: • Costs Matter: Investment costs might not seem like a big deal, but they add up, compounding along with your investment returns. In other words, you don’t lose just the tiny amount of fees you pay—you also lose all the growth that money might have had for years into the future. Here’s an example from Vanguard. Im- agine you have $100,000 invested. If the account earned 6% a year for the next 25 years and had no costs or fees, you’d end up with about $430,000. If, on the other hand, you paid 2% a year in costs, after 25% years you’d only have about $260,000. That’s right: The 2% you paid every year would wipe out almost 40% of your final account value. 2% doesn’t sound so small anymore, does it?* • Time Versus Timing: If we’ve said it once we’ve said it a million times—time in the market is more im- portant than timing the market. The reasoning is not only do you have sell at the right time but you also have to buy in at the right time. In other words you have to be right twice. We know far too many people who liquidated their stock portfolios over the past decade and as a result have missed one of the greatest bull markets of our generation. • Keeping It Simple: Some of our best and most successful client-friends have only a high school diploma. Yet they have been diligent savers and investors and have portfolios that are made up of simple, tax effi- cient investments. On the other hand, we know of highly educated individuals that have pages and pages of holdings, spend hours researching the various components of their portfolios and ask questions such as “How much do I have in alternative investments and private equity? Should I put more in small cap interna- tional stocks? How will the rising dollar affect the value of my global bonds?” These are legitimate questions but the additional time and costs spent does not guarantee a better return. Rather we’ve found the more involved and tinkering one does within a portfolio, a smaller return is the result. • Bucket Approach: Only invest the funds that you won’t need for five or more years in stocks. Money that you’ll need in the next five years should be kept aside in short term bonds or safe interest bearing FDIC bank accounts. Our belief is if you have this short term safe bucket of money set aside, not only will you have a cushion should an unforeseen life event occur but it will be an emotional buffer to keep your stock portfolio invested long term. • Ignore the Noise: When it comes to investing in companies, it truly doesn’t matter who the President is or who controls Congress. The talking heads of CNBC or Fox Business (just to name a few) are fear mongers. Negative headlines get much more attention—blame it on our amygdala. Instead, we encourage you to turn off the television and spend that time doing an activity you love with the people you love. *This is a hypothetical example and is for illustrative purposes only. No specific investments were used in this example. Actual results will vary. Past performance does not guarantee future results. 2018 Index Returns (Year-to-Date) Major Stock Indices (As of 3/31/2018)* Major Bond Indices (As of 3/31/2018)* S&P 500 -0.76% U.S. Aggregate Bond Index -1.46% Dow Jones Industrial Ave -1.96% U.S. High Yield Bond Index -0.83% MSCI EAFE -1.70% U.S. Treasury: 20+ Year -3.38% MSCI Emerging Markets +1.28% CPI—Headline +0.70% *Source: MSCI Net Returns, Barclays Capital Rewald’s Rant Joel Rewald, Financial Advisor Limited Number of Stanchions After being out west for most of 3.5 months, Lisa and I have settled back into our comfortable confines just outside the city limits of Richland Center. Mobile devices help narrow the divide when we are on the road, however we’re really looking forward to the three new office babies. These winter retreats help me conceptual- ize what it is like to live in a place other than Richland Center. Our children can support that few, if any, in the last 40 years have spent more time downtown than me. Reflecting back on those 40 years, never would I have imagined the degree of care and planning we are able to deliver for client-families as RSF is able to today. From the time we came to town, every month began with $0 in revenue. Back then, revenue was a function of finding the money and hopefully selling a suitable product that also paid a rich dividend or interest payment to the client and for then Edward D. Jones or Blunt, Ellis & Loewi a commensurate commission, which they then shared with me. You might say going to all those weekday and weekend masses sort of paid off because in the early 1990s, I was transfixed by a column in one of our trade magazines by Nick Murray. Everything Nick conveyed, I read and listened to. As a former broker like me, Nick’s proposition back then was about transi- tioning to the side of the client and away from commission-based-selling. Nick’s proposition was fee-based- selling by charging a client say 1% for the assets they had under our management. For the next several years, our group, then part of the Kemper Group, used both commission and fee or trail based models. Then in the late 1990s, I went cold turkey, quit the commission gig, and affiliated with the financial planning arm of Ray- mond James, then called IM&R. A handful of years later, the next huge break for me and especially our clients arrived. A former Culvers employee joined Lisa, Mylan and me on Court St. (Remember Mylan? He is now managing an office for a couple of middle-aged women up in Appleton). Well that former Culvers employee is our Terry Sebranek who worked full-time while finishing up his finance major at Platteville. Terry’s joining gave me the impetus in re- taining our first hands on financial advisor consultant, Steve Moore. Steve’s proposition went something like this: “Joel, you have 200+ people on your books that are generating <10% of your revenue and 20 clients generating over 50%. Why do you allow your top 20 to subsidize your bottom 200?” Terry would chime in by saying something like “then the next best thing that happened to both of us was the recruitment of Kaleb in 2007.” Up until then, RSF hung their hat on investment planning and financial planning played the supporting cast. However with the “twin towers” beaconing down, it wasn’t long that more dismantling of the past took place and RSF’s value proposition centered on what we believe we could influ- ence for our clients versus what I in the past attempted to— outperforming indices. As a result, RSF today is a financial planning firm as opposed to just an investment advisory group. About four years ago, RSF began on another critical leg of transformation. We committed to doing away with charging clients for assets under management (i.e. 1%) by converting to a flat fee retainer. Before we went whole-hog, we floated this by a host of our clients including my wife. While on the surface it appeared to be just semantics but not so when we gave a few examples—“Why should RSF be paid $6,000 more per year if you transfer your $600,000 401k?” or “Because you have an old TIAA-CREF account that pays a 3.5% fixed rate, why would we move that account into your IRA when RSF through Raymond James/Commonwealth could not come near the benefits of that TIAA-CREF offered to you? As a matter a fact, good chance RSF may recommend pushing assets from your RSF/Commonwealth retirement account to TIAA-CREF!” In addition to the flat-fee retainer, RSF relieved me of investment management by moving most to all of our active management portfolios to inactive/passive index portfolios. Not only did we reduce management costs by about 80%, RSF had me resign from trying to outperform the indices. Simply stating, minus the marginal costs of an index fund, one’s index portfolios will neither outperform or underperform the stated benchmark. In retrospect, RSF helped me overcome a habit that would at times tear me apart and cost our clients as much as four to five times the cost versus inactive/passive management. As a result, when RSF is doing a financial planning review, we spend a marginal amount of time on what we can’t control (the markets) and most of the time on what RSF has influenced or can, your financial plan and purpose.

Load more