South Sea Bubble

Our Quarterly Report

“If you want to know how to live your life, think about what you’d like people to say about you after you die. And live backwards.”

Rewald, Sebranek, & Frawley An Independent Firm

2014 Index Returns (Year-to-Date)

Major Stock Indices S&P 500

Dow Jones Industrial Ave MSCI EAFE

MSCI Emerging Markets

(As of 12/31/2014)* +13.69% +10.04% -4.90% -2.19%

Major Bond Indices Muni Bond Index

Emerging Markets Index Corporate Hi Yield Index

U.S. Treasury

(As of 12/31/2014)* +9.05% +4.76% +2.45% +5.05%

*Source: MSCI Net Returns, Bloomberg and Barclays Capital

“I can calculate the movement of the stars, but not the madness of men.”

- Sir Isaac Newton, after losing a fortune in the South Sea bubble

In 1711 the Earl of Oxford formed the South Sea Company, which was approved as a joint-stock company via

an act by the British government. The company was designed to improve the British government’s finances.

The earl granted the merchants associated with the company the sole rights to trade in the South Seas (the east

coast of Latin America). From the start the new company was expected to achieve huge profits given the be-

lieved inexhaustible gold and silver mines of the region. It was anticipated the company would ship British

goods to the South Seas where they would be paid for in gold and silver. Rumors swirled that Spain was

going to give free access to its ports in Chile and Peru for a share of the South Seas stock and share prices

soared. Sir Isaac Newton was an early investor in the stock, investing a decent amount of money into the

shares. He exited those shares a number of months later with a good profit, leaving him a happy investor. Sub-

sequently, the shares soared into bubble proportions, and as Newton saw his friends getting rich, greed over-

took fear and Newton took most of his cash and re-bought the shares. Not long after that, the share price

peaked, and then crashed, leaving Sir Isaac Newton broke (see chart).

We don’t mean to bring this up to point out that the various global stock markets are in a bubble, rather as an

example that even one of the most brilliant men in history was overcome by greed at exactly the wrong time.

Within this report, we have dedicated a handful of

pages to reiterate and support our belief in global in-

vesting—which hasn’t been the most popular theme

over the past few years. Yet we are reminded of

words spoken by Warren Buffet in the fall of 2008

just after Lehman Brothers went under and the faith

he still had in the U.S. economy: “Let me be clear on

one point: I can’t predict the short-term movements of

the stock market. I haven’t the faintest idea as to

whether the stocks will be higher or lower a month—

or a year—from now. What is likely, however, is that

the market will move higher, perhaps substantially so,

well before either sentiment or the economy turns up.

So if you wait for the robins, spring will be over.”

With these words in mind, we’re sticking to our guns

and our core fundamental belief in a globally diversified portfolio.

Our Confession

Rewald’s Rant Joel Rewald, Financial Advisor

As the U.S. stock market continues to rise, international stock markets struggle, and the price of oil drops, it

gives us the ability to reiterate who we are, what we do, and why we need to stick with our proposition.

We are financial planners, not economists, portfolio managers or market timers. A financial planner does not

believe that he or anyone else can consistently anticipate the short– to intermediate-term course of either the

economy or the markets, and makes no attempts to do so. When markets are advancing, a financial planner

gives no view as to where they will top out; when they are declining, he takes no position on the question of

where they will bottom. He believes that long-term investments should be made whenever one has the money,

and that investments should be sold whenever (and indeed if ever) one needs the capital.

A financial planner believes that lifetime investment returns will be preponderantly if not entirely governed by

two variables: behavior and asset allocation. That is, he holds that the dominant determinant of long-term, real-

life, investment outcomes is not investment performance but investor behavior. Within the portfolio itself, a

planner believes that lifetime return will overwhelmingly be determined by the stocks to bonds mix, rather

than by selection and timing. The daily movement and the noise provided by the financial media is irrelevant

to the long-term success of our clients and their families. Much of this is inspired by the likes of Nick Murray.

We are not trying to be right about the economy or the markets, because no one consistently can be. Moreover,

timing the market always demands that one be very right twice. First, the market has to decline enough to

make the exit really worthwhile—that is, enough to justify taking the appalling risk that the market might stage

a historic recovery while you were out (as it did, literally while the whole world was out, in 2009). And sec-

ond, you have to get back in right—assuming, as we always must, that eventually you have to resume owner-

ship of stocks for their long-term inflation-fighting premium return. This is something that no advisor could

ever, in good conscience, counsel anyone to attempt.

With our role being restated and clarified above, we do get the comment every now and again from client-

friends saying “guys, I understand you are financial planners and I get that and appreciate what you’ve done

for me…...but performance still is something that is appreciated.” Therefore I’d like to take some time and talk

about performance and diversification.

The U.S. stock market once again trounced the broader international markets last year. In 2014, the U.S. stock

market, as measured by the MSCI USA Index, was up over 12% while the international market, measured by

the MSCI World ex USA Index, was down a little over 4% for the year. Since the beginning of 2013, the U.S.

market is up over 48% against a 10% gain for foreign markets. It’s tempting to look at these numbers and as-

sume you’ll be fine just holding U.S. stocks and forgetting about the rest of the globe. Investors have a short

memory at times, so it’s easy to forget that everyone hated U.S. stocks in the middle part of the last decade as

foreign stocks, led by emerging markets, were up almost three times as much on a total return basis:

Continued on the next page

MSCI World ex USA Index MSCI USA Index

2002—2007 +128.7% +38.3%

2008—2014 -2.7% +57.1%

Until the latest period, European stocks have actually been the most consistent performers while the U.S. and Pacific markets have taken turns going from top to bottom. These numbers are a good reminder of why it makes sense to diversify globally and avoid a home country bias. As you can see there has been long stretches of severe underperformance if you invested in a single geography at the wrong time.

No one can predict if U.S. returns on stocks will be as high as they’ve been historically or if another country or region will outperform in the coming decades. There are far too many factors that are unknown. It very well may turn out that having a larger exposure to U.S. stocks will continue to be the right move for the next few years. These trends can last longer than many think. But even if a long-term cycle of outperformance contin-ues, over shorter time frames the results can still prove to be uneven.

We must not forget that not only are our portfolios diversified globally, they are also allocated between small and large companies. Our investment models—depending on one’s risk tolerance and time horizon—also have an allocation to bonds and other asset classes. I’ll leave you with this—how each sector performed in 2014 and their total return over the past 10 years. If we were soothsayers, we would’ve had everything in long term U.S. Treasury bonds last year, but since the end of 2004, the big winner has actually been high yield junk bonds.

Europe United States Pacific

2008—2014 -5.9% +57.1% +4.0%

2002—2007 +127.7% +38.3% +116.5%

1996—2001 +63.9% -39.1% +99.1%

1990—1995 +66.7% -6.3% +102.9%

The Three Questions Our Confession Continued...

Rewald’s Rant Joel Rewald, Financial Advisor

Over the entire 2002 to 2014 period the total returns are fairly close, with the U.S. market up 117% against a gain of 122% for international stocks. These numbers show how mean reversion works over time or put anoth-er way, how a given market’s value will continue to return to an average value over time despite fluctuations above and below that average historical norm.

It’s also instructive to break out the international markets by different regions to show how certain geographies have performed over time. Any long-term investor would have done great in these markets had they been in-vested over the entire time frame, but breaking the numbers down by different periods shows how cyclical the total returns have been over time:

S&P 500 (Large US Stocks)

Russell 2000 (Small US Stocks)

MSCI Emerging Markets (Emerging Market Stocks)

MSCI EAFE (Developed Foreign Stocks)

+13.7% +4.9% -2.2% -4.9%

+109.5% +111.3% +126.0% +54.3%

DJ UBS Commodity Index

Barclays Capital Global Bond

Barclays Capital High Yield Bond

Barclays Capital Aggregate Bond Long Treasury

Barclays Capital US 1-3 Year Credit Bond

Citi 2-Year Treasury

-17.0% -1.0% +3.0% +25.1% +1.2% +0.6%

-17.1% +46.2% +182.9% +106.8% +47.1% +28.1%

Home Country Bias

Kaleb’s Corner Kaleb Frawley, Financial Advisor

Can you identify which of the following are brands of a foreign-based company (or a majority-owned subsidiary of a foreign-based company)?

According to the 2013 Franklin Templeton Global In-vestor Sentiment Survey, 39% of all U.S. investors have ALL of their assets in the U.S. Comparatively speaking, as of the end of 2012, 65% of the world’s investments were located outside the U.S. So what does this mean?

My best example of this would be building a fantasy football team. I am a Vikings fan and always love rooting for “whoever plays the Packers;” however if I had to build a football team of my own, I would NOT make my team up of only Vikings players. My first pick would probably be Aaron Rodgers or Tom Brady and I likely wouldn’t draft a Vikings player until the fourth or fifth round. As the Franklin Templeton survey found, a sub-stantial amount of U.S. investors have all their assets invested in U.S. stocks and bonds - which would be simi-lar to me having a fantasy football team made up of all Vikings players. Yes we all want the U.S. (and the Vi-kings) to do well, however we also know that there are good and perhaps better investment options and players located outside the U.S.

To reiterate, do not limit your investment options to only the U.S. There are numerous opportunities in the stock, bond and currency markets located outside the U.S. that an investor can potentially take advantage of. In the end our goal is for you to have a football team (or investment portfolio) that is globally diversified and positioned to take advantage of the best opportunities wherever they may be. To further expand on this point and the one Joel previously discussed, below is a chart of the most popular stock indices in the world and the demographics of the countries where those stocks/companies reside. Check out the current stock valuations.

By the way, the answers above are all products are produced by companies that are headquartered outside the U.S. Alka-Seltzer = Germany, Budweiser = Belgium, Bridgestone Tires = Japan, Shell Oil = United Kingdom, and Butterfinger = Switzerland

Never Too Young or Too Early To Plan About a month ago, one of my high school classmates/teammates died in a car accident. He was the first of the 2008 RCHS graduating class of approximately 135 members to pass away. At 25 years of age, he left a wife and two daughters. We hadn’t talked much since high school but we had spent a good chunk of time together on the football field. Truthfully this is one of those instances where one just slows down and reevaluates. My classmate’s passing gave me a wake up call. What’s your end in mind Kaleb?

I had my ducks but they weren’t necessarily in any particular row so I sat down and thought about it for a few days and then discussed my “end in mind” with my parents and partners Joel and Terry. I realized that if I would have died yesterday, there would be a handful of legacy goals that I would have regretted not getting accomplished or they wouldn’t have been executed correctly according to my vision. They ranged from paying off my sister’s student loans to leaving my Traditional 401k to a donor advised fund to making sure there was a sizable pot of money that would be able to produce and bear fruit for multiple generations to help pay for the needs, wishes and goals of my family, friends and community. I even overlooked a simple thing like instruct-ing my sister not to cash in her mutual savings and loan accounts should I pass away.

Enough of me and my wildly audacious goals. The main points that I want to relate are: 1) our group knows we have a handful of client-friends that have no (or an outdated) estate and legacy plan

which makes us very uncomfortable; and 2) our group knows that if a situation like my classmates happened to a few of our clients or one of their

children or grandchildren—whether that person was 25, 50 or 75 years old—the surviving family mem-ber/s would not be able to fend for themselves in that person’s absence (financially and emotionally).

This example stresses the importance of why financial planning needs to be done from a 30,000 foot view over multiple generations, not in a silo for just one generation. Our group’s main focus and goal in 2014 was to seek permission to develop a relationship with the next generation/backup quarterbacks of our existing client-friends. We weren’t able to accomplish all this in one year so it remains a central focus of ours in 2015. Professionally and personally speaking, our group doesn’t want a tragedy like the one that happened to my classmate to strike one of our client-friend’s extended family and known we could’ve done more or at least helped out with some simple proactive planning. It’s never too early to plan—whether that’s for a wed-ding, a baby, retirement, death, etc.—it’s going to happen so one might as well be prepared for it.

Disclosures: The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The

information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of the authors and not necessarily those of Commonwealth Financial Network. Expressions of opinion are by financial advisors Joel Rewald, Kaleb Frawley and Terry Sebranek as of this date and are subject to change without notice. This information is not intended as a solicitation or an offer to buy or sell any security referred herein.

Investments mentioned may not be suitable for all investors. Past performance may not be indicative of future results. You should discuss any tax or legal matters with the appropriate professional.

Securities offered through Commonwealth Financial Network®, member FINRA/SIPC, a Registered Investment Adviser.

There are special risks involved with global investing related to market and currency fluctuations, economic and political instability, and different financial ac-counting standards. These risks are discussed in the fund’s prospectus which should be read prior to investing.

Diversification does not ensure a profit or guarantee against a loss.

Inclusion of indexes is for illustrative purposes only. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect investment performance. Individual investor’s results will vary.

Dow Jones Industrial Average is an unmanaged index of 30 widely held securities.

S&P 500 is an unmanaged index of 500 widely held stocks. MSCI World ex. USA is designed to measure the equity market performance of developed markets, with the exclusion of the United States.

MSCI Emerging Markets Index is designed to measure the equity market performance of 21 emerging market country indices.

The Barclays Muni Bond Index cover the US Dollar denominated long term tax exempt bond market. The Barclays Corporate Hi Yield Index covers the US Dollar denominated, non-investment grade, fixed-rate, taxable corporate bond market.

The Barclays Emerging Markets Index measures the performance of sovereign, local currency bond markets of emerging market countries.

Kaleb’s Corner Kaleb Frawley, Financial Advisor

159 East Court St., P.O. BOX 420

Richland Center, WI 53581

(877) 647-3745

Securities and advisory services offered through Commonwealth Financial

Network®, member FINRA/SIPC, a Registered Investment Adviser.

Joel & Lisa’s days in Wisconsin are numbered. Their goal is to be out in St. George, Utah by February and not return until early April. Don’t worry, Joel has booked a condo that has a separate office room which will allow him to work a few days a week if he so chooses. The pictures above are of Joel & Lisa out in St. George for a week-long “reconnaissance” trip they took in mid-October and the other is of Joel and his daughter Mary from

early December from their 25th annual family snowboarding/skiing trip.