Draft Picks

With the first pick in the NFL draft…

The kick off for the NFL draft is tonight and the lives of 253 young men will be forever changed. Fame and fortune awaits these newly minted professional athletes.

What are the odds for a college football player to make an NFL roster? According to the NCAA about 1.6% of eligible college athletes will make it to the next level.  During the 2016/2017 college football season there were 73,063 players, of which 16,236 were draft eligible.[1]

Does it matter what round a player is drafted? According to the data, the answer is yes. 60% of all starters were drafted in the first three rounds while players drafted in rounds six or seven accounted for 9%. 71% of players who made the all-pro team were drafted in the first three rounds; the last two rounds accounted for 4.7%.[2]

From 1994 to 2016 quarterbacks drafted in the first three rounds won 49% of their games. QB’s drafted in rounds 4, 5 & 7 won 40%. What about round 6? The data for this round is skewed because of Tom Brady, a 6th round pick in the 2000 draft – #199.  Because of Mr. Brady, he and his 6th round cohorts have won 55% of their games.[3]

In 1998 Ryan Leaf was considered a can’t miss pick and was drafted second behind Eli Manning. Leaf’s size, statistics, and potential were unparalleled.  He played for four seasons and is considered by many to be the biggest draft bust in NFL history.

How can you find the next Brady while avoiding the next Leaf? It’s not easy. Despite reams of data, hours of film, and several interviews the experts, at the end of the day, are making educated guesses.

Picking individual stocks is like drafting NFL players. Investors have access to company financials, research reports, and analyst opinions to help them select the best stocks. They must pick the right stock in the right industry at the right time to make significant money.  Amazon, Apple, Berkshire Hathaway, and Intel have rewarded shareholders for decades. However, purchasing stocks like Enron, Global Crossing, or Worldcom can wipe out years of savings.

To be diversified an investor should own more than 100 stocks.[4]  During my career I’ve noticed most individual investors own between 10 and 20. Morningstar tracks over 110,000 companies in their global data base so how is it possible to consistently pick the top 10 or 20?

A better alternative for most investors is to own a diversified portfolio of low-cost mutual funds. A portfolio of seven mutual funds managed by Dimensional Fund Advisors include 16,704 securities scattered around the globe. This all-world portfolio consists of the following funds:

  • Core Equity I – DFEOX
  • Small Cap – DFSTX
  • Micro Cap – DFSCX
  • International Core – DFIEX
  • Emerging Markets Core – DFCEX
  • Real Estate – DFREX
  • Intermediate Government Fixed Income – DFIGX

An equal weighted investment into each of these funds generated returns of 10.22%, 6.84%, 8.52% and 7.48% over 1, 3, 5 and 10 years, respectively.

As an investor you can avoid single stock risk by purchasing the entire market with low-cost mutual funds. Roger Goodell, the commissioner of the NFL, benefits from every player on every team. He wins regardless of when they’re drafted, how they play, or how many years they stay in the NFL because he knows that the collective power of the league is more powerful than a single player. Be like Roger and buy the whole market so you can harness the collective power of its long-term trend.

“Set your goals high, and don’t stop till you get there.” –Bo Jackson

April 26, 2018

Bill Parrott is the President and CEO of Parrott Wealth Management an independent, fee-only, fiduciary financial planning and investment management firm in Austin, TX.  Our mission is to remove confusion, complexity, and worry from the financial planning and investment management process. For more information please visit www.parrottwealth.com.

Note:  Past performance is not a guarantee of future returns.  Your returns may differ than those posted in this blog and investments aren’t guaranteed.  The returns don’t include taxes.

 

 

[1] http://www.ncaa.org/about/resources/research/football

[2] https://www.forbes.com/sites/prishe/2015/05/22/tracking-nfl-draft-efficiency-how-contingent-is-success-to-draft-position/#6a1b0f787495, Patrick Rishe, 5/22/2015

[3] https://www.footballoutsiders.com/stat-analysis/2017/nfl-draft-round-round-qb-study-1994-2016, by Scott Kacsmar, 3/21/2017

[4] http://www.aaii.com/journal/article/how-many-stocks-do-you-need-to-be-diversified-.touch, Daniel J. Burnside, July 2004

3 Percent

Three is not a lonely number but it is a crowd and a bit odd.  The number three appears in stories like the Three Musketeers and the Three Little Pigs. The Nina, Pinta, and Santa Maria sailed the ocean blue as a threesome.  Famous athletes who have worn the number include Babe Ruth, Dwayne Wade, Candice Parker, Russell Wilson, and Dale Earnhardt.  Let’s not forget the Three Stooges.

Lately, investors have been agitated because the yield on the 10-Year US Treasury Note breached 3%.  Rising rates usually don’t bode well for financial instruments like stocks or bonds but should we be worried?

The last time the 10-Year yield poked its head above 3% was December 2013.  If you purchased the Vanguard S&P 500 Index fund in January 2014, after the 10-Year rose above 3%, you would’ve generated an average annual return of 10.89%.  A $100,000 investment in the Vanguard fund is now worth $155,510.

The yield on the 10-Year Treasury never fell below 3% from 1962 to 2008 and peaked at 15.84% in September 1981. Since 1962 it has averaged 6.23%. Rates are relative and 3% seems low next to the historical average but high when compared to the low of 1.37% it touched in July 2016.[1]

From 1962 to 1981 the 10-Year yield soared 275%.  This period included the Cuban Missile Crisis, the Civil Rights Movement, the Vietnam War and the Iran Hostage Crisis. Despite these headwinds the stock market managed to generate an average annual return of 6.8%.  A $100,000 investment in the Investment Company of America mutual fund in 1962 grew to $547,780 by the end of 1981. Of course, the stock market didn’t go straight up, it fell several times including a 41% loss from 1973 to 1974.[2]

The S&P 500 Index has averaged 10.8% from 1962 to 2018 with interest rates rising and falling. Incorporating a buy and hold strategy in the index, a $100,000 investment in 1962 grew to $34.11 million at the end of March 2018.[3]

Should you be afraid of rising rates? It all depends on why rates are rising. Currently they’re rising for positive reasons because of our strong economy, low unemployment, and robust earnings.

To keep your investments moving forward here are three things you can do now.

Plan. A financial plan will help crystallize your goals and quantify your objectives. It will serve as the cornerstone for your investment portfolio and help guide your through a myriad of market conditions.

Invest. A diversified portfolio of stocks, bonds and cash will help cushion your investments from a rate shock.  Adding international and alternative investments to your account will further balance your portfolio.

Repeat. Rebalancing your accounts once or twice per year will keep your asset allocation intact and your risk level in your desired range.

The American economy continues to thrive, and the long-term trend of the stock market can move higher despite the gravitational pull of interest rates.  Focus on your goals, look to the horizon, and invest often.

“We ignore outlooks and forecasts… we’re lousy at it and we admit it … everyone else is lousy too, but most people won’t admit it.” ~ Marty Whitman

April 25, 2018

Bill Parrott is the President and CEO of Parrott Wealth Management an independent, fee-only, fiduciary financial planning and investment management firm in Austin, TX.  For more information please visit www.parrottwealth.com.

Note:  Past performance is not a guarantee of future returns.  Your returns may differ than those posted in this blog and investments aren’t guaranteed.  The returns don’t include taxes.

 

[1] https://fred.stlouisfed.org/series/DGS10

[2] Morningstar Office Hypothetical Tool

[3] Ibid

Trust the Process

The Philadelphia 76ers mantra has been “trust the process” after their GM, Sam Hinkie, was hired in 2013.  Mr. Hinkie said, “We talk a lot about process – not outcome – and try to consistently take all the best information you can and consistently make good decisions. Sometimes they work and sometimes they don’t, but you reevaluate them all.”

The process took time to take hold as the team won few games from 2013 to 2017. In 2016 they only won 10 games.  In fact, they were so bad they broke the NBA’s record for consecutive games lost.[1]

Because of their dismal performance, they were able to draft elite college talent through the league’s lottery pick system including Joel Embiid, Ben Simmons and Markelle Fultz.

Finally, in 2018 the process worked as they won 52 games and won their first playoff game since the 2012 season.

The process worked for Mr. Hinkie and the 76ers because he offered the fans a “concrete plan based on quantitative analysis.”   It appeared everybody was on board with the process except the owners and in April 2016 Mr. Hinkie stepped down as the GM.  Now that the 76ers are winning it appears the process is working, and Mr. Hinkie has been vindicated.

Financial planning is a process.  The gathering of your data and the discovery of your goals are major components for a successful plan. The journey to your finished product can be more important than the plan itself.  It will be your financial playbook expressing how best to approach your goals and investment selection by highlighting the strengths and weaknesses of your finances.  Once these items have been identified, you can focus your efforts to improve your finances by enhancing your strengths and improving your weaknesses.

After your plan has been implemented it’s important to reevaluate it often.  An annual check-in is recommended.  The review and analysis of your plan will allow you to make the necessary changes so that you can keep your financial team moving forward.

It may take years before you reach your goals, so patience is required.  The 76ers waited five years before they obtained their goals of reaching the playoffs.  They’re now winning and enjoying the fruits of their labor.  You may suffer setbacks along the way to obtaining your goals but if you follow your process you’ll be able to enjoy the fruits of your labor as well.

“If you can’t describe what you are doing as a process, you don’t know what you’re doing.” ~ W. Edwards Deming

 

Bill Parrott is the President and CEO of Parrott Wealth Management an independent, fee-only, fiduciary financial planning and investment management firm in Austin, TX.  For more information please visit www.parrottwealth.com.

4/16/18

Note:  Past performance is not a guarantee of future returns.  Your returns may differ than those posted in this blog and investments aren’t guaranteed.

 

 

[1] https://qz.com/890093/trust-the-process-how-three-years-of-losing-on-purpose-turned-the-philadelphia-76ers-into-winners/, Dan Kopf, January 28, 2017

The West Wing

The White House is a symbol of hope, peace and freedom and The West Wing is where the power reigns.  It houses the Oval Office, the Cabinet and the Situation Room.

The President of the United States is the leader of the free world, so when he speaks, people listen. In year’s past they’ve used the media like newspapers, TV, and radio to advance their agendas. These messages were filtered, screened, reviewed, and rewritten before they were delivered into the public domain.

Our current President uses the bully pulpit like no other.  In addition to traditional forms of communication he’s been using Twitter to advance his policies in real time, unfiltered.  His tweets are adding to the increased volatility in the stock market.  When he tweets something positive, the market rises. A negative one will drive the market lower. Investors have grown weary of the Trump Twitter Tirades and the on-line sabre rattling with North Korea, Russia and Syria is causing heartache for all.

Since 1921 we’ve had 16 presidents from Calvin Coolidge to Donald Trump and each one has dealt with varying degrees of issues, some more than others. Despite different political parties, world wars, depressions, recessions, assassinations, impeachments, resignations, and tweets the engine of the American economy has chugged along.  As our economy has expanded, so too has the stock market.  In 1921 the Dow Jones closed at 80 and today it’s 24,360, a gain of 30,350%.

Calvin Coolidge was president during the Roaring Twenties and left office before Black Monday, October 29, 1929.  He was a man of few words and was known as Silent Cal.  He understood the main driver of our economy was business and that silence was a powerful tool. He once said, “I have never been hurt by what I have not said”

Herbert Hoover had the unfortunate timing of holding office during the worst economic time in our country’s history.  The passage of Smoot-Hawley under his watch was a big contributor to extending the Great Depression.

FDR brought us out of the Depression and led the U.S. coalition to victory in WWII.  He told us, “The only thing we have to fear is fear itself.”

JFK stared down Khrushchev during the Cuban Missile Crisis in 1962 and was assassinated in office, November 1963.  He was the first president to successfully use television to advance his policies and asked: “And so, my fellow Americans, ask not what your country can do for you — ask what you can do for your country.”

LBJ helped pass the Civil Rights Act and was entangled with the Vietnam War.  He, more than most, understood the power of the media and said, “If one morning I walked on top of the water across the Potomac River, the headline that afternoon would read: ‘President Can’t Swim.’”

Richard Nixon resigned as the 37th President of the United States before congress could impeach him for his role in Water Gate.  He said he wasn’t a crook and added: “When the President does it, that means that it is not illegal.”

Jimmy Carter dealt with the Iran Hostage Crisis, rising oil prices and inflation.  The economy and the stock market were stagnant under his presidency and interest rates rose dramatically.

Ronald Reagan brought an end to the Cold War and turned our economy around with his policies. He was not a fan of big government but did spend heavily on our military.  He once said, “The most terrifying words in the English language are: I’m from the government and I’m here to help.”

George H.W. Bush led the U.S. and its allies in the Gulf War against Saddam Hussein and Iraq.  He served our country in numerous capacities but was known for one of his more infamous quotes on taxes: “Read my lips: no new taxes.”

Bill Clinton passed NAFTA and was impeached.  He did, however, believe in America, “There is nothing wrong with America that cannot be cured by what is right with America.”

George W. Bush is connected to the 9/11 terrorist’s attacks and the war in Iraq. On top of the rubble from the World Trade Center he said, “I can hear you, the rest of the world can hear you and the people who knocked these buildings down will hear all of us soon.”

Barrack Obama made history as the first African-American president and told us, “I’m going to try to unite all Americans.”

Presidents will come and go but the stock market will continue to move forward so don’t let the current Twitter tirades get you down.  Follow your financial plan, diversify your assets and focus on your long-term financial goals. Remember the words of Silent Cal, “The business of America is business.”  The economic machine of the United States will always trump rhetoric.

In all the talk about Democracy, we forget it’s not a democracy. It’s a republic. People don’t make the decisions, they choose the people who make the decisions. ~ Jed Bartlett (West Wing)

Bill Parrott is the President and CEO of Parrott Wealth Management an independent, fee-only, fiduciary financial planning and investment management firm in Austin, TX.  For more information please visit www.parrottwealth.com.

4/15/18

Note:  Past performance is not a guarantee of future returns.  Your returns may differ than those posted in this blog and investments aren’t guaranteed.

 

 

 

Battling History

The Dow Jones Industrial average has fallen 10% from its January peak of 26,616 and volatility has returned in force. The Dow has experienced 28 days with moves of more than 1%: 14 up, 14 down.  In February, the market fell more than 4% twice.

The VIX, a measure of volatility, has increased 114% this year, peaking at 50.3 in February. By comparison, it reached 80 in October 2008. The VIX, also known as the fear index, spikes when investors get nervous and frightened.

The down drafts and volatility spikes have been attributed to Trump’s proposed trade tariffs.  He currently wants to apply $100 billion in tariffs on Chinese imports.  He originally wanted global tariffs on steel and aluminum but has backed off on this and has carved out certain countries like Canada and Mexico.  Mr. Trump has said, “Trade wars are good, and easy to win.”  In a recent interview with the radio show Bernie and Sid he added: “We’ve already lost the trade war. We don’t have a trade war, we’ve lost the trade war.”  He continues, “I’m not saying there won’t be a little pain, but the market has gone up 40 percent, 42 percent so we might lose a little bit of it. But we’re going to have a much stronger country when we’re finished.”

The Dow Jones is up 25% since the Presidential Election and 239% from the March 2009 low so giving some profit back isn’t all that bad, is it?  If the market were falling because of poor fundamentals or lackluster earnings, then a little profit taking wouldn’t be a concern.  However, this isn’t the case as investors are focused on the specter of a trade war coupled with rising rates.  These two items may be too much for the market to bear.

Fortunately, or unfortunately, we have some case history with tariffs.  During the height of the depression and a few months removed from the stock market crash on October 29, 1929, the Smoot-Hawley Tariff Act was passed in June 1930.  This act applied tariffs to 20,000 imported goods.[1]

On April 15, 1929 President Herbert Hoover said, “Such a tariff not only protects the farmer in our domestic market, but also stimulates him to diversify his crop.”[2]

“In May 1930, one thousand and twenty-eight economists signed an open letter urging the president to veto the legislation – and published it in the New York Times.”[3]   The economists added that “many countries would pay us back in kind.”[4]

World economies suffered, and banks collapsed.  The Fed Reserve raised interest rates in 1928 and 1929.  The Fed was decentralized in the 20s and didn’t become a voting body until 1935. Two years after Smoot-Hawley passed, U.S. imports dropped 40%.[5]  Two dozen countries retaliated, and our imports and exports fell by two-thirds between 1929 and 1932.[6]

The Reciprocal Trade Act of 1934 gave FDR the ability to negotiate bilateral trade agreements allowing him to reduce tariffs.  This act, along with World War II, has been credited with improving our economy, restoring global trade and ending the depression.[7]

The current rhetoric is being described as a negotiating tactic designed to bring fair and free trade to China and the United States.  I hope this is the case because trade wars can escalate quickly.  Forrest fires always start with a little spark and if left unchecked, can spread to thousands of acres.

If we do engage in a prolonged trade war you won’t have to worry about the Fed raising rates because they’ll fall like they did during the Great Depression. During the Great Depression stocks, interest rates and inflation fell while T-Bills and long-term bonds rose.

Here’s how these items performed from 1929 to 1932.

The S&P 500 fell 84.8%.

Inflation fell 25.4%.

Long-term bonds rose 19.6%.

T-Bills rose 9.2%.

I’m a believer in the invisible hand and I’m hopeful China and the United States can avoid a trade war.  Hope is not a strategy so prepare yourself for more market turbulence as these two economic super-powers battle each other through social media.  The best way to inoculate yourself from the market’s turmoil is to follow your financial plan and diversify your assets.

“History doesn’t repeat itself, but it often rhymes,” ~ Mark Twain

 

Bill Parrott is the President and CEO of Parrott Wealth Management an independent, fee-only, fiduciary financial planning and investment management firm in Austin, TX.  For more information please visit www.parrottwealth.com.

4/10/18

Note:  Past performance is not a guarantee of future returns.  Your returns may differ than those posted in this blog and investments aren’t guaranteed.

 

[1] https://en.wikipedia.org/wiki/Smoot–Hawley_Tariff_Act

[2] The Forgotten Man by Amity Shlaes, 2007

[3] Ibid

[4] Ibid

[5] Ibid

[6] The Editors of the Encyclopedia of Britannica, 4/8/2018.

[7] https://en.wikipedia.org/wiki/Reciprocal_Tariff_Act

Berkshire Hathaway 2017 Annual Report.

The 2017 annual report for Berkshire Hathaway is available and, as usual, it’s chock-full of wisdom.  The information written in the first few pages is priceless.  Investors of all backgrounds and ages can benefit from the words of Warren Buffett. As the world’s greatest investor, there are 85.3 billion reasons to believe Mr. Buffett knows what he’s talking about; his guidance is timeless.

Here are a few nuggets I mined from the pages of this year’s annual report.

He and his partner, Mr. Charlie Munger, don’t use leverage to enhance returns. They shun debt because they don’t want to put their current assets at risk.  If you need proof of how leverage can destroy a company look no further than Toys R. Us.  After 70 years in business this storied franchise is shutting its doors forever due to a mountain of debt.  Using margin to try and increase your returns is just as foolish.  Leverage looks good when the market is rising but it will become a nightmare during a declining one.

Mr. Buffett doesn’t “depend on the kindness of strangers” to help him grow his business.   Meaning he doesn’t rely on bankers or money lenders to fuel his growth.  Berkshire invests in Treasury Bills for safety, liquidity and opportunities.  Their T-Bills helped them during the financial crisis of 2008-2009 and it gives them a cushion to “withstand economic discontinuities, including such extremes as extended market closures.”  T-Bills aren’t sexy, and bonds are boring.  Owning boring bonds while stocks are falling is comforting.  If you’re concerned about the recent stock market volatility, add T-Bills and bonds to your portfolio.

Investors want to know what tomorrow will bring, they want a crystal ball, so they can position their portfolio accordingly.   No one knows what will happen in the future, including Mr. Buffett.  When discussing the probability of a mega-catastrophe in the U.S.  he says, “No one, of course, knows the correct probability.”  When talking about market declines he adds: “No one can tell you when these (declines) will happen. The light can at any time go from green to red without pausing at yellow.”

He views stocks as a “businesses, not as ticker symbols.”   He doesn’t buy stocks “based on their ‘chart’ patterns, the ‘target’ prices of analysts or the opinions of media pundits.”   He adds: “In America, equity investors have the wind at their back.”  He also expects to own companies “indefinitely.”

Berkshire likes to acquire entire companies with a market cap in the “$5-$20 billion range” that are easy and simple to understand with “consistent earning power.”  If a company meets the criteria set forth by Mr. Buffett and Mr. Munger they can give “a very fast answer – customarily within five minutes – as to whether we’re interested.”

During the last 53 years the share price of Berkshire Hathaway has appreciated significantly but they “have suffered four truly major dips.”  The drops in the price of the stock are listed below.  If you panicked and sold your shares during one of these drops, you would’ve missed extraordinary long-term returns from Berkshire.

March 1973 – January 1975 the price of Berkshire stock fell 59.1%.

October 2, 1987 – October 27, 1987 the stock fell 37.1%.

June 19, 1998 – March 10, 2000 it fell 48.9%.

September 19, 2008 – March 5, 2009 it fell 50.7%.

The best part of this year’s annual report is when Mr. Buffett recaps his bet with Protégé Partners.  In December of 2007, he bet Protégé that an unmanaged S&P 500 index fund would outperform five funds-of-funds.  These five funds “owned interests in more than 200 hedge funds.”  The funds-of-funds could trade their hedge funds and add “new ‘stars’ while exiting their positions in ones whose managers had lost their touch.”  The active fund managers could trade as often as they wished while the index fund was left alone, a pure buy and hold strategy.  He recommends to “stick with big, ‘easy’ decisions and eschew activity.”

The hedge fund managers in the bet were receiving “fixed fees averaging a staggering 2.5% of assets.”  As he says, “Performance comes, performance goes.  Fees never falter.”

How did this bet turnout?  Mr. Buffett’s index bet trounced Protégé Partners, their funds-of-funds and the 200 hedge funds.  In fact, one of the funds was liquidated before the ten-year bet was over.  The average annual return for the Protégé team was 2.9% while the S&P 500 index returned 8.5%!  He said the returns these “helpers” generated was “really dismal.”  All the king’s horses, and all the king’s men…

He does mention that the risks of owning stocks is higher than owning short term bonds but over time they “become progressively less risky than bonds.”  He adds, “As has been the case since 1776 – whatever its problems of the minute, the American economy was going to move forward.”

As the market swoons, Mr. Buffett likes a “depressed market” because it gives him the opportunity to buy companies at reduced prices.   When the market falls, he and his team go shopping: “So when the market plummets – as it will from time to time – neither panic nor mourn.”

The infinite wisdom of Mr. Buffett carries on and we’d be wise to follow his counsel.  Here is a recap of his guidance:

  • Avoid leverage and debt.
  • Buy bonds and T-Bills for safety, liquidity, emergencies and opportunities.
  • It’s impossible to know the future so invest your assets based on your financial goals.
  • Buy businesses and not ticker symbols. Valuation and earnings matter.
  • Focus on simple investments that are easy to understand.
  • When, not if, stocks fall use it as an opportunity to add quality companies to your investment portfolio. Buying the dips has worked well for the past few hundred years and it will probably continue to do so going forward.
  • Buy low-cost index funds and hold them forever. A buy and hold strategy is a great way to create generational wealth.
  • Fees matter, so make sure they’re low. A fee audit can help you identify the fees you’re paying.
  • Indefinitely is a long time so don’t worry about the short-term moves in the stock market. Your financial goals are more important than short-term volatility.

Last, Mr. Buffett references Rudyard Kipling’s, If, in this year’s annual report so here’s a link to the poem:

http://www.kiplingsociety.co.uk/poems_if.htm

IF you can keep your head when all about you are losing theirs… ~ Rudyard Kipling

Bill Parrott is the President and CEO of Parrott Wealth Management an independent, fee-only, fiduciary financial planning and investment management firm in Austin, TX.  For more information please visit www.parrottwealth.com.

4/8/18

Note:  Past performance is not a guarantee of future returns.  Your returns may differ than those posted in this blog and investments aren’t guaranteed.

 

 

 

 

 

Musical Instruments.

I love listening to music, all kinds – rock, country, hip-hop and Christian.  I’ve never played an instrument but enjoy the collective sound they make to produce wonderful music.  My daughter played the bassoon in high school and I had to Google it because I’d never heard of it before in my life.  If you’re like me, you gravitate to bands you enjoy listening to and that are pleasing to your ears.

Most bands play similar instruments like guitars, pianos and drums.  The instruments U2 plays are not unlike those of the Rolling Stones, Led Zeppelin or Mercy Me.  Of course, it’s how they use them that makes all the difference.  The guitar was invented in the 16th century and it’s one of the more popular instruments played by millions.[1]  It’s debatable who the greatest guitarist is of all-time, but you could add Jimi Hendrix, Chuck Berry, Jeff Beck, Eddie Van Halen, The Edge, and B.B. King to this short list.

Financial advisors, like musicians, have access to similar instruments – stocks, bonds, mutual funds, exchange traded funds, and so on.  An index fund purchased from Fidelity is not much different than one bought through Vanguard.  Does it matter how shares of Apple, Facebook, or Pepsi are purchased?  It probably doesn’t, but what does is how comfortable you are with your advisor because you’ll work with one you like and trust.

In addition to working with an advisor you trust, here are a few suggestions to help you refine your search.

  • Is your advisor a Certified Financial Planner practitioner? An advisor who has obtained the CFP® designation has studied for two years, or more, and passed a rigorous exam.  He also has an on-going requirement for continuing education.  Here’s a link to the CFP website if you want more information: https://www.cfp.net/
  • Is your advisor a fiduciary? If so, he must legally act in your best interest and disclose any conflicts of interest as set forth by the Investment Advisors Act of 1940.
  • Is your advisor a member of the National Association of Personal Financial Advisors (NAPFA)? Here’s what members of NAPFA believe: “NAPFA members live by three important values: To be the beacon for independent, objective financial advice for individuals and families. To be the champion of financial services delivered in the public interest. To be the standard bearer for the emerging profession of financial planning.” Here’s a link to their website: https://www.napfa.org/
  • Is your advisor a member of their local financial planning association? If so, he shows a strong commitment to planning and serving his local community.  Here’s a link to the Financial Planning Association website: https://www.onefpa.org/Pages/default.aspx
  • How does your advisor invest their money? Does he own what he recommends? Do they eat their own cooking?  Are the investments diversified?
  • What fees does your advisor charge? Is it based on your assets? Do they offer a flat fee or charge by the hour?  More importantly, how much do they charge?  The fees should be reasonable and easy to comprehend.
  • How often do they communicate with you to review your accounts and goals? Is he accessible to meet with you in person? By phone? Video? Email? Text?  Do they return your calls and emails in a timely fashion?

Investment vehicles do not vary much from one firm to the next.  The process for financial planning and investment selection is similar from advisor to advisor.  What’s the difference?  It’s the advisor.  If you’re looking for an investment professional to help you manage your financial resources, make sure it’s someone you can rely on because working with one you can trust is beautiful music.

It’s easy to play any musical instrument: all you have to do is touch the right key at the right time and the instrument will play itself.  ~ Johann Sebastian Bach

Bill Parrott is the President and CEO of Parrott Wealth Management an independent, fee-only, fiduciary financial planning and investment management firm in Austin, TX.  For more information please visit www.parrottwealth.com.

4/5/2018

Note:  Past performance is not a guarantee of future returns.  Your returns may differ than those posted in this blog and investments aren’t guaranteed.

 

 

 

 

 

 

[1] http://yeoldeguitar.com/history.html