Models

A few months after the Great Recession a writer for a national magazine asked a simple question: “Did asset allocation models let down the individual investor?” I don’t think they did because conservative models lost less money than aggressive ones during the meltdown. In other words, the models performed as expected.

Asset allocation models are designed to perform based on their underlying investments. They won’t guarantee your assets against market losses, but they will perform in line with their benchmarks. In a rising market aggressive models will outperform conservative ones. The opposite occurs when markets are falling.

During a market rout you may find solace by selling your investments and moving your money to cash. In the short term, it will provide safety and comfort. However, over time, holding cash is a losing proposition because your returns will be negative after you factor in taxes and inflation.

A better idea is to align a model to your risk tolerance and financial goals. If your time horizon is longer than five years, a growth-oriented model may be more fitting than an all cash strategy. You’re likely to stay invested through a market cycle if your portfolio is aligned to your beliefs giving you an opportunity to capture the returns from the long-term trend of the stock market.

How do you know which model is suitable for your situation? There are companies that provide risk tolerance software to help determine the right model for you and your family. Riskalyze and Finametrica are two firms that work with advisors to help clients determine which model is appropriate. In addition to their algorithms, a financial plan and client conversations will complete the overall asset allocation and model process.

Why should you use a model for your investment portfolio? It will give you exposure to sectors you might not have considered if you only buy individual stocks or bonds. Your model may own a dozen different mutual funds covering several asset classes and thousands of securities. You’ll gain access to international markets, real estate holdings and high yield bonds, to name a few. In addition, it’s more efficient to rebalance a globally diversified portfolio of mutual funds allowing you to keep your risk level in check.

As we approach the end of the year, it’s a good time to review your investment strategy and your holdings. Are your accounts aligned to your risk level? Are you aware of the risk in your portfolio? A portfolio review, risk analysis, fee audit, and financial plan can help you answer these important questions – and many more!

Life is a fashion show; the world is your runway.” ~ Marc Jacobs

10/31/2018

Bill Parrott is the President and CEO of Parrott Wealth Management located in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process.

Note: Investments are not guaranteed and do involve risk. Your returns may differ than those posted in this blog.

Correlation: Positive One

A diversified portfolio is always recommended. Balancing your accounts between stocks, bonds, and cash will allow it to grow with less risk than a concentrated portfolio.

A key metric to determine how well diversified your investments are is the correlation coefficient. It ranges from positive one to negative one. If two investments have a correlation of positive one, they’ll move in lock step. They will move in opposite directions with a correlation of negative one – one will zig, the other will zag. For example, large cap stocks and mid cap stocks have a high correlation of .97. These two asset classes will rise and fall as if they’re one.  Real estate investments and small-cap value stocks have a negative correlation of .25, so they’ll often move in opposite directions.

If we apply this metric to food, then swordfish, mahi-mahi, and tilapia are highly correlated.  Swordfish and brussel sprouts are negatively correlated.

Stocks and bonds have low, or negative, correlations and this is one of the reasons your risk will be reduced when you add bonds to your portfolio. In a rising market, investors get frustrated with a high allocation to bonds because it puts a lid on returns. However, when stocks fall, bonds help cushion the blow.

October has been horrible for stocks, bonds, and almost every other publicly traded asset class. During times of duress investors panic and sell their holdings and this causes investments to have a short-term correlation of one, meaning everything is moving in the same direction. When every asset class is in negative territory, emotion overrides logic. During a down draft, investors don’t care about negatively correlated assets, balanced portfolios, or diversified investments because they only want to sell, regardless of long-term consequences.

What can you do if your portfolio is going down and the “safe” investments are failing to stop the slide? Here are a few suggestions.

Review. Have your goals changed in the last thirty days? The recent fall in stocks has been a disruption in the long-term trend of the stock market, but it’s unlikely it will have a lasting impact on your goals. If you’re not sure your investments are aligned to your goals, then a financial plan can help you quantify them.

Rebalance. During times of market turmoil your original asset allocation has probably moved from its original mooring.  If you purchased an equal amount of stocks and bonds ten years ago, your allocation today is approximately 70% stocks, 30% bonds. The stock market has risen dramatically over the past ten years, and, as a result, your portfolio is now too aggressive based on your original asset allocation of 50% stocks, 50% bonds. Rebalancing your accounts annually will keep your risk level intact.

Purchase. Buying investments when everyone is selling is difficult, but it has proved profitable during the past 200 years or so, so I’m not sure why this time will be any different. Adding money to your investments when they are down makes financial and economic sense. If you automate your investing, it will remove some of the emotion from buying when others are selling.

Nothing. Patience is a virtue and a smart investment strategy. Doing nothing is hard, but it could pay dividends in the future. From March 1, 2009 through October 29, 2018, the Dow Jones has risen 221%. During this run, the Dow had negative monthly returns about a third of the time. It was down almost 8% in May 2012. It had 26 different months where it lost between 1% and 6%. If you panicked during these down months, you would’ve missed the long-term trend of the market for the past nine years.

Disconnect. A walk in the mountains or a stroll on the beach will clear your head. It will also take you away from CNBC and the other media outlets who declare every day a state of emergency. It doesn’t matter if the market is rising or falling, because, according to the “experts”, there’s always something lurking. Distancing yourself from the noise will give you perspective about your investments and your goals.

Give. It’s hard to worry about money when you’re giving it away to help others. Giving will reduce your dependence on money. Ron Blue said giving breaks the power of money. Paul Allen, the co-founder of Microsoft, recently died with an estate worth more than $26 billion. Over his life he gave away billions of dollars to several groups and organizations. His estate is expected to give away another $13 billion to charities when it settles.[1] His giving didn’t hinder his wealth accumulation, in fact, it probably enhanced it.

Over time correlations work and diversified portfolios produce solid gains. Time has benefited stock holders for generations, especially those who have had the courage to buy during market mayhem. Trying to time the market is impossible. Rather than trying to figure out if the market will rise or fall from one day to the next, focus on your goals and how your resources can benefit others.

He who observes the wind will not sow, and he who regards the clouds will not reap. ~ Ecclesiastes 11:4

10/30/2018

Bill Parrott is the President and CEO of Parrott Wealth Management located in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process.

Note: Investments are not guaranteed and do involve risk. Your returns may differ than those posted in this blog.

 

 

[1] https://www.heraldnet.com/business/paul-allens-26-billion-estate-will-take-years-to-unravel/, by Simone Foxman and Noah Buhayar / Bloomberg, 10/28/2018

Marathon Investing

Running a marathon with 30 or 40 thousand runners is chaotic – especially the start. When the gun goes off the crowd surges forward, so you better be ready to run or you’re going to get steam rolled. It’s pure emotion and adrenaline.

The first few miles are crazy as runners try to find a little running room. Runners are talking, high-fiving, and taking selfies and there’s always a young guy (always a guy) who’s sprinting at full speed.

At miles five and six the crowd starts to thin a bit and the pack catches the young sprinter. The talking declines and there are no more high-fives.

When runners pass the half-marathon mark there’s no more talking; it has been replaced with the rhythmic hum of running shoes bouncing off the asphalt. Marathoners now have plenty of running room.

Mile twenty is the wall. Runners are now in survival mode as they leave the teens and cross over into the twenties. This is a psychological and emotional barrier. After blowing through this imaginary barricade, the race is now a 10k – a distance marathoners have run thousands of times.

The final two miles are exciting. The finish line is nearing, and all training is about to payoff. Crossing the finish line to the roar of the crowd is an amazing experience. A few feet later runners are given their finishers medal, their new badge of honor.

Investing and running a marathon have several things in common. Day to day the stock market is emotional, chaotic, and unpredictable. It’s impossible to try to figure out how the market will move in the short term. Investors who try to time the market usually get whipsawed and lose money.

Over a five-year time frame the stock market is more predictable, making money for investors about 86% of the time. Extending the time horizon to ten years, it has produced gains 95% of the time. Over a twenty-year period, the stock market has never lost money.[1]

The Vanguard 500 Index Fund has lost 6.34% for investors during the month of October. In the short term, it’s performing poorly, but if we extend the time horizon to 5, 10, and 15 years the results are much better. It has produced an average annual return of 11.55% for five years, 13.95% for ten years, and 8.80% for fifteen. Had you invested $100,000 in this fund fifteen years ago, you’d have $391,192 today.[2]

Runners set a goal to finish a marathon. Investors who want to succeed should also set goals. Short and long-term goals are paramount for you to track your progress. A financial plan will help you quantify the things that are most important to you and your family. Do you want to take a trip? Buy a second home? Create a foundation? All these items, and more, can be part of your plan and moving towards your goals is more important than the day to day movement in the stock market.

Seasoned marathoners rely on tools and technology to help them with their training runs. Watches, heart monitors, fit-bits, etc. record every step. Runners adjust their pace or training methods as needed. They use big data to improve their results. Investors don’t rely on technology as much as they should or could. Today, there are numerous software resources to help investors improve their results.

To become a successful investor, follow the path of a good marathon runner: set goals, take it a day at a time, monitor your performance, adjust as needed, follow your plan, keep your eyes focused on your goals, and think long-term. If you do these things, good things will happen.

The marathon is not really about the marathon, it’s about the shared struggle. And it’s not only the marathon, but the training. ~ Bill Buffum

10/24/2018

Bill Parrott is the President and CEO of Parrott Wealth Management located in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process.

Note: Investments are not guaranteed and do involve risk. Your returns may differ than those posted in this blog.

[1] Ibbotson®SBBI® 2015 Classic Yearbook.

[2] Morningstar Office Hypothetical Tool

Financial Lifestyles

The stock market has been less than kind to investors these past few weeks. The Dow Jones has dropped 3.75% and the Nasdaq has fallen about 7%. Investors have reacted negatively to rising interest rates, mid-term elections, and a trade war.

When it comes to reaching your long-term financial goals, the stock market is the least of your problems. What’s worse than a declining stock market? Your spending habits. How much money you spend and save will impact your financial future more than anything else.

If you spend less money than you make, your chances of financial independence rise dramatically. Achieving financial independence is not hard if you commit your time and resources to it. It’s easy for me to calculate how much money you’ll need to reach this pinnacle and to start moving you towards this goal.

Unfortunately, if you spend more than you make, you’ll never become financially independent because you’re leveraging your future. Debt payments and loan obligations will hinder your ability to save money and give it away.

A byproduct of living a leveraged life is stuff. Do you have a stable of items you rarely use? Is your driveway littered with vehicles collecting dust? Do you own a vacation home you seldom visit? If these items are dragging you down, sell them and pay off your loans. For example, if you own a boat, but only use it a couple times per year, sell it and rent one instead. Take an inventory of your big-ticket items to see how much you’re paying for each one and how often you use them. It makes financial and common sense to get rid of things you hardly use but constantly pay for.

Having too much debt robs you of building margin in your life. Your cash flow is a precious thing and it must be used wisely. Once you start reducing your monthly debt payments, you can start building an emergency fund. After it’s established, invest more money towards your long-term goals.

Do you monitor your spending? A tour through your bank and credit card statements will help you identify where your money is going. In addition, reviewing your paystubs and tax returns will reveal much about your financial life. Are there expenses you can reduce or eliminate?

As I mentioned, it’s easy to calculate how much money you will need to achieve financial independence, but how much do you need to be financially content? How much is enough? It’s almost impossible to put a figure on contentment, because you’ll always want more. It doesn’t matter how much you own, because someone will always have a bigger home, faster car, or nicer boat. A question I’m often asked is: “How do my assets compare to others?” Relative wealth doesn’t matter.

What can you do with your resources if you’re financially independent? Can you give it away to help others? Can you establish a foundation that will benefit a generation or two? You may find contentment in helping others.

Christian Smith and Hilary Davidson, authors of The Generosity Paradox, found: “Generosity is paradoxical. Those who give, receive back in turn. By spending ourselves for others’ well-being, we enhance our own. In letting go of some of what we own, we better secure our own lives. By giving ourselves away, we ourselves move toward greater flourishing. This is not only a philosophical or religious teaching, it is a sociological fact.”[1]

In Proverb 11:24-25 it reads: “One person gives freely, yet gains even more: another withholds unduly, but comes to poverty. A generous person will prosper; whoever refreshes others will be refreshed.”

Bill and Melinda Gates have been using their wealth to change history and save lives. They created the Bill and Melinda Gates Foundation with an initial donation that instantly made it the largest foundation in the world. The current assets of the foundation are more than $50 billion and they operate in 130 countries.[2] They have more money than they’ll ever be able to spend, so they decided to give the excess away.

You don’t need the resources of Bill and Melinda Gates to make a difference. If you manage your cash flow and spending habits correctly, you too can change lives and make a difference.

The stock market has fluctuated for centuries, so don’t worry if it’s up or down from one day to the next. Instead, live below your means, save money, help others, and good things will happen.

Keep your life free from love of money, and be content with what you have, for he has said, “I will never leave you nor forsake you.” ~ Hebrews 13:5

10/22/2018

Bill Parrott is the President and CEO of Parrott Wealth Management located in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process.

Note: Investments are not guaranteed and do involve risk. Your returns may differ than those posted in this blog.

 

[1] http://pacificinstitute.org/pdf/The_Generosity_Paradox.pdf, The Generosity Paradox, Christian Smith and Hilary Davidson

[2] https://www.gatesfoundation.org/Who-We-Are/General-Information/Foundation-Factsheet

What Is A Mutual Fund?

Several years ago, I met with a client who was retiring from his long-time employer. He wanted to purchase a basket of stocks for growth and income. We discussed mutual funds as an alternative to owning numerous stock positions. He wasn’t aware that mutual funds could own stocks. I informed him that a mutual fund is a portal for owning stocks, bonds, or other investments. He thought he had to choose between stocks or funds. After our meeting he felt more confident owning 10 to 12 mutual funds rather than 100 to 200 individual stocks.

What is a mutual fund? It’s a professionally managed portfolio of stocks, bonds, or alternative investments. A fund may have a specific purpose or a broad mandate. A globally diversified portfolio of mutual funds will give you access to tens of thousands of investments held across several sectors. Morningstar currently tracks over 27,000 funds, so you’ll have plenty of choices for your portfolio!

Mutual funds do not trade during market hours, but the investments they own do. At the end of the trading day, a fund company will add up all the gains and losses, net out the expenses, and divide by the number of shares to arrive at the net asset value (NAV). The NAV will determine the gain or loss from the previous day. If you were to look at your account during the trading day, you’ll probably see a bunch of zeros under the daily change. After the market has been closed for a couple of hours you’ll be able to see how well your funds performed during the day.

Mutual funds distribute dividends and capital gains throughout the year. Dividends are usually paid quarterly and capital gains annually. Dividends and capital gains add to your cost basis. For example, if you invest $100,000 into a fund and it pays a $10,000 capital gain and a $2,000 dividend, then your adjusted cost basis is now $112,000. Let’s say you sell your fund for $109,000. Your realized loss would be $3,000 but your overall gain is $9,000. Make sense? You invested $100,000 and sold it for $109,000. The $12,000 in dividends and capital gains were added to your basis allowing you to take the loss.

Most people like to buy stocks they know, names that are familiar. If it’s mentioned on CNBC, it must be a stock to own – right? Regional bias may play a part in your investment decision. If you live in Houston, you may own Exxon. A mutual fund will give you exposure to companies you’ve probably never heard of or considered buying. For example, The Dimensional U.S. Small Cap portfolio own shares of Medifast. Medifast has a year-to-date gain of 213%.

Is there a downside to owning mutual funds? In a globally diversified portfolio, you’ll own a few funds underperforming the broader market. Last year the emerging market sector rose 31%, this year it’s down 9%. Mutual funds are pass-through investments, meaning they pass on the dividends and capital gains to their shareholders and this will trigger a tax bill for investments held in taxable accounts.

Mutual funds also have internal fees called operating expenses. Some funds may also charge a front-end commission of 5% or more, so if you invest $10,000, they’ll deduct $500 from your investment. Other funds have back-end sales charges if you sell your fund. If you sold your fund for $10,000, they’ll send you a check for $9,500. Other funds have 12b-1 fees of .25% which are used for marketing purposes. If you invest in mutual funds, pay attention to fees. You can control the fees you pay, so pay attention to the bottom line. For the record, I only recommend funds with low fees and no sales charges or 12b-1 expenses.

Over time, it’s hard to beat the performance of a globally diversified portfolio of mutual funds with low fees. If you have a long-term time horizon and a tranquil temperament, the long-term trend of the markets will treat you well.

and knowledge with self-control, and self-control with steadfastness, and steadfastness with godliness… ~ 2 Peter 1:6

10/19/2018

Bill Parrott is the President and CEO of Parrott Wealth Management located in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process.

Note: Investments are not guaranteed and do involve risk. Your returns may differ than those posted in this blog.

 

 

 

Nebraska Football

Nebraska Football has a storied history. It’s regarded as one of the best football programs of all time. Since 1890 they’ve won 893 games, more than all but four schools, and claimed five National Championships: 1970, 1971, 1994, 1995, and 1997. Three of their players have won the Heisman Trophy: Johnny Rodgers, Mike Rozier, and Eric Crouch. Tom Osborne and Bob Devaney combined to coach the Cornhuskers for 36 years. These two icons accounted for 40% of the wins an all five of their National Championships.

Their defensive unit is known as the Black Shirts. They started wearing the jerseys in the 60s, so the coaches could tell the difference between the offensive and defensive players. The coaches started to recognize individual players for their stellar defensive performance and they’d award the best players with the Black Shirts. What started out as a way to differentiate the units is now a sign of honor and respect; it must be earned.

Scott Frost is the current head coach of Nebraska, his first year coaching the team. He was hired to restore the winning tradition at the school. Unfortunately, they have yet to win a game. They’re winless in their first six starts – a first for Nebraska football and the Cornhusker faithful are not happy.

As a quarterback, he led Nebraska to an undefeated season and their last National Championship. His record as a starter was 24 – 2 and he’s considered one of Nebraska’s all-time greatest players.

Mr. Frost was the head coach at the University of Central Florida. In his first year as the head coach, 2015, they lost all their games, 0-12. The next year they won six games and qualified for a bowl game. In 2017 UCF went undefeated and beat Auburn in the Peach Bowl. They finished the year ranked 6th in the country, but they declared themselves national champions.

Mr. Frost has a winning formula that has worked as a player and a coach.  His system worked at UCF and it will work at Nebraska. He’s not going to abandon his system because of a few losses. If he sticks to the script, he’ll start winning games.

What does Nebraska football have to do with investing? Plenty. Investors who follow a script or system will do well because they don’t get flustered during times of lackluster performance. They know, eventually, their system will produce winning results.

Diversified portfolios are currently underperforming the market and investors are becoming impatient. Asset classes like emerging markets, real estate and bonds have been a drag on portfolios; growth stocks are outperforming value stocks. You may want to punt your portfolio, but don’t as no trend will last forever. It’s easy to let short term market moves hinder your long-term views.

What should you do if your portfolio is not living up to your expectations? First, review your playbook, your financial plan. Your financial plan will guide you on how best to proceed. Are your goals still intact or do they need adjusting? Divide your goals into needs and wants to identify those things that are most important to you and your family. It’s likely your still on pace to achieve your goals despite the recent dreary performance in the global markets.

Mr. Frost and Nebraska are building a foundation that will eventually bear fruit (corn). Is your portfolio positioned to perform well over the next several years? If your portfolio is based on your financial plan, then it will deliver solid results over time.

Last, you reap what you sow. Spend less, save more, diversify your assets, so when you’re ready to harvest your account for living expenses you’ll have plenty of assets for you and your family to enjoy.

Throw the bones and buy the dip!

He told them, “The harvest is plentiful, but the workers are few. Ask the Lord of the harvest, therefore, to send out workers into his harvest field. ~ Luke 10:2

10/15/18

Bill Parrott is the President and CEO of Parrott Wealth Management firm located in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process.

Note: Investments are not guaranteed and do involve risk. Your returns may differ than those posted in this blog.

Timeframes

When my daughter was young we read The Monster at the End of This Book starring Grover from Sesame Street. He’s convinced there’s a monster lurking at the end of the story. He’s so sure of this that he pleads with the reader to not turn the pages. When the pages are turned he panics and freaks out, but when he arrives at the end of the book there is no monster, just Grover. He was panicking for nothing.

When the market is volatile, or falling, investors panic. In panic mode, they make short-term mistakes that will impact their long-term goals.

Let’s review some recent history. The Dow Jones has risen 290% from the market low touched on March 9, 2009. During this great run, the Dow fell 3% or more 17 times and rose 3% or more 10 times. The largest drop occurred on August 8, 2011, falling 5.55%. The largest up day occurred on March 23, 2009, rising 6.84%. The average daily move over the past 2,418 trading days has been .06%, or $60 per $100,000 invested.

Investing in stocks is the best way to create long-term wealth, but in the short-term they’re irrational. A proper time frame may help you with your stock allocation, so here are some guidelines for holding stocks.

If you need access to your money in 1 to 3 years, do not buy or own stocks. Rather, keep your money in quality short-term investments such as U.S. T-Bills, U.S. T-Notes or CDs.

If your holding period is 3 to 10 years, invest in a mix of stocks, bonds and cash.

If your timeframe is 10 to 20 years or more, invest in stocks.

Trying to time the stock market and make money daily is a flip of a coin; it’s impossible to know how it will trade from one day to the next. Stocks have made money 73% of the time on an annual basis. They have made money 86% of the time over a 5-year period. For 10 years it has been 95% and over 20 years it’s 100%.[1]

If you’re not sure about your stock, bond, and cash mix, then a financial plan will help you align your investment portfolio to your goals and your tolerance for risk. You’re more likely to stay invested through rising and falling markets if you have completed a financial plan.

The stock market is not a monster. If you stay invested for the long-term and follow your plan good things will happen – just ask Grover!

Invest in seven ventures, yes, in eight; you do not know what disaster may come upon the land. ~ Ecclesiastes 11:2

10/11/18

Bill Parrott is the President and CEO of Parrott Wealth Management firm located in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process.

Note: Investments are not guaranteed and do involve risk. Your returns may differ than those posted in this blog.

 

 

[1] Ibbotson®SBBI®2015 Classic Yearbook – Market Results for Stocks, Bonds, Bills, and Inflation – 1926-2014

Are You Maximizing Your Giving?

We are entering the giving season. It’s the time of year when churches and non-profits raise most of their funds because individuals wait until the last minute to give a donation. In other words, most people give from their last fruits, not their first fruits.

Money has a stronghold over people, especially those who have never given any away. In 2017, Americans gave away $410 billion, which sounds like a lot, but it’s only 2% of GDP. Giving has floated around 2% of GDP for the past forty years.[1]  What if giving jumped to 20%? Can you imagine giving away $4.1 trillion? If people let loose of their purse strings, it could happen. According to Ron Blue, “Giving breaks the power of money.”

Maximizing your giving has several benefits. It will benefit the organization, the end user, and you. When you realize your dollar impacts lives, you’ll be motivated to give more.

Are you a cheerful giver? Do you maximize your giving? I was once told to give until it hurts and then give a little more. How can you maximize your giving and become a generous giver? Here are a few suggestions.

Plan. A financial plan will help you identify assets and resources to earmark for giving. It will align your investments to your mission.

Spend. Spending less than you earn will free up money so you can give more of it away. A quick run through your credit card and bank statements will identify several opportunities. Can you find a few items to eliminate or reduce? Your spending habits will also reveal what’s on your heart.

Debt. How much money do you owe others? Can you pay off your mortgage? Student loans? Auto loans?  The less you owe, the more you can give. Big banks and credit card companies don’t need your resources, but local non-profits do.

Stocks. The stock market has soared 290% from March 2009. If you’ve been investing for some time, you may be sitting on substantial capital gains. You can donate your appreciated securities to your favorite organization and avoid (legally) paying a capital gains tax. They’ll receive your shares free of taxation as well. You’ll also be able to write off your donation. The only one that loses in this scenario is the IRS.

Land. Do you own raw land? A vacation home? Rental property? Donating real estate is an excellent way to help non-profits. Some groups will set up a private annuity for you allowing you to receive income for several years because of your gift.

Stuff. Do you have an attic or basement bursting at the seams with stuff you no longer want? If your city is like mine, you probably have a storage facility on every corner. I’m positive the stuff in those units can be put to good use if it were given away.

Not Sure. If you’re ready to give, but you’re not sure who should receive your donation then establish a donor advised fund. It will allow you to make donations, receive a tax deduction, invest the assets, and eventually give the money away. It can be funded with cash or stock.

Time. If you’re tapped out financially, but want to help others, give your time. Organizations welcome volunteers. Can you give your time to your local church, hospital, school, homeless shelter, animal shelter, park, or library? A quick Google search for volunteer will give you numerous opportunities.

Are you ready for your giving test? Identify the amount of money you gave away on line 19 from schedule A of your tax return and divide it by the amount on line 22 from your 1040 form. What was the dollar amount you gave away in 2017? What was the percentage?

Can you maximize your giving this year? I believe you can.

“Bring the whole tithe into the storehouse, that there may be food in my house. Test me in this,” says the Lord Almighty, “and see if I will not throw open the floodgates of heaven and pour out so much blessing that there will not be room enough to store it.” ~ Malachi 3:10

10/10/18

Bill Parrott is the President and CEO of Parrott Wealth Management firm located in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process.

Note: Investments are not guaranteed and do involve risk. Your returns may differ than those posted in this blog.

 

 

 

[1] https://www.charitynavigator.org/index.cfm?bay=content.view&cpid=42

Sound Familiar?

From November 11, 1974 to November 20, 1974 the S&P 500 fell 9.6%. It dropped because of economic uncertainty and political unrest.

Let’s explore the major themes from 1974.

In August 1974 President Richard Milhous Nixon resigned. He was the first, and only, U.S. President to resign. His resignation was a result of the Watergate scandal.

Because of Nixon’s resignation and the Watergate scandal, Democrats made substantial strides in taking control of Congress and the Senate.[1]

The New York Times published an article accusing the Central Intelligence Agency of spying on U.S. citizens.[2]

Interest rates were soaring. The yield on the U.S. Treasury 10-Year Note rose 43.5% from March 1971 to September 1974. It would peak in 1981 with a yield of 15.84%.

The current yield on the 10-Year is 3.22%. If it followed the same path as it did in the late ‘70s and early ‘80s, it would rise to 3.94%, well below its historical average.

As I mentioned, the S&P 500 fell 9.6% in November 1974, falling from 75.15 to 67.9. Investors who panicked and sold their stock holdings during this rout missed out on enormous future gains.

From November 1974 to October 2018, the S&P rose 4,088%! During its 44-year run, it produced an average annual return of 8.86%.[3]

Today, the themes are similar. We currently have political unrest and rising interest rates. The market is positive for the year, but it has experienced some short-term turbulence. Don’t let the uncertainty derail your long-term plans. Follow your financial plan, stay diversified, and invest for the long haul.

What has been will be again, what has been done will be done again; there is nothing new under the sun. ~ Ecclesiastes 1:9

10/5/18

Bill Parrott is the President and CEO of Parrott Wealth Management firm located in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process.

Note: Investments are not guaranteed and do involve risk. Your returns may differ than those posted in this blog.

 

 

[1] http://history.house.gov/Congressional-Overview/Profiles/93rd/

[2] https://www.nytimes.com/1974/12/22/archives/huge-cia-operation-reported-in-u-s-against-antiwar-forces-other.html

[3] Yahoo! Finance

Did You Die Today?

Few people like to ponder their mortality, but what if you didn’t make it home from work today? Is your estate set up to handle your passing? Is your family? If they walked into your home, would they be able to find your important documents? What would you leave behind? What are your final wishes? A sudden death may leave a lot of unanswered questions.

Now that you’re deceased, your estate is in the hands of a loved one who will become the executor or executrix of your affairs. They now have the task of honoring your wishes and settling your estate, and, depending on the size of your estate, this may take a few months to several years.

First, do you have a will or living trust? These items will make life easier for your loved ones. If you have spent time addressing your wishes in a will or trust, then your administrator will be able to honor them in a timely fashion.

Of course, if you don’t have a will or trust, it will be a headache (nightmare) for your loved ones. They’ll be left to figure out your final wishes – no easy task.  Dying without a will or trust may also expose your estate to a hefty estate tax, today this rate is 40%.

Do you own pets? Pets need to be fed and cared for daily. Do you have a caregiver for your dog or cat? Who will inherit your animals? If you have more exotic pets like horses, birds, or reptiles, then finding a caregiver for these animals may be a bit more challenging.

Have you updated your beneficiary designations? Will your ex-spouse benefit, financially, from your death? Updating your beneficiary data is easy, so spend a few moments reviewing your retirement accounts and life insurance policies to make sure you have the correct loved ones listed. If you die without listed beneficiaries, your assets will flow to your estate.

Do you own life insurance? Is it enough to pay off all your debts? Carrying the necessary amount is prudent and recommended so that your love ones are not saddled with your debt burdens. If you don’t carry life insurance, or need more, purchase a term policy. It will be your cheapest and most efficient insurance option. Credit cards, mortgages, car loans, and other obligations need to be paid off and this can be done with cash or life insurance proceeds.

Have you thought about life after death? Do you use Facebook, Twitter, LinkedIn, Instagram, Snapchat, Match.com, etc.? Your social media accounts will last forever, and forever is a long time. Your estate documents should reflect your social media accounts and passwords, so your administrator can shut them down. This is also true for your email accounts.

Who will notify your friends and family? Establishing a calling tree is recommended to let your loved ones know you’ve passed away. Your contact list should be listed in your estate documents.

Were you in the military? Do you want a military burial? Will your family be eligible for veteran benefits?

Who has access to your house? Do you have a family member or trusted friend who has a spare key? You’ll need someone to retrieve your mail and tend to other household items like cleaning and yardwork. It’s important to continue to receive mail so your administrator can make sure they’re closing all your accounts like cable and utilities. If you don’t have someone close by, your mail can be forwarded to your administrator.

Who will write your obituary? Have you identified a loved one to write your story? Have you written your own? You want to go out on a high note, so pick someone who can make you look great!

Where will you be buried? Will you be buried? You might prefer cremation. In any event, do you have a family plot or resting place for your ashes?

Don’t leave your estate to chance. It’s imperative to spend a few hours addressing your death. Listing assets, wishes, and other important items in your will is imperative. It’s also important to talk to your children, relatives, or friends, about your estate. The more they know about your affairs, the better.

I also recommend leaving a love letter to your friends and family, so that if you died today they’d be able to start the estate process. What is a love letter? It’s a letter for your loved ones to let them know where your important documents are located and instructions on who to contact for help and guidance. It should be kept in an area where it can be easily found.

I pray you live a long, happy, healthy life free of strife and challenges, so you don’t have to deal with this morbid topic for many moons. Regardless of when you will die, it makes sense to let your loved ones know that you have a plan in place for your passing.

And the dust returns to the earth as it was, and the spirit returns to God who gave it. ~ Ecclesiastes 12:7

10/4/18

Bill Parrott is the President and CEO of Parrott Wealth Management firm located in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process.

Note: Investments are not guaranteed and do involve risk. Your returns may differ than those posted in this blog.