Month: February 2019

Time Frames

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Warren Buffet recently published his much-anticipated annual letter to shareholders. Per usual, it was chock-full of wisdom.

Mr. Buffett started investing 77 years ago with an investment of $114.75 in Cities Service Preferred Stock. Had he invested this amount in an unmanaged S&P 500 Index fund it would have grown to $606,811 at the end of January 2019 – a gain of 5,288%![1]

He discusses deficits and gold: “Those who regularly preach doom because of government budget deficits (as I regularly did myself for many years) might note that our country’s national debt has increased roughly 400-fold during the last of my 77-year periods. That’s 40,000%! Suppose you had foreseen this increase and panicked at the prospect of runaway deficits and a worthless currency. To “protect” yourself, you might have eschewed stocks and opted instead to buy 3 1/4 ounces of gold with your $114.75. And what would that supposed protection have delivered? You would now have an asset worth about $4,200, less than 1% of what would have been realized from a simple unmanaged investment in American business. The magical metal was no match for the American mettle.”[2]

He’s no fan of gold. To be fair to the price of gold, it was fixed at $35 per ounce from 1944 to 1976 before President Nixon abandoned the gold standard.[3] Since Nixon set it free, gold has averaged an annual return of 8.8% per year. The S&P 500 averaged 8.3% per year, before dividends, during this same time frame.

Time frames matter. From January 2005 through January 2019 Gold (GLD) outperformed the S&P 500 (SPY) by 56%.  If the start date is changed to January 2009, stocks outperformed gold by 164%. Gold has posted a negative return for the past 5 years while stocks have risen 51%.[4]

Had you purchased Amazon in 2000, you would’ve lost 86% of your investment by the end of 2001. A $10,000 investment dropped to $1,421. If you told anybody you owned Amazon, they would’ve called you an idiot. However, from January 1, 2000 to January 31, 2019 it returned 2,157% to investors. The S&P 500 rose 181% during this stretch.[5]

Last year, cash outperformed stocks – a first since 1994. Since 1926 cash has generated a negative return after deducting taxes and accounting for inflation.

It’s important to watch time frames when comparing investments because it’s easy to make any investment look good for a while.  Rather than focusing on investments that appear attractive in the near term, concentrate on the ones that can help you reach your financial goals. Here are a few guidelines to help you make better portfolio decisions.

  • If you want to own gold, or some other alternative investment, limit it to 3% to 5% of your account balance.
  • Stocks outperform bonds and cash over time. If your horizon is three years or more, allocate a healthy portion of your assets to stocks.
  • International stocks make up half of the world’s equity market capitalization, so allocate a portion of your assets to companies outside of the United States.
  • If you need money in one year or less, invest in short term cash investments like T-Bills, CDs or money market funds.
  • Adding tax-free municipal bonds to your account can improve returns, especially if you’re a high-income earner living in California or New York.
  • To reduce risk, add bonds and cash to your account.
  • Rebalancing your accounts once or twice per year will keep your risk level and asset allocation in check.
  • Keep your fees low. You can check the fees of your holdings at Yahoo! Finance, Morningstar, or several more financial websites.

Mr. Buffett made a fortune by buying and holding great companies that can raise their earnings over time. His time frame has been forever. He bought investments that fit his model and shunned things that didn’t, like gold. Following the investing habits of Mr. Buffett will pay dividends.  A great place to learn about his philosophy is by reading his annual letter. Here’s the link:

http://www.berkshirehathaway.com/letters/2018ltr.pdf

“Facts are stubborn things, but statistics are pliable.” ~ Mark Twain

February 27, 2019

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 so our clients can pursue a life of purpose.

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

 

[1] Berkshire Hathaway Letter to shareholders, accessed 2/27/2019, http://www.berkshirehathaway.com/letters/2018ltr.pdf

[2] Ibid

[3] https://www.thebalance.com/gold-price-history-3305646, Kimberly Amadeo, 1/7/2019

[4] YCharts, GLD & SPY, accessed 2/26/2019

[5] Morningstar Office Hypothetical Report

A Quiet Billionaire

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Most investors have heard of Warren Buffett, Peter Lynch and Sir John Templeton, but what about Herbert Wertheim? Dr. Wertheim is worth $2.3 billion according to Forbes. In a recent Forbes Magazine article, he credits his substantial wealth to buying individual stocks and holding them forever. Dr. Wertheim said, “My goal is to buy and almost never sell.”[1]

His strategy follows the tracks of Messrs. Buffett and Lynch of owning great companies and holding them for years. His two largest holdings are Apple and Microsoft “purchased decades ago during their IPOs.”

Apple and Microsoft look like no-brainers today, but these industry titans suffered mightily on their way to greatness.  Since 1980, Apple has suffered 14 calendar year losses. In 2000, it fell 71% followed by a 57% drop in 2008.  If you purchased Apple in 1980 and held it through 1997 you made $8. Would you have held it for 17 years only to make $8?[2]

Microsoft stock fell 63% in 2000, 22% in 2002, and 45% in 2008. If you purchased Microsoft in January 2000, you had to wait until November 2015 before it traded above your purchase price.[3]

Dr. Wertheim is an optometrist by training and is keen on understanding patents. He put his knowledge to work when he discovered a “small airline-parts maker” by the name of Heico. At the time of his discovery it was trading for 33 cents per share.  At the time of his purchase “Heico was a disaster.” However, he understood what needed to be done to make the company better. His original investment of $5 million is now worth $800 million![4]

How can we benefit from Dr. Wertheim’s insight?

  • Buy companies and investments you know – a classic Peter Lynch move. In addition, make sure you understand what you’re buying. If you can’t explain what a company does to others, don’t buy it.
  • Apply courage and fortitude as needed. During the dark trading days of Apple and Microsoft, he held on to the stocks. He did not panic and sell his holdings. He adds, “If a stock continues to go down, and you believe in it and did your research, then you buy more.”
  • Buy and hold. If you own good investments, then hold them forever. Trying to time the market based on economic indicators, price levels, or expert opinions is folly.
  • Give your money away. Dr. Wertheim and his wife Nicole have pledged to give half their wealth away to groups and organizations they support. In fact, they have signed the Bill Gates and Warren Buffett Giving Pledge.
  • Enjoy your life. He and his wife travel often and enjoy the gift of time. According to Dr. Wertheim, “Having time is the most precious thing.”

His story is one of rags to riches and worth a read. You probably won’t become a billionaire, but you may pick up a few extra dollars by following the lead of great investors like Dr. Wertheim.

Humble yourselves before the Lord, and he will exalt you. ~ James 4:10

February 21, 2019

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 so our clients can pursue a life of purpose.

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

 

 

 

 

[1] https://www.forbes.com/sites/maddieberg/2019/02/19/the-greatest-investor-youve-never-heard-of-an-optometrist-who-beat-the-odds-to-become-a-billionaire/#7e309eb722e8, By Madeline Berg, 2/19/2019.

[2] Morningstar Office Hypothetical.

[3] Ibid

[4] https://www.forbes.com/sites/maddieberg/2019/02/19/the-greatest-investor-youve-never-heard-of-an-optometrist-who-beat-the-odds-to-become-a-billionaire/#7e309eb722e8, By Madeline Berg, 2/19/2019.

Buy or Rent?

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To buy, or not to buy, that is the question.

A home can be both an asset and a liability. Over time, real estate is a solid investment, but in the short-term it can cause financial heartache.

My parents have lived in their home for more than 45 years and they have significant equity. They’ve used their home throughout the years as a source of funds to pay for weddings and college educations. However, they’ve also had to replace roofs, windows, garage doors, air conditioning units, etc.

It takes time to build equity in your home, so if you plan to stay in your city for ten years or more, then buy a home. According to Freddie Mac, the average length of homeownership at the end of 2017 was ten years.[1]

My first reaction is that owning a home trumps renting. A home builds equity through monthly mortgage payments. The old argument is that it’s a forced savings vehicle. In addition, interest payments and property taxes are deductible to a point.

The Case-Shiller Home Price Composite 20 Index has averaged an annual return of 4.1% since January 2000 despite a 34% drop in housing prices during the great recession.[2] The S&P 500 Index, by comparison, averaged 5.3% for the same period.[3]

Aside from financial benefits, there are several emotional reasons to own a home. A home is a place to hang your hat, a refuge for children to return to during college breaks, and a storehouse for generational gatherings. And, regardless of economic conditions, it’s your home.

We lived in Connecticut for a few years and our home had a finished basement covering about three quarters of the area. The remainder of the basement was storage for our tools, kayaks, bikes, workbench, etc.  When my daughter was young, we painted some fall leaves on butcher paper.  In addition to the butcher paper, we also painted a portion of the floor. At first, I was upset but then I thought this is our house and we can do whatever we want. It also added a touch of character to the basement and when I saw the paint on the floor it was a nice reminder of the joy my daughter and I had that afternoon.  We also used our pantry to measure her height. Each new notch on the door frame represented growth for our family.

Owning a home does not guarantee nirvana as there’s always something that needs a tweak or twist and every few years a major expense pops up. Replacing windows, a roof, or an air conditioning unit is not cheap. Annual maintenance and upkeep can cost you about 1% of the value of your home. If your home is worth $500,000, expect to spend about $5,000 per year.[4] Depending on where you live you may have additional fees like HOA dues.

Renting makes sense if you’re on the move every few years. If you’re in the military or some other profession that requires you to relocate often, renting makes sense. Also, if you’re new to a city and you want to get the lay of the land, renting a home is better than buying – especially in a city that is experiencing rapid growth, like Austin. Renting will give you an opportunity to explore different neighborhoods and travel patterns. The average rent in Austin, New York and San Francisco is $1,518, $3,415, and $3,772, respectively.[5]

Saving money for a down payment is another reason to rent. If you don’t have enough money for a 20% down payment, then renting a cheaper home or apartment while you build up your cash reserve is a smart move. The median home price at the end of December was $253,600, so a 20% down payment is $50,720 – a big nut to cover for most people.[6]

I’ve found that people who rent to save money usually don’t. If you’re renting to save, then you should invest the difference. Establishing an automatic investment plan will help you be intentional about saving. It will also remove the temptation to spend the difference.

Affordability is another issue. Don’t buy a home you can’t afford. Your monthly mortgage payment should be less than 28% of your gross pay. If your gross income is $10,000, then your monthly payment should be $2,800 or less. A mortgage payment of $2,800 equates to a $372,000 mortgage for a 15-year loan and $569,000 for a 30-year loan.

A couple of downsides to renting is that your landlord can sell the land under your feet or raise your rent. Renting is forever and you never have an opportunity to build equity. I know renters will say they don’t have to pay property taxes, but taxes are deductible, and rent is not. Several cities will cap their property taxes at a certain rate or age as well. Packing and moving every couple of years is also a deterrent to renting.

Here’s a recap to help you with your decision to buy or rent your next home.

  • If you plan to live in your city for ten years or more, buy a home.
  • If you want to build equity, purchase a home.
  • If you move every few years, rent.
  • If you don’t have enough money for a down payment, rent.
  • If you want to be mobile and explore new cities, rent.
  • If you’re a homebody and don’t like to pack, purchase a home.

Be it ever so humble, there’s no place like home. ~ John Howard Payne

February 18, 2019

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 so our clients can pursue a life of purpose.

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

 

[1] http://www.freddiemac.com/blog/homeownership/20180206_2017_housing_trends.page

[2] YCharts. Case-Shiller Composite 20 Index, 1/1/2000 – 11/30/2018.

[3] Morningstar Office Hypothetical Tool, SPY ETF, 1/1/2000 – 11/30/2018.

[4] https://www.thebalance.com/home-maintenance-budget-453820, website accessed 2/14/19

[5] https://www.rentjungle.com/average-rent-in-san-francisco-rent-trends/, website accessed 2/14/19

[6] https://ycharts.com/indicators/sales_price_of_existing_homes, 12/31/2018

Are You Too Frugal?

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The person who dies with the most toys – loses!

John Bogle, the founder of Vanguard, recently passed away with a net worth of $80 million. By Wall Street standards $80 million is pocket change, especially for someone who founded one of the largest investment and asset management firms in the world.  Vanguard has about $5.3 Trillion in assets under management.[1]  By comparison, Stephen A. Schwarzman, the CEO of The Blackstone Group, has a net worth of $12.4 billion. Blackstone’s assets under management are $427 billion, or 8.5% of Vanguard’s total.

Mr. Bogle is known for being frugal, probably to a fault. He once said, “I don’t like going into stores, I don’t like the whole process of buying things.” He didn’t like spending money on himself, but he did donate to charities and schools including The John C. Bogle Center for Financial Literacy, Blair Academy and Princeton.

Mr. Bogle could have sprinkled his assets to individuals or groups he supported, including himself, without risk of running out of money.

It’s good to be frugal and watch your budget, but is it possible to be too frugal? I think it is. For example, if you drop your daily Starbucks habit, you could save $152,000 over the next 30 years, but would you be happy? I’ve seen individuals who look to save a dollar or two on small ticket items but hold 100% of their assets in cash, CDs or T-Bills. Rather than trying to save a few nickels by kicking your coffee habit, move your assets to stocks so you have an opportunity to make more money. Since 1945 stocks have averaged 11.3% per year while T-Bills have returned 3.9%, a difference of 7.4% per year! With the money you make from stocks you can now afford multiple lattes!

Mr. Bogle followed an asset allocation of 60% stocks, 40% bonds in his retirement accounts. His taxable allocation was more aggressive with 80% stocks, 20% bonds.[2]

Here are a few suggestions for you to spend more money and be less frugal.

Spend. The goal is not to die with the most assets but to use your net worth to live and enjoy life. Cash is a use asset, so use it accordingly. If you’re concerned about spending money on things, spend it on experiences. A family trip to a national park is not only a great experience, it’s also economical.

Give. If your assets are burning a hole in your pocket, give them away. Donate your resources to charities or organizations you support. Your gift will bless the organization and you’ll benefit from a tax write off.

Retire. Retiring early will give you an opportunity to travel to distant lands, spend more time with your loved ones, or volunteer your time. If you retire early, you’ll spend your money sooner rather than later. In addition, you can use your resources while you’re young and mobile. A former client saved his money to travel with his wife, but she died one month after his retirement. Don’t wait to enjoy your resources because you don’t know when you’ll leave God’s green earth.

What if you’re not blessed with a net worth of $80 million? How do you know how much money you can spend before you run out of money? A financial plan will help you create a spending plan based on your current assets. It will also recommend an appropriate asset allocation and risk tolerance level in hopes of maximizing your return.

So, go ahead, buy the latte and enjoy your life!

A nickel ain’t worth a dime anymore. –Yogi Berra

February 14, 2019

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 so our clients can pursue a life of purpose.

Note: Investments are not guaranteed and do involve risk. Your returns may differ than those posted in this blog. Happy Valentine’s Day!

 

 

 

[1] http://fortune.com/2019/01/16/john-bogle-vanguard-founder-created-index-funds-dies-89/, by Kevin Kelleher, 1/17/2019

[2] https://www.investopedia.com/articles/financial-advisors/012716/where-does-john-c-bogle-keep-his-money.asp, Richard Best, 4/26/2018

Better Off Dead?

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Dr. Daniel Crosby is the author of The Behavioral Investor. In his book he highlights a story about Fidelity Investments and their attempt to identify their best performing retail accounts. They found that the individuals who owned these accounts had forgotten they existed, or the original account owner had passed away.[1] Fidelity was probably looking for an investment theme to duplicate. However, they discovered that these accounts weren’t being traded or tainted by human hands – living or deceased.

He tells of another story from the book Behavioral Investment Management: An Efficient Alternative to Modern Portfolio Theory written by Greg B. Davies and Arnaud de Servigny. The authors discuss a study about how often people check their investment accounts and their corresponding performance. They found that people who check their account balances daily experienced a loss 41% of the time. Individuals who checked their balances every five years experienced a loss about 12% of the time and those who checked it every 12 years never lost money.[2]

Stocks have never lost money during a rolling 20-year period according to multiple studies. From 1926 to 2018 there have been 74 rolling 20-year periods and stocks have made money 100% of the time.[3] The most recent period, 1998-2018, finished with a positive return. An investment in the SPDR S&P 500 ETF (SPY) on 1/1/1998 generated an average annual return of 7.10% through 1/1/2018. However, during this 20-year period you would’ve experienced significant losses on several occasions. From 2000 to 2002 the market fell 43.07% and in 2008 it dropped 36.81%. As I mentioned, if you checked your balances daily, your chance of a realized loss was high.[4]

It’s hard to ignore your accounts especially if you’re connected to Twitter, Facebook, and other social media sites. Custodians and brokerage firms also have apps allowing you to check your accounts 24/7. Investment firms offer trading alerts and other notices to keep you in the know. It’s a fast-paced world and reacting to headline news stories may wreak havoc to your long-term wealth.

To protect your wealth from irrational reactions turnoff your account alerts and notices. Rather than reviewing your balances daily, try extending it to a month, then three months, and so on. Extending the time frame for reviewing your accounts will reduce your anxiety and potentially increase your returns.

You don’t have to die to generate solid returns. Rather, incorporate a buy and hold investment strategy with a balanced portfolio of low-cost investments. A diversified portfolio of low-cost mutual funds will reduce your dependence to constantly check your accounts. In doing so you’ll be able to enjoy your life while you’re living.

And lead us not into temptation, but deliver us from the evil one. ~ Matthew 6:13

February 11, 2019

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 so our clients can pursue a life of purpose.

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

 

[1] The Behavioral Investor by Daniel Crosby, Ph.D. – Kindle Edition, location 2673, accessed 2/10/19.

[2] Greg B. Davies, Behavioral Investment Management: An Efficient Alternative to Modern Portfolio Theory (McGraw-Hill, 2012), p. 53. The Behavioral Investor by Daniel Crosby, Ph.D. – Kindle Edition, location 1423, accessed 2/10/19.

[3] Ibbotson® SBBI® 2015 Classic Yearbook

[4] Morningstar Office Hypothetical – SPY, 1/01/1198 to 1/1/2018.

The Hallmark Channel

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The Hallmark Channel has hit the motherlode with their romantic holiday themed movies.  Women of all ages are attracted to their shows, especially women between the ages of 25 to 54. My wife is a huge fan of their movies, especially during the Christmas season. She says, “I love a good love story, they make me laugh and feel good.” She adds, “The women are often portrayed as positive female role models in the workplace and the men are nice guys who respect women.”

Their movies follow a predictable pattern. A snowstorm or some other event brings a man and woman together in a bucolic setting straight from a Norman Rockwell painting.  At first, there’s no connection between the two, but through a series of events the couple gets together and fall in love at the end of the movie – usually in the last 5 minutes.  In addition to being predictable, the movies are safe to watch with the entire family without any hidden surprises. It’s wholesome entertainment and they have no desire to lower the bar by adding R-rated material or foul language. They know their target audience well.

One of their more popular shows was Christmas Under Wraps starring Candace Cameron Bure. She was about to receive a prestigious fellowship before taking a job as a doctor in a small Alaskan village. Ms. Bure has appeared in several Hallmark movies, as have many of their cast members including Meghan Markle, the Duchess of Sussex.

But does their model work? In 2017 they generated $390 million in ad revenue from the Hallmark Channel. The movies and mysteries added another $146 million – that’s a lot of love! The HBO channel spends about $10 million to $15 million to produce one of their shows; Hallmark spends about $2 million. In 2017 they were expected to draw 85 million viewers and since 2008 they have made 136 original movies.[1] The shows are economical to produce, and they generate a lot of revenue

Investors would be wise to follow Hallmark’s blueprint for success. They focus on predictable content, steady actors, minimal locations, and sensible budgets.

How can you write an investment script to stand the test of time? Here are few thoughts.

  • Develop a financial plan. Your financial plan will direct your investments, asset allocation, risk tolerance, goals, timeline, etc. It will be your guide.
  • Diversify your portfolio with a basket of low-cost mutual funds or exchange traded funds. Funds managed by Blackrock, Dimensional or Vanguard are solid candidates for your portfolio. A portfolio of large, small and international stocks will give you global exposure. Adding bonds to your account will reduce your risk.
  • Stay invested. The less you trade, the better. If you trade often, you’ll end up paying excess fees and missing key market moves. For example, traders who moved to cash in December because of the drop in the stock market, missed the surge in January. A buy and hold strategy will allow you to create wealth over time.
  • Rebalance your accounts once or twice per year. Keeping your asset allocation and risk tolerance intact is key to your long-term success as an investor. If you start the year with 60% stocks, 40% bonds and by the end of the year your allocation is 70% stocks, 30% bonds, then sell 10% of your stock holdings and buy bonds.
  • Work with an advisor. A registered investment advisor (RIA) who holds the Certified Financial Planners designation can work with you to develop your financial plan, implement your investment strategy, and keep you focused on your financial goals.

A buy and hold strategy with low cost investment funds based on your financial plan and asset allocation is safe and predictable. It’s a G-Rated strategy that’s appropriate for investors. And, who knows, you may fall in love with your long-term results!

Do everything in love. ~ 1 Corinthians 16:14

February 4, 2019

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 so our clients can pursue a life of purpose.

Note: Investments are not guaranteed and do involve risk. Your returns may differ than those posted in this blog. I like the Hallmark Channel too – but don’t tell anybody.

 

[1] https://www.marketplace.org/2017/12/27/life/christmas-movies-netflix-hallmark-channel-prince-numbers, by  Jana Kasperkevic, 12/27/2017

Capitalism Wins

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Henry Ford is credited with revolutionizing the auto industry and was on the forefront of innovation by creating the assembly line. He paid his employees $5 per day so they could purchase the cars they were manufacturing. He once said, “If I had asked people what they wanted, they would have said faster horses.” Mr. Ford’s net worth was about $200 billion. Capitalism allowed him to create great wealth.

Billionaires and the uber-wealthy are under attack by Elizabeth Warren, Bernie Sanders, and Alexandria Ocasio-Cortez.  Ms. Warren is calling for a tax of 2% on wealth from $50 million to $1 billion and 1% above $1 billion.  Ms. Ocasio-Cortez is suggesting a top tax rate of 70%.  Mr. Sanders wants an estate tax of 77% for estates north of $1 billion. He’s also proposing a 45% tax for estates with assets more than $3.5 million. When fisherman cast a wide net, they catch big and small fish.

Apple, Amazon, Ford, Facebook, Google, McDonalds, Microsoft, Nike, Starbucks, and Walmart were all founded by one or two people. These ten companies started with an idea from their founding fathers who weren’t billionaires at the time. Today these ten companies employ 3.7 million people.

Let’s do a deeper dive into these 3.7 million people. I’m assuming 75% of them are married and half the couples have two children. I arrive at 10.1 million people with my math. I’m also going to assume half of this population works and earns $100,000 per year. So, as a group, they’ll earn $506 billion per year. The average tax rate for this cohort is 22%. At 22%, they’ll pay $111 billion in taxes! Over the course of a decade they’ll pay more than $1 trillion in taxes. I’m not sure how many people Ms. Warren employs, but I’m positive they don’t pay $111 billion in taxes.

Furthermore, these 10.1 million people need services. They need teachers, doctors, real estate agents, insurance agents, bankers, grocers, plumbers, gardeners, bus drivers, electricians, painters, roofers, veterinarians, nurses, dentists, lawyers, accountants, dry cleaners, mechanics, architects, builders, engineers, librarians, florists, morticians, police officers, fire fighters, ambulance drivers, paramedics, military personnel, pilots, travel agents, butchers, bakers, and candlestick makers.

These billionaire’s employ thousandaire’s. On a recent Mad Money episode with Jim Cramer, Ms. Warren called for billionaires to “Stop being freeloaders.” Bill Gates doesn’t fit the description of a freeloader to me, but I could be wrong.

I’m not opposed to paying taxes and I believe everybody should pay their fair share. In fact, so does Jesus. Mark 12:17 says, “Give to Caesar what is Caesar’s and to God what is God’s.”

The individuals who founded these ten companies are also philanthropically oriented and they’ve established the following organizations: Bill and Melinda Gates Foundation, Bezos Family Foundation, The Brin Wojcicki Foundation, Carl Victor Page Memorial Foundation, Chan Zuckerberg Initiative, Emerson Collective, Ford Foundation, The Joan B. Kroc Foundation, Knight Foundation, Schultz Family Foundation and the Walton Family Foundation. These charitable organizations are armed with billions of dollars to make our world better by focusing on education, healthcare, the environment, and several more causes. They also employ thousands of people.

Our capitalist structure gives everybody an opportunity to succeed. People living in Afghanistan, Haiti, and Venezuela will never have this experience.  Socialists suck resources out of their citizen’s pockets. Margaret Thatcher said, “The trouble with Socialism is that eventually you run out of other people’s money.”

Animals are hypersensitive to danger and activate their fight or flight response often. The gazelle knows when the cheetah is lurking.  Billionaires and other wealthy individuals will defend their wealth by moving money overseas, changing residences, or creating trusts. On paper, they’ll look like paupers. They won’t wait around to be eaten by the government if the attack on their wealth begins. When the wealthy move and take their business with them what will be left? Venezuela? Ayn Rand captures this sentiment in her best-selling novel Atlas Shrugged.

If you want to protect your wealth or help others, here are a few strategies you can employ.

  • Charitable Remainder Trust (CRT)
  • Annual Gift Exclusion
  • Charitable Lead Trust
  • Donor Advised Fund
  • Family Limited Partnership
  • Grantor Retained Annuity Trust (GRAT)
  • Life Insurance Trust (ILIT)
  • Private Annuity
  • Revocable Family Trust

My great-grandparents migrated to Los Angeles from Mexico in the early 1900s. My grandfather told me repeatedly they didn’t have a pot to piss in, they were poorer than poor. He came of age during the Great Depression. He was a good student and wanted to attend Stanford, but his family couldn’t afford it, so he went to work instead. When he was 50 years old, he started his own business and was financially successful. If you’ve ever eaten at a fast food restaurant or enjoyed a bag of chips, you’ve benefited from his handywork. At his death, he gave his wealth to two colleges in Southern California for perpetual scholarships. His gift allows students without resources to obtain a college degree, one of the few things missing from his resume.  Capitalism allowed my grandfather to create great wealth.

Free yourself, like a gazelle from the hand of the hunter, like a bird from the snare of the fowler. ~ Proverbs 6:5

February 1, 2019

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 so our clients can pursue a life of purpose.

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