Who Needs Prayer?

My bible study group has been meeting virtually for the past few weeks because of the Coronavirus, and last night we prayed for twenty-five people from a list (see below) that has been circulating on social media. We incorporated it into our meeting, and it was powerful.

It is a tough time for all, but praying for others gave our group peace and comfort. I’m praying it will do the same for you as well.

The Parable of the Good Samaritan

On one occasion an expert in the law stood up to test Jesus. “Teacher,” he asked, “what must I do to inherit eternal life?”

 “What is written in the Law?” he replied. “How do you read it?”

He answered, “‘Love the Lord your God with all your heart and with all your soul and with all your strength and with all your mind’; and, ‘Love your neighbor as yourself.’”

“You have answered correctly,” Jesus replied. “Do this, and you will live.”

But he wanted to justify himself, so he asked Jesus, “And who is my neighbor?”

In reply Jesus said: “A man was going down from Jerusalem to Jericho, when he was attacked by robbers. They stripped him of his clothes, beat him and went away, leaving him half dead. A priest happened to be going down the same road, and when he saw the man, he passed by on the other side. So too, a Levite, when he came to the place and saw him, passed by on the other side. But a Samaritan, as he traveled, came where the man was; and when he saw him, he took pity on him. He went to him and bandaged his wounds, pouring on oil and wine. Then he put the man on his own donkey, brought him to an inn and took care of him. The next day he took out two denarii and gave them to the innkeeper. ‘Look after him,’ he said, ‘and when I return, I will reimburse you for any extra expense you may have.’

“Which of these three do you think was a neighbor to the man who fell into the hands of robbers?”

The expert in the law replied, “The one who had mercy on him.”

Jesus told him, “Go and do likewise.”

~ Luke 10:25-37

Who is your neighbor?

If you’re not sure who your neighbor is, here is the list of twenty-five people to pray for (Note: I don’t know where the list originated, and it has been sorted randomly).

  1. Delivery Drivers
  2. Pastors and Church Leaders
  3. Singles
  4. Teachers
  5. First Responders and Police Officers
  6. Couples with wedding plans
  7. Grocery Store Workers
  8. Medical Support Teams
  9. Foster Care Families
  10. Those who cannot work from home
  11. Those in abusive situations
  12. Those displaced from their homes
  13. Employees deemed essential who work among the public
  14. Internet-Support Personnel
  15. Government Officials
  16. COVID-19 Cleaning Workers
  17. High School and College Students
  18. Small business owners and employees
  19. People struggling with anxiety, depression, and other mental illnesses
  20. Counselors and Therapists
  21. Those facing job layoffs
  22. Developing Nations
  23. Military Personnel and Their Families
  24. Expectant Parents
  25. The homeless and those in deep poverty

Who needs prayer? Everybody. Be safe and keep the faith.

Rejoice always, pray without ceasing, give thanks in all circumstances; for this is the will of God in Christ Jesus for you. ~ 1 Thessalonians 5:16-18

April 28, 2020

Bill Parrott, CFP®, 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. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets.

Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor.

 

 

 

 

PWM Weekly Market Update

Happy Saturday,

The Great Wall of China is open to visitors, the NFL draft is in high gear, and Georgia is letting some businesses reopen. If you need a hair cut and you like to bowl, a visit to the Peach State may be in order.

Our rebalancing software runs weekly, looking to sell expensive assets and buy cheap ones. It’s an automated process. We did not rebalance any portfolios this week as volatility continues to tumble. For the first time in a while, it felt like a typical week, as far as investments are concerned.

The US Index of Consumer Sentiment is an indicator I follow. The 68-year average for the index is 86.7, and the recent reading is 71.8. When consumers are optimistic, sentiment is high. When consumers are pessimistic, sentiment is low. The all-time high was 112 in March 2000, before the Dow Jones Industrial Average fell 33% from March 2000 to March 2003. The historical low was 51.7 in May 1980 before stocks rose 228% from 1980 to 1987. In March 2009, consumer confidence touched 57.3, before the market climbed 236% from March 2009 through yesterday. The moral of the story: When consumer confidence is low, it’s an excellent time to buy stocks.

The current asset allocation for public pension funds is 49% stocks, 23% bonds, 7% real estate, 19% alternative investments, and 2% cash. The 30-year average annual median return for pension funds was 8.3%.[1] The S&P 500 returned 8.2% over the same time frame.

Here’s how stocks, bonds, and other asset classes performed this past week.

  • The S&P 500 fell 1.3%
  • The NASDAQ fell .67%
  • International Stocks fell .95%
  • Emerging Markets fell 1.5%
  • Long-Term Bonds rose 1.8%
  • Gold rose 2.5%
  • Oil fell 34%
  • Chinese Stocks fell .85%

If you’re looking for some good news, I recommend watching Some Good News on YouTube hosted by John Krasinski (The Office, Tom Clancy’s Jack Ryan, A Quiet Place, & 13 Hours). He hosts the show form his home and highlights good news from around the world – and space. Here’s the link to his channel: https://www.youtube.com/channel/UCOe_y6KKvS3PdIfb9q9pGug

Like a drink of cool water to a weary, thirsty soul, so hearing good news revives the spirit. ~ Proverbs 25:25 (TPT)

Bill Parrott, CFP®

President and CEO

Parrott Wealth Management

http://www.parrottwealth.com

[1] https://www.nasra.org/investment

What to do about college?

Seniors in high school are pouring over acceptance letters trying to decide which college to attend in the fall. It’s an exciting time for students and parents. College is a fabulous experience, full of pomp and circumstance, football games, fraternities, sororities, student government, homecomings, etc. But what if you can’t physically attend college because of the Coronavirus?

Harvey Mudd, University of Chicago, USC, and Southern Methodist University all have annual tuition rates that cost more than $71,000.[1] Does it make sense to spend $71,000 for college if you are going to live at home to take courses online?

My sister and her family are wrestling with this issue as they ponder the schools my niece wants to attend in the fall. My niece has already lost the second half of her senior year of high school because of the shutdown, and it appears she may lose the fall semester too.

If students are going to balk at paying $71,000 to study from a laptop, is it time for community colleges to shine? To find out, I talked to Molly Beth Malcolm, Ed.D.  Dr. Malcolm is the Executive Vice President of campus operations and public affairs at Austin Community College. ACC opened in 1973 with 1,726 students on one campus, and it now serves more than 70,000 students across 11 campuses.[2]

Austin Community College is well-positioned to handle the online surge because last year, the school upgraded its IT infrastructure. As Dr. Malcolm mentioned the added capacity, she said, “It’s better to be lucky than good.” ACC has extended the online reach at three campuses to include parking lots so students who don’t have access to wi-fi can use the internet from their cars and continue to meet with other students – at a safe distance.  ACC bought 1,000 iPads to give to students in need, and the school is currently looking to purchase a thousand laptops. The school has spent $4 million to help students through these troubling times. Additionally, ACC has offered workshops to faculty members so that they can expand their online teaching presence through video meetings and web postings.

Community colleges are accessible and affordable. The annual tuition for ACC is $2,550, 96% less expensive than SMU. ACC has small classes, and students are required to meet with an academic coach. It’s “their highway” for the courses they ought to take to achieve their goals, added Dr. Malcolm. Dr. Malcolm also said ACC offers “wrap-around services.” What are wrap-around services? These services help students who are struggling financially to pay rent, utilities, or get gas for their car. The students can apply to the school for assistance through ACC’s emergency fund program – Keep A Dream Going. Austin Community College makes daycare services available for students.

ACC has a robust student life program where students can participate in student-government, intramurals, and theater. They also have a mascot – the Riverbat, and it makes several appearances around town and visits several elementary schools.

About 68% of students at ACC will acquire a bachelor’s degree within six years, according to Dr. Malcolm. She does encourage students to obtain their Associate of Arts degree if they decide not to continue their education, or they want to enter the workforce. “ACC is a critical partner to the region and to employers,” says Mike Perrine, chair of the Workforce Development Report Task Force.[3]

Dr. Malcolm expects a spike in enrollment due to the virus. She said community colleges usually experience an increase during times of crisis, but she said: “It’s always a great time to attend ACC.” In addition to students looking to transfer to a four-year college, ACC attracts individuals looking to change careers or improve their skills. The school offers several certificate programs.

ACC provides open enrollment allowing all who apply to attend. If students aren’t ready for college, the school offers college prep courses to help them get prepared for the road ahead.

What about safety? Dr. Malcolm oversees the school’s 93 police officers. ACC has a 24-hour police patrol, and each campus always has one or two police officers on the grounds.

Austin Community College is one of 50 community colleges in the State of Texas. According to the American Association of Community Colleges, there are 1,132 community colleges across the country.

If you are struggling with the decision to spend thousands of dollars for a virtual college experience, you’re not alone. My recommendation for the fall semester is to attend a community college and invest the money you were going to spend on tuition at a four-year university into a 529 College Savings Plan. A 529 allows your money to grow tax-free, and you can use the funds to pay for community college, undergraduate work, graduate school, law school, medical school, or certificate programs. If your child attends a community college for two years, you may be able to save enough money to pay for two to three years of tuition at a university.

Dr. Malcolm is a big advocate for community colleges, and she is passionate about her job. But, more importantly, she wants her students to succeed in life. She says to students, “We are not trying to get you out; we are trying to keep you in, so you can be successful.” She closed our interview by saying, “Students attend a university to get a degree, but they attend a community college to get a job.”

I attended Pasadena City College (Go Lancers!) for a year, and it was a valuable experience. My classes were small; the teachers were attentive. I grew up academically and emotionally during my year at PCC, and it opened my eyes to the college landscape, allowing me to attend a school that was a perfect match to continue my education – the University of San Diego. PCC gave me the tools needed to build a solid foundation for my future.

If you have not explored your community college lately, now is a great time to give it a look. You may be pleasantly surprised by what your local campus can offer.

Community colleges are the great American invention in terms of education. ~ Eduardo J. Padron

April 19, 2020

Bill Parrott, CFP®, 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. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets.

Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor.

 

 

 

 

 

 

 

 

 

[1] https://www.statista.com/statistics/244041/most-expensive-colleges-in-the-us/, website accessed April 19, 2020.

[2] https://www.austincc.edu/about-acc

[3] https://www.austincc.edu/news/2019/08/acc-examines-urgent-workforce-needs-new-workforce-development-report, submitted by Sydney Pruitt.

PWM Weekly Stock Market Update

Happy Saturday,

Another good week for stocks. The Dow Jones Industrial Average jumped 3% on Friday and finished up 2.2% for the week. The NASDAQ 100 is positive for the year, and it is up more than 15% for the past twelve months. Small-cap stocks continue to rebound, and international stocks are looking better. The S&P 500 has risen 29% from the March lows.

Why are stocks rebounding? We’re starting to see optimistic signs from around the world. Gilead Sciences is using its drug remdesivir to treat COVID-19 patients, and the results are encouraging. Boeing is resuming production in Seattle, Germany is going to let small businesses open on Monday, and the PGA Tour is teeing off June 11 at the Colonial Golf Course in Fort Worth, Texas. Speaking of Texas, Governor Greg Abbot plans to open some businesses on April 27.

Our investment models were quiet this week as volatility continues to drop. We only rebalanced ten accounts on Tuesday, a year low – which is a good sign.

It has been near impossible to buy U.S. Government securities because large institutions are gobbling them up for their money market funds. As a result, we are purchasing Certificates of Deposits from around the country for our cash and bond holdings. CD’s are federally insured to $250,000 per person, per account.

The CBOE put/call ratio is an indicator I watch closely. It relies on options to determine if investors are greedy or fearful. An option is a contract that allows you to control 100 shares of stock for every contract you own. A put option will rise in value when the price of a stock falls. A call option will increase in value when the price of a stock rises. If investors purchase several puts, fear is high. When confidence is high, they will buy calls. If the ratio is over one (more put buyers than call buyers), investors are nervous; below one, they’re confident. In March, the indicator peaked at 1.83. The ten-year average is .94; the current reading is .91. The ratio has dropped 50% from the peak, an encouraging sign for investors.

Corporate insider buying has been bullish for the past few weeks. Executives and insiders are buying shares of their company stock because of the compelling valuations.

Here’s how stocks, bonds, and other asset classes performed this past week.

  • The S&P 500 rose 3%
  • The NASDAQ rose 7%
  • International Stocks rose .34%
  • Emerging Markets rose 2.2%
  • Long-Term Bonds rose 1.4%
  • Gold fell .17%
  • Oil fell 17.2%
  • Chinese Stocks rose 3%

I decided to run the Boston Marathon in 2009; however, I needed to qualify for the race first. Due to the marathon calendar and my schedule, I missed the window for 2009 and 2010, so I set my sites on 2011. To qualify, I signed up to run the 2010 Austin Marathon, and as a backup, I registered for the Los Angeles Marathon, scheduled for three weeks later. To run Boston, I needed a plan, and it included a two-year training schedule, weight training, and better eating habits.

Training for a marathon is tedious and lonely, especially on runs of 15 to 20 miles or more, and running in Texas is challenging because temperatures will climb north of 100 degrees in the summer and drop into the teens during the winter.

I qualified for the Boston Marathon based on my time in Austin. On race day, my goal was to run each mile under 8 minutes and not fixate on the finish line, 26.2 miles from the start. If I kept my pace, I would finish the race in 3 hours and 30 minutes or better. I followed my plan and ran the race one step at a time, one mile at a time, and finished in 3 hours and 22 minutes – a personal best!

Runners who struggle to finish a marathon become overwhelmed by the magnitude of the race, especially when they obsess over the entire 26.2 miles. To get to the finish line, follow your plan, focus on your goal, keep to your pace, and enjoy the journey.

A journey of a thousand miles begins with a single step. ~ Chinese Proverb

Have a great weekend, and keep the faith!

 

What is Rebalancing?

We try to maintain a balanced life, eat a balanced diet, and, of course, we need balance to ride a bike. Balance is harmony. Investors should pursue balance; unfortunately, they rarely rebalance their portfolios, and they get too aggressive or too conservative at the wrong time.

Rebalancing is an excellent way to maintain your asset allocation and keep your risk tolerance in check, but what does it mean, and how does it work? When you rebalance your portfolio, you’re selling assets that have risen and buying ones that have declined – buy low and sell high. Rebalancing is done on a calendar basis – monthly, quarterly, or annually. Another option is to rebalance on a percentage basis. If an asset class rises or falls by 5% or more, you can adjust your portfolio by rebalancing. You can decide which model works best for your situation. Our firm rebalances based on the percentage moves of the asset classes in our models.

Let us look at a few moments in history to highlight this point.

1929

If your portfolio consisted of 50% stocks and 50% bonds in 1929, your equity allocation dropped to 23%, and your bond allocation increased to 77% at the end of 1932, a mix too conservative based on your original allocation. If you rebalanced every year, you would have sold bonds to buy stocks. However, this would not have been so easy during the Great Depression. The Dow Jones Industrial Average fell 65% in four years, so it would have taken a bold investor with a firm conviction to buy stocks. Without rebalancing, you had to wait until 1955 before your allocation returned to 50% stocks and 50% bonds.

2000

Stocks fell 43% during The Tech Wreck. If you started the decade with a 50% stock and 50% bond portfolio, it fell to 30% stocks and 70% bonds by the end of 2002. Twenty years later, your portfolio allocation is 40% stocks and 60% bonds. It has not yet returned to your original allocation because bonds have outperformed stocks for the past two decades. Bonds have generated an average annual return of 7.2%, while stocks have returned 5%.

2009

If you were fortunate to start investing in 2009, your stock returns have done exceptionally well, averaging almost 11% per year. If you started with an allocation of 50% stocks and 50% bonds in 2009, your asset allocation entering 2020 was 73.5% stocks, and 26.5% bonds – too aggressive based on your initial target.

2020

Stocks are off to a horrible start this year, and your original portfolio of 50% stocks and 50% bonds is now 45% stocks and 55% bonds after four months.

As you can see, balance is rarely maintained, and you must continuously monitor your accounts to make sure your portfolio stays balanced. If you do nothing, your portfolio can oscillate between too conservative or too aggressive – at the wrong time. For example, if you did not rebalance your accounts for the past ten years, your equity risk was too high at its peak in February, before the S&P 500 fell 34% in March. If you did not rebalance your accounts in 2008, your portfolio was too conservative to benefit from the rebound in stocks starting in 2009.

Here are a few tips to help you rebalance your portfolio.

  1. Rebalancing your accounts annually is recommended, but you can also do it monthly or quarterly. Due to the increased volatility in stocks recently, we are running our rebalancing models weekly.
  2. January is an excellent month to rebalance your accounts because most mutual funds pay dividends and capital gains in December.
  3. Your 401(k) plan may have an automatic rebalancing tab allowing you to set it and forget it. Your plan should give you the option to rebalance monthly, quarterly, or annually.
  4. It’s easier to rebalance a portfolio of mutual funds or ETFs than it is a basket of individual stocks or bonds. It’s not possible to sell a half share of a stock or a third of a bond. If you plan to rebalance your accounts, stick with funds.
  5. If possible, automate the process of rebalancing. It’s emotionally challenging to sell stocks when they’re rising, harder to buy them when they’re falling. Automating this process will remove your emotions from the buy and sell decisions.

Rebalancing may or may not increase your returns, but it will allow you to preserve your asset allocation and risk tolerance. If you invested $20,000 in 1992 in Vanguard’s Total Stock Fund (VTSMX) and Vanguard’s Total Bond Fund (VBTIX) – 50% allocation to each, your ending balance as of March 31, 2020, was $152,903. Your investment produced an average annual return of 7.5% without rebalancing. Your allocation, 28 years later, is 70% stocks, 30% bonds. If you rebalanced your account annually to an allocation of 50% stocks and 50% bonds, your return improved to 7.7% and your balance is now $160,156.[1] In this case, your allocation and risk level stayed constant, and your performance improved, which is the goal of rebalancing.

The key to long term financial success is to match your financial goals to your investment portfolio. A financial plan will help you identify your hopes, dreams, and fears. Once you complete this process, put your plan to work and rebalance your accounts often!

Life is like riding a bicycle. To keep your balance, you must keep moving. ~ Albert Einstein

April 16, 2020

Bill Parrott, CFP®, 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. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets.

Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor.

 

[1] Morningstar Office Hypothetical

What Do You Cherish?

The Coronavirus is stripping us of life, liberty, and the pursuit of happiness. We have been knocked to our knees, delivered a standing eight count. It’s a challenging time for all, regardless of age, race, or wealth. Difficult times do not discriminate.

During this lockdown, what has been important to you and your family. What have you enjoyed doing to pass the time? Make a list of the things you’ve liked doing during this stoppage.

Here is my list –

  • Long walks with my family
  • Working out with my family
  • Reading books
  • Movie night
  • Zoom meetings with my Bible study groups
  • Zoom meetings with my parents, my in-laws, and my sister’s family
  • Learning to play the guitar
  • Fresh air and crystal-clear water
  • Nights with bright stars
  • Playing board games
  • Building a vegetable garden
  • Planting more rose bushes
  • Painting rocks and leaving them on the sidewalks for others to find
  • Working from home
  • My dog and cat sleeping in my home office
  • Fly fishing
  • Cycling

My list will be just as relevant to me in retirement as it is today. If I enjoy taking long walks and playing board games now, I’ll probably appreciate them in twenty years. Simple pleasures. Simple goals.

Financial planning is part art and part science. It tries to merge facts with emotion. When I ask someone what their retirement goals are, I often get standard answers like traveling more or purchasing a second home. It’s a tough question, especially if you’re under age 40, but now the Coronavirus may give you clarity of what you cherish because we have all lost something. What was essential to you on January 1, probably isn’t today. The forced downtime may give you transparency on what matters to you and your family.

In addition to the things you’ve enjoyed doing during the shutdown, what do you miss? What are you craving to do once the quarantine lifts? My parents are social beings, and they love dining out with friends, and I know they can’t wait to make a reservation at their favorite restaurant.  I love college football, and I am looking forward to attending several games in the fall – Sic ‘Em Bears!

What do older adults regret? Lydia Sohn wrote an article for CNBC where she interviewed several congregants and friends age 90 to 99. The interviewees regretted not cultivating closer relationships with their children, taking risks to be more loving, and not spending more time with the people they loved.[1] Now is an excellent time to connect or reconnect with your loved ones. Don’t wait.

Whatever is important to you now, pursue it and protect it at all costs. The things you love should be at the top of your planning list. Figure out what they are and write them down – who knows, you may already have all you need!

I know what it is to be in need, and I know what it is to have plenty. I have learned the secret of being content in any and every situation, whether well fed or hungry, whether living in plenty or in want. ~ Phillippians 4:12

April 13, 2020

Bill Parrott, CFP®, 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. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets.

Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor.

[1] https://www.cnbc.com/2019/07/03/advice-from-90-year-olds-how-to-live-a-long-happy-and-regret-free-life.html, By Lydia Sohn, July 3, 20109

Grandma B

My Grandma B was born in 1900. In Iowa. She dressed to the nines and did not appear to have a care in the world. She loved playing the piano, singing songs, and visiting with her family. Her sources of income were modest, relying on Social Security and rental income from a building that housed a florist. Despite her small income, she never appeared to want for anything.

With the world shut down and global stock markets going haywire, I wondered what it would have been like for Grandma B to be an investor at the start of the 20th century.

On January 2, 1900, the Dow Jones Industrial Average opened at 68.13.[1]

A few months after she was born, more than 6,000 people died in the Galveston, Texas hurricane. In 1901 President McKinley was assassinated.

Seven years after she was born, the stock market crashed during the Panic of 1907. J.P. Morgan (the individual) acted as the Federal Reserve to provide liquidity to the markets.  The Dow fell 37% from 1906 to 1908.[2]

At age 14, World War I started, and it would last until her 18th birthday. After WWI, the world was rocked by the Spanish Flu, killing 20 million people globally and 500,000 in the U.S. The Spanish Flu ended when Grandma B turned 20. The Dow fell 38% at the beginning of the war and would fall 25% during the pandemic.[3]

At age 20, she roared into the next decade as our country finally celebrated some good news. It lasted nine years before the stock market and economy crashed on October 29, 1929. The Dow rose 326% during the Roaring Twenties and fell 86.5% during the Great Depression.[4]

During the Great Depression, Gross Domestic Product fell 27%, and unemployment peaked at 25% – dark times. There was a brief uptick in economic activity after the depression ended, but it only lasted a few years as the recession of 1937 and 1938 shut down the economy. The market fell by 35% in 1937.[5]

What could pull the economy out of a slump? Another World War. Grandma B, not yet forty, was to witness her second world war. World War II lasted from 1939 to 1945. It ended when the U.S. dropped two nuclear bombs on Japan.

Grandma B had to wait 34 years before her investment account made any money as the Dow Jones climbed through 100 in 1934!

Polio attacked about 35,000 people per year in the 1940s and 1950s, peaking at 56,000 deaths in the late fifties before Dr. Jonas Salk developed a vaccine. [6]

A few years after WWII ended, the U.S. entered the Korean War from 1950 to 1953. In 1955 we would go to war with Vietnam. It lasted 20 years.

After surviving the Spanish Flu, the Asian Flu arrived in 1957, where 1.1 million people died, including 116,000 U.S. Citizens.

The Cuban Missile Crisis in 1962 was a battle between two superpowers – the USA and USSR. The following year, November 22, 1963, John F. Kennedy was assassinated.

Ten years later, the Arab Oil Embargo would usher in another recession, and the stock market fell 41% in 1973 and 1974.

When Grandma B was 79, the Iran Hostage Crisis and the Three Mile Island incident stunned our country.

The economy would recover in the early eighties, and stocks would climb 220% before crashing 22% on October 19, 1987.

In 1989, President George Bush signed legislation to bailout 800 insolvent savings and loans. The market would fall 8% in October due to the failed buyout of United Airlines.[7]

Grandma B passed away in February 1990, two months shy of her ninetieth birthday. She lived a great life, surrounded by friends and family. Despite two world wars, a depression, several recessions, pandemics, two presidential assassinations, and no internet, the Dow Jones averaged 4.2% per year during her lifetime before dividends. If she received a 2% dividend yield, her investments grew at a rate of 6.2% per year.

If Grandma B were alive today, she would have earned an average annual return of 5% before dividends, including this year’s drop in stocks.

It’s a difficult time for all, but I can’t imagine it being worse than what Grandma B experienced as an investor. And, I wonder, if 120 years from now, my grandchildren would be worried that the Dow Jones Industrial Average fell from 10.4 million to 8.3 million?

Is this heaven? No, it’s Iowa. ~ Field of Dreams

April 11, 2020

Bill Parrott, CFP®, 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. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets.

Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor.

[1] http://www.fedprimerate.com/dow-jones-industrial-average-history-djia.htm

[2] Ibid

[3] Ibid

[4] Ibid

[5] Dimensional Fund Advisors 2019 Matrix Book

[6] https://www.cdc.gov/polio/what-is-polio/polio-us.html

[7] https://www.baylorschool.org/uploaded/Library_Resources_PDFs/US_History_US_Historical_Events_from_1900_to_Present.pdf

Weekly Stock Market Update

Happy Friday,

The stock market is closed today in observance of Good Friday.

The S&P 500 gained 10.4% this week, the best weekly performance since 1974 as the Federal Reserve unleashed another $2.3 trillion in lending for small businesses, cities, and states. The stock market has risen 27.5% from the low on March 23.

Our models continue to rebalance weekly to keep your asset allocation and risk tolerance in check. This week our models purchased small-cap stocks, which rose 15.3%. A few weeks ago, we bought real estate holdings, and they were up 20.5% this week.

The central theme for our models is diversification because we never know which sector will take the lead. It’s like a horse race. When the horses enter the gate, we do not know which one is going to win. The lead will change several times during the race, but when it’s over, one horse will come in first, one will finish last, and the remainder of the field will fall somewhere in between.

I grew up near Santa Anita Race Track in Arcadia, California, and I went to the races often. A former neighbor of mine entered the horse racing business, and I asked him how he trained successful horses. He said, “Sometimes you just got to let ‘em run.” We’re letting our models run.

We’re entering the earning season, and it won’t be pretty as companies will report terrible news. However, this news is baked into the market. If it’s “less bad,” it will be good. Make sense? Companies will write off as much as they can this year, so next year their balance sheets look immaculate. The stock market is forward-looking, so it has already set its sites on next year.

Here’s how stocks, bonds, and other asset classes performed this past week.

  • The S&P 500 rose 10.4%
  • The NASDAQ rose 7.9%
  • International Stocks rose 6.6%
  • Emerging Markets rose 4.5%
  • Long-Term Bonds fell 1.6%
  • Gold rose 4.4%
  • Oil fell 3.5%
  • Chinese Stocks rose 2.6%

In Punjuab, a city in northern India, the residents can see the Himalayan mountain range for the first time in thirty years as pollution has dropped during the global shutdown. Here’s the article: https://www.cnn.com/travel/article/himalayas-visible-lockdown-india-scli-intl/index.html

Astronaut Scott Kelly spent a year in space, and he dealt with isolation by staying busy, committing to a daily plan, keeping a journal, following a schedule, going outside, and participating in a hobby. Here’s the article: https://www.nytimes.com/2020/03/21/opinion/scott-kelly-coronavirus-isolation.html

“When I first looked back at the Earth, standing on the Moon, I cried.” ~ Alan Shepherd

Have a great weekend, and keep the faith!

Sincerely,

Bill Parrott, CFP®

President and CEO

Parrott Wealth Management

www.parrottwealth.com

 

Weekly Stock Market Update

Volatility dropped as investors reacted to some positive Coronavirus news, the stimulus package, and the USNS Comfort arriving in New York under the watchful eye of the Statue of Liberty.

The Chicago Board Options Exchange’s VIX is known as the fear gauge, and when it is high, investors are scared. It dropped 29% this week, and it’s down 43% from the high. It closed at 46.80 on Friday – still high, but an encouraging sign it’s falling. By comparison, the VIX closed at 13.68 on Valentine’s Day. What does the VIX measure? It measures volatility. A VIX level of 46.80 means the market should move up or down by 2.9% on any given day. When the VIX was at 82.69 three weeks ago, the volatility range was 5.1%. A falling VIX is positive, and the lower it goes, the better. The 30-year average is 19.32, so the daily volatility of the market is 1.2%. To calculate the daily volatility, divide the VIX by 16. Why 16? It’s the square root of 256, and there are about 256 trading days in a year.

Value Line is an investment research firm founded in 1931. They give a 3 to 5-year projection every week, depending on the valuations of the stocks in their database. The current 3 to 5-year forecast calls for stocks to rise 105%. On March 9, 2009, the previous market low, the indicator was 185%.

I continue to monitor your financial plans, and, so far, the market correction is not having any impact on your goals. Our planning software incorporates down markets, up markets, and flat markets, so the recent drop is part of the plan. It also includes inflation, deflation, taxes, and other factors that will impact your financial future. If you have yet to complete your financial plan, please give us a call to start the process. Financial planning is not an exact science, and in the words of John Maynard Keynes, “It is better to be roughly right than precisely wrong.”

Here’s how stocks, bonds, and other asset classes performed this past week.

  • The S&P 500 fell 2.04%
  • The NASDAQ fell .084%
  • International Stocks fell 3.59%
  • Emerging Markets fell .61%
  • Long-Term Bonds rose .68%
  • Gold rose .03%
  • Oil rose 32.13% – The largest percentage move in history!
  • Chinese Stocks rose .64%

The Paycheck Protection Program is up and running as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. If you operate a business or non-profit, you should apply.

Last September, the men’s group at my church hosted a former Navy SEAL for dinner. He talked about his service to our country and what it was like to be part of an elite group. It was captivating. When he discussed surviving Hell Week and BUD/S Training, his primary goal was to make it to the next event, whatever it was. For example, if he was on a morning run, his goal was to finish and make it to lunch. After lunch, his goal was to get to dinner, and so on. He concentrated on what he could control. He said individuals who failed fixated on the entire length of training, and they were overwhelmed by how long it would be to finish. His advice applies to the virus. No one knows when it will end, so focus on what you can control and take it one day at a time, look for daily victories.

The only easy day was yesterday. ~ Popular Navy SEALs saying.

Have a great weekend, and keep the faith!

April 4, 2020

Bill Parrott, CFP®, 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. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets.

Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor.

 

 

 

 

 

A Few Ways to Save a Few Dollars

Desperate times call for drastic measures. As the Coronavirus shuts down the planet, you may be looking for ways to save a few extra dollars. Now is an excellent time to review your spending habits and create a budget. However, creating a budget is about as fun as getting your wisdom teeth pulled, but it’s imperative to know where your money is going.

The best way to prepare a budget is to review your credit card and bank statements for the past six months. After you dissect your statements, find areas where you can make changes. Organize your expenses into broad categories like home, work, education, children, entertainment, etc. After setting up your groups, subdivide them further. For example, the home category might consist of food, utilities, landscaping, and so on. Dividing your expenses will help you refine your budget.

Identifying your automatic payments is another opportunity to reduce your overhead, especially if you set them up years ago. Are there any you can eliminate or suspend during this downturn? Common electronic monthly payments include book or magazine subscriptions, childcare, tutors, club dues, entertainment, house cleaning, and lawn care services. Can you mow your lawn or clean your home? If you have kids at home, introduce them to manual labor like mowing your lawn or cleaning the house. Many years ago, I was mowing my lawn when a friend of my daughter’s told me she had never seen one of her friend’s parents mow their yard before.

Walking, hiking, biking, have temporarily replaced the gym. Do you miss working out at your local gym? If no, ditch the membership.

Currently, there is nothing worth watching on TV, so can you finally cut the cord? Do you need cable TV or a landline? I have not missed watching TV, and I’ve spent my free time playing board games, reading books, or learning to play the guitar. When I do watch a show, it’s on Netflix or Amazon Prime.

Family dinners are back in fashion now that restaurants are closed, allowing you to spend less money dining out. We are getting creative with dinners, and we are limiting our takeout dining.

My family and I recently built a vegetable garden, so in about 45 days, we will have a bumper crop of tomatoes, lettuce, beets, and cucumbers. I’ve seen posts on social media where others are also building gardens. If you have space in your yard, consider making one.

If you have adequate savings, use your cash to pay off high-yielding debt. In a zero percent world, it makes no sense to keep paying on a note with interest rates at 4%, 5%, or higher. We recently paid off a car, and we’re using the old payment for other purposes.

Refinance your mortgage. The drop in interest rates is an opportunity to lower your mortgage payment. It’s also an excellent time to refinance to a 15-year mortgage. The interest you’ll pay for a 30-Year, $300,000 mortgage is $215,600. If you refinanced to a 15-year, your interest payments would drop 66% to $72,900, a savings of $142,700!

I like my home office, so I’m contemplating letting my office lease expire in September. I can save a few thousand dollars a month by working from home and I can apply the extra savings to technology or marketing. Zoom has been a tremendous benefit, and I’m happy to avoid rush hour traffic. My dog and cat are loyal office mates, and they don’t drink all the coffee! Are you in a position to work from home permanently? If so, explore this option to see if it makes sense.

Insurance is another area where you can make changes to your budget. If you have adequate savings, raise your deductible on your policies. By increasing your deductible, you’ll be able to lower your monthly premium. Talk to your insurance agent to get a few quotes at different deductible levels to find out how much money you can save.

Can you get rid of a car or two? We have three vehicles, but we are currently only using one – barely. Is it possible for your family to share a car? Can you rely on Uber or Lyft? If so, consider selling a car to raise cash or eliminate your car payment.

Do some spring cleaning. Can you find items to sell in your attic or basement? Once you find something to sell, list it on Craig’s List or eBay – one man’s trash is another man’s treasure.

When you finish your budget, you’ll know where your money is going, allowing you to spend less and save more.  With technology, it has never been easier to create a budget – yeah!  You can use Mint.com or Every Dollar to automate the budgeting process, so it becomes second nature.

If you’re able to reduce your spending or cut back on services, allocate the money to your savings account or emergency fund. Increasing your savings account balance will give you a cushion if the shelter-in-place extends into the summer.

Good luck and happy hunting!

 For where your treasure is, there your heart will be also. ~ Luke 12:34

April 2, 2020

 

Bill Parrott, CFP®, 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. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets.

Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor.