I’m Afraid to Invest

It is a tough time to be an investor. The political, social, and racial environment is troubling.  Despite the stellar long-term performance of the stock market, investors are nervous about committing capital to stocks. If you’re frightened to invest, consider a monthly dollar-cost averaging program.

Let’s assume you can invest $120,000 today, but you’re not ready to push all your chips to the center of the table. In this case, invest $1,000 per month for ten years in Vanguard’s 500 Index Fund. Did this strategy work? After ten years, your $120,000 is now worth $219,537 – generating an average annual return of 11.8%.

If you expand your time horizon to twenty years, your $1,000 monthly investment is now worth $651,021, earning 9.1% per year.

How about thirty years? After thirty years, your automated monthly investment program of $1,000 is now worth $1.72 million, averaging 9% per year.

What about a forty-year timeline? After forty years, your investment is now worth $6.16 million, producing an average annual return of 10.4%.

Let’s look at a fifty-year time horizon. We now will invest $1,000 per month into the Investment Company of America mutual fund because the Vanguard 500 Index fund is not available. Your investment is now worth $57.76 million. The average annual return was 10.9%.

After sixty years, your dollar-cost averaging program has turned your $1,000 monthly investment into $195 million! The average annual return was 11.2%.

After fifty or sixty years, the numbers are ridiculous and probably not obtainable for most investors. I doubt many, if any, people can commit to investing monthly for sixty years. However, if you’re skittish, starting a monthly investment program could be your ticket to better returns.

Times are hard, but probably no worse than they have been over the past sixty years. Despite challenging times, the stock market has always marched higher. The key to long-term investment success is to follow your plan, save your money, and invest often. Do not let short-term market moves, or the media, derail your financial plans.

Be not afraid of growing slowly; be afraid only of standing still. ~ Chinese Proverb

June 29, 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.

Investment source: Morningstar Hypothetical, returns are pre-tax, net of fees.

How Can You Help?

It has been a brutal, exhausting year, and people are hurting. COVID-19 and the racial tension has cast a pall on 2020, and people are living with heavy hearts. As a result of the economic, political, and social turmoil, small charities are in a pinch. Local nonprofits are on the ground in your community doing work few people are willing to do, and they need your assistance. What kind of help do they need? Financial support. These vital organizations rely on donations to keep their doors open, and the recent economic trouble is leaving their coffers empty.

Small nonprofits are the original first responders. Local nonprofits know what they are doing because they have spent years cultivating relationships. In a recent Wall Street Journal article about small charities, they wrote, “The coronavirus pandemic has highlighted the importance and the agility of small community-based charities, especially in a crisis. Often these groups don’t get much attention. They are overshadowed and out-funded by big better-known nonprofits like the American Red Cross and the Salvation Army.” They added, “Local charities also often know who most need help.”[1]

If you decide to give, give only your resources, and leave your opinions at home. Nonprofits don’t need your advice on how to improve their organization. Also, don’t tell the organization how to best spend your donation. If you don’t trust them to handle your gift correctly, give it to someone else.

How can you help? Here are a few ideas on how to donate to nonprofits.

  1. Cash. Cash is easy to give away – quick and efficient. The IRS generally allows you to deduct 50 percent of your adjusted gross income (AGI) for tax purposes. If you give more than 50 percent of your AGI, the IRS allows you to carry your donation forward for up to five years.
  2. Appreciated Securities. If you own stock with a considerable capital gain, consider donating it to your favorite charity. When you gift your shares directly to your charity, you will avoid paying a capital gains tax, and you can deduct the fair market value of your gift. The charity will sell the stock to receive the cash, and they, too, will avoid a capital gains tax.  For example, if you purchased 100 shares of Amazon ten years ago for $110, you have an unrealized gain of $2,582 per share based on a closing price of $2,692. By donating your shares, you avoid the capital gains tax of $51,640 on your gain of $258,200. The charity receives $269,200.
  3. Qualified Charitable Distribution. The IRS allows you to satisfy your required minimum distribution by donating your money directly to a charity from your IRA. You can donate up to $100,000 with a qualified charitable distribution (QCD). You can avoid paying taxes (legally) with a QCD distribution, and it will satisfy your required minimum distribution for the year.
  4. Donor-Advised Fund. If you want to support several charities, but you’re not sure how much to give, or when to give it away, then consider a donor-advised fund (DAF). You can contribute cash or securities to a donor-advised fund, receive a charitable deduction, and then payout your donation over several years. Once you fund your DAF, you can take your time to decide how much money to give to your charities. You can also sell your assets inside the DAF and reinvest the proceeds into a diversified portfolio of stocks, bonds, or funds.
  5. Charitable Remainder Trust. If you own appreciated stock, land, or some other asset, you can transfer it to a Charitable Remainder Trust (CRT) to generate income. After you transfer the investment to your trust, you can sell it to avoid the capital gains tax. You can deduct your donation from your taxes and reinvest the proceeds. The CRT allows you to withdraw 5% to 8% of your account balance each year. At your death, the assets in the trust will transfer to your charitable beneficiary. The CRT is a great way to avoid a capital gains tax, diversify your portfolio, and benefit your favorite charity.  Your gift to a charitable remainder trust is irrevocable.
  6. Charitable Lead Trust. A Charitable Lead Trust (CLT) is the opposite of a Charitable Remainder Trust in that your charity of choice will receive the income from the trust, and your beneficiary will inherit the asset on your death. If you want to transfer assets to your children, the CLT is an excellent choice because it removes the asset and growth from your estate. The CLT is a limited-term trust, and it is irrevocable.
  7. Private Annuity. A private annuity works well with colleges, universities, and nonprofits. You can donate stock, land, or any asset to your charity, and they can establish a private annuity for you so that you can receive income for life. Your charity can sell your asset tax-free and use the proceeds to fund their operations. They will create an annuity for you and your family based on the size of your gift. You will receive a monthly, quarterly, or annual check for ten or fifteen years along with a tax deduction.
  8. Private Foundation. You can establish your own nonprofit to benefit other nonprofits to create perpetual gifts. Donations to your foundations are limited to a 30 percent deduction for cash and 20 percent for appreciated securities. A private foundation is expensive to maintain, and you will need to create a board of directors.

If you don’t have financial resources to give, donate your time. Small nonprofits are in dire need of helping hands to assist them with a variety of tasks. A Google search for nonprofits in your neighborhood will yield plenty of fruit and give you several choices of groups to serve

Our church serving model is FUN: F stands for flexibility, U stands for useful, and N stands for not about you. When you’re ready to give or serve, don’t forget to have some fun!

When someone has been given much, much will be required in return; and when someone has been entrusted with much, even more, will be required. ~ Luke 12:48

June 27, 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.wsj.com/articles/how-a-small-charity-pivoted-to-get-food-to-those-hit-by-covid-shutdowns-11593010891?mod=itp_wsj&ru=yahoo, Betsy Morris, June 24, 2020

7 Stock Picks

Are you looking for a few hidden stock gems as the market climbs higher? You’re probably familiar with big cap names like Facebook, Apple, Amazon, and so on, but what about smaller companies? Here are seven stocks that may justify a look.

Altra Industrial Motion (AIMC). Altra Industrial Motion Corp is a United States-based company that designs, manufactures, and markets mechanical power transmission components. The company’s reportable segments are Power Transmission Technologies, which includes Couplings, Clutches and Brakes, Electromagnetic Clutches and Brakes, and Gearings; and Automation and Specialty segment consist of Kollmorgen, Portescap, Thomson, and Jacobs Vehicle Systems. It generates a majority of its revenue from the Power Transmission Technologies segment.

Bloom Energy (BE). Bloom Energy Corp is engaged in providing electric power solutions. The solution of the company includes Bloom Energy server, which is a stationary power generation platform to provide uninterrupted power. It earns revenue from the sale and installation of its energy servers to direct and lease customers, provides services under its operations and maintenance contracts, and by selling electricity to customers under PPA agreements.

Clarus (CLAR). Clarus Corp engages in the design, manufacture, and marketing of outdoor equipment and apparel for climbing, mountaineering, backpacking, skiing, and other outdoor recreation activities. The company’s products are principally sold under the Black Diamond, Sierra, and PIEPS names through specialty and online retailers, distributors, and original equipment manufacturers throughout the U.S. and internationally. The operating segments of the company are Black Diamond, which is the core revenue generator, and Sierra. Black Diamond segment offers products including high-performance activity-based apparel, rock-climbing footwear and equipment; technical backpacks and high-end day packs; trekking poles; headlamps, and lanterns; gloves and mittens; and skincare and other sport-enhancing products.

iRadimed (IRMD). iRadimed Corp is a US-based company that mainly develops, manufactures, markets, and distributes a Magnetic Resonance Imaging (MRI) compatible intravenous (IV) infusion pump system, and MRI compatible patient vital signs monitoring system, and accessories and services relating to them. The company provides a non-magnetic IV infusion pump system which is designed to be safe for use during MRI procedures. The MRI products of the company are sold primarily to hospitals and acute care facilities in the United States and internationally.

Malibu Boats (MBUU). Malibu Boats Inc designs, manufacture, and sells performance sports boats. The boats are used for water sports, such as water-skiing, wakeboarding, and wake surfing. The performance boats are sold under the Malibu and Axis Wake Research brands. The company uses an independent dealer network to sell its products, primarily in the United States and other countries. It operates under the segments of US, Australia, and Cobalt. The U.S. operating segment primarily serves markets in North America, South America, Europe, and Asia while the Australia operating segment principally serves the Australian and New Zealand markets.

PaySign (PAYS). PaySign Inc is a prepaid debit card payment solutions provider as well as an integrated payment processor that has many prepaid debit cards in its portfolio. It designs and develops payment solutions, prepaid card programs, and customized payment services. Through the platform, it provides services, including transaction processing, cardholder enrollment, value loading, cardholder account management, reporting, and customer service. It manages programs for many of the pharmaceutical manufacturers with co-pay assistance products designed to maximize new patient acquisition, retention, and adherence.

The Meet Group (MEET). MEET s a leading provider of interactive live streaming solutions designed to meet the universal need for human connection. The company’s ecosystem of live-streaming apps enables users to interact through one-to-many live streaming broadcasts and text-based conversations. The apps, MeetMe, LOVOO, Skout, Tagged, and Growlr deliver live interactions and meaningful connections to millions of users daily.

All you need for a lifetime of successful investing is a few big winners, and the pluses from those will overwhelm the minuses from the stocks that don’t work out.” – Peter Lynch

June 18, 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.

Disclaimer: Names, data, and descriptions are from Ycharts. PWM does not own any individual positions in the seven securities. The post is not an offer to buy or sell securities.

 

Three Point Five Percent

Less than three and a half percent of Certified Financial Planners™ are African American or Latinos. I was shocked, but not surprised, by the data as I read the 2017 Racial Diversity in Financial Planning report from the Center for Financial Planning.[1] At the time of the report, there were 80,000 CFP® professionals, so less than 3,000 of our members were African American or Latinx. Our Financial Planning Association chapter in Austin likely has similar percentages – unfortunately. On a recent Zoom call with chapter leaders from around the country for the Financial Planning Association, I don’t recall seeing one person of color among the forty or fifty participants.

There are many reasons why the percentages of financial planners for African Americans and Latinos are low. The report cited three reasons: a lack of industry awareness, few mentors, and escalating costs. Most minorities aren’t aware of financial planning as a profession until after they graduate from college and start working in a different industry.[2]

The recent racial events have once again raised the awareness of a lack of diversity in the financial planning sector. In an industry dominated by older white males, of which I am one, something needs to change, and soon.

As a white male over fifty, I’ve never experienced oppression or hatred. I’ve been bullied at times but never oppressed, but my grandfather had. He was born Asuncion Jimenez to Braulio and Victoria – Tata and Nana. His parents were born in Jalostotitlan, Jalisco, Mexico, and they migrated to Los Angeles in the early 1900s – a journey of about 1,600 miles.

My grandfather never discussed racism, so I asked my mom and aunts if they heard him talk about being ostracized. As one story goes, when he registered for high school, he was assigned to the trade school classes because of his name, so a few days later, he changed it to James and re-enrolled in school to take college prep courses. After a few weeks passed, the school called his mom to find out what happened to Asuncion because he hadn’t shown up for school. My grandfather told his mom, and the school, he changed his name so he could register in different classes. However, his battle wasn’t over. Because he was a Mexican, he could not take AP courses, but after hearing an argument in the hall, the principal allowed him to enroll. His high school principal was Ethel Percy Andrus, who founded AARP.  (Sidebar: Ms. Andrus was the first woman high school principal in California and my wife obtained her Ph.D. from The Ethel Percy Andrus Gerontology Center at USC). My grandfather graduated as the Valedictorian from his high school with a scholarship to Stanford, but he couldn’t attend because of the depression. His parents needed his help in raising his nine siblings.

Because he was Mexican, the kids made fun of him by calling him “Mex.” He was hard of hearing, so he thought they were calling him “Mix” after the famous cowboy actor Tom Mix. The kids eventually left him alone because he was unfazed by their insults, according to my aunt.

My grandfather, ever the optimist, never complained about anything. When he went to the movies as a kid, he was forced to sit in the balcony, which he preferred. At church, he had to sit in the back pews due to his race.

He also faced opposition from his future in-laws. My grandmother’s maiden name was Hamilton, and her family migrated from England. Her parents were not in favor of their marriage, so they eloped.

My grandfather was a financial success after starting two businesses. If you ever ripped open a bag of chips, enjoyed a hot tortilla, or eaten in a restaurant, you benefited from his handy work. He was inducted into the Tortilla Hall of Fame, and several of his inventions are still visible in the restaurant industry.

At his death, most of his estate was donated to U.C. Santa Barbara and Occidental College to provide scholarships to first-generation college students. His lasting gift will provide academic preparation for K-12 students in Fillmore, California, where he owned two ranches.[3] My grandfather was a doer, a man of action.

So, now what? As president of the Austin Financial Planning Association, I have been talking almost daily to last year’s president, and the president-elect about making diversity and inclusion a priority. We contacted two Historically Black Colleges and Universities in the Austin area to provide awareness, mentors, and scholarships to students interested in financial services. Our goal is to offer semester internships, monthly in-person meetings, and weekly check-ins for the students. We will also provide them with a one-year student membership to our financial planning chapter so they can attend our meetings. Our goal is to increase industry awareness and financial literacy for those interested. If we’re successful at the college level, I hope we can deliver our model to high school students.

I’m just one person, so I need your help. If we all did our part, we could make a huge difference. In your market, look for opportunities to hire, mentor, educate, or inform individuals about the need to increase awareness and expand diversity and inclusion in all industries. It’s time.

But let justice roll down like waters and righteousness like an ever-flowing stream. ~ Amos 5:24

June 18, 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.cfp.net/knowledge/reports-and-statistics/diversity-and-womens-research/racial-diversity-in-financial-planning-where-we-are-and-where-we-must-go

[2] Ibid

[3] https://www.news.ucsb.edu/2006/012089/food-industry-leader-makes-major-gift-ucsb-help-more-fillmore-students-go-college

I’m the Captain Now

A high-profile internet celebrity is leading a legion of day-traders with his antics. He recently said, “I’m the captain now,” and referred to Warren Buffett as an idiot.[1] Yesterday on CNBC, he said he had generated returns of 400% after “catching on” to trading.[2] Day traders have moved from gambling on sports to trading in bankrupt companies like Hertz and Chesapeake Energy.  Should you follow this Pied Piper?

Day trading is complicated. If it were easy, everybody would be doing it. It’s my understanding that “the captain” is worth more than $115 million, and he is trading with about $3 million, or 2.6% of his net worth, so he can afford to lose 100% of his capital. He can afford to swim in the deep end of the pool without fear. Several years ago, a client was investing in trust deeds by lending money to people who couldn’t borrow from traditional resources like banks or credit unions. He was a multi-millionaire, and he could afford to lose a few thousand dollars if his borrowers defaulted on their loans. A relative of his wanted to follow his investment strategy, but she couldn’t afford to lose any money. Her net worth was in the low thousands, so if she lost a portion of her assets, it would be catastrophic.

Despite the worst economic data since the Great Depression, day traders are partying like it’s 1999. They appear to be making a killing by trading stocks and ETFs like Hertz, American Airlines, Luckin Coffee, and the JETS ETF. Their portal of choice is Robinhood, where traders can execute their orders sans commissions.

Here are a few tips if you want to start day trading.

  • Have a plan. Work on your entry and exit points. Know what you’re going to do before you start trading. Identify a few stocks and get to know their trading patterns – as best you can.
  • Only invest with money you can afford to lose. If you can lose 100% of your trading capital, and still support yourself and your family, then give it a shot. Limit your speculative trading to 3% to 5% of your investment capital.
  • Only trade in your taxable investment account so you can write off your losses. Do not day trade in your retirement accounts.
  • Do not borrow money to trade. Avoid margin. Leverage is your friend when stocks rise; it is the enemy when they fall. Your account can go negative if you employ too much margin – meaning if you borrow money and you lose it all, you may owe your brokerage account money because of your deficit.
  • Take your gains. If you’re successful, ring the register to lock in your profits. Yes, you should let your winners run, but if you’re trading in bankrupt securities and you make 20%, 50%, 100%, or more, take your profits off the table.
  • Cut your losses. If you’re losing money, cut your losses and sell your stocks so you can live to see another day. Try to limit your downside to 7% to 10% per trade.
  • Inform your spouse, loved one, or significant other that you’re about to embark on a trading journey. Let them know you will be speculating with a portion of their treasure. It’s better to inform them from the beginning that you may lose significant amounts of money. In this case, it is better to ask for permission than it is to beg for forgiveness.

In 1999, the NASDAQ soared 85%; by October 2002, it fell 77%, and it would take seventeen years for the index to reclaim its previous high. The severity of the drop and the prolonged drifting in the market wiped out a generation of day traders. As one speculator said, “I never did make any money out of that,” he admits. “I’m just not able to make it work. It’s harder than it looks.”[3]

Captain Phillips is a movie about a small group of Somali pirates who hijack the Maersk Alabama. When the lead pirate makes his way to the bridge, he looks Captain Phillips in the eye and says, “I’m the captain now.” As the movie ends, “the captain” was arrested by the US Navy, and the Seal snipers eliminated his associates. It didn’t work out for the pirates because they bit off more than they could chew, and they didn’t have a plan.

I’m sure there are successful day traders, but they almost certainly do it for a living, it’s their 9 to 5 job. And, if they have figured out day trading, they’re probably living on a private island somewhere in the pacific.

Happy Trading

“In the short run, the market is a voting machine, but in the long run, it is a weighing machine.” ~ Benjamin Graham

June 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 are not suitable for every investor.

 

 

 

[1] https://www.thewealthadvisor.com/article/warren-buffett-idiot-says-investor-who-claims-daytrading-easiest-game-ive-ever-played, The Wealth Advisor, June 10, 2020

[2] https://www.youtube.com/watch?v=Q0t_7R2sv4w, website accessed

[3] https://money.cnn.com/2000/08/09/investing/q_daytradewhere/, August 9, 2000

Bearing Fruit

Growing up in Southern California, fruit trees were everywhere. It seemed like orange, lemon, and avocado trees were on every corner. My backyard had two huge trees – one orange and one lemon that repeatedly produced fruit. My grandfather owned a citrus ranch with thousands of trees.

Fruit trees can live for 30 years or more. Apple and apricot trees can live for 40 years; persimmons can thrive for more than 50 years.[1]  A fruit tree takes about four to six years to grow before it starts to bear fruit.[2] Once trees begin bearing fruit, they can deliver bushels for decades. An Apple tree can produce about six to ten bushels with each harvest, approximately 750 to 1,250 apples.[3] How about them apples?

To diversify your orchard, plant several types of trees like apple, avocado, pear, cherry, pomegranate, orange, or grapefruit, to name a few. Your farm will produce fruit at various times and in contrasting quantities, giving you an abundance of choices at harvest time.

Moving from a small seed to a thriving orchard requires time, patience, and effort. Planting an apple tree today will not produce results tomorrow. It will need several years before the roots take hold and grow. If you continually rip the tree out of the ground to see how the roots are growing, it will never grow. Once your trees start producing fruit, you must tend to their upkeep by watering and pruning them regularly. If a tree dies, remove it and plant a new one, and manage your healthy trees so that they can grow and flourish.

Your trees will grow at different intervals, some fast, others slow. At times it will appear as if your trees aren’t growing, but they are.

Dividend-paying stocks are like fruit trees; they can produce results for years in the form of dividends.  Standard & Poor’s has a list of dividend aristocrats – companies that have paid dividends for more than twenty-five years. Currently, there are 64 companies on the list.[4] Here are a few names from this outstanding list: Coca-Cola, Pepsi, Procter & Gamble, Walmart, Walgreens, 3M, Abbot Laboratories, Medtronic, McDonald’s, Chevron, and At&T.[5]

The yield on the S&P 500 Index is 1.8%,  and more than 1,000 companies yield 2% or higher. Beware of companies with extremely high dividend yields. If a company has a dividend yield of 10%, 15%, or more, it can be a trap, and they probably have a weak balance sheet. More important than a high yield, is a company that regularly raises its dividend. Intel’s dividend in 2000 was .003 cents per share (per quarter). It is now .33 cents per share, an increase of 10,900%.

At times, a stock experiences stunted growth. Microsoft traded flat from January 2000 to July 2016, the price of Microsoft did not budge for sixteen years. It dropped to a low of $16.25 in March 2009 after peaking at $55.75 nine years prior. In 2003 they initiated a dividend of 8 cents per share, and today it is 51 cents, an increase of 537%. In addition to their regular payout, Microsoft paid a special dividend of $3.00 per share in 2004. A patient shareholder enjoyed a steady stream of rising income while waiting for Microsoft to recover. Microsoft is trading for $195 per share today.[6]

In a low-interest-rate world, a portfolio of dividend-paying companies is attractive. The yield on the U.S. Thirty-Year Treasury has been falling for decades. In 1980 the bond paid more than 15%. Today it’s yielding 1.5%, a drop of 90%.[7] If you are relying on government bonds for retirement income, you’re in trouble. McDonald’s dividend in 1980, as a comparison, was .004 cents per share (per quarter) or .4%. It’s now $1.25 per share, and it’s yielding 2.51%. McDonald’s dividend increased by 31,150% since 1980!

Get started today by investing in several dividend-paying companies that will bear fruit for generations. If you’re not sure which dividend stock to buy, you can purchase an exchange-traded fund like ProShares S&P 500 Dividend Aristocrats (NOBL) or Vanguard’s Dividend Appreciation ETF (VIG). These two ETFs will own high-quality, dividend-paying companies.

Happy planting!

He replied, “Because you have so little faith. Truly I tell you, if you have faith as small as a mustard seed, you can say to this mountain, ‘Move from here to there,’ and it will move. Nothing will be impossible for you.” ~ Matthew 17:20

June 10, 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 are not suitable for every investor.

 

 

 

 

[1] https://www.davewilson.com/question/how-long-do-fruit-trees-live, Website accessed June 8, 2020

[2] https://homeguides.sfgate.com/long-apple-trees-mature-produce-fruit-56479.html#:~:text=Standard%20Rootstock,years%20after%20you%20plant%20it. Ruth de Jauregui, November 28, 2018

[3] https://extension2.missouri.edu/g6021#:~:text=A%20semidwarf%20tree%20will%20produce,fruit%20in%20a%20home%20refrigerator., Michele Warmund, website accessed June 10, 2020

[4] https://www.investopedia.com/terms/d/dividend-aristocrat.asp, James Chen, May 17, 2020.

[5] https://www.suredividend.com/dividend-aristocrats-list/?gclid=Cj0KCQjwiYL3BRDVARIsAF9E4Ge-N32o40_3DQ2Q28gaRUNsKD57lI78dfYLoa0EQwYMyL-z4PA1asUaAhD8EALw_wcB, website accessed June 10, 2020

[6] YCharts

[7] https://www.macrotrends.net/2521/30-year-treasury-bond-rate-yield-chart, Website accessed June 10, 2020

What I Miss?

The NASDAQ, Dow Jones, and S&P 500 are posting positive returns over the past year, and the NASDAQ is up more than 9% for the year. These leading indices were down more than 30% less than three months ago as investors reacted to the COVID-19 virus. Since the virus outbreak, our country has experienced depression-era economic data and witnessed civil unrest. Investors have been scratching their heads to try and reconcile the performance in the stock market with the reality on the streets.

The stock market is up more than 40% from the March 23 low, and it has turned in the best 50-day performance in history. It’s hard to fathom a stock market trading at all-time highs while our economy and cities struggle. We have experienced the worst pandemic in more than 100 years, the bleakest economy since the depression, and, according to some, racial tensions not seen since 1968. However, the market is forward-looking and data-driven, and it’s anticipating our country will realize better days ahead.

In March, investors, and a few financial professionals, panicked. One prominent investment firm in Texas sold their client’s entire stock holdings in early March to ride out the storm. I believe his clients are still in cash.  A renowned hedge fund manager said, “Hell is coming.”[1] Another stated, “I would say it’s one of the most overvalued, maybe the second-most overvalued I’ve seen.”[2] Sometimes the safest investment strategy is to do nothing. And trying to time the market is a fool’s errand

With hindsight, market timing appears easy, but it’s not. It’s impossible. Boeing is now trading above $200, so buying it in March at $95 seemed like a no brainer. But, at the time, airline capacity had fallen by 95%, and Boeing was battling the government to obtain certification for its 737 Max. There are twenty-two analysts that follow Boeing, and their average price target is $157, or 26% below its current price.[3] Despite Boeing’s recent performance, it is still down 47% from its high.

After more than thirty years in the investment business, I’m still looking for a better strategy than buy and hold. Owning a globally diversified portfolio of low-cost funds is still hard to beat. During the first few weeks of the market rout, bonds performed well. They provided safety and support.  As the market recovered, the baton was passed to different asset classes like growth stocks, value stocks, international companies, emerging markets, real estate, and small-cap stocks. Each sector performed well at one time or another. Each category contributed to the performance of the portfolio.

Our investment models were active during the market correction. They are designed to keep our client’s asset allocation and risk tolerance in check. Initially, we were selling bonds to buy stocks, and then as the market rebounded significantly, we sold stocks to buy bonds. At one point, our models were allocating money to real estate funds, despite being down more than 40%. I was hyperventilating as our software allocated funds to this asset class. The real-estate allocation has been a stellar performing asset class over the past couple of months, outperforming most of our other asset classes. Our models are now in positive territory for the past year.

A globally diversified portfolio of mutual funds is not sexy. While some funds are rising, others are falling. It seems I’m forever apologizing for an underperforming asset class. Investors, apparently, only want to own funds that grow in value, but the funds are always changing leadership positions, which is the root of diversification.

What is the best way to find a portfolio that is the right fit for you? A financial plan is a powerful tool to help you define and refine your goals. Your advisor will use the data to align your investments with your objectives. If your finances are in sync with your aspirations, you’re more likely to stay invested through thick and thin. As the markets fell, we were regularly stress-testing our client’s financial plans, and the drop impacted not one. Despite the rout, our client’s financial plans remained intact. If your strategy is working and you’re on track to reach your goals, do not make any changes, and dare to stay invested.

Most experts do not know what’s going to happen tomorrow, and the stock market has been tormenting professionals for centuries. Do not let the opinions of others derail your dreams. Instead, focus on your goals, think long-term, pay attention to your plan, and hold onto your investments.

“Sometimes, the most important thing to do is to do nothing.” ~  Debasish Mridha

June 5, 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 are not suitable for every investor.

 

 

 

 

[1] https://www.theguardian.com/business/2020/mar/27/hell-is-coming-how-bill-ackmans-tv-interview-tanked-the-markets-and-made-him-26bn, Rubert Neate, March 27, 2020.

[2] https://www.marketwatch.com/story/this-is-second-most-overvalued-stock-market-that-billionaire-investor-david-tepper-has-ever-seen-2020-05-13, William Watts, May 14, 2020.

[3] https://money.cnn.com/quote/forecast/forecast.html?symb=ba#:~:text=Boeing%20Co%20(NYSE%3ABA)&text=The%2022%20analysts%20offering%2012,the%20last%20price%20of%20184.30., website accessed June 5, 2020