Month: December 2020

Stop. Don’t Move.

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A friend of mine recently retired after thirty-seven years of working for the same employer. I saw him last week, and he was excited to explore his next chapter; though undecided as to what he will do, he has plenty of time to figure it out.

January is a popular month to change jobs. My inbox is filled with job hunting sites wanting my resume because employers are hunting for new candidates. After talking with my friend and receiving unsolicited emails about changing jobs, I wondered if it makes sense to make a move.

My uncle has worked for the same employer since the early 1960s. My sister has taught in the same school district for her entire career. Mark Few, head coach of the Gonzaga men’s basketball team, has been coaching at the school since 1989, becoming the head coach in 1999. As a note, I wish Mr. Few would move to a new school on the east coast because my alma mater, the University of San Diego, is in the same conference as Gonzaga.

In 2006, I left Morgan Stanley to pursue a job with A.G. Edwards. I went to a satellite office, and it was rat-infested and dimly lit. My office was a storage office, and I had to clean it out myself – not the best way to welcome a new employee, and a few of the brokers were less than cordial when I arrived. It was a horrible career move, and in hindsight, I should have stayed at Morgan Stanley.  

When I receive a LinkedIn request, I scan the individuals’ employment history, and I’m surprised at how often people change jobs. It’s not uncommon to see people change employers every 12 to 18 months. I often wonder why. Is the grass greener somewhere else? Better pay? Office politics? Who knows. It’s tempting to change employers, but the new employer is likely similar to the old one after the honeymoon is over. And, a rolling stone gathers no moss.

As we approach the new year, here are a few reasons to stay put.

  1. Your 401(k) plan can enjoy years of contributions, matches, and compounding. If you contribute the maximum amount to your 401(k) for forty years, you could end up with more than $5 million in assets when you’re ready to retire. If you continuously change jobs, your plan will lose the benefit of compounding.
  2. If your employer offers a pension plan, you can accrue significant benefits over time.  A pension plan, coupled with Social Security, will give your retirement a boost. If you leave a company with a pension, you must replace that income stream with personal savings, a difficult task.
  3. If you work for a publicly-traded company, you may be able to participate in an employee stock purchase plan (ESPP). These plans typically allow you to purchase stock at a 15% discount to the market price, an excellent way to accumulate wealth. If you join a new employer, you might have to wait six months to a year to join their program.
  4. If you work for a publicly-traded company, and you’re highly compensated, you may receive restricted stock or options as part of your compensation. In addition, you might have access to a non-qualified deferred compensation program. These are excellent ways to accumulate wealth. If you change jobs, you can lose these benefits.
  5. When you stay with one employer, your connections and loyalties run deep. If you regularly change jobs, you will need to forge new relationships, and quality relationships take time to build.

Of course, there are reasons to change jobs, but if you’re happy in your current position and it’s providing for you and your family, stay put – your older self will thank you for your patience and wisdom.

It does not matter how slowly you go as long as you do not stop. ~ Confucius

December 28, 2020

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management 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.

Shiny Objects

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After years of investing prudently, following his plan, and spending wisely, a young ruler was ready to retire and enjoy the fruits of his labor. He met with his trusted advisors to see if it was feasible. They affirmed his decision, and congratulated the young ruler on his accomplishment, and wished him well.

The young ruler was excited to retire and pursue a life of leisure and travel. His investments would afford him a comfortable lifestyle if he were smart. So, off he went.

The young ruler noticed the town residents looking at their phones often. They were checking their high-flying investments. Was it time for him to explore these risky assets? Could he invest a portion of his nest egg into a couple of new ideas? It couldn’t hurt, he thought, despite not knowing anything about their business models. He noticed the companies weren’t profitable, but it didn’t matter because he was sure they’d make money eventually. He took the plunge and bought some shares.

His new retirement strategy was working, and the investments appreciated significantly, better than his traditional investments. Now he was questioning his overall investment philosophy, sure his long-term investments did well, but maybe it was time for a change. Should he transfer more assets into his highflyers?

He was not alone in his thinking. The townspeople shoveled more money into these speculative assets. Enjoying their newfound riches, they bought jewelry, watches, and exotic sports cars, flaunting their wealth to others. The young ruler followed suit and spent lavishly on things he did not need. The entire town was in a buying frenzy; each assured their investments would rise forever, so they leveraged their accounts to buy gadgets with future profits that were sure to come.

One day the young ruler noticed his investments were down, a surprise after months of rising profits; convinced the dip was temporary, he bought more. And more. He continued buying as they dropped further. He was not concerned that his account value was dwindling because these high-flying stocks would certainly rebound soon, but they did not. The young ruler traded his account to oblivion, and he lost everything. He no longer had enough assets to enjoy a comfortable retirement and was forced to sell his mansion and return to work.

Moral of the story: Don’t abandon your plan if it’s working.


Joseph Heller, an important and funny writer now dead, and I were at a party given by a billionaire on Shelter Island. I said, “Joe, how does it make you feel to know that our host only yesterday may have made more money than your novel ‘Catch-22’ has earned in its entire history?” And Joe said, “I’ve got something he can never have.” And I said, “What on earth could that be, Joe?”
And Joe said, “The knowledge that I’ve got enough.” ~ Kurt Vonnegut

December 24, 2020

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management 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.

How to Generate Income with Options

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In a low-income, zero-interest rate world incorporating an option writing strategy may give your account a boost.  Writing options on stocks you own or want to own is an excellent way to increase your income without altering your asset allocation strategy or investment plan. If you own individual stocks, this could be a strategy for you. 

There are several ways to generate income from trading options, but I will only focus on two popular strategies – covered call and put writing.

Covered Call Writing

A covered call or buy-write allows you to generate income on stocks you own if you’re willing to sell your shares at a specified price. For example, let’s say you own 1,000 shares of Apple (AAPL), currently trading for $123.25 per share, and you would like to sell them at $130. As a result, you sell the January $130 call for $2.00. Because you own 1,000 shares, you sell ten contracts (one contract = one hundred shares of stock). The $2.00 is the option premium you’ll receive, so ten contracts will generate $2,000 income (10 × 2.00 × 100) before fees. The $2,000 will credit your account on the day of your trade.

If Apple stays below $130 on the third Friday in January (expiration), you’ll keep your shares. You can then sell another call option on Apple, expiring in February, March, or April, and repeat the process. If it trades above $130 at expiration, you’re obligated to sell your shares at $130, regardless of how high it trades above the strike price. If Apple closes at $200 on expiration, you’re still obligated to sell the stock at $130 and forgo the $70 profit.

As a warning, never sell a call option without owning the underlying stock position because your risk is unlimited.

Put Writing

Put writing involves selling a put option on a stock you want to own, comparable to placing a limit order on a stock you wish to purchase at a lower price – except you get paid to wait.  For example, if you want to buy Apple at $110, currently selling for $123.25, you can enter a limit order and wait for it to trade to your price, or you can sell a put and get paid.

When you sell a put, you’re obligated to purchase the stock if it trades at or below the strike price at expiration. If you sell an Apple January $110 put, you’ll receive a credit of $1.13 per contract. If you sell ten contracts, the credit will be $1,130 (10 × $1.13 × 100), before fees. If Apple trades at or below $110 per share, you’re obligated to purchase 1,000 shares at $110 regardless of how far it trades below the strike price. If Apple stays above $110, your option will expire worthless, and you’ll profit on your trade, and then you can sell another put option expiring in February, March, or April.

A put-writing strategy is best suited for investors with a high tolerance for risk. It’s also recommended you only sell puts based on the amount of cash in your account. This strategy is known as a cash-covered put. For example, if your cash balance is $25,000, you can sell ten put contracts on a $25 stock (10 contracts = 1,000 shares; 1,000 shares x $25 = $25,000).

I trade options to generate a few extra dollars each month; it’s my side hustle. I mostly sell puts on stocks that fall sharply, which increases volatility and boosts the amount of premium I receive. When stocks fall, fear rises. An ideal trade for me is to sell a put option on a stock that is dropping 20% or more with a delta of less than 20 (If an option has a delta of 20, it means there’s a 20% chance the stock price will touch my strike price). My time frame for selling a put on a stock that’s getting crushed is three to four weeks because an option is a wasting asset, so if the stock recovers, the option will expire worthless, which is my goal.

A stock rarely drops 20% or more two or three days in a row, in my experience. If a company misses its earnings or revenue targets, investors sell the stock and drive it down to unrealistic levels. When this happens, I try to sell my put option when the market opens and fear is spiking. When investors realize the company is not going out of business, the selling will stop, and my option trade becomes profitable.

Of course, not every option trade is profitable, so I’m quick to cut my losses if I’m wrong. I want to live to see another day.

Options involve risk, but they’re an excellent way to generate a few extra nickels.

Happy Trading!

Terms[1]

Contract: One option contract = 100 shares of stock.

Expiration: The day the option contract expires.   Options expire on the third Friday of every month.  Several stocks also have options expiring weekly.

Call Option – Buyer: An option giving the buyer the right to purchase a stock at a specified price.

Put Option – Buyer: An option giving the buyer the right to sell a stock at a specified price.

Call Option – Seller: An obligation to sell stock at a specified price.

Put Option – Seller: An obligation to buy a stock at a specified price.

Premium: The amount you must pay to purchase an option or the amount you will receive when you sell an option.

Strike Price:  The exercise price where you can buy a call or sell a put.

At-the-money: The stock price is equal to the strike price of the call or the put.

Out-of-the-money: A call option where the strike price is above the stock price. A put option where the strike price is below the stock price.

In-the-money:  A call option where the strike price of the call is below the stock price. A put option where the strike price is above the stock price.

Delta: The amount by which an option premium moves divided by the dollar-for-dollar movement in the underlying asset.

Volatility:  The measure of the fluctuation in the price movement in a security over a period of time.

December 14, 2020

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management 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] The Bible of Option Strategies – The Definitive Guide for Practical trading Strategies by Guy Cohen

Ten Ideas for 2021

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This year felt like a decade. We are twenty days from the start of a new year, and it can’t get here fast enough. I’m expecting next year to be much better because it can’t get much worse – right? It’s been a wild ride for investors this year, but if you stayed the course, you probably made money. The NASDAQ, S&P 500, and Dow Jones are solidly in the green, despite falling more than 30% in March and April. The NASDAQ is leading the major US indices this year, rising 38%.

It took courage to remain invested, and even more to buy stocks at the low. As we approach the new year, what should you do now? Here are ten ideas.

  1. Review your financial plan and investment goals. Are you still on track? Do you need to make any adjustments? Last January, we helped clients review their financial plans. Several reached their goals, so we reduced the risk in their portfolios and adjusted their goals. We also encouraged our clients to remain invested during the March decline because it did not impact their long-term goals. Our financial planning process helped clients navigate the uncertainties of 2020.
  2. Review your asset allocation. Are your assets appropriately allocated? January is an ideal time to rebalance your accounts to ensure your risk level aligns with your long-term goals.
  3. Lock in profits. If you own a winning stock or two, consider selling some shares to defer your tax payment to 2022.
  4. Maximize your company retirement contributions. You’re allowed to contribute $19,500 to your 401(k) or 403(b) plan, and if you’re fifty or older, you can add $6,500 for a total of $26,000. Note: If you turn fifty in 2021, start your catch-up additions on January 1. You do not need to wait until you’re 50 to start contributing. For example, if your birthday is on December 31, 2021, you can increase your contributions on January 1, 2021.
  5. Maximize your SEP-IRA contributions. Do you own your own business? If so, you can contribute $57,000 or 25% of your income (whichever is less) to a SEP-IRA
  6. Contribute to a Roth 401(k) or 403(b). Regardless of your income, you can contribute to a Roth 401(k), and your Roth contributions and earnings will grow tax-free.
  7. Fund your IRA’s. The maximum contribution is $6,000, or $7,000 if you’re fifty or older.
  8. Open a health savings account (HSA) if you belong to a high-deductible healthcare plan. Families can contribute $7,200, individuals $3,600. If you’re 55 or older, you can deposit an extra $1,000.
  9. Open a donor-advised fund (DAF). A DAF is an excellent way to fund charitable donations. You can make significant contributions today and distribute the funds at a later date. If you want to donate to charities, but you’re not sure who should benefit from your generosity, this account is an excellent choice. In addition, you’ll receive a nice tax deduction.
  10. Buy stocks. In a zero-interest rate world, it’s near-impossible to create wealth if you only invest in cash or bonds; you need to own a basket of quality stocks. The Dow Jones has risen 256% this century, or 7.15% per year. If you invested $10,000 on January 1, 2000, it would be worth $35,670 today. A similar investment in bonds is worth $14,470.

Creating generational wealth requires optimism, wisdom, patience, courage, and luck. To increase your odds of success, consider completing a financial plan. According to one study, individuals who finish one have three times more assets than those who do little or no planning.[1] It will guide you through rising markets, falling markets, good economies, bad economies, greed, fear, doubt, and anxiety; it’s a financial GPS.

Hope springs eternal, and I’m optimistic 2021 will be a year of joy and celebration. After all, the Roaring Twenties started not long after the Spanish Flu pandemic ended.

“Optimism is the faith that leads to achievement. Nothing can be done without hope and confidence” ~ Helen Keller

December 11, 2020

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management 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.

Data source: YCharts

[1] http://www.nber.org/papers/w17078

A Few Books I Read

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During the pandemic, I spent considerable time reading books. I enjoyed the list below and learned much from the authors; though not ranked in any particular order, they could be.

Bubble in the Sun: The Florida Boom of the 1920s and How It Brought on the Great Depression – Christopher Knowlton

Killers of the Flower Moon: The Osage Murders and the Birth of the FBI – David Grann

Loonshots: How to Nurture the Crazy Ideas That Win Wars, Cure Diseases, and Transform Industries – Safi Bahcall

The Innocent Man – John Grisham

Something Needs to Change – David Platt

Shane – Jack Schaefer

The River of Doubt – Candice Millard

The Day the World Came to Town – Jim DeFede

The Biggest Bluff: How I learned to Pay Attention, Master Myself, and Win – Maria Konnikova

The Confidence Game – Maria Konnikova

The Fifth Risk: Undoing Democracy – Michael Lewis

Talking to Strangers = Malcolm Gladwell

The Deficit Myth: Modern Monetary Theory and the Birth of the People’s Economy – Stephanie Kelton

The Trillion Dollar Coach – Eric Schmidt, Jonathan Rosenburg

The Practice: Shipping Creative Work – Seth Godin

What it Takes – Stephen A. Schwarzman

Arguing with Zombies: Economics, Politics, and the Fight for a Better Future – Paul Krugman

The Five Most Important Questions You Will Ask About Your Organization – Peter F. Drucker

Trailblazer – Marc Benioff, Monica Langley

Unexpected Connections – Matt Peacock

The Little Book of Investing Like the Pros: Five Steps for Picking Stocks – Joshua Pearl

The Little Book of Valuation: How to Value a Company, Pick a Stock and Profit – Aswath Damodaran

Creativity – John Cleese

Stories that Stick – Kindra Hall

Confidence: How To Overcome Your Limiting Beliefs and Achieve Your Goals – Martin Meadows

How I Invest My Money: Finance experts reveal how they save, spend, and invest – Joshua Brown

The Psychology of Money: Timeless lessons on wealth, greed, and happiness – Morgan Housel

The Geometry of Wealth: How to shape a life of money and meaning – Brian Portnoy

No Rules Rules: Netflix and the Culture of Reinvention – Reed Hastings

Advice That Sticks: How to give financial advice that people will follow – Dr. Moira Somers

I enjoy reading, but my goal next year is to spend more time with friends and family while watching movies, eating in restaurants, attending sporting events, and flying on crowded planes.

Happy Reading!

“The more that you read, the more things you will know. The more that you learn, the more places you’ll go.” ~ Dr. Seuss

December 10, 2020

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management 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.

I Want It All!

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A few individual stocks are soaring this year, like Zoom, Peleton, DraftKings, Pinterest, and Bill.com – each one up more than 225%, with Zoom leading the way, rising almost 500%, far outpacing the Dow’s gain of 7.75%. It seems logical to sell boring index funds to buy high flyers; after all, who wouldn’t want to earn 500%?

However, we have seen this movie before. During the last speculative bubble that popped in April 2000, companies like Microsoft, Cisco Systems, Qualcomm, Intel, and Applied Materials were all the rage. If you invested $10,000 into each stock on January 1, 1999, and sold them on April 1, 2000, you made 592.5%!  If you only invested in Qualcomm, you turned $10,000 into $231,510 in sixteen months, a gain of 2,220%. Investors who bought these companies were making money hand over chips.

If you chased these stocks and purchased them on April 1, 2000, and held them through December 31, 2015, you lost 40%. A $50,000 investment ($10,000 for each security) dropped to $29,903.

During frenzied markets, low-cost index funds get a bad rap. Still, during the fifteen-year stretch, where the high-flying technology stocks dropped 40%, a globally diversified portfolio of low-cost funds increased 198%. A basket of five Vanguard mutual funds – Vanguard 500, International Growth, Emerging Markets, Small-Cap Index, and Real Estate Index, performed well.  If you invested $10,000 into each fund, the portfolio grew to $149,304 from April 1, 2000, to December 31, 2015.

The lure of high-flying stocks is difficult to ignore, but you can’t buy them all. A 1% weighting means you’d own 100 companies, and at that point, you may as well purchase an index fund. If you increase the allocation to 5%, you’d own twenty companies. YCharts tracks 23,536 individual stocks. Is it possible to regularly pick the twenty best? Doubtful.

It’s impossible to buy every individual company, but you can purchase a global portfolio that owns more than 7,000 stocks in forty-seven countries through Vanguards’ Total World Stock Fund (VTWAX)[1]. Year-to-date, it’s up 13.88%, and it has generated an average annual return of 10.10%, 11.64%, and 9.41% over the past 3, 5, and 10 years, respectively.

A globally diversified portfolio of low-cost index funds is one of the best ways to create generational wealth, but I understand investors occasionally want to speculate on stocks. If you’re investing in high-flying stocks, limit your initial investment to 3% to 5% of your portfolio. If it climbs, you can continue to hold it, but it will not lead you to financial ruin if it falls.

Happy Trading!

“October. This is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August, and February” ~ Mark Twain

December 8, 2020

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management 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.

Data source: YCharts

[1] https://investor.vanguard.com/mutual-funds/profile/portfolio/vtwsx, website accessed 12/8/20

21 Predictions for 2021

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It’s the season of Wall Street predictions, so I’m throwing my hat into the ring to offer 21 projections (guesses) for 2021. If I predict all 21 correctly, I’m sure to garner immense fame and fortune. I may even be herald as the next great futurist with book deals, movie offers, and television appearances to follow. If I’m wrong and all my ideas fail, there’s no downside because most forecasters are wrong about the future. If you need proof, look no further than 2020. How many experts, gurus, wizards, pundits, and pontificators correctly predicted a global pandemic, a stock market crash, working from home, or the rise of Peleton? I will tell you – none.

Here are my 21 predictions for 2021.

  1. The 100-year average annual return for the S&P 500 has been 10%, so the stock market will earn 10% next year.
  2. The current inflation rate is 1.18%, well below the 106-year average of 3.22%. Inflation will stay below 2% for the first half of the year before rising above 2.5% during the second half as we emerge from our COVID quarantines.
  3. Pfizer, Moderna, and other pharmaceutical companies will distribute the COVID vaccine globally, and global economic activity will escalate in the second half of 2021.
  4. The yield on the 10-year US Treasury note is .95%, far below the 58-year average of 6.02%. The rate will rise above 3% as inflation returns.
  5. Small-cap stocks will outperform large-cap stocks. For the past six months, the small-cap index has outperformed the NASDAQ and S&P 500; this trend will continue.
  6. International stocks will outperform US stocks. Since June, they have bettered the NASDAQ and S&P 500.
  7. Long-term bonds (20+ years) will deliver negative returns next year as inflation returns and interest rates rise. The iShares 20+ Year Treasury Bond ETF (TLT) is down 2.5% since June. If interest rates 1%, the price of a 20-year bond will fall approximately 15%.
  8. Working from home stocks (DOCU, PTON, ZM, etc.) will fall in price as we return to our offices and leave our homes, and investors focus on valuation metrics like earnings and cash flow.
  9. The US Gross Domestic Product growth rate will rise above 5%, well above the 73-year average of 3.16%.
  10. Prices for vacation homes will continue to surge as families escape big cities like Los Angeles, San Francisco, Chicago, and New York. Ranches, beach homes, and mountain cabins will remain popular investments. My home town of Austin, Texas, will be a significant beneficiary of this trend.
  11. Companies will allow their employees to work from home or anywhere, further depressing corporate real estate valuations like office properties.
  12. Bitcoin will replace the US Dollar, the Euro, the British Pound, and the Yen as the global currency. Not really, but it will remain a volatile alternative asset class similar to gold, oil, or timber.  PayPal and Square will expand their Bitcoin offerings, so Bitcoin’s price should continue to rise.
  13. The unemployment rate will fall below 5%. It currently stands at 6.7%, and the 72-year average has been 5.77%.
  14. US public debt will climb above $30 trillion as Washington pumps more stimulus money into the economy. The current balance is $26.48 trillion. The increase in debt will have little impact on interest rates or the stock market.
  15. Merger and acquisitions will be robust next year as corporations look to expand their offerings. Low-interest rates and large cash balances will fuel the M&A boom. Apple will lead the way as they sit on $193 billion in cash and short-term investments.[1] If Apple wanted to, they could even buy a few countries like Hungary, Morocco, or Costa Rica.
  16. A new Roaring Twenties will start during the second half of 2021.
  17. Formal dress wear, high-end clothing, and custom outfits will make a comeback as people will tire of wearing yoga pants, sweats, and slippers. No one will be happier than my dad when this happens.
  18. Charitable donations and volunteerism will rise as people reach out to those economically stranded due to the pandemic.
  19. National park attendance will mushroom next year as people explore our great nation.
  20. The Baylor Bears men’s basketball team will win their first-ever NCAA championship under the leadership of Scott Drew – the Wizard of Waco.
  21. 2021 will be a good year because my mom says good things happen in odd years, and I never bet against her or her wisdom. My prayer is that 2021 will be less odd than 2020.

I was a peripheral visionary. I could see the future, but only way off to the side. ~ Steven Wright.

December 4, 2020

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management 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.

The are predications and guesses only, and actual events may vary.

Data provided by YCharts as of 12/4/2020,

[1] https://www.cnbc.com/2020/07/30/apple-q3-cash-hoard-heres-how-much-apple-has-on-hand.html, Jessica bursztynsky, July 30, 2020

The Miser

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The Miser is a classic Aesop Fable. It’s a story about a man who buries his gold under a rock. He visits his gold stash so often that a thief follows him and steals it. The miser is distraught when he realizes it’s gone, though he had no plans to use the gold to buy things. A lot of us are probably like the miser in the story. We check our investments daily to make sure they are safe and sound, but we don’t intend on using them to purchase anything. We’re happy when our balances rise and sad when they fall.

Money is a useful asset, intended to buy goods and services. It’s the heartbeat of commerce. But, some investors are reluctant to spend for fear of running out of money.  Since March, investors have poured $3.6 billion into savings accounts and money market funds. While it’s prudent to save money for the future, hoarding it today does not benefit anyone.

I’ve completed more than 100 financial plans over the past five years, and one of the most common fears is running out of money in retirement, a valid concern. However, this fear should not stop you from living your life today. If you don’t plan on spending your money to live, your no worse than the miser in the story. And, you can’t take it with you once you’re dead.

Here are a few ideas to help you with your spending.

  • Complete a financial plan. Your plan will guide your spending and give you projections for your assets. Once you see your spending plan on paper, you may be more comfortable in tapping your nest egg, and if you’re not pleased with the results, it can be adjusted to meet your needs.
  • Spend on experiences. If you’re reluctant to buy things, spend your money on experiences. Is a post-COVID trip in order? How about purchasing a vacation home so you and your family can create lasting memories? According to Momentum Worldwide, 76% of consumers prefer to spend money on experiences than material items.[1] My family and I enjoy visiting National Parks in the summer and skiing in the winter; it has been money well spent. My grandparents owned a vacation home in Laguna Beach, and I have fond memories of visiting it often.
  • Donate to your favorite charity. Despite a roaring stock market and robust real estate returns, people are hurting. Recently in Dallas, more than 6,000 cars and 25,000 people waited in line to receive food from local food banks.[2] Donating to your local food bank or other charities will help those in need, and it will help you as well. The IRS allows you to send up to $100,000 from your IRA to a certified charity through a Qualified Charitable Donation (QCD). If you own stock in a taxable account that has appreciated, consider donating it directly to a charity. You can write off the fair market value, and your charity can sell it free of taxation and use the proceeds to fund their operation.
  • Help the next generation. You can give away $15,000 per person per year, and your lifetime gift tax exclusion is $11.7 million (2021). If you give money away while living, it will allow you to witness the beauty of helping others while reducing your taxable estate. The government is giving you a gift to give money away, so take advantage of their generosity.
  • Donate now, give later. A donor-advised fund allows you to make a considerable contribution today and defer distributions to a later date. Your irrevocable gift is deductible in the year you make it even if you do not distribute any funds. The money can be invested for growth or safety, potentially allowing you to give more money away as your investments grow. For example, if you contribute $100,000 to a DAF today, you’ll be able to write it off your taxes regardless if you distribute any funds or not. Here is a link to Schwab’s Donor-Advised Fund: https://www.schwabcharitable.org/donor-advised-funds
  • Spend your gains. A balanced portfolio consisting of 60% stocks and 40% bonds is up 10.75% for the year.[3] If you invested $1 million on January 1, your gain would be $107,500, so you could spend this amount without invading your principal.
  • Spend your income. A portfolio of dividend-paying stocks or income-producing bonds is an excellent way to spend money without touching the principal portion of your account. If your account generates 3% in income, you can withdrawal $30,000 from a $1 million portfolio.

It’s a delicate balance between spending money today or saving it for the future, but it’s possible, especially with proper planning.  Also, tomorrow might not come, so spending money while you’re happy and healthy is recommended.

Happy Spending!

Here is a link to Aesop’s Miser Fable: http://www.read.gov/aesop/112.html

Spending money is much more difficult than making money. ~ Jack Ma

December 3, 2020

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management 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.prnewswire.com/news-releases/76-of-consumers-prefer-to-spend-on-experiences-than-on-material-items-new-study-finds-300937663.html, website accessed December 2, 2020

[2] https://www.cbsnews.com/news/thousands-line-up-in-dallas-texas-to-receive-food-ahead-of-thanksgiving-food-bank-donation/, by Danielle Garrand, November 16,2020.

[3] YCharts – 1/1/2020 to 12/03/2020, PWM ETF Moderate portfolio