A Melt Up

Gamestop, AMC, and a few other highly shorted stocks are melting up, soaring to giddy heights. The ten most shorted stocks are up 159% this year. By comparison, it took the Dow Jones ten years to rise 155%! At some point, these companies will correct and fall back to earth like Enron, Worldcom, and Iomega did several years ago.  

If you missed the launch or takeoff, be careful investing in these names because most of the returns have already materialized. An airplane requires major thrust to take off and reach its cruising altitude, and when it does, the pilot throttles back the engines and settles in for the long haul, and when it starts to run out of gas, it will land. Stocks, like airplanes, can’t maintain vertical lift for long.

During speculative phases, investors will sell good companies to chase returns. The ten most profitable companies are up a mere 2.25% this year. The NASDAQ is up 1.8%, the S&P 500 is down .97%, and the Dow Jones has fallen 1.82%. High-quality names are a source of funds to pay for margin calls or cover losses. In 1999, investors sold blue-chip names to speculate on dot.com stocks. It worked for a while, and then the market crashed. Do you remember pets.com? As quality names trade down, use it as an opportunity to add great names to your account.

Eventually, markets correct, and speculators will get torched. Shooting stars fade. Cycles of fear and greed have been around for thousands of years, and it is not different this time.

If you own a few of the dangerous names, take your gains and lock in your profits. If you want to join the party, limit your purchase to 1% to 2% of your portfolio. Do not use margin. Do not buy options.

Be careful and tread lightly.

“You know somethin’, Robin. I was just Wonderin’, are we good guys or bad guys?” ~ Little John

January 29, 2021

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 Sources: YCharts

Enough

Gamestop stock has soared more than 1,750% over the past few weeks, led by an army of Robinhood traders utilizing sites like Reddit and WallStreetBets. These social media warriors knocked one hedge fund manager to its knees as Gamestop soared to dizzying heights. The day traders forced Melvin Capital to cover its losing trade, and as a result, they needed about $3 billion from Citadel and Point72 to “shore up the fund.”[1] David versus Goliath.

In 1999 I managed a Morgan Stanley office. Morgan Stanley was, and is, an enormous banker for IPOs, and during the height of the tech-boom, they brought hundreds of companies public. I had a front-row seat to the feeding frenzy. The firm introduced a commission-free trading account called Choice, and it unleashed pent-up demand for traders. Some individuals made hundreds of trades per month, trading popular stocks like Qualcomm. From March 1999 to January 2000, it jumped 1,700%, but two years later, it fell to $12, dropping 87%.

Qualcomm was not flying solo. In 2000, Microsoft, Cisco, Qualcomm, Intel, and Applied Materials were the day’s darlings. An investment of $10,000 ($50,000 total) to these companies in 2000 fell to $29,903 in 2017, a drop of 40% over seventeen years! It took more than fifteen years to recover your initial investment for most of these companies, and Cisco Systems is yet to reclaim its historical high reached in April 2000.

At some point, valuations matter, and investors will focus on earnings, revenue, cash flow, and profits; until then, tread lightly and be careful with these high-flying investments.  As Mark Twain said, “History doesn’t repeat itself, but it often rhymes.”

I’m a believer in capital markets, and the less regulation, the better. Buyer beware. If investors make money trading speculative stocks, so be it. But, I don’t want to hear them complain when the market corrects, as it always does. It might appear the best way to make money investing is during a bull market when stocks are trading at all-time highs, but this is not true. A bull market will enhance your wealth, but it won’t create it.  To build your fortune, invest in stocks during a bear market. During the dark days, prices are cheap, unloved, and undervalued – an ideal time to buy stocks.  If you’re patient, you will have an opportunity to purchase a basket of quality companies at lower prices.

The rise of a few speculative stocks like Gamestop, FuboTV, Bed Bath & Beyond, Virgin Galactic, Nikola, Tesla, Palantir, and so on may cause you to rethink your investment strategy. Don’t abandon your plan to chase momentum stocks because a momentum strategy ends quickly, without warning. And when it does, it won’t be pleasant. Have you ever played musical chairs?

After graduating from college, I bought a few thousand shares of a penny-stock from my roommate. I speculated with money I didn’t have, and I lost it all. It hurt me financially, but it was a reason why I entered the investment business. I wanted to learn how to manage my own money for the long haul, and I’m thankful I learned a valuable lesson when I was young and dumb.

I often think it’s easier to make 100% on a short term trade than earning 7%, 8%, or 9% for decades. It’s possible to get lucky in the near term, but it takes courage, patience, wisdom, and fortitude to hold stocks for generations.

If you’re experiencing FOMO and want to invest in a few YOLO trades, here are some ideas to help you with your trading.[2]

  1. Limit your trading capital to 1% to 3% of your investment assets. Do not use retirement funds to speculate on stocks with weak balance sheets. Don’t gamble with money you can’t afford to lose.
  2. Do not use margin to buy stocks. Leverage works when stocks rise, but it will kill you when they fall. While at Morgan Stanley, a broker had an account go negative because of a margin call. The client used leverage to speculate on stocks, and when they fell, he lost all his money, and he needed to deposit a check to cover his debit balance.
  3. Take gains if you made big money in the short term. Selling half to three-quarters of your original position is prudent, allowing you to diversify your assets and stay invested. You want to live to see another day.
  4. If you have never traded options, don’t start now. Options are derivatives of stocks, and if you’re not careful, you can lose money quickly. They’re wasting assets, and you must be right on the company, the direction, the timing, the price, the strike price, and the expiration date. If you want to wade into the options market, hire an advisor with years of trading experience.
  5. A financial plan or investment policy statement will keep you focused on your long-term goals. Review and consult your plan often if you feel like you’re missing out on extraordinary gains; chances are, you’re not.

Investors with enough money are less likely to chase returns, hoping to cash a winning ticket. They’re content with their holdings and don’t feel like they’re missing out on the party because they have a plan, and, more importantly, they follow it. If you’re speculating to create wealth, it will evade you like a lottery ticket. It’s better to grow rich slowly than to try and get rich quickly.

Be patient, follow your plan, think generationally, and good things will happen.

Wealth gained hastily will dwindle, but whoever gathers little by little will increase it. ~ Proverbs 13:11

January 27, 2021

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 Sources: YCharts


[1] https://www.marketwatch.com/story/hedge-fund-melvin-capital-closes-out-gamestop-short-cnbc-2021-01-27, 1/27/2021 by Willam Watts

[2] FOMO = Fear of missing out; YOLO = You only live one.

Supermarket Investing

When I walk into my local supermarket, magnificent smells of freshly cut flowers and a sea of fruits and vegetables welcome me. Further on, I encounter the aroma of baked bread, cookies, and cakes. My senses are overloaded, and I have yet to start shopping.

A supermarket layout is science-based, but pomp and circumstance also play a significant role in our shopping experience. It’s full of vibrant colors, smells, and sounds designed to keep us moving as we fill our shopping carts. The items we need are located in the back; the things we want are near the front. End caps display new or seasonal products designed to catch our attention. Between the front door and the milk section, we encounter presenters offering us free food and drink samples while introducing us to a new recipe or cooking trend. If we make it through the aisles unscathed, we must pass one final test – the checkout stand. While checking out, we stare at soft drinks, chips, candies, and tabloids, all impulse buys. I always shop with a list, and I never enter a grocery store while hungry to avoid the subtle traps.

Investing is similar to grocery shopping – a lot is going on, so a plan is recommended. Investing without one is like entering a grocery store without a list; if you’re not careful, you can get into trouble. A financial plan keeps you focused on your goals and helps you avoid distractions that may derail your future. It can also limit impulse purchases of investments that don’t belong in your financial basket.

We need staples to survive, like fruits, vegetables, meats, eggs, milk, etc. We don’t need peanut M&M’s, but they’re fun to eat on occasion. A portfolio designed to last generations needs a strong core of globally diversified high-quality stocks and bonds. An appropriate allocation for your core holdings is 85% to 95% of your total balance. Invest the remainder of your account in high-flyers, seasonal trades, or alternative investments if you want to give your portfolio a boost.  

The center aisles are a mix of, well, mixes, packaged foods, and canned foods; ingredients developed to enhance your meals. Portfolios require supporting investments as well. Small-cap stocks paired with large-cap companies mixed with a few bonds is a recipe for success.

My wife can make the rounds in our grocery store with her eyes closed, which is good and bad. She is an efficient shopper, but it’s possible to become complacent and ignore new items or products – investors who are pococurante risk missing new ideas or opportunities. If you let your portfolio get stale, you may fall behind your stated goals. I recommend reviewing your holdings and your plan two to three times per year to stay up to date with new trends. Avoid putting them on auto-pilot.

Should you always avoid end cap displays or check out items? No. These sections of a supermarket can introduce you to bargains, new products, or reflex purchases. They can also bring some fun to your shopping experience. Investing in seasonal trades, speculative stocks, or alternative investments may bring you joy if they work. Limiting your purchases to 3% to 5% of your portfolio value will avoid pain or destruction if you’re wrong.

When I was fifteen, I worked in a small grocery store with some friends. I earned $2 per hour and learned much about stocking shelves, bagging groceries, and watering produce. I was continually moving from one aisle to the next. It was our job to ensure the store looked good at all hours. It was a good primer for my chosen career.

As you build your shopping investment list, include a basket of large, small, and international companies. Add a mix of bonds, real estate holdings, and alternative investments. Rebalance your accounts annually and review your plan often. Think generationally, but pay attention to short term opportunities. A balanced portfolio based on your financial goals will treat you well over time.

Happy shopping!

Anyone who believes the competitive spirit in America is dead has never been in a supermarket when the cashier opens another checkout line. ~ Ann Landers

January 25, 2021

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.

Bubbles

On December 5, 1996, former Federal Reserve Chairman Alan Greenspan delivered his famous “irrational exuberance” speech. He was referencing the speculation surrounding the valuation of dot.com stocks. The market eventually corrected, and the bubble did pop, but it took three years to do so. Twenty-five years later, the S&P 500 index is up 417%. If you purchased the index on the day of his speech, your average annual return has been 7%, and a $10,000 investment is worth almost $52,000!

Today, some experts are declaring we’re currently in a bubble, and the market could crash. One high profile investor said we are in a bubble with “very seldom seen levels of euphoria.” He added: “never been a great bull market that ended in this kind of bubble that did not decline by at least 50%.”[1] On CNBC this morning, another investor said: “It feels a lot like 1999 to me.”[2]

The market will eventually correct, as it has done for centuries. The S&P 500 had three major corrections this century: 2000 to 2003, 2008, and 2020. Yet, we are currently trading at all-time highs.

During the first decade of the century, US stocks generated a negative return, but international stocks, small-cap holdings, and fixed income investments produced positive returns. This year, emerging market stocks are up 8.6%, outpacing the S&P 500 by 6%. During the past six months, small-cap stocks have trounced the S&P 500 by 20%!

Diversification is the essential component to creating generational wealth. A balanced portfolio allows you to capture returns from global markets while reducing your overall risk. Your US stock exposure may fall between 20% to 40% in a diversified account, so a majority of your portfolio is elsewhere.

Rather than worrying about bubbles, focus on your goals, save your money, follow your plan, and enjoy your life.

Life is too short, too precious, too painful to waste on worldly bubbles that burst. ~ John Piper

January 21, 2021

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 Sources: YCharts


[1] https://www.cnbc.com/2021/01/21/jeremy-grantham-says-market-is-in-a-bubble-amid-investor-euphoria.html, by Weizhen Tan, January 21, 2021

[2] https://www.cnbc.com/2021/01/21/barry-sternlicht-stock-market-frenzy-feels-like-1999-dot-com-bubble.html, by Kevin Stankiewicz, January 21, 2021

Are You A Thousandaire?

Can you retire without a million dollars in savings? Will you be forced to work forever? Is there a light at the end of the tunnel? Despite what some financial experts suggest, it’s still possible to retire with less and live life on your terms.

Let’s say you retired thirty years ago with assets of $335,000 ($500,000 today) and an annual income of $50,000. At $50,000, your Social Security benefit would have been about $1,230 per month or $14,760 per year.

Investing your $335,000 nest egg in a portfolio of funds, with an asset allocation of 60% stocks, 40% bonds, produced an annual income of $17,139. Combining the Social Security benefit with your investment income generated a total of $31,899 during your first year of retirement, or 64% of your employment income.

Today, thirty years later, what is the value of your portfolio, and how much income is it generating? At the end of last year, your account balance was $949,072, and the annual income from your investment portfolio was $43,736. Your Social Security payout was $22,104. So, your combined income last year was $65,840, an increase of 106% from your retirement income from thirty years ago.

Last year, your investment account was worth $949,072, and it generated an average annual return of 9.46% per year, tripling your original investment despite withdrawing money every year. The total income you received from your portfolio for the past three decades has been $958,122, almost three-times your initial investment![1]

To summarize, you invested $335,000 and received $958,122 in payouts, and your account balance is now worth $949,072 -staggering numbers.

Here is the portfolio:

  • Vanguard Total Bond Market = 40%
  • Vanguard 500 Index = 30%
  • American Funds Europacific = 15%
  • Fidelity Emerging Markets = 5%
  • Fidelity Real Estate Investment Portfolio = 5%
  • Vanguard Small Cap Index = 5%

If you can’t imagine saving more than a million dollars, fear not, because you can still retire. To help you in your journey, here are a few ideas to improve your golden years.

  1. Watch your expenses. You can control your spending. If you can lower your costs, you need fewer assets to retire. Before you’re ready to retire, allocate time to review your spending habits and budget. Where is your money going? How is it being spent? Are there items you can eliminate or reduce? A few hours of review may yield substantial savings.
  2. Invest for growth. A common reaction from retirees is to invest more conservatively once they stop working; this is a mistake. To maintain your lifestyle in your later years, you must own stocks. Stocks will grow over time and keep you ahead of inflation.
  3. Invade your principal. It’s okay if you invade your principal to meet your living needs. If you need a few extra dollars, don’t worry about dipping into your accounts to withdraw more funds. If your accounts are growing, you may accrue a slush fund for emergencies and opportunities.
  4. Rebalance your accounts. Annually rebalancing your accounts reduces your risk and maintains your asset allocation. January is an ideal time to rebalance them since most mutual funds pay dividends and capital gains in December.  Most investment firms can rebalance your accounts automatically.
  5. Give to others. You might not feel like a Rockefeller, Vanderbilt, or Carnegie, but giving a few dollars to those less fortunate will go along way. Unfortunately, there always people in need, so your donations will help others.
  6. Enjoy your retirement. It’s not what you earn; it’s what you keep. You can live within your means during your retirement. It’s your choice. Once you get a handle on your spending and income, you can plan for a joyful and enjoyable retirement.

Happy Retirement!

You only live once, but if you do it right, once is enough. ~ Mae West

January 20, 2021

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 Sources: YCharts and Morningstar


[1] Morningstar Hypothetical Tool. January 1, 1991 to December 31, 2020.

Brady v. Brees

Tom Brady and Drew Brees are meeting in the NFC divisional playoff game today. Tom Brady is 43; Drew Brees is 42 – the oldest match up for quarterbacks in a playoff game. Messrs. Brady and Brees will be first-ballot Hall of Famers when their careers end. Mr. Brees is the NFL leader in passing yards with 80,358. Mr. Brady is second with 79,204. Mr. Brady is the all-time leader for touchdowns with 581, Mr. Brees is second with 571. Mr. Brady ranks eleventh for games played at 301, and Mr. Brees ranks sixteenth. Mr. Brees and the New Orleans Saints won Super Bowl 45, and he was named the games MVP. Mr. Brady is the all-time leader in Super Bowl wins with six, and he was named the Super Bowl MVP four times.

A quarterback aged 40 or more is rare, and these two are defying the odds. Despite their success, they have faced criticism and doubts. The San Diego Chargers traded Mr. Brees in 2005 after successful shoulder surgery. I bet the Charges wished they had kept him on the roster. He continually faces criticism about his height and arm strength. Phil Simms said, “Listen, his arm strength was never great.”

Tom Brady was the 199th pick, drafted in the 6th round, a snub he has not forgotten. In 2016, Max Kellerman “decided to declare that Brady’s career was about to be over sooner rather than later.”[1] He also called him “a bum.” After four years, Mr. Kellerman admits he was wrong about Tom Brady’s late-term playing career.

I’ve never met Tom Brady or Drew Brees, but I suppose they ignore the criticisms, and they probably aren’t aware of most things said about their potential “demise.” Rather than listen to the experts, they work out regularly, practice often, eat well, and repeatedly perfect their craft – they follow their plan and focus on what they can control.

The average NFL career lasts 3.3 years.[2] Mr. Brady is playing in his twenty-first season, Mr. Brees is in his twentieth. To survive and excel in the NFL for two decades requires perseverance, dedication, and tenacity – traits these two NFL greats have in abundance.  

As an investor, you may face criticism and doubt about your investing style or portfolio. TV personalities, experts, analysts, relatives, neighbors, friends, or social media trolls may give you pause to think about your financial future. You may hear others say: “How come you own that company?” or “Why don’t you own this company?” or “The stock market is going to crash, you should sell your stocks!” Tune out the noise and chatter.

To create generational wealth, focus on those things you can control and ignore the rest. Here is a shortlist of things you can manage.

  1. Savings. How much money do you save per month or year? The amount you save will have the most significant impact on your future wealth. Contribute the max to your 401(k) and IRA. Automate your savings. If you save $10,000 per year for thirty years, you could have more than $1.5 million in assets when you’re ready to retire.
  2. Expenses. You have complete control over your spending. The less you spend, the more you save. January is an excellent time to review your spending habits. If you spend some time pouring over your bank and credit card statements, you may find a few expenses to reduce or eliminate.
  3. Investments. You can purchase any investment in the world – stocks, bonds, real estate, gold, Bitcoin, art, jewelry, etc. However, if you want to retire in style, it’s best to own investments that grow, like stocks. The 100-year average for stocks has been 10%. If you keep most of your money in cash, it will lose value every year because of inflation and taxes.
  4. Diversification. Diversify your assets across stocks, bonds, and cash and rebalance your portfolio annually. Diversification is considered a free lunch on Wall Street.
  5. Plan. Your financial plan is unique to your situation. To succeed as an investor, buy investments you’re comfortable owning and follow your plan; it is your financial playbook, guiding you to long-term success.

Investing is not a sporting event, but it does require a game plan with long-term strategic thinking to succeed.

If you’re wondering, Brees holds an edge over Brady in games won – 5 to 2.

“Don’t ever underestimate the heart of a champion.” ~ Rudy Tomvanovich

January 16, 2021

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.sportscasting.com/max-kellerman-finally-admits-he-was-wrong-about-tom-brady-becoming-a-bum/

[2] https://www.espn.com/blog/nflnation/post/_/id/207780/current-and-former-nfl-players-in-the-drivers-seat-after-completing-mba-program

Follow the Bouncing Ball

To make money in stocks, buy winners. To make money betting on horses, pick the fastest one. To make money betting on football, pick the best team. It’s obvious! As Will Rogers once said, “Don’t gamble; take all your savings and buy some good stock and hold it till it goes up, then sell it. If it don’t go up, don’t buy it. Of course, it’s impossible only to pick the winners.

In 2016, the energy sector rose 29.2%, and it was the best performing sector. If you invested in energy in 2016, you lost 2.5% in 2017, 20% in 2018, 9.3% in 2019, and 33.1% in 2020. The energy sector was the worst-performing sector for four years in a row. This year, it’s one of the best.

Utility stocks were the worst-performing sector in 2013 but the best in 2014. Financials finished 2019 as the second-best sector, and last year it was the second-worst.

Healthcare stocks underperformed energy stocks by 32% in 2016 and outperformed them by 26% a year later.

Trying to pick the best sectors or stocks can result in a feast or famine. If you’re correct, you’ll make money. If you’re wrong, you’ll lose money. Simple.

From 2011 to 2020, the S&P 500 index was never the best nor worst-performing asset class, nor did it finish any year in negative territory. It was consistent and stable relative to the individual sector components.

An S&P 500 index fund, or total market index fund, gives you exposure to every sector without trying to pick the best and avoid the worst. A broad-based index fund is an excellent choice for any portfolio.

January 14, 2021

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 Sources: YCharts

Bye, Bye and Buy Bonds?

Interest rates are trading near historical lows, but they’re rising. Since July, the yield on the 30-Year US Treasury has soared 42%. Last March, it dropped to a low of .99%. Now it’s yielding 1.88%, an increase of 90%. Rising rates from all-time lows is not a rousing endorsement to buy bonds.

Despite the low rates, bonds belong in a diversified portfolio. Bonds are safe and consistent, and they offer stability not found in other investments like stocks, gold, or Bitcoin. Also, bonds are negatively correlated to stocks, so when stocks fall, bonds rise. During the market correction last March, interest rates dropped 36% as investors purchased US government bonds. As rates fell, the iShares 20+ Treasury Bond ETF rose 15%, while the S&P 500 dropped 12%.

Bonds are a source of funds. When stocks fall, bonds rise. You can use your bonds to buy stocks – buy low and sell high.

Another reason to buy bonds is to match the maturity with your purchase. If you’re buying a new home in two years, then buy bonds with the same maturity – two years.

My career launched more than thirty years ago in Pasadena, California, as a stock-broker hired by Dean Witter. I was young, with no connections, so my primary tool for prospecting was the telephone. I cold-called morning, noon, and night looking for new clients. One of the investments I used for calling was the 30-Year US Treasury bond. At the time, they were paying more than 8%, guaranteed. My pitch was simple: “Hello, Mrs. Jones, this is Bill Parrott from Dean Witter in Pasadena. We are currently offering a guaranteed investment paying more than 8%. Would you like to hear more about it?” I couldn’t give them away because most people thought interest rates were going to rise.  Well, they were wrong, and interest rates dropped more than 87% over the next three decades. If they bought the bonds, they could have enjoyed thirty years of 8% guaranteed income, and their bond would be worth $143 today, a gain of 43%.

Since interest rates are rising, bond prices are falling. The price of a 30-year bond will fall 22.4% if interest rates rise 1%, so my recommendation is to keep your maturities short – less than five years.

Bye, bye, and buy bonds!

January 12, 2021

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 Sources: YCharts

A Correction Is Coming!

The NASDAQ is up 388% for the past ten years, so it’s due for a correction, a pullback of epic proportions. When will it happen? I’m not sure, but it is coming. Get ready.

Before you decide to sell your stocks and buy gold or Bitcoin, let’s review the last decade. A $100,000 investment in the NASDAQ is now worth $488,000, a 388% increase. The index averaged 16.9% per year for the past ten years – a remarkable number. A few components include Apple, Tesla, NVIDIA, PayPal, and Netflix, so I’m not surprised the index performed so well.

However, the NASDAQ rise was not straight-up, but a jagged increase peppered with peaks and valleys. Let’s look at a few of the dramatic declines from the past ten years.

  • 2011. The index fell 17% from April to September.
  • 2012. The index fell 8.7% from March to May.
  • 2013 was a mild year, but the index did fall more than 4% in April and August.
  • 2014. The index fell 6.7% in May, 8% in October.
  • 2015. The index fell 9.6% from July to September.
  • 2016. In February, the index fell 9%.
  • 2017 was tranquil, with one minor dip of 3.7% in July.
  • 2018. The index fell 18% from August to December.
  • 2019. The index dropped 8% in May.
  • 2020. The index dropped more than 30%.

So, my prediction of a significant correction is meaningless because the market always fluctuates – rising and falling, like the tide. Do not fear a pullback; instead, use it as an opportunity to buy quality stocks at reduced prices.

If you attempted to time the market for the past ten years while living in fear of a correction, you missed out on astronomical returns.

Stay invested, my friends.

January 11, 2021

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 Sources: YCharts and Macrotrends

Runners and Sprinters

Running a marathon is a difficult task requiring months of training and discipline. Successful marathoners follow a strict training schedule and plan – a mixture of running, stretching, lifting weights, and eating a balanced diet. And I should know, having run several marathons, including the Boston Marathon in 2011.

Each marathon is a blend of runners – young, old, black, white, male, female, etc. It’s possible for 40,000 to 50,000 runners to run in marathons like Los Angeles, Chicago, New York, and Boston. At the starting line, everyone is nervous and excited. During a race, you will pass, and be passed, by other runners. However, there’s always a  group of young men (it’s always young men) who try to elbow their way to the front, dodging other runners like a punt returner. They would sprint ahead, but after a few miles, they’d be walking with their hands on their hips or standing on the side of the road gasping for air. This process repeated itself a few times before they faded away.  

During my first few marathons, I would fixate on these young sprinters and worry that I wasn’t running fast enough, but over time, I ignored them and focused on my goals, and it made for a better running experience.

As an investor, you may feel frustrated as others pass you by with high-flying investments like Tesla or Bitcoin, but don’t abandon your plan to chase returns. Follow your plan, save your money, think long-term, run your race, and good things will happen.

January 8, 2021

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.