Month: May 2023

Same Fund, Different Day

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Vanguard’s Balanced Index fund is a solid performer, averaging 8% annually for three decades. The fund is a mixture of stocks and bonds, a standard 60/40 asset allocation. However, your individual returns will vary greatly depending on your market timing skills.

February 18, 2020

Concerns over COVID crashed the market the day you purchased the fund; one month later, you’re down 21.5%, but it eventually recovered, returning 13.27%, or 3.91% annually. A $100,000 investment is worth $113,270 – not a great return, but it’s better than losing money!

March 20, 2020

If you waited one month to buy the fund, your account was up 44.5% by the end of the year. Your timing was perfect, and your friends and family think you’re a financial genius. The fund has averaged 12.30% per year, and your $100,000 is now worth $144,350.

December 30, 2021

You sat on the sidelines during the COVID correction, and after watching the Vanguard Balance Fund rise, you finally invested. Trouble! You’ve lost 11.8%, turning $100,000 into $88,190, and you’re probably upset and kicking yourself for not waiting until market conditions improve.

October 12, 2022

You deferred your purchase to October 12, 2022 – a smart move. The fund is up 11.75%, and your $100,000 investment is worth $111,750.

February 2, 2023

It’s Groundhog Day, and, so far, the market peak, and after three months, you’re down 1.13%. Your $100,000 is worth $98,870.

March 10, 2023

You picked the near-term bottom, and your account is up 4.88%. If the trend continues, you could earn more than 28% on your investment. Your $100,000 investment is worth $104,880.

November 9, 1992

Vanguard launches the Balanced Index Fund, and you invest $100,000, and you don’t make any changes to your holding, and it is now worth $1.04 million. You’ve done well!

Time eclipses timing. Do not worry about the daily gyrations in the market because you will never buy at the low or sell at the top. Instead, focus on your financial goals and let the long-term trend of the market work for you and your family.

You make most of your money in a bear market; you just don’t realize it at the time. ~ Shelby Cullom Davis

May 20, 2023

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 your asset level.

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. Prices and yields are for today only and are subject to change without notice.

The Indianapolis 500 and Investing

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Drivers, start your engines!

This year marks the 107th running of the Indianapolis 500 – “The Greatest Spectacle in Racing.” Drivers will travel over 225 miles per hour to pursue auto racing’s most iconic trophy. Ray Harroun, the 1911 winner, averaged about 75 miles per hour, slower than you drive on I-35.    

Race day is exciting, and the pageantry is legendary as crowds pour into the brickyard to be part of the spectacle, and millions more watch it on TV. The singing of our National Anthem, “Back Home Again in Indiana,” and the stealth bomber flyover add to the day’s enjoyment.

Most of the attention will be on the drivers, and rightly so, as they’ll be the ones responsible for executing the plan. However, behind them is an army of support staff, including pit crews, strategists, spotters, spouses, and owners. Teams work as one to make sure the driver can win the race by strategizing and planning for a successful outcome. Their plan is their road map for the race, and they must adjust it based on new data like car performance, track conditions, and weather as the race continues. 

In addition to a fast car and the driver’s skill, they must have a little luck to win the race. In 2011 Dan Wheldon was trailing the winner until the last lap when J.R. Hildebrand’s car hit the wall on the final turn. Hildebrand’s accident allowed Wheldon to win. Wheldon would’ve finished second, at best, had Hildebrand not crashed.

Regardless of how fast these cars travel, the driver will pass and get passed by others. They’ll spend most of the day jockeying for a position to win, and it’s essential to focus on their team goals and not worry about the competition, emphasizing the process, not the result.

Before the start, analysts, seers, and prognosticators offer insight and predictions for the upcoming race – most of which won’t come true. Drivers and owners must ignore the noise and concentrate on their team goals.

Unfortunately, drivers may experience a crash. When this happens, the yellow caution flag flies, and they must slow down for the clean-up crew to clear the track before racing resumes. Accidents and crashes are unexpected, of course, so it’s best to try and minimize the damage.

What can an investor learn from the Indianapolis 500? Here are a few thoughts.

  • Drive your race. People travel at different speeds to reach their financial goals. If you’re on the right track, don’t worry about others.
  • Create a financial plan. Your plan will help guide you through the race of your life and keep you grounded during all market conditions. You, like the drivers, need to adjust it as you obtain new data and information.
  • Work with your team to achieve your goals. A driver doesn’t compete alone, and nor should you. A group of trusted advisors can help you with all your financial needs. A CPA, an attorney, and a financial planner should be on your pit crew.
  • The media and other experts will try to distract you from your plan. News headlines will make you question your investing goals, so it’s best to ignore them and concentrate on following your plan.
  • Diversify your investments. In the market, as racing, crashes happen, and predicting one is impossible, so your best defense is a diversified portfolio of stocks, bonds, and cash. Your investments should be a function of your plan and financial goals.
  • Celebrate your wins. It’s essential to enjoy the fruits of your labor. If you’ve reached a goal, celebrate it and then turn your efforts to the next one.

After 500 miles, the checkered flag drops on the winner, and the driver celebrates by drinking milk and kissing the bricks at the finish line. The team will celebrate the victory for a few days and plan for the next race. You might not pass under a checkered flag when you’ve achieved your goals, but you’ll know when you’ve won your race.

Nothing compares to the Indianapolis 500.  ~ Mario Andretti

May 13, 2023

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 your asset level.

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. Prices and yields are for today only and are subject to change without notice.

Lug Nuts

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John Wooden is the greatest college basketball coach of all time, winning ten NCAA championships as the head coach of the UCLA Bruins. The Wizard of Westwood paid attention to small details, especially socks and shoes.

Each season, Coach Wooden instructed his players on how to correctly put on their socks and tie their shoes because if a player had trouble with their feet, they would not play well. He wanted to eliminate blisters and untied shoes that slowed down his players.

In the book Wooden – A Lifetime of Observations and Reflections On and Off The Court by John Wooden and Steve Jamison, he talks about how all the parts are needed for a car to run correctly, but if it had loose lug nuts, the wheels would fall off. Lug nuts are cheap and cost about $45 for a box of 24, and I doubt anybody ever considers them when buying a new car, but they’re a vital component for a functioning automobile. Coach Wooden had star players like Bill Walton and Kareem Abdul-Jabbar, but if the other players on the court did not play well and support each other, the team would lose. Bench players, substitutes, and lug nuts help complete the process and make things work.

Successful investors must pay attention to small details, like fees and expenses. Review your advisor fees and expense ratios on your funds. Try to cut the number of funds you own as well. Your funds have significant overlap if you own a few dozen or more, and you don’t need four or five large-cap mutual funds. A quick search on Yahoo! Finance can help you research your fund’s allocation, holdings, and fees. The ADV highlights your advisor’s costs.

Also, check your spending and budget. Can you eliminate recurring payments or reduce nuisance fees?

Your 401(k) is another detailed battleground. If you own a retirement target date fund, you don’t need to own anything else. A key component in your plan is the employer match, and it’s paramount that you match the match. For example, if your employer offers a 5% match, contribute 5% of your pay to the plan. If your plan offers automatic rebalancing, select the annual option. An annual rebalance keeps your risk tolerance in check.

If you pay attention to the small details, they will add up to big wins.

Failing to prepare is preparing to fail. ~ John Wooden

May 4, 2023

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 your asset level.

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. Prices and yields are for today only and are subject to change without notice.

Four Bond Strategies

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Bonds don’t get much love, especially after last year’s rout, but they are vital to your investment success. Here are four investment strategies.

Retirement

Bill Bernstein, author and investment professional, has said, “If you’ve won the game, stop playing.” Mr. Bernstein allocates twenty years’ worth of expenses to bonds to remove equity risk from his portfolio. Reducing risk in retirement is paramount, and bonds can help you achieve this goal. Suppose you spend $100,000 annually, then twenty years’ worth of expenses is $2 million before inflation and $2.7 million after. If twenty years is too long, consider fifteen, ten, or five years for your bond exposure. Also, this strategy determines your asset allocation. For example, if you own a $5 million portfolio and allocate $2 million to bonds, you can invest the remainder in equities.

Pre-Retirement

Allocate a portion of your assets to bonds if you are three to five years from retirement. If your annual expenses are $100,000, transfer $300,000 to $500,000 to bonds. Your bond portfolio can provide safety and income if you retire during a bear market. If you retire in a down market like 2000 or 2008, your fixed-income portfolio allows you to cover your expenses without selling your stocks at significant losses. It also gives your equities time to recover.

Major Purchase

Are you buying a new home, car, boat, or plane? Do you need to make a tuition payment? If so, buy bonds to match the liability. For example, if you need $200,000 for a down payment on a new home next year, buy $200,000 worth of bonds that mature simultaneously. The bonds remove uncertainty and equity risk ensuring that your funds will be available when you need them most.

Peace of Mind

Equities are volatile, especially last year. The stock market regularly corrects 10% or more and crashes 30% or 40% every few years, and they are not for the faint of heart. If you don’t want extreme volatility, allocate a larger portion of your assets to bonds. Buying bonds can reduce your long-term returns, but knowing your assets can give you peace and security.

Bonds are a valuable tool if used correctly, and they can enhance your portfolio in certain situations.

Bye, bye, and buy bonds!

An investment in knowledge pays the best interest. ~ Benjamin Franklin

May 2, 2023

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 your asset level.

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. Prices and yields are for today only and are subject to change without notice.