Month: June 2023

Patience Is A Virtue

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Markets are rebounding. The S&P 500 is up 14% this year, performing much better than in 2022. The popular index has responded to lower inflation numbers and a tamer Federal Reserve. And It does not appear concerned about Russia or China.  

Investors, like warthogs, have short memories and have all but forgotten last year’s troubles and tribulations. Speculators are buying call options and driving the price of Bitcoin higher. The tech-heavy Nasdaq has risen 30% as the Magnificant Seven – Nvidia, Tesla, Meta, Apple, Amazon, Microsoft, and Google soar to all-time highs.

If we extend the time horizon for the S&P 500, the returns look even better.

  • 3-Year Return = 45.5%
  • 5-Year Return = 62.1%
  • 10-Year Return = 171.3%
  • 20-Year Return = 348.3%
  • 30-Year Return = 877.9%
  • 50-Year Return = 4,120%

The moral of the story is: time wins, stay invested!

During the 2022 market correction, we relied on our financial planning models to convince clients to remain invested, stay the course, do not panic. It was a difficult ask, as it is in all down markets, but most clients took our advice. A financial plan is central to our client’s portfolios because it gives us the confidence to advise them better about their financial futures. Last March, we tested our portfolios for a 50% market correction and 5% inflation to see how they would perform if conditions worsened. The exercise furthered our confidence that most accounts could weather the storm, but what about the ones that could not? If an account failed our test, we contacted the client to discuss several scenarios and make the appropriate adjustments. However, we did not expect the market to fall by 50%, and it didn’t.

It is not easy to be patient, especially when your net worth is dropping swiftly, but it’s paramount if you want to be successful as an investor.

Here are a few tips to help you during the next market correction.

  • Diversify your assets across stocks, bonds, and cash.
  • Build an emergency fund to cover several months of expenses.
  • If you’re retiring in the next few years, allocate three years of expenses to US Treasury Bills.
  • Create a financial plan. It is a financial GPS.
  • Buy the dips.
  • Don’t panic. Markets recover.

Enjoy this year’s market run, but always be on guard for a correction. A well-balanced portfolio and financial plan can help you during the market and economic chaos.

Be patient, my friend. Your older self will thank you.

We could never learn to be brave and patient if there were only joy in the world. ~ Helen Keller

June 28, 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.

My Time In Kenya

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I spent the past weeks in Kenya, traveling with a team from my church to meet with our mission partners, Segera Mission. Segera Mission (https://www.segeramission.org/) is about 155 miles north of Nairobi, where the paved road ends. It was a humbling experience.

Nairobi is a bustling city like any other capital city, complete with abundant luxuries and traffic jams, but where we were visiting, it is not. Most families near Segera Mission live in mud huts without power or running water and must walk miles to gather food, water, and firewood. Water is an issue in Kenya, but so is firewood because they need it to purify the water, cook their food, and heat their homes, and the trees are disappearing rapidly.

However, the people we met were kind beyond measure and full of joy. They sang beautifully, prayed relentlessly, opened their homes to our team, and emptied their food cabinets to serve us. Knowing they gave us all they had was overwhelming, recognizing they’d walk miles the next day to replenish their cupboards.

My best day in Kenya was playing soccer with the third-grade boys. I was the goalkeeper, and when I stopped the ball, the boys yelled, “Knock, knock,” which meant kicking the ball as high and far as possible. We played for over three hours, laughing, running, and sweating. It was pure bliss.

I thought about the people I met and the sites I saw during my thirty-three-hour journey back to the United States, and here are a few thoughts.

  • Joy. Joy is internal, independent of your surroundings or station in life. If you rely on money or things to bring joy, you’ll never find it because you’ll always want more, forever beyond your reach.
  • Community. The people in the villages near Segera Mission rely on each other for fellowship, safety, food, water, and more. They can’t do it alone, and neither can you. Find your community.
  • Provision. Several families relied on daily bread but wanted for little. They did not concern themselves with luxuries we take for granted, like TVs. Americans are obsessed with how much money we need for retirement, and according to a recent Schwab Modern Wealth Study, most people think we need $2.2 million to feel wealthy. Yet, the respondents in the survey only had a quarter of that amount. Kenya’s per capita income is only $5,130, yet the people we met felt exceptionally wealthy because their measure of wealth is different than ours.
  • Action. The women of SATUBO took action to provide for themselves and their families. The name is an acronym for the three different communities in Northern Kenya – Samburu, Turkana, and Borana. These powerful women make beaded bracelets, animals, ornaments, and more, keeping 70% of the proceeds and 30% remaining with the organization to cover costs and purchase land. The women of SATUBO now control more than ten acres. They took action to manage their financial future.
  • Faith. The predominant religion in Kenya is Christianity, with more than 85% of the population believing in Jesus. Their faith was evident everywhere we went, and it did not waiver because of their circumstances; it gave them strength.
  • Lions. Our team visited Ol Pejeta Conservancy, the home of the last two Northern White Rhinos. Our driver, Fred, was incredible, and he found rhinos, giraffes, water buffaloes, elephants, warthogs, and lions. As we approached the animals, except the lions, they all ran for cover. The lions did not give an inch. In fact, one of the male lions circled our vehicle. They are fearless and confident. Be a lion.

I’m glad to be home, but I miss my neighbors in Kenya and the lessons they taught me about myself and life. Sawa Sawa.

He who does not look ahead always remains behind. ~ Kenyan Proverb

June 24, 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.

What Are Your Retirement Options?

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Planning for retirement is necessary if you want to stop working someday (obviously), but what are your options? The retirement planning landscape has many choices, so which are the best? Of course, it depends on your situation, so let’s explore a few retirement planning tools.

401(k) Plan. The 401(k) plan is the ultimate retirement planning tool if you work for a company. It allows you to contribute $22,500 yearly, and your employer can match your contributions. If you’re fifty or older, you can deposit another $7,500. If you work for a non-profit, you can access a 403(b) plan, and the government equivalent is called a 457 plan.

IRA. The government allows you to contribute $6,500 to an IRA. If you’re fifty or older, you can deposit another $1,000. The traditional IRA is tax-deferred, and you may qualify for a tax deduction. A Roth IRA is an after-tax contribution, and the assets grow tax-free.

SEP-IRA. If you’re self-employed, you can contribute money to a SEP-IRA. The maximum contribution is $66,000 or 25% of your compensation, whichever is less.

Brokerage Account. A taxable brokerage account is not a retirement account but a vital tool, especially if you want to retire early – before age 59.5. There aren’t any contribution limits to a brokerage account, and you may have favorable tax treatment through capital gains.

Health Savings Account (HSA). A family can contribute $7,750 to a HSA, and individuals can add $3,850. You can use this account for retirement or healthcare benefits after age 65. Before age 65, you can only use the funds to pay for healthcare.

Annuities. An annuity is a tax-deferred investment vehicle taxed like a traditional IRA. There is no contribution cap on annuities like an IRA or 401(k). Annuities can provide lifetime income.

Tools serve several functions; sometimes, you need a screwdriver other times, a hammer. It all depends on the job. The accounts above are tools you can use to fund a successful retirement. However, you must fund them regularly and invest in growth to make them work correctly.

Happy Retirement.

I’m going to use all my tools, my God-given ability, and make the best life I can with it. ~ Lebron James

June 10, 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.

Halfway Home

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The year is halfway over, and asset classes are performing well. The Nasdaq leads the way with a gain of 33%, followed by the S&P 500, up 12.4%, and bonds are positive. The market recovery is welcomed, especially after last year’s drubbing. The rebound is not surprising because stocks have risen approximately 80% of the time since the end of World War II. It is not a matter of if but when. However, the bigger question is how your investments are performing. Are you participating in the recovery?

Last year was brutal, and investors wanted to abandon ship and sell their investments to ride out the market storm by liquidating their portfolios and parking the funds in money markets, savings accounts, CDs, or Treasury Bills. It’s nice in theory but challenging in practice because markets move quickly. For example, most of the market declines last year occurred during the first half of 2022, and by June, stocks started the recovery process. Since last June, the Nasdaq is up 15.8%, the S&P 500 is up 4.91%, and international markets are up 3.26%. If you sold your holdings during the first half of last year, you missed a year’s worth of gains. Patience.

The halfway point is an excellent time to review your financial plan, asset allocation, and investment holdings. Here are a few ideas and suggestions to help you with your mid-year review.

  • Financial Plan. Do you need to update your plan? Are your financial goals intact? Is it working? A financial plan is a crucial component for every successful investor. Our clients with financial plans were calmer and more likely to remain invested during last year’s market decline. Despite the drop in global markets, it did not have a material impact on our client’s financial future.
  • Asset Allocation. Stocks are outperforming bonds significantly this year, and, as a result, your asset allocation may need a tweak or two. The rise in equity markets increases your risk level. The higher prices climb, the further they fall, so reviewing and rebalancing your investments is essential to ensure they align with your risk tolerance.
  • Capital Losses. Did you realize losses last year? Do you have a tax-loss carryforward? If so, consider realizing gains to absorb your losses. No one likes losses, but you can use them to offset gains, which is a nice silver lining.
  • Prepare. Markets fluctuate, rising and falling constantly. If you need money in one year or less, invest in Treasury Bills, do not buy stocks. If you plan to retire in the next few years, keep three years’ expenses in cash. For example, if you spend $100,000 yearly, allocate $300,000 to Treasury Bills. A cash cushion can help absorb the pain of a market correction.

When I ran marathons, an aunt asked me how I could run so far. I told her my training secret was to run far from home. If my goal were to run ten miles, I would run five miles out, so I had to run five miles back. I couldn’t quit running if I wanted to return home.

Enjoy the market recovery, review your investments, adjust your goals, and follow your plan.

Believe you can, and you’re halfway there. ~ Theodore Roosevelt

June 9, 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.

Should You Invest In Emerging Markets?

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What is an emerging market, and should you invest in this sector? Webster’s dictionary describes emerging as “newly created or noticed and growing in strength or popularity, becoming widely known or established.” Sounds good, but what does it have to do with investing? Plenty.

Most investors invest in established or developed markets like the United States, United Kingdom, Germany, Japan, Australia, and Canada. Established markets have contract law, stable governments, and modern infrastructures.

Emerging markets include Brazil, Russia, India, and China. Other countries include Peru, Thailand, South Africa, Chile, and Turkey. These markets typically have large populations, abundant natural resources, and volatile governments. However, investing in Russia is not an option because of the Ukraine war. Nor is China because of the way they treat publicly traded companies. It’s not a significant loss as they account for less than 4% of the global equity market capitalization.

Why should you invest in an emerging market? These markets are growing, and the middle class is expanding, giving people access to things we take for granted, like microwaves, washers, dryers, and iPhones. Technology is making our world smaller and more affluent. As these markets prosper, so will their citizens. 

How much money should you allocate to emerging markets? I recommend a 5% allocation. Since 1998, the MSCI Emerging Markets Index has produced an average annual return of 9.42%, similar to the S&P 500 return of 10.67%. But over the past five years, Emerging Markets have lost .29% yearly; over the past ten years, they’ve averaged 2.27%, significantly underperforming our markets. The last significant run for emerging markets occurred from 2003 to 2007, jumping 159%, averaging 37.5% annually.

It’s best to buy an index fund rather than trying to pick individual countries because of the volatility. For example, Turkey soared 90.4% last year but lost 28.5% in 2021, 41.4% in 2018, and 32% in 2015: feast or famine.

Here is a chart of a few emerging market funds.

As you construct your portfolio, add a pinch of emerging markets; it could boost your portfolio’s returns. Investing in emerging markets can be rewarding but carry higher risks, such as political instability, regulatory uncertainties, and currency fluctuations. Regardless, they can provide tremendous long-term investment opportunities.  

It’s a small world, but I wouldn’t want to paint it. ~ Steven Wright.

June 9, 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.

Can We Talk?

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Baby Boomers will transfer trillions of dollars to Gen X, Millennials, Gen Z, and AI Babies over the next several years. According to several reports, the range is estimated to fall between $30 trillion and $75 trillion and is considered the most significant wealth transfer in history. However, I’ve heard about this wealth transfer for over three decades and have not seen any evidence yet. Maybe I’m looking in the wrong spots.

The wealth transfer may disrupt financial markets as Boomers pass their assets to the next generation, and beneficiaries sell stocks and bonds to buy homes, pay off debt,  fund college accounts, or travel the world. Is your family prepared for this epic wealth transfer? Let’s explore a few scenarios and categories.

  • Wills and Trusts. If you’re a Boomer with assets, you must update your will or trust to ensure it honors your wishes. The most efficient way to transfer assets to generations is through your estate documents. Dying without a will or trust can complicate your estate transfer for years or decades, depending on the level of your assets (Google Howard Hughes). An attorney friend told me he makes good money creating wills and trusts but makes excellent money settling estates without any documents or final instructions.
  • Beneficiary Data. A simple and efficient way to transfer assets to your loved ones is through your beneficiary designations on retirement accounts, annuities, life insurance, etc. Your beneficiary data overrides your will or trust, so make sure they are current and accurate. If you’re divorced or have remarried, don’t forget to change your beneficiary information because you don’t want your assets going to your ex-spouse.
  • Life Insurance. Are you worth $13 million or more? If so, consider purchasing life insurance inside a life insurance trust (ILIT) to pay your estate tax. A married couple can transfer $26 million in assets to the next generation before paying federal taxes. The estate tax rate is currently 40%.
  • Gifting. A simple way to reduce your estate and potential tax is to give your money away while alive. The annual gift-tax exclusion is $17,000 per year per person. Donating money to your favorite charity or non-profit is also a smart strategy.
  • Final Wishes. Letting your children or beneficiaries understand your last wishes is wise and recommended. Where will you be buried or cremated? Where are your important documents? How do you track your online presence and passwords? Informing your loved ones today can avoid several problems tomorrow.

What if you will inherit assets from your Boomer parents? A financial windfall can alter your life in several ways. Like your parents, it’s paramount that you plan so you’re ready to settle their estate and allocate your new assets. Working with financial planners, attorneys, and CPAs can ensure your assets are protected and invested correctly. Also, please don’t spend the money before it’s credited to your bank or brokerage account because you might not inherit anything. I’ve worked on thousands of financial plans and always ask about inheriting money, and there have only been a few incidents where I’ve included it in a plan because most people don’t want to count their chickens before they hatch.

A financial plan, estate documents,  and family conversations can ensure a smooth transition for a difficult and complex topic. Please don’t wait until it’s too late.

Can we talk? ~ Joan Rivers

June 3, 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.