At lunch a few weeks ago, a friend said he didn’t want his son to be average. His comment struck me because all his kids do well in school and are exceptional athletes. I then spent time pondering the word – average. What is average? According to Merriam-Webster, it means a single value that summarizes or represents the general significance of a set of unequal values. It also states a level typical of a group, class, or series.
Do you know Marie-Josee Ta Lou? She is an Olympic sprinter from the Ivory Coast who finished 4th in the women’s 100-meter dash at the 2020 Olympics. Her time was 10.91 seconds – the average winning time of the eight runners in the race. By Olympic standards, she’s average. However, if she raced anybody else, she’d win. Is Ms. Ta Lou average?
The average score at the 2023 Masters was 286. Justin Rose finished 16th with a score of 286. Is Mr. Rose an average golfer? Do you think he’d win if he were in your foursome? I do.
The average height of an NBA player is 6 foot 7. Russell Westbrook is only 6 foot 3. He has below-average height, but if he showed up at your local YMCA to play basketball, he’d dominate the court. Would you be able to guard Mr. Westbrook? Doubtful.
Average is relative.
Some investors shun index funds because they generate market or average returns. Who wants average returns? If you could capture these returns, your account balance would grow substantially. Yet, most investors fail to do so and, as a result, produce below-average results.
The S&P 500 has averaged a 9.59% annual return for the past twenty years, turning $100,000 into $625,220. I know investors want to outperform the S&P 500, but most don’t. However, they can benefit from market returns. The S&P 500 soared 26.32% last year.
According to a 2022 Dalbar study, investors underperformed the S&P 500 by a wide margin. At the time of their report, the index was down 18.11%; the individual investor lost 21.17%, a difference of 3.06%.[1] According to Morningstar’s Mind the Gap report, investors underperformed mutual and exchange-traded funds by 1.7% annually for the past ten years.[2]
Why do individual investors constantly underperform the market? Here are a few reasons.
Emotions. Investors fall prey to greed and fear, buying high and selling low. When stocks rise, investors feel good and buy more stocks. When stocks fall, investors panic and sell their holdings. The best time to buy is when everybody else is selling and sell when others are buying.
No Plan. Investors without a financial plan are likely to react to headline news. Without a plan, it’s challenging for investors to have financial success.
Short-term thinking. Markets fluctuate, and no trend lasts forever. Focusing on recent, short-term market moves may cause investors to lose sight of their long-term goals.
Noise. TV shows, newspaper headlines, and social media posts will try to scare you out of your portfolio. Distracted investors make mistakes, so focus on your goals and tune out the noise.
Lack of accountability. A trusted advisor can help you navigate your finances, and a Certified Financial Planner™ can design a plan and portfolio for you and your family.
Buy-and-hold investors can capture average market returns if they dare to stay the course. Focusing on your goals and following your plan will pay substantial dividends. Average returns can deliver above-average wealth.
Invest for the long haul. Don’t get too greedy, and don’t get too scared. ~ Shelby M.C. Davis
January 19, 2024
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.
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. Past performance is not a guarantee of future performance.
Since starting my firm, I’ve completed hundreds of financial plans and reviewed thousands more over my career. However, several headwinds exist for individuals to complete a financial plan. A few obstacles include costs, time, and complexity.
Let’s examine a few challenges to starting and finishing a financial plan.
Costs. Many advisors charge thousands of dollars for a financial plan, a considerable amount to pay, especially since most of them use software packages from Money Guide Pro, eMoney, or Right Capital. If you’re an investor with a 401(k) plan, IRA, or brokerage account, you don’t need to pay exorbitant fees, an hourly rate, or a monthly subscription to get a solid financial plan. Our fee is a one-time expense of $800.
Qualification. It’s common for firms and advisors to exclude investors with assets below one million dollars or incomes less than $250,000. We work with any individual who needs financial guidance regardless of assets or income.
Insurance. Life insurance is not a cure-all, and investors do not need multiple whole-life policies, which is a common remedy if you work with an advisor at a brokerage firm or insurance agency. Warren Buffett said, “Don’t ask the barber whether you need a haircut, and be careful from whom you seek advice.” Our firm is independent, and we do not sell insurance or high-commission products and refer our insurance business to another trusted advisor if it suits our clients.
Time. Individuals don’t want to spend weeks or months working on their financial plan, nor do they want to meet dozens of times with their advisor. We have streamlined and refined our process to deliver your plan promptly and efficiently.
Invest. Some advisors incorporate an “invest or else” mandate concerning planning. They will provide a financial plan, but you must invest with their firm. It is a tool for them to sell you more products. Our financial plan is a stand-alone service, and you’re under no obligation to invest with our firm.
Procrastination. Tomorrow is a threat to your financial plan. The best time to start planning was yesterday, and the second best time is today.
Planning is essential for your financial success and is at our firm’s core. We aim to remove confusion and complexity from the planning process so you can pursue a life of purpose.
Happy Planning.
Plans are nothing: planning is everything. ~ Dwight D. Eisenhower
January 18, 2024
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.
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. Past performance is not a guarantee of future performance
Several years ago, I volunteered to build a church in Onaville, Haiti. Onaville is in the middle of nowhere and looks like the moon’s surface. It’s a dark place. When our team started building the church, a few locals would stop by to analyze our project, but as the week progressed, the site turned into a community gathering with food, music, and dancing. The residents of Onaville had a new church and gathering point. The church, as all churches do, was bringing people together. It was a gratifying trip for me and our team.
What will you do in retirement? It’s a common question I ask as we develop financial plans for our clients. I typically receive standard answers like traveling, fishing, or playing golf; few people mention volunteering. However, if you’re in, near, or contemplating retirement, consider a “career” as a volunteer. Volunteers are others-focused and have a strong sense of purpose and civic responsibility. They are also passionate, compassionate, empathetic, and energetic.
Are you curious about volunteering? Here are some facts.[1]
One in four Americans volunteers.
Women are more likely to volunteer than men.
People spend about 52 hours annually volunteering, or one hour per week.
Baby Boomers account for 37% of volunteers.
What percentage of nonprofits rely on volunteers? 100%.
Transitioning from retirement to volunteer takes planning and patience unless you have a history of serving others. In addition to feeling financially secure, you must allocate your time, which is a valuable commodity.
Here are a few ideas to help you become a permanent volunteer.
Plan. A financial plan will help you answer several questions about leaving the workforce.
Inventory. Take a personal inventory of your strengths and weaknesses to identify your traits, define your optimal serving opportunities, and ensure a good match. Here is a link to a strength finder to help you in your journey. My top two strengths are giving and serving. https://gifts.churchgrowth.org/spiritual-gifts-survey/
Passion. If you were financially independent, how would you spend your time? Who would you serve? What are your passions? What are your talents?
Time. It might be challenging to volunteer full-time, so start small. Find a few evening or weekend opportunities to get your feet wet. Working with several groups will help you refine and narrow your search when you’re ready to commit to one or two organizations.
Resume. If you have a history of serving, create a resume of your projects. A volunteer resume may help you find your passion. It may also help others help you find optimal serving opportunities.
Partner. If you’re unsure where to serve, ask a friend. If you have a friend or two who regularly volunteer, ask to tag along. One of the primary reasons people serve and give is because somebody asked them to help.
Search. A Google search for nonprofits or serving opportunities will identify numerous organizations seeking assistance.
I love serving others and look forward to volunteering full-time. I don’t know of a higher calling. Anybody can write a check to an organization, but committing time and talent takes a special person.
Happy Volunteering!
Just as the Son of Man did not come to be served, but to serve, and to give his life as a ransom for many. ~ Matthew 20:28
January 15, 2024
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.
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. Past performance is not a guarantee of future performance.
The 2023 Bull Market was the most hated in history as experts and investors watched with distrust as stocks soared to all-time highs despite numerous headwinds, like rising interest rates, high-profile bank failures, and wars in Ukraine and the Middle East. The Nasdaq jumped 43.42% last year, the sixth-best year in its history. The Dow Jones Industrial Average traded to all-time highs, and the S&P 500 came close.
After the 2022 stock market decline, many financial strategists had negative outlooks for 2023, from a stock market crash to a colossal recession, and investors waited patiently for these events to occur by parking more than $6 trillion in money market funds. The higher stocks climbed, the more money flowed into money market funds, waiting for the doomsayer’s predictions to come true, which never happened. I would argue that the Federal Reserve engineered a soft landing, and we are now in the midst of a Goldilocks economy with low unemployment, moderate interest rates, rising wages, and a robust economy.
Investors can create generational wealth if they own stocks, invest regularly, and avoid big mistakes. What’s a big mistake? It occurs when investors panic during corrections like 1987, 2000, 2008, 2018, 2020, or 2022. The October 19, 1987 crash was the worst since the Great Depression, yet the Dow Jones finished the year in positive territory. After the Tech Wreck, the S&P 500 climbed 66% from 2003 to 2007. It soared 141% after the Great Financial Crisis (GFC). The stock market crashed 31% in thirty days during the initial days of COVID-19, but from March 2020 to December 2021, it jumped 113%. If you stayed in the game, your assets recovered.
Interest Rates
Interest rates peaked last October as the bellwether US 10-Year Treasury Note traded above 5%. Interest rates spiked because the Federal Reserve aggressively raised them from 0% to 5.5% to fight inflation. Because of the rate hikes, short-term rates for US Treasury Bills jumped substantially, and when the Fed starts to lower rates, the rates on short-term investments will fall quickly. Historically, short-term interest rates hover near the inflation rate or approximately 3%. Despite all the Fed activity last year, intermediate and long-term interest rates were unchanged.
Bonds
During COVID-19, our government flooded the system with money and drove interest rates into the ground, and for several years, the yield on the US T-Bill was zero. Not normal. However, it’s not the first time interest rates have hit rock bottom – from 2009 to 2015, the rate was at or near zero. During the dark days of the Depression, T-Bills paid zero interest from 1938 to 1940. The 97-year average T-Bill rate is 3.7%.
From March 2022 to July 2023, interest jumped from zero to 5.5%, the fastest and steepest increase in history. When interest rates spike, stocks, bonds, and real estate prices fall. In fact, long-term bonds crashed 26% in 2022. It was the worst correction ever as the bond market was returning to normal, but in doing so, it left a lot of damage in its wake. From the COVID low, the yield on the one-month T-Bill soared 55,100%! It’s unlikely rates will climb that sharply again.
What does normal mean for you and your family? You can now enjoy better bond market returns with less volatility than we’ve experienced over the past several years. A stable bond environment benefits stocks and real estate as well. It’s now possible to receive income of 5% or more from several bonds and bond funds.
Models
Our simple but powerful models give us global exposure to stocks and bonds. They performed well last year; 80% of our households generated returns of 10% or more, and 99.47% of them made money.
We prefer holding a diversified portfolio of funds because we never know when, why, where, or how markets will turn. We can’t time the market. It’s similar to trying to predict the movement of a school of fish. It’s impossible.
If necessary, we rebalance our models weekly through Schwab’s iRebal system, which automatically scans our models, looking for changes. If one is detected, we rebalance the model to its original asset allocation to maintain a constant risk level.
We like stock exposure because they rise seventy-five percent of the time and always recover, as they did last year, despite corrections, rising interest rates, world wars, inflation, deflation, or politics.
Complicated investment strategies look good on paper because they promise huge profits and outsized returns, but it’s probably too good to be true. Most investors would benefit from a simple strategy of owning low-cost index funds in a diversified portfolio rather than focusing on challenging investment strategies.
Inflation
The inflation rate continues to decline and is approaching the 98-year average of 3% after peaking at 9% in 2022. Lower inflation benefits stocks and bonds. If inflation remains tame this year, interest rates will hold steady, if not fall.
Financial Planning
During the 2022 market correction, we relied on our financial planning process to encourage clients to remain invested, stay the course, and 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 future. Last March, we tested our client portfolios for a 50% market correction and a sustained 5% inflation rate to see how they would perform if conditions worsened. The exercise furthered our confidence that most accounts could survive our grim outlook, but what about the ones that could not? If a plan 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% or inflation to remain above 5%, and they didn’t.
Miscues
In 2022, I sold Meta Platforms, Intel, and Nvidia to recognize losses for clients because the stocks were down 64%, 48%, and 50%, respectively. It was the right decision then; however, Nvidia was up 238%, Meta jumped 194%, and Intel soared 90% – three of the best-performing stocks in 2023. Below is a two-year chart of their performance.
Conversely, I held Pfizer and Walgreens down 43.8% and 30%, respectively. Pfizer’s stock price soared from the 2020 lows to the 2021 highs as it delivered successful COVID-19 vaccinations but failed to capitalize on the windfall as other pharmaceutical companies focused on obesity drugs. On the other hand, Walgreens has been a disappointment for years. The catalyst for buying Walgreens was the potential spinoff of their Boots Alliance division, which COVID-19 disrupted.
I’m sure my 2025 annual letter will include several miscues, misses, or mistakes I made in 2024, but I hope not!
Election Year
According to Blackrock, the market has averaged 11.6% during election years from 1926, and since 1928, the market has risen in 20 of the 24 election years. Since Ronald Reagan’s election, the S&P 500 is up 2,670%, averaging 10.15% annually, in line with the historical returns.
According to Capital Group, there have been twenty 10-year rolling periods from 1936 to 2012 for those who’ve run the White House. Democrats have controlled eleven periods with an average annual return of 11.2%, and Republicans have controlled nine, with an average yearly return of 10.5%. Since 1936, the market has generated an average annual return of 10.28% under Democrats and Republicans.
I recommend remaining invested and not trying to time the market based on headlines or predictions regarding this year’s election, and I hope the election goes your way whether you’re red, blue, or purple.
2024
What can go wrong this year? Plenty. Potential risks to stocks include expanded wars in Ukraine and the Middle East, China invading Taiwan, and the US election in November. If inflation returns, the Fed will continue to raise interest rates.
Thank You
I appreciate your confidence in our firm, especially after 2022, when markets performed terribly. It takes faith to ride out an investment correction, but you did, and last year, your accounts rebounded markedly.
We know you have many investment and planning choices, and we are grateful to work with you and your family.
Janet
Janet is celebrating her seventh year with PWM and led our transition to Schwab, a year-long process, with much success. She has also helped many of you navigate Schwab’s login process, including downloading their app. Janet is at the heart of our service model.
Spencer
Spencer celebrated his second anniversary with PWM by passing the grueling Certified Financial Planners™ exam. He faithfully studied for two years and passed the exam in July – well done! Spencer spearheads our weekly podcast, A View from the Perch, which you can listen to on Spotify, Apple, and other platforms. You can also watch us on YouTube.
Starbucks Indicator
Our firm continues to grow, and so does our Starbucks indicator! Last year, it jumped by 13.75%. We now work with clients in seventeen states primarily because of your referrals, so thank you!
January 10, 2024
Love the Lord your God with all your heart and with all your soul and with all your mind and with all your strength. The second is this: Love your neighbor as yourself. There is no commandment greater than these. ~ Mark 12:30-31
In the early 1960s, my grandparents bought a beach house in Laguna – a turquoise beacon perched high above Main Beach with never-ending views. It was a safe place for me, far from the world’s troubles. After a hard day of boogie-boarding, body surfing, snorkeling, and Smashball, I would retreat to the balcony armed with a bag full of food from Taco Bell to watch another beautiful California sunset and ponder the day. All my fears and concerns would melt away as the sun set behind Catalina Island.
Investors need a safe place, too. I love equities, but they are volatile and unpredictable despite their long-term performance. A safe investment can protect against market crashes or uncertainty. What is a safe investment? Let’s look at a few haven trades.
Savings Accounts. A savings account is efficient because it’s typically paired with a checking account, and it’s easy to transfer money between the two, but the interest rates are low. However, it’s a tough account to beat if you must transfer money regularly between checking and savings.
Certificates of Deposit (CDS). CDs are popular because large money center banks like JP Morgan, Wells Fargo, and Citi primarily offer them to their customers. A CD is a logical investment if you have money in a bank savings account because the interest rates are higher.
US Treasuries. The US Treasury Bill, Note, or Bond is my safe investment recommendation. A Treasury offers attractive rates with tax benefits if you live in a state with state taxes like California or New York. Treasuries are more liquid than CDs, and it’s possible to profit from them when interest rates fall.
If you need money in one year or less or are concerned about the stock market’s volatility, park your money in a safe place like a savings account, CD, or US Treasury.
In times of crisis, different people react in different ways. Some might try to escape. Others might attempt to batten down the hatches and ride out the storm in a safe haven. ~ Cullen Bunn
January 11, 2024
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.
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. Past performance is not a guarantee of future performance.
According to Cerulli Associates, Baby Boomers may transfer $53 trillion to the next generation.[1] Are your kids equipped to handle the windfall?
Transferring assets to children or grandchildren is a common concern for our clients, so starting them early on sound money management principles is paramount. Here are a few suggestions to help you transfer wealth and prepare your kids for their inheritance.
Give your kids a weekly allowance. A weekly allowance allows your children to handle money regularly, giving them confidence when they are older. It’s beneficial to let them spend their money without restrictions.
Open a checking and savings account for your kids. Take them to the bank so they can deposit money into their accounts.
Give your kids a credit card when they start driving, and utilizing a credit card with spending limits while young can give them a credit history and the discipline to pay it off monthly.
Introduce your children to the power of giving. Let them select charities that are close to their hearts. A giving mentality will help those in need and allow them to focus on others. If your kids can donate money while they’re young, they will do it when they’re old.
Give your kids the annual exclusion. You can give away $18,000 per person.
If your kids generate earned income, open a Roth or traditional IRA to give them a headstart on fortifying their retirement savings.
Buy them a few shares of stock in their favorite company – Apple, Nike, LuLuLemon, Coke, Pepsi, McDonald’s, etc. Owning stocks will teach them much about the economy, business, and the stock market.
Consider hiring your children if you own a business. My grandparents owned a business, and I worked in the shop occasionally. My grandfather taught me how to use the machinery, while my grandmother introduced me to inventory management and accounting. I should have paid more attention to the latter.
Mastering responsible spending with smaller amounts of money lays a foundation for confidently managing more significant sums in the future. Of course, if they’re spendthrifts and spend with reckless abandonment, consider establishing a trust with a corporate trustee to handle their inheritance. A trust can ensure that their resources will last a long time.
Ultimately, your kids will model your financial behavior and spending habits. If you give to others, save often, and spend wisely, so will your kids. As John Maxwell said, “More is caught than taught.”
The best way to teach your kids about taxes is to eat 30% of their ice cream. ~ Bill Murray
January 3, 2024
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.
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. Past performance is not a guarantee of future performance.
