Risk Off

Cryptocurrency exchange FTX is imploding and needs to raise money, and it has halted customer withdrawals as it explores its options.[1] FTX sponsors the Miami Heat Arena and Major League Baseball, endorsed by Tom Brady, Gisele Bundchen, Steph Curry, and Shohei Ohtani. Its bright light attracted speculators like moths to a flame.

It appears that FTX commingled client funds with their trading firm, Alameda Research – a major no-no for US-regulated firms.[2] FTX is Bahamas based, out of reach of US regulators, and it’s unclear how investors will get their money back since most cryptocurrencies are not regulated.

The concern over FTX has dealt a blow to cryptocurrencies, exchanges, and institutional investors. Coinbase is down 82% this year, Bitcoin and Ethereum have fallen 58%r, the ProShares Bitcoin Strategy ETF has dropped 67%, and the Grayscale Bitcoin Trust has lost 74%. Sequoia Capital is writing down their investment in FTX to zero, a loss of $150 million, and Binance, another crypto exchange, will not rescue FTX and has backed away from discussions.

I don’t want to solely pick on cryptocurrencies because traditional assets like stocks and bonds are down significantly this year. The Nasdaq is down 31%, long-term bonds have dropped 34%, and all asset classes are struggling.

Risk arrives quickly and without warning, quickly wiping out years of gains. You can’t avoid danger if you own growth assets like stocks, real estate, or digital assets. To obtain higher returns, you need to risk capital. However, you can do some things to minimize your losses.

  1. The first rule of risk management is not to invest more money than you can afford to lose. Do not speculate with safe funds.
  2. If it is too good to be true, it probably is. Do not chase shiny objects with promises of oversized returns hyped by celebrities.
  3. Do not borrow money for speculation. Leverage is the best way to lose more than you intended when your investment goes south. The bank must get paid on time, regardless of how your investment is performing.
  4. Do not speculate on the money you need in one year or less. Today, you can buy US T-Bills with a guaranteed rate of 4%.
  5. Do not speculate with money earmarked for large purchases like a home, wedding, or college tuition.
  6. Take calculated risks. Do your homework, read the small print, and decide. Do not let friends, influencers, or actors pressure you to invest.
  7. If you want to speculate, limit your exposure to 3% to 5% of your investable assets. If you own $1 million in assets, your speculation budget is $30,000 to $50,000.
  8. If you plan to invest in private placements or illiquid investments, ensure your liquid assets can cover at least five years of your living expenses.

We crave instant gratification, and few people want to grow rich slowly. We are a culture of impatience, and the thought of waiting for anything is unacceptable, but if we move too quickly, we risk missing the details. Haste makes waste.

Fortune favors the brave. ~ Matt Damon, Crytpo.com commercial

November 10, 2022

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.wsj.com/articles/ftx-tapped-into-customer-accounts-to-fund-risky-bets-setting-up-its-downfall-11668093732?mod=hp_lead_pos2

[2] Ibid

Stay The Course

Stay the course is boring financial advice, and people hate it, especially when stocks fall. Doing nothing is challenging; it’s hard, and it feels like a cop-out. When stocks fall, clients want action; they want to rearrange the deck chairs and take control of the situation, but it could do more harm than good.

Most financial planners recommend a buy-and-hold strategy when managing money which is simple when stocks rise but challenging when they fall. It’s a popular recommendation because stocks rise about three-quarters of the time, and no one can time the market.

Pilots set their coordinates for their final destination and rarely diverge from their route unless necessary. They will change course to avoid storms or turbulence, but, for the most part, they keep the nose of their plane headed toward their target. This past summer, my wife and I drove thousands of miles visiting several national parks. Each day we’d set our GPS for the next park, and we did not deviate from the directions and arrived safely each time.  

I’ve gotten in trouble whenever I ignore a trail map while hiking, biking, or skiing. When my daughter was about ten, we went skiing at Crested Butte, and I decided to take her on an unmarked shortcut back to the ski lift. It did not go well. We got stuck in waist-deep powder and could not move. We had to forge our path; it took a long time before we could return to the trail. It was a scary ordeal.

A financial plan will help guide you to your destination by quantifying your goals, assessing your risk tolerance, and measuring your time horizon. It will lead you through a perilous market and treacherous economy. When markets are falling, and clients are worried about losing money, a financial plan can bring peace. The likely recommendation from the advisor is to remain calm and stay the course because of the plan.

Investors have liquidated nearly $100 billion from growth-equity mutual funds over the past year, likely transferring the money to a money market fund or savings account.[1] This strategy might be safe in the near term, but it could prove disastrous over time. The report ended on September 30, 2022, and since then, the Dow Jones has risen nearly 13%, its best monthly performance in more than 35 years! To get above-average returns, you need to stay in the market. As I’ve told clients, “If you’re not on the plane when it takes off, you’re not getting on.” Selling from a position of fear is not wise. If your plans change, then alter your investment strategy. However, if you don’t need your money and your goals remain intact, stay the course!

I recently met with an individual who is interviewing several financial advisors. He is looking for one who can trade the hottest and most popular sectors, in this case, energy and commodities. I informed him that we select a buy-and-hold portfolio based on his financial goals and do not trade sectors or chase securities. I then showed him a 10-year chart of how the Dow Jones Industrial Average destroyed commodities. He was not impressed and is convinced that there is an advisor out there somewhere who can time the market. I wished him well.

It’s a difficult market; returns stink, but stocks recover. Be patient, follow your plan, and stay the course.

What kind of man would live where there is no daring? I don’t believe in taking foolish chances, but nothing can be accomplished without taking any chance at all.” — Charles A. Lindbergh

October 28, 2022

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] YCHARTS Fund Flow Report – 9/30/2022

Return Expectations

Growing up, I was a picky eater and tried to limit my intake to peanut butter sandwiches, chips, and M&M’s. It worked for several years, but I needed to expand my palate as I grew older. My expectations for fruits and vegetables were low, but I began to appreciate more refined foods as I grew older.

Investment returns are abysmal this year as inflation rises to a 42 – year high. As inflation soars, so do interest rates forcing stocks and bonds to retreat. The S&P 500 is down 22.5%, its worst performance since the Great Recession in 2008, and investors expect further weakening.

Focusing on year-to-date returns is depressing, especially since stocks have fallen significantly. If we step back from the daily moves, we get a better picture of the long-term returns from stocks. Here is an extended view of S&P 500 returns.[1]

  • Three-Year Return: 24%
  • Five-Year Return: 44%
  • Ten-Year Return: 157%
  • Fifty-Year Return: 3,280%
  • Seventy-Year Return: 15,210%

Since 1926, the S&P 500 has generated an average annual return of 10.2%, long-term government bonds returned 5.3%, cash has gained 3.2%, and inflation averaged 3%. Let’s explore expected returns using historical data.

  • 100% stock allocation: If you allocate all your money to stocks, your expected return is 10.2%, and after subtracting inflation, your net return is 7.12% (10.2% – 3% = 7.2%).
  • 100% bond allocation: If you allocate all your money to bonds, your expected return is 5.3%, and after subtracting inflation, your net return is 2.3% (5.3% – 3% = 2.3%).
  • 100% cash allocation: If you allocate all your money to cash, your expected return is 3.2%, and after subtracting inflation, your net return is 0.2% (3.2% – 3% = 0.2%).

Allocating all your funds to one asset class does not make sense, so let’s explore a few asset allocation models using the same historical data.

  • 70% stocks and 30% bonds: The expected return is 8.73%, and the net return is 5.73% after inflation.
  • 60% stocks and 40% bonds: The expected return is 8.24%, and the net return is 5.24% after inflation.
  • 50% stocks and 50% bonds: The expected return is 7.75%, and the net return is 4.75% after inflation.
  • 40% stocks and 60% bonds: The expected return is 7.26%, and the net return is 4.26% after inflation.
  • 30% stocks and 70% bonds: The expected return is 6.77%, and the net return is 3.77% after inflation.

A diversified portfolio owns large, small, and international stocks, short, intermediate, and long-term bonds, and it may hold an alternative asset class like real estate. In a diversified portfolio, one investment is always down; if there isn’t, the portfolio is not diversified. We must apologize for at least one asset class that loses money each year. A typical Wall Street saying is, “Diversification means always having to say you’re sorry.”

Warren Buffett’s holding period is forever, and that’s why he is worth $100 billion. He does not get rattled when stocks fall and has said, “Be greedy when others are fearful.” When we build portfolios, we choose the most prolonged time horizon possible for our review to account for various economic and market cycles. Sometimes, the data goes back more than a hundred years, and we’re not concerned with daily, weekly, monthly, or yearly returns because we think generationally.

A financial plan is a vital component for successful investors, and it will quantify your goals and determine your asset allocation. During difficult economic times, we encourage our clients to follow their financial plans and not lose sight of their goals. If your financial plan is working, there is no need to abandon it or your investment portfolio.

Here are a few suggestions to help you with your investments.

  • Think generationally.
  • Expand your time horizon when reviewing your portfolio.
  • Follow your plan.
  • Rebalance your accounts.
  • Don’t panic.
  • Buy the dip.

As markets oscillate, focus on your financial goals because your future self will thank you.

What the hell is a gigawatt? ~ Marty McFly, Back To The Future

October 20, 2022

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] DFA Matrix Book and Returns Web

Seven Deadly Sins

Here are seven deadly sins to avoid as markets pirouette uncontrollably.

  1. Panic. If you panic and sell your stocks, you could permanently damage your long-term financial goals.
  2. Financial Plan. A financial plan provides benchmarks, goals, and targets to keep you focused on your future. If you don’t have one, you invest blindly and rely on luck.
  3. Cash Balance. A large cash balance provides comfort as stocks fall, but it’s a long-term drag on performance and loses its value to inflation over time.
  4. Rebalancing. Rebalancing reduces risk. If you don’t rebalance your account during market corrections, it may be too conservative when the recovery comes.
  5. Recovery. The stock market has always recovered. It may take days, weeks, months, or years to recover, but it always has rebounded. If you liquidate your portfolio, you may miss a powerful bounce.
  6. Spending and Savings. If you spend too much and save too little, you could impair your financial future. Spending and saving are the only things you can control; everything else is beyond your reach.
  7. Lack of Faith. I know God is in control, I believe in America, and I trust free markets. Faith is paramount.

For our light and momentary troubles are achieving for us an eternal glory that far outweighs them all. So we fix our eyes not on what is seen, but on what is unseen, since what is seen is temporary, but what is unseen is eternal. ~ 2 Corinthians 4:17-18

October 13, 2022

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.

100 Years of Data           

When will the market recover? When will inflation fall? Will interest continue to rise? These are the three questions clients ask about the current state of the economy. These are reasonable questions, but I don’t have any idea. I do have, however, 100 years of data to support my thesis that stocks will eventually recover and inflation will subside.

Stocks

Since 1926, the S&P 500 has averaged 10.07% per year despite wars, recessions, corrections, and politicians. The market has risen approximately three-quarters of the time, or three out of every four years, which means one-quarter of the time it falls. The S&P 500 has a winning percentage of 750%. The New York Yankees are considered the best major league baseball team in history, winning 27 World Series titles, and their winning percentage is only 570%. If the market finishes in negative territory this year, it will be the thirteenth time in the last fifty years, in line with historical averages. Since 2015, the S&P 500 has lost money in four calendar years, including this year. In other words, it made money 73% of the time. I don’t know when the market will recover, but I like my odds.

Inflation

Inflation has averaged 3.26% dating back to 1914. In the past, an increase in inflation resulted from an event like WWI, WWII, or the Arab Oil Embargo. I believe the recent spike is due to COVID, supply chain issues, and our government’s response to the shutdown. After each spike in inflation, it started to decline almost as fast as it climbed. We are already seeing signs of inflation easing at the gas pump, shipping containers, and used-car prices.

Interest Rates

Interest rates continue to rise in response to rising inflation. The one-year US T-Bill yields 4.19%; last year, the yield was .09%, an increase of 4,555%. Since 1871, the average long-term interest rate has been 4.49%. And from 1871 to 1967, the rate mostly stayed below the average. It wasn’t until 1967 that rates climbed significantly, rising from 4.59% to a peak of 15.32% in 1981. After the peak, interest rates fell 93% from 1981 to 2020. In 1994, the Federal Reserve increased interest rates by 100% from 3% to 6% before lowering them in 1995, which started an epic run for stocks where they soared 226% from January 1995 to April 2000.

I believe in reversion to the mean, and I expect stocks to rise and inflation and interest rates to fall, but I don’t know when it will happen, but I have one hundred years of data on my side.

History never repeats itself, but it does often rhyme. ~ Mark Twain

October 7, 2022

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. Though the Yankees are the winningest team in MLB history, I expect the Dodgers to win this year’s world series.

Finish Your Race

In 2015, I ran the San Diego Rock ‘n’ Roll Marathon. I turned 50, and my goal was to finish the marathon in 3 hours and 15 minutes. I was on pace for the first 23 miles, but the next few miles required a significant hill climb to the finish line. It was soul-crushing, and I did not hit my target, but I ran a personal best time of 3 hours and 21 minutes – not bad for an old guy! If I did not set the ultimate goal of finishing the marathon, I would’ve quit before the hill climb. However, I kept my feet moving and crossed the finish line in record time.

In 2007, I recommended balanced, diversified investment portfolios to clients. The models consisted of large, small, and international stocks and included cash, bonds, and real estate holdings. The models were globally diversified, similar to our investment models today. The models performed well until the Great Recession when the S&P 500 dropped more than 50%, a sixty percent stock and forty percent bond portfolio fell by 41%. A few clients panicked and sold in 2008 and 2009. They took their eyes off their goal and did not finish the race. If they remained invested, they could have doubled their money.

The sixty model doubled in price from January 1, 2007, to September 30, 2022, despite the crash in 2008, a double-digit loss during the fourth quarter of 2018, the COVID correction, and the recent sell-off. Investors who sold and bought a short-term bond fund like the iShares 1- 3 Year Treasury Bond Fund (SHY) earned 1.73% during that same period. The “safe” option turned out to be a poor choice.

Successful investing requires goals, patience, endurance, courage, and wisdom. If you don’t have a plan, you will likely abandon your investments when times get challenging. A plan can keep you focused and grounded on your financial goals, allowing you to benefit from the long-term growth of stocks.

Obstacles are those frightful things you see when you take your eyes off your goal. ~ Henry Ford

October 3, 2022

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. My previous PR occurred at the Boston Marathon in 2011, where I finished the race in 3:22.

Investing Is Easy

I recently read a post where an advisor said investing is easy, and he recommended buying two or three index funds and holding them forever. While I agree with his thesis, investing is challenging because it requires emotional fortitude, and that’s where we fail. To create generational wealth, you must buy and hold stocks through the down years, which is the hard part. Shelby Davis said, “You make most of your money in a bear market; you just don’t realize it at the time.”

Since 1926, the S&P 500 has generated an average annual return of 10%, but to receive this return, you had to start investing 96 years ago, allocate 100% of your assets to stocks, and never sell. I doubt this person exists. This year, US stocks are down 18.5%, international equities have fallen 23.2%, and global bonds have dropped 13%. A traditional 60% stock and 40% bond portfolio is down 14.5%. Long-term gains come from short-term pain because risk and reward are related.

Advisors compile raw data and say if you had bought XYZ fund ten years ago, you’d be up X% today, but the numbers do not capture the emotional component of the investor. Emotions make investing difficult. I can access hundreds of thousands of data points, but it doesn’t matter if a client is losing money and panicking. Their primary concern is getting out of the market, and they could care less about historical data.

From 1961 to 1979, inflation soared from 0.7% to 13.3%, an increase of 1,800%. During that time, the S&P 500 produced an annual return of 7.2%, international stocks averaged 9.8%, and long-term bonds gained 2.95% per year. US stocks lost 39% from 1973 to 1974, long-term bonds dropped 12.5% from 1968 to 1969, and international stocks fell 56% in 1975. A few years later, you met the stock market crash in 1987, the Gulf War in 1991, the Tech Wreck in 2000, the Great Recession in 2008, COVID in 2020, and the current correction. However, if you still own your investments from 1961, your equity returns averaged 10.36%, international stocks returned 10.8%, and long-term bonds produced an average annual gain of 6.52%. Small-cap stocks delivered an average annual return of 12.7%. Time in the market wins.

Picking a few funds or stocks is easy, but managing your emotions is challenging. We are our own worst enemies.

Here are a few suggestions to help you improve your investing program.

  • Create a financial plan. Your financial plan quantifies your goals and dreams and can keep you grounded when stocks and bonds fall. It can change your time horizon from days to decades and keep you focused on what is important to you and your family.
  • Ignore the media. Media outlets and social media sites constantly post news about markets, especially when falling. Markets in turmoil? If you want to buy or sell a stock because of a media story, wait a few days to ensure it is the correct decision. In addition, write down the reasons why you want to buy or sell an investment.  
  • Diversify your assets. A balanced portfolio of stocks and bonds, diversified across countries and sectors, and asset classes, allows you to weather financial storms better than concentrated portfolios.
  • Keep your costs low. Buying index funds with low fees and avoiding excessive trading can improve your long-term results.

Investing is difficult, but you can improve your odds by following your financial plan, buying low-cost index funds, and extending your time horizon.

We have met the enemy, and he is us. ~ Pogo

September 21, 2022

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.

In Hindsight

In hindsight, I should have sold all my stocks in January to avoid massive losses in my account. I could have traveled the world, bought a vacation home, or retired with the money I’ve lost in the market this year. It seems obvious now that stocks are down because interest rates are rising, inflation is climbing, countries are fighting, and the supply chain is tightening. The writing was on the wall. The S&P 500 Index is down 19% this year, and the trend appears to be lower, so maybe I should sell now and buy US Treasures to avoid further losses – that makes sense.

At the beginning of the year, the 1-Year T-Bill yielded 0.40%; it now yields 4%, an increase of 890%. Last year the S&P 500 Index returned 29%, so why would I want to sell my stocks and buy T-Bills paying 0.40%? I was convinced stocks were going higher. So far, the tables flipped this year as T-Bills earned 4%, and stocks lost 20%. In hindsight, I should have sold everything.

The Federal Reserve raised interest rates 100% from 3% to 6% in 1994, and stocks barely budged, returning a paltry 1.3%. If I sold my stocks while the Fed was tightening, I would have missed a 37.6% return in 1995, a 23% return in 1996, a 33.4% return in 1997, a 28.86% return in 1998, and a 21% return in 1999.

I should have sold my stocks In March 2020 during COVID because the pandemic shut down the world, but had I sold, I would have missed an 18.4% return that year and a 29% return last year.

I should have sold my stocks during the Great Recession, where stocks fell 37% in 2008, but I would have missed a 329% return from 2008 to 2022.

I should have sold my stocks during the Tech Wreck, where stocks fell 43%, but I would have missed a 340% return from 2003 to 2022.

I should have sold my stocks before the Gulf War in 1991, as stocks fell 3% in 1990. If I had sold, I would have missed a 1,007% return from 1991 to 2022.

I should have bought stocks in 1982 when I started working part-time for my grandfather’s company. I did not earn much, but I could have created a monthly dollar cost averaging program to take advantage of buying stocks while they were down. Since 1982, the S&P 500 has averaged 12.3% per year and jumped more than 3,000%! A $100,000 investment is now worth more than $3.1 million!

The US T-Bill is the safest investment in the world and has never lost money over the past 95 years. If you crave safety, look no further. Since 1926, it has averaged 3.3%, and so has inflation, so your net return is near zero. A $1 investment in 1926 is now worth $21.

The S&P 500, on the other hand, is volatile and loses money often, about once every four years, and in some decades, it earns nothing. For example, from 2000 to 2011, it averaged 1.7%. From 1969 to 1975, it returned 1.6%, and during the Great Depression, it took more than fourteen years to breakeven. However, since 1926, the S&P 500 has averaged 10.5% per year, and $1 is now worth $14,076, or more than 67,000% times the T-Bill!

Shoulda, coulda, woulda, is a terrible disease, and it can drive you crazy because no one knows what will happen tomorrow, not even the experts on CNBC. If you need money in one year or less, buy T-Bills; if your time horizon is two to three years or more, buy stocks.

It is challenging to buy and hold stocks, but markets eventually rebound. In the meantime, follow your plan, diversify your assets, think long-term, and good things will happen.

For the record, I still own my stocks, and my asset allocation is 75% stocks and 25% bonds, where it has been for the past thirty years.

I’ve had a lot of worries in my life, most of which never happened. ~ Mark Twain

September 17, 2022

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management, located 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 you 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. We have waived our financial planning fee for the remainder of the year, so your cost is $0.00.

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. I didn’t buy stocks in 1982 because I had no clue what they were.

A Walk In The Park

My wife and I recently returned from our vacation, where we visited several national parks, including Arches, Canyonlands, Zion, and the Grand Canyon. It was a fantastic trip where we hiked trails, gazed at stars, and waded in rivers. The vistas and canyons were breathtaking.

Most trailheads posted ominous warning signs about running out of water or food, encountering rattlesnakes, or falling into a canyon. The Bright Angel Trail in the Grand Canyon was our most challenging hike. It has rest stops about every 1.5 miles, and most publications recommend hiking to the three-mile rest stop before returning to the canyon’s rim, and that’s what we did. We started our hike at 6:00 in the morning to beat the heat and throng of hikers. When we reached the three-mile point at 8:00, there were two gentlemen in the rest house, one sleeping. His hiking partner said they had been hiking for two days when his friend had stopped eating, and now they were waiting for the rescue helicopter and park rangers. It was only 8:00 in the morning, and it was the third rescue of the day! As my wife and I climbed out of the canyon, we saw the helicopter land on a tiny sliver of rock to rescue the hiker. It was a frightening reminder of how quickly things could change while hiking.

Before our trip, we spent several days and hours planning our hikes to ensure we had enough water, food, and maps. We mapped our routes and picked our trails, and our goal was to hit the trailheads before 6:00 to witness beautiful sunrises, especially at the Windows Arch. Our pre-planning paid dividends and allowed us to enjoy the parks confidently and safely.

There are numerous analogies to hiking and investing; below are a few that may help you with your investment strategies.

  • Planning. A financial plan is like a trail map, guiding you to various points, alerting you to trouble, and giving you hope for the future. You ask for problems if you hike in a national park without a trail map, and if you invest without a financial plan, you can suffer a similar fate, though you might not notice your errors until several years later.
  • Patience. As we hiked the Bright Angel Trail, we stopped every half mile to drink water and catch our breath. We weren’t in a hurry. Successful investing could take years before you see significant results, especially when the stock market is not cooperating, like this year. It takes patience and wisdom to buy and hold stocks and bonds through challenging markets, but those that do will eventually reap the rewards.
  • Goals. Our hikes had specific goals and targets. We knew how many miles to hike on a given day and trail, and when we reached our destination, we turned around and returned to the trailhead. We did not venture off trail or go beyond our stopping point. When you invest, it’s paramount to have goals to know when to stop and enjoy the fruits of your labor. Do you want to retire early or buy a beach house? Do you want to travel the world or read books all day? Whatever your dreams are, write them down and commit them to your plan.
  • Risk. As I mentioned, each trail we hiked listed dire warnings. We also knew which routes to avoid, like Angel’s Landing in Zions. Risk and reward are related, and we were compensated with thrilling hikes and beautiful vistas while walking on the sides of cliffs. Stocks are risky investments and can fall without warning. Stocks are posting horrible numbers this year, and most investors are losing money, but you must occasionally endure a few bad years to generate long-term wealth. If you can’t stomach significant losses, reduce or eliminate your equity allocation. Also, if you need your money in one year or less, do not buy stocks; keep your money invested in US T-Bills. Knowing your limits is essential if you want to be a successful investor.
  • Review. After each hike, we reviewed our itinerary and made changes based on what we saw. We added new hikes and eliminated others. We decided to visit Dead Horse Point in Utah after looking at our maps and talking to other hikers, and I’m glad we did because it was stunning. Reviewing your accounts and trading history can help you identify opportunities or eliminate risks.

Our national parks are treasures, open to everyone, and offer beauty not found in other parts of the world. To truly enjoy a park visit, you must hike where others don’t, and according to some, 90% of visitors never leave the road.[1] To be a successful investor, you must do what others won’t, like buy stocks as they fall.

“The story is, a man came up to Yosemite, and the ranger was sitting at the front gate, and the man said, “I’ve only got one hour to see Yosemite. If you only had one hour to see Yosemite, what would you do?” And the ranger said, “Well, I’d go right over there, and I’d sit on that rock, and I’d cry.” ~ Dayton Duncan

September 14, 2022

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management, located 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 you 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. We have waived our financial planning fee for the remainder of the year, so your cost is $0.00.

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. Thelma & Louise was filmed at Dead Horse Point, and the park is used as a stand-in for the Grand Canyon.


[1] https://talesfromthebackroad.com/90-percent-of-national-park-visitors-never-leave-road/, Mary Horne, 10/1/2017

Real Estate Is Crashing!

According to Zillow, the value of my home fell 6.2% last month. I was shocked because I thought real estate always went up, especially in Austin, Texas, the home of Longhorn football, BBQ, live music, and weekend bridal shower parties. Is it time to panic and sell my home?

The recent housing data is terrible, as housing starts have fallen 20% from the April peak, and existing home sales are down 26% from January. Mortgage rates increased 84% from last year, and the current 30-year rate is 5.13%. The combination of rising interest rates and inflation is making homes less affordable.

Real estate is volatile but not as visible as stocks because homes don’t trade on a public exchange. However, Zillow and a few other real estate sites now post estimated home values and recent price changes, so you can track your home value if you want. The Case Shiller Home Price Index compiles valuation data from several markets, including a national average. Since 1987 the index has risen 304% despite a 20% correction during the Great Recession from 2007 to 2009.

Should I sell my home? Of course not. I don’t care the value fell by 6.2% last month because it has soared 109% since 2013, and I’m not moving for several years, and I know it will rebound as most homes did from the previous recession. I will not panic and make a poor financial decision because the price dropped, and if I ask most people if I should sell my home because the price has fallen, they would tell me I’m crazy because real estate always rises. In fact, they would consider it foolish and unwise.

Yet, when stocks fall, people panic and sell their holdings, moving to cash to avoid a further meltdown. The S&P 500 lost 8.25% in June, and investors sold billions of equities. What happened in July? The S&P 500 surged 9.25%. Since 2018, the index incurred seven monthly drops of 6% or more, and each time it recovered. In December 2018, it crashed by 9.03% but climbed 17.2% over the next four months, and over the past decade, the S&P 500 jumped 255%.

I’m not sure why people panic and sell stocks when they fall, but they do. Stocks and real estate are growth assets, creating generational wealth if you hold them through all market cycles. If people treat stocks like homes, fewer people will sell them when they fall, and some might even buy the dip. I believe real estate investors do well because they own their home for decades, don’t track the value daily, or panic if it drops. Also, it is a hassle to move from one home to another. I believe that real estate returns would be considerably less if you could buy or sell a house with a click of a mouse as they do with stocks.

Investors relish real estate because most have made money over time, especially if they live in a desirable location like Bend, Oregon, or Alpine, Wyoming. However, since 1990, the S&P 500 has trounced the Case Shiller Home Price Index by 1,903%.

Here are a few suggestions to help you improve your stock market returns.

  • Treat your stock holdings like real estate, and own them for decades.
  • Review your investment accounts annually.
  • Rebalance your accounts as needed.
  • If you don’t need the money for three to five years or more, buy stocks when they fall.
  • Analyze your stock holdings on weekends so you can’t trade them instantaneously.
  • Document the reasons why you want to buy or sell your equity investments.
  • If you want to sell stocks during a market selloff, wait a few days because they could rebound.
  • Since 1926, stocks have averaged a 10% annual return, but it has not been in a straight line. Incorporate a buy and hold mentality so you can capture the long-term return from stocks

I know my home will recover because everybody is moving to Austin, so it’s only a matter of time before it starts to rise again. In the meantime, I will continue to mow the lawn, vacuum the house, and pay my property taxes.

Location, location, location. ~ Anonymous

August 24, 2022

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management, located 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 you 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. We have waived our financial planning fee for the remainder of the year, so your cost is $0.00.

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. I’m a California transplant by way of Connecticut living in Austin.