Do You Make These Investment Mistakes?

The market is volatile, interest rates are falling, inflation is rising, and the Delta Variant is surging.  The Dow Jones fell 725 points on Monday, but it rebounded 549 points on Tuesday. The US 10-Year Treasury yield dipped to a recent low of 1.13%, despite the inflation rate touching 5.39%. And in Florida, COVID cases are climbing again. As headline risks multiply, you may be prone to make some forced errors that could impact your financial future.

Do you make these investment mistakes?

  • Do you panic when stocks fall 1% to 2%? It isn’t easy to create wealth if you sell every time stocks fall. Panicking is a wealth killer. Rather than selling stocks when they’re down, use it as an opportunity to buy great companies at lower prices.
  • Do you participate in your company’s retirement plan? If your company offers a retirement plan and you don’t participate, you’re leaving tens of thousands, if not millions of dollars, on the table. You’re allowed to contribute $19,500 to your 401(k), and if you’re fifty or older, you can add another $6,500. Investing $19,500 for forty years can grow to more than $4 million by the time you’re ready to retire. If you can’t afford to max out your retirement plan, then contribute whatever you can – every bit counts.
  • Do you match the match? If your company offers a 5% match to your 401(k), but you only contribute 2%, you’re missing an extra 3%. If your salary is $100,000, then 3% is $3,000 per year, which can add up to more than $600,000 during your working career.
  • You are not contributing after-tax dollars to your 401(k) plan. If you max out your 401(k) contributions, you can contribute to an after-tax account if your employer allows it, substantially increasing the amount of money in your retirement plan; in some cases, you can add an extra $38,500 per year. Some call this strategy the mega back door Roth.[1]
  • Are you too conservative? If your time horizon is ten years or more, own stocks. According to Dimensional Fund Advisors, stocks made money 95% of the time over continuous ten-year rolling periods from 1926 to 2018 and produced an average annual return of 10.4%.[2]
  • Are you too aggressive? Investing in stocks when you need money in one year or less is a mistake. In the short term, stocks are violent, volatile, and unpredictable. If you want to buy a home, pay for a wedding, or take a trip in one year or less, park your money in cash or bonds.
  • Are you impatient? Creating wealth requires patience. It can take years or decades for your wealth to grow, so don’t get impatient if you don’t experience early success.
  • You aren’t diversified. Diversification is considered the only free lunch on Wall Street. If one investment zigs, another will zag. Asset allocation accounts for 93.6% of your investment return. The remaining 6.4% comes from market timing and investment selection.[3]
  • Ignore small-caps. Small-company stocks outperform large-company stocks. The Dimensional U.S. Small Cap Value Index averaged 13.1% from 1928 to 2020. A $1 investment is now worth $92,668.  The Dimensional Large-Cap Value Index averaged 11%. A $1 investment in this large-cap index is now worth $17,022.[4]
  • You attempt to time the market. Timing the market is impossible. If you invested $1,000 in the S&P 500 in 1970, it grew to $139,000 at the end of August 2019. However, if you missed the 25 best days from 1970 to 2019, or 18,139 days, your investment only grew to $32,763.[5]
  • You are investing with active fund managers. Passive index investing is better than active stock picking. The Standard & Poor’s study of passive vs. active reveals that over 15 years, 95% of active fund managers fail to outperform their benchmark, also the case for 1, 3, 5, and 10 years.[6]
  • You are only investing in US stocks. International stocks account for 43% of the world’s equity market capitalization, and if you only invest locally, you’re missing half of the world’s best investment ideas.[7]
  • You are not rebalancing your accounts. If you rebalance your portfolio, you’ll keep your risk level and asset allocation intact.
  • You are not automating your investments or payments. Automate everything like investing, paying your bills, and rebalancing your accounts. Reducing human error can improve your odds of financial success.
  • No Financial Plan. According to one study, individuals who complete a financial plan have three times the assets of those who do little or no planning.[8] Investing without a financial plan is like building a home without a blueprint. Good luck.
  • You are not working with a financial advisor. A study by Vanguard quantified an advisor relationship can add 3% in net returns.[9] An advisor can help with financial planning, estate planning, investment planning, charitable planning, and much more. 

We are our own worst enemies when it comes to investing and creating wealth. If you have a financial plan, diversify your assets, rebalance your accounts, invest often, good things can happen.

Happy Investing!

It’s good to learn from your mistakes. It’s better to learn from other people’s mistakes. ~ Warren Buffett

July 21, 2021

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets.

Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor. Happy anniversary to my parents – 58 years today!


[1] https://www.wsj.com/articles/a-little-known-back-door-trick-for-boosting-your-roth-contributions-11625848733, Anne Tergesen, July 9, 2021

[2] Dimensional Fund Advisors 1926 to 2020

[3] Determinants of Portfolio Performance, Financial Analyst Journal, July/August 1986, Vol 42, No. 4, 6 pages; Gary P. Brinson, L. Randolph Hood, Gilbert L. Beebower.

[4] Ibid.

[5] https://my.dimensional.com/what-happens-when-you-fail-at-market-timing

[6] https://us.spindices.com/documents/spiva/spiva-us-year-end-2016.pdf

[7] DFA 2021 Matrix Book

[8] http://www.nber.org/papers/w17078

[9] https://www.vanguard.com/pdf/ISGQVAA.pdf

Should You Own Bonds?

Long-term interest rates are near historic lows. In 1981, rates peaked at 15.32%; today, they’re 1.37% – a drop of 91%. The yield on the US 10-Year Treasury Note is currently 1.3%, and the inflation rate is 4.99%, so if you bought a bond today, your real rate of return is negative 3.69%. Negative interest rates aren’t too compelling.

Investors buy bonds for income and safety, especially in retirement, as stocks are considered risky investments. Bondholders have enjoyed generous returns since 1981 as interest rates fell because when interest rates drop, bond prices rise. For example, if you buy a 30-year bond for $100 paying 5%, and interest rates fall to 2%, the price of your bond would soar to $229. Bond fund managers have enjoyed a one-way trade for the past forty years, but now that rates are near all-time lows, is the party finished? And if the party is over, does it make sense to own bonds in your portfolio?

In 1982 bond prices soared 40%. It was the beginning of the end for bondholders; it just wasn’t evident yet. If bonds continue paying real negative rates, are they safe? When interest rates start to rise, bond prices will fall. For every 1% interest rates rise, the price of a 30-year bond will lose 16%.

However, don’t be quick to jettison your bonds. During the lost decade of 2000, bonds outperformed stocks by nearly 90%. Vanguard’s Total Bond Index rose 80%, while the S&P 500 lost 10%. Bonds can add protection to your account when stocks crash. If you have a balanced portfolio, you can sell your bonds to buy stocks. For the most part, bonds and stocks are negatively correlated – when one rises, the other falls.

Also, adding bonds to your investment accounts will lower your risk level. According to Riskalyze, a 100% stock portfolio dropped 53.1% during the Great Recession, whereas a portfolio consisting of 60% stocks and 40% bonds fell 34.2%, or 36% less than the all-stock portfolio. So, if you want to reduce risk in your portfolio, add bonds.

Most of us already own a substantial bond portfolio in the form of Social Security. For example, if you receive $24,000 in annual benefits, this is equivalent to owning a $2.4 million bond portfolio if interest rates are 1%. Also, your Social Security benefits increase with the cost of living. Last year the adjustment was 1.3%, and in 2022 it may climb 6.1% – the most in forty years![1] If you consider Social Security as part of your portfolio, it reduces the need to own bonds.

Few people have the stomach to handle an all-stock portfolio, especially during challenging market environments like the crash of 1987, the Tech Wreck, the Great Recession, or the Covid Correction. It’s easy to hold stocks when they rise 10% to 20% per year, not so much when they fall 40% or 50%. When investors are scared, and fear is high, they sell stocks to buy bonds. As they say, anybody can sail a ship when the seas are calm.  

I still recommend diversified portfolios because no one knows which asset class will perform well in any given year. Diversifying your assets across sectors is still a prudent strategy, but think about reducing your bond allocation if you’re a long-term investor with diamond hands and a strong stomach.

“Confronting a storm is like fighting God. All the powers in the universe seem to be against you and, in an extraordinary way, your irrelevance is at the same time both humbling and exalting.” ―Francis LeGrande

July 14, 2021

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets.

Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor.


[1] https://www.cbsnews.com/news/social-security-cola-2022-increase-biggest-nearly-40-years/, Aimee Picchi, July 13, 2021

Financial Independence

As we approach Independence Day, I pondered what it means to be financially independent. Warren Buffett and Charlie Munger are still working; are they financially independent? What about Whitney Wolfe Herd or Robert Johnson or Jeff Bezos? If billionaires are still working, does it mean we need several billion dollars to be independent? I doubt it, but let’s crunch some numbers to find out.

Other terms for independence include self-reliance, autonomy, and freedom. Self-reliance stands out because if I’m financially independent, I rely on myself[1] to make ends meet, not a job, government assistance, or family support. If I retire from my vocation to take a less stressful job as a cabana boy at a beach club to cover my expenses, I’m not independent; I just changed jobs.

Retiring from your day job requires courage and financial assets. How much do you need to retire comfortably? The answer varies greatly, but, at a minimum, you need enough money to cover your living expenses. For example, if you spend $100,000 per year, you need enough assets to generate income to cover your costs. To produce an annual income of $100,000, you will need about $2 million to $2.5 million in assets. If your account balance is $2.5 million and you need $100,000 to live, then you’re financially independent. If you’re curious about your specific number, multiply your expenses by 20 or 25.

To start your journey towards financial independence, calculate your annual spending. Where does your money go? How much do you spend? After reviewing your expenditures, can you reduce or eliminate items from your budget because the less you spend, the less money you need to save.

What can you do if you’re not financially independent? If you’re short of your goal, reduce your spending, increase your savings, and allocate more money to stocks. Let’s say you’re forty, and your goal is to become financially independent at age sixty. After calculating your expenses, you determined you need $5 million. If your current account balance is $1 million, you need to save $1,845 per month to reach your target. Of course, you can retire whenever your account balance touches $5 million, regardless of your age.

Saving money is your best investment strategy, and the more you can save, the better. Contributing to your company retirement plan, an IRA, and a brokerage account provides several income distribution options when you’re ready to stop working. Automating your savings plan allows you to manage your cash better, eliminating human error and emotions.

Investing in stocks eclipses bonds and cash. For the past five years, stocks produced a return of nearly 100% compared to 4% for bonds and .06% for T-Bills. Since 1926, stocks generated an average annual return of 10.3% compared to 3.3% for U.S. T-Bills.[2] If you want to achieve financial independence, you must own stocks.

However, don’t kill yourself by chasing financial independence. Life is to be enjoyed and shared with others, don’t live like a pauper. What’s the point of becoming independent if you’re living in the middle of nowhere eating SPAM® every day? Instead, set a reasonable goal and timeline that allows you to live for today and dream for tomorrow.

If you live for having it all, what you have is never enough. ~ Vicki Robin

July 1, 2021

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets.

Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor.


[1] In a human sense, not a spiritual one. I am the vine; you are the branches. If you remain in me and I in you, you will bear much fruit; apart from me you can do nothing. ~ John 5:15

[2] DFA Matrix Book 2021

Black Sheep

I loved Brewster’s Millions starring Richard Pryor and John Candy. Richard Pryor’s character had to spend $30 million in thirty days to inherit $300 million. A nice problem to have, I guess.  

Estate planning is vital, especially if you want to efficiently pass your assets to the next generation, but what to do if a family member is a black sheep, a bad seed, a wayward child, a lost soul, or a spendthrift? The easy thing to do is eliminate them from your will, but it’s not the correct answer because it may cause permanent damage to your family.

If you’re concerned your child will recklessly spend their inheritance, there are several actions you can incorporate today to protect your nest egg and the relationship. Let’s look at a few.

  1. Establish a spendthrift trust. It’s an irrevocable trust that limits the beneficiary’s ability to access the principal.[1] Your trustee will pay out a percentage of the trust assets according to your wishes. The trust protects your principal, and your child receives the assets over time.
  2. Set milestones or incentives. You can include targets, limits, or restrictions into your will or trust. For example, your estate can pay a percentage of the assets every five or ten years. It can distribute more funds to your child as they grow older, so they receive more money at age 50 than they did when they were 30. Other targets may include marriage, a job, or a college degree. It’s your estate, so you can get as creative as you want.
  3. Give them money today. If you’re worried your child will implode when they inherit millions of dollars at once, give them a few thousand dollars now to see how they steward the assets. If you’re confident they can manage money prudently, amend your estate plan accordingly.
  4. Communicate your concerns. Discuss your estate plan with your children and voice your concerns. An open dialogue is a healthy way to manage a difficult situation. Don’t let your children try to figure out your wishes after you’re gone.

Eliminating a child from your will may cause more harm than good, especially if they have siblings. A sibling rivalry can last for decades. You might win the battle, but you will lose the war. Do you want to be remembered for removing your kids from your estate plan? Probably not. Rather than eradicating them from your will, create an estate plan that benefits all parties.

An attorney friend once told me he makes good money developing an estate plan, but he makes great money when he settles an estate without a will or trust. Don’t delay; create your plan today!

A good man leaves an inheritance to his children’s children, but the sinner’s wealth is laid up for the righteous. ~ Proverbs 13:22

May 25, 2021

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets.

Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor.


[1] https://www.nolo.com/legal-encyclopedia/spendthrift-trusts.html#:~:text=A%20spendthrift%20trust%20puts%20restrictions,can%20his%20or%20her%20creditors. Betsy Simmons Hannibal, website accessed 5/24/2021

Ready to Retire?

When should you retire?  Today, tomorrow, never? The answer is both emotional and financial. The financial side of retirement is easy – you either have enough money to retire, or you don’t. If you have more than enough money to cover your expenses, you can retire at any time regardless of your age. The math, for some people, does not help determine when to retire because they like to work or feel the need to continue working long after they’ve amassed a significant retirement nest egg.  

I worked with a client who gave his employer his notice to retire. He worked for his company for several years, and he was one of their key executives, so he had to give them at least two months’ notice before leaving. We went through the financial planning process to make sure he could afford to retire. We ran several scenarios, and all of them returned the same result; he could afford to retire. His assets were more than sufficient to meet his needs. His challenge was not financial but emotional. Once he came to grips with the financial side, he was ready to accept the emotional side. He called me on the day he gave his notice, and he sounded happy and relieved to move on to the next chapter of his life.

The emotional side of retirement is more difficult to factor into the retirement equation. Walking away from a career you’ve held for 20, 30, or 40 years isn’t easy. You have to put yourself into a position to retire emotionally. 

  • What will you do in retirement? 
  • Where will you live? 
  • How will you spend your time? 
  • Will you volunteer?  
  • Do you want to travel the world?  
  • Will you learn a new skill?  
  • Will you golf? Fish? Hike? Bike? Camp?

These are essential questions, and you’ll need to answer them before you transition into retirement.  

Moving from work to retirement is like jumping over a 6-inch, 100-mile-deep crevasse. One hundred miles is a long way to fall, but you know you can make the 6-inch leap to the other side. I’ve worked with several people who’ve made the leap from work to retirement, and all of them made it to the other side.   I have yet to have one of these individuals return to work because they’re not enjoying retirement. The clients who have retired say they are busier and happier than ever and wish they’d have done it sooner.

Are you ready?

The company gave me an aptitude test, and I found out the work I was best suited for was retirement. ~ Unknown

April 13, 2021

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets.

Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor.

Obstacles To Wealth

The Evergreen container ship ran aground in the Suez Canal, and it’s disrupting global trade. Efforts to dislodge it from the shore have been futile, and it may be weeks before the canal is open. Meanwhile, several hundred ships are waiting to pass through the channel. Last year, 19,000 ships used the canal, representing 12% of global trade.[1] Many products are in limbo, and I sure hope we don’t experience another toilet paper shortage.

The 120-mile Suez Canal was completed in 1869, connecting the Mediterranean and Red Seas. It allows ships to avoid traveling around the Cape of Good Hope, eliminating an extra 6,000 miles. The canal facilitates faster trade between Europe, Asia, and the United States.[2]

It’s impossible to predict what events will impact global trade or economic conditions. I doubt anyone expected a container ship to get stuck in a canal for weeks, but here we are. The vessel will eventually move from the shore allowing ships to flow freely, so the long-term economic impact should be negligible.

Countless things can disrupt your wealth creation. Obstacles are everywhere. Here are a few things that may disrupt your financial future.

  • You hold too much cash. A significant cash position can hinder your long-term returns. If you’re not using your money for a specific purpose, consider investing it in stocks or bonds. Over time, cash will lose value to inflation and taxes. A 3% inflation rate will reduce your purchasing power by 25% over ten years.
  • Your portfolio is too conservative. Allocating a high percentage of your account to cash or bonds will limit your growth. If your time horizon is three to five years or more, allocate a sizable portion to stocks, even if you’re retired. A portfolio with 80% stocks and 20% bonds averaged 14.5% for the past five years. If we flip the allocation – 20% stocks and 80% bonds, it generated an average annual return of 8.19%.[3]
  • You don’t have a will or trust. Investors are mainly worried about stock market corrections. No one wants to lose 10% to 20% of their portfolio, but if you don’t have a proper estate plan, your heirs may have to pay 40% or more in taxes to the IRS.
  • You don’t own life insurance. Life insurance is mandatory if you’re a young family with kids or you carry a significant amount of debt. Life insurance is also a resourceful tool for paying estate taxes or passing on a more substantial estate to your heirs.
  • You’re not saving enough. An excellent strategy for creating wealth is to save more money. It’s a strategy where you have total control. The more money you invest today, means more money for you tomorrow. How much should you save? My recommendation is at least 10% of your income. My personal goal is a 10-10-10 model: give 10%, invest 10%, save 10%.
  • You’re spending too much money. The opposite of not saving enough money is spending too much. You can control your spending, and the less you consume, the more you can save. The two are linked.
  • You lack diversification. A diversified portfolio can help you o avoid short-term setbacks. Last year, when stocks were falling, bonds performed well, and this year, small-cap stocks lead the way. A globally diversified portfolio of stocks, bonds, and cash is a prudent investment strategy.
  • You’re too concentrated. Don’t put all your eggs in one basket or all your products in one container. If 100% of your merchandise is in a container on the  Evergreen, you’re in trouble. A portfolio that relies on one or two stocks does well when they’re rising, but it could damage your returns when they fall. Limit your single stock exposure to 10% of your account balance.
  • You don’t have a  plan. Your financial plan is your GPS, and It will help you navigate treacherous waters. Last March, during the COVID correction, we relied on our client’s financial plans to remain invested. When the market rebounded, our clients profited.

It’s easy for a small thing to magnify a bigger problem, and most of the time, it’s not evident until after the fact. To avoid a minor issue turning into a major one, work with a Certified Financial Planner® who can help you create a plan based on your goals.

We may have all come on different ships, but we’re in the same boat now. ~ Martin Luther King, Jr.

March 15, 2021

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets.

Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor.


[1] https://www.abc.net.au/news/2021-03-27/what-is-the-suez-canal-and-how-many-ships-go-through-it/100032734#:~:text=Almost%2019%2C000%20ships%20passed%20through,the%20Canal’s%20150%2Dyear%20history.,

[2] https://www.washingtonpost.com/business/energy/why-a-canal-built-in-1869-is-more-important-than-ever/2021/03/26/2aef3bb8-8dfe-11eb-a33e-da28941cb9ac_story.html, By Robert Tuttle, Bloomberg

[3] DFA Reteurns Web: long-term bonds and S&P 500 index

The NCAA Tournament and Investing

It’s finally here! The greatest sporting event is back after last year’s hiatus. Though fans, bands, cheerleaders, and mascots are missing, it’s still exciting to watch. My family and I look forward to competing against each other with our brackets, and I always participate in ESPN’s Tournament Challenge, hoping that I will be the one with the perfect bracket. However, after Oral Roberts beat Ohio State, I’m out, and so are 95% of the other participants. Picking winners is not easy. The odds of a perfect bracket is 1 in 9,223,372,036,854,775,808. If you know something about basketball, your odds improve to 1 in 120 million.[1]

According to ESPN, there are 108 perfect brackets out of 14.7 million submitted or .000735% after the opening games. And 93 participants lost every game! Is this an ideal bell curve? I rank 8.9 million after selecting nine winners, so I still have a chance. My choice to win it all is Baylor because they’re a good team, and it’s my daughter’s alma mater. I’m also rooting for Gonzaga because of their affiliation with the West Coast Conference and Arkansas since their head coach is a graduate of the University of San Diego.

The only thing harder than picking a perfect bracket is selecting a basket of individual stocks that outperform the market every year.  Yes, it’s possible to beat the market in the short-term. I’m sure several individuals bought Peleton, Zoom, DocuSign, or NIO last year and made a lot of money riding the COVID wave. However, have they been profitable for five, ten, or thirty years? Also, the more stocks you own, the closer your portfolio will resemble an index fund. What is the magic number of stocks to hold? In one study, it’s twenty.[2] How are the four companies faring this year? They’re down 12.5%, underperforming the S&P 500.

Standard & Poors SPIVA study revealed that 82% of large-cap fund managers did not outperform the S&P 500 over ten years, and 87% failed to do so after fifteen years. The same data holds for small and mid-cap money managers. The study found that 74% of mid-cap managers did not beat the S&P 400, while 75% of small-cap managers failed to match the S&P 600.[3] I know what you’re thinking; I’ll only invest in the winners. Some professional money managers outperform the market over time, but can you identify them before they start their run?

Peter Lynch, the legendary fund manager of the Fidelity Magellan mutual fund, was thirty-three when he took over managing the fund. The fund only had $18 million in assets in 1977. The fund’s assets would swell to $14 billion when he retired. Before taking over as the lead money manager, the fund lost 42% in 1973 and 28% in 1974. If you invested $10,000 in the fund, you lost 70% of your capital. Would you have remained invested in the fund as Mr. Lynch took the helm? If you sold out to find a better money manager, you missed incredible returns. Mr. Lynch posted eye-popping returns from 1977 to 1990 as the fund generated an average annual return of 29.2%, more than double the S&P 500. In hindsight, Mr. Lynch was an obvious choice. His fund returned 2,570%. A $10,000 investment grew to $267,420![4]

I bet the person who currently has a perfect bracket is posting about it on social media letting the world know they picked Oral Roberts and North Texas. The same is probably true for people who chose a few winning stocks last year. I will let them enjoy their fifteen minutes of fame. If they can do it every year, then I will give them the credit they deserve.

In the meantime, I would recommend investing your money in a globally diversified portfolio of low-cost mutual funds. If you want to take a flier on a stock or two, then allocate 1% to 3% of your investment capital to your ideas.

Invest for the long-term, buy the dips, save your money, follow your plan, and good things will happen.

It’s the little details that are vital. Little things make big things happen. ~ John Wooden

March 20, 2021

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets.

Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor.


[1] Google

[2] https://www.investopedia.com/investing/dangers-over-diversifying-your-portfolio/, by Brian Beers, 1/13/2020

[3] http://www.ginsglobal.com/articles/80-of-us-fund-managers-underperform-sp-500-over-5-years/#:~:text=Over%20the%20past%2010%20years,ending%20June%2030%2C%202020), Webiste accessed 1/20/2021

[4] https://en.wikipedia.org/wiki/Fidelity_Magellan_Fund

Rate of Return

Do you know the rate of return on your investments? Have you ever calculated your total return? In my experience, most investors don’t know what they earn on their money. Of course, I often hear about winning stock trades – never the losers, nor do people tell me how much they allocate to their trades. A 10% gain on a million-dollar investment is more impactful than one where you only commit $100.

I recently watched a Bitcoin evangelical promote the compounding rate of return for the popular digital currency.  He was touting annual gains of 200% to the host and millions of TV viewers as if it was normal. At 200%, a $100,000 investment will be worth $5.9 billion (with a B) in ten years! If you earned 200% for twenty years, you’d be worth $348 trillion (with a T) – totally normal. After thirty years: $20,589,113,209,464,900,000, or $20 quintillion. Regulators would throw me in jail if I touted annual returns of 200%.

Rates of return matter, and being aware of what you earn is essential. Your money doubles every ten years at 7%. If you make less than 3% per year, inflation will wipe out your gains. Risk and reward are connected. A portfolio of stocks earns more than a portfolio of bonds, but the risk level is higher. The 100-year return for stocks has been 10%, but there have been several years of negative performance and numerous market crashes. During the same time frame, the one-month US Treasury Bill never lost money – not one negative year, but it generated a paltry average annual return of 3.3%.[1] Since 2005, the S&P 500 is up 224%, while short-term bonds have increased by 5.75%. The S&P had several corrections, including a 51% crash in 2008 and a 30% decline last year; bonds barely budged.

A financial plan can give you a glimpse of your future. Most planners can review your performance and risk level to determine how much of both are needed to reach your goals. If you’re far from your target, owning more stocks is recommended. A sizable allocation to equities will allow you to generate higher rates of return. If you have more than you need, allocating a bigger percentage to bonds can help maintain your wealth.

A balanced portfolio of 60% stocks, 40% bonds produced an average annual return of 9% since 1926.[2] It lost 44.5% in 1931, but it rebounded 82% in 1932, and 36% of the time, it lost money. However, the portfolio never lost money on rolling 10-, 15-, and 20-year periods.[3]

Balancing risk and return is part art and science. Allocating too little to stocks can negatively impact your wealth. If you’re young, stocks will benefit from your time horizon. If you’re retired, investing in stocks can help you maintain your purchasing power. Investing too conservatively at any age can have dire consequences to your wealth.

My best investment, so far, has been Amazon. I bought a few shares for my daughter’s education account in 2005, and it has generated an average annual return of 31%, or 6,647%. It’s not 200%, but it has helped us pay for college.

Happy Investing!

“In investing, what is comfortable is rarely profitable.” — Robert Arnott

March 10, 2021

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets.

Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor.


[1] Dimensional Fund Advisors 2020 Matrix Book

[2] Dimensional Fund Advisors Returns Web – 1926 to 2021.

[3] Ibid

Fear Rising Rates?

Investors fear rising interest rates. Since the start of the year, the 10-Year US Treasury yield is up 66% to 1.54%. It’s still low, but the speed at which it climbed is worrying investors. For the past fourteen years, the yield on the 10-Year averaged 2.33%. The high was 4.01%, the low was .52%. Does it make sense to sell stocks as rates are climbing? Maybe.

Let’s look at rate spikes during this cycle. Despite several rate spurts, the S&P is up 373% since 2008. If you bought stocks during the previous rate spikes, you’re probably sitting on nice gains today. Though we have experienced volatility in the bond market, the trend for interest rates over the years has been down.

  • The yield soared 67% from December 2008 to June 2009.
  • The yield jumped 50% from October 2010 to February 2011.
  • The yield climbed 49% from May 2013 to September 2013.
  • The yield rose 68% from July 2016 to January 2017.
  • The yield increased 54% from August 2017 to November 2018.

During the above rate spikes, stocks rose with an average gain of 11% – counter to what typically happens when rates rise.

Stocks are sensitive to interest rates. When they rise, stocks fall, and vice versa. It’s been this way for centuries. Rates threaten stocks when elevated because investors can buy bonds to realize a safe and sometimes guaranteed return. When will rates be a menace for stocks? I believe the rate threshold is 5%. A 5% guaranteed return for many will be difficult to pass up, and investors will sell stocks to buy bonds.

Additional buyers for our bonds are wealthy foreign investors and foreign governments since our rates are high relative to other countries. Here’s a look at global 10-year government bonds.[1]

  • Germany = -.274%
  • UK = .755%
  • Japan = .0122%
  • Australia = 1.786%
  • China = 3.27%
  • France = -.036%
  • Italy = .75%
  • Spain = .406%

Our rates are in line with Australia’s, but lower than China’s. However, foreign governments and wealthy investors likely will choose our market because of our safety and liquidity. As our rates climb, the money will flow into our bond market, keeping a lid on rising rates.

Rising rates may benefit your portfolio, especially if you carry a large cash balance. As rates rise, so will the yield on your money market or savings accounts. Another way to benefit is through a bond ladder. Buying bonds with different maturities can preserve your liquidity while capturing higher yields. Also, if interest rates are rising, it means our economy is doing well. And, a strong economy will benefit many.

If stocks fall because our rates are rising, I recommend buying the dip as a correction may be short-lived.

Don’t fear rising rates – for now!

Everything you want is on the other side of fear. ~ Jack Canfield

March 8, 2021

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets.

Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor.


[1] https://www.barrons.com/market-data/bonds?mod=md_subnav, website accessed March 8, 2021

Risk Management

Today I woke up to an inch of water on the floor due to a busted pipe from the Austin freeze.  We caught it early, shut off the water, and limited the damage. Despite shutting off our water, we’re lucky because we have electricity, a backup water supply, and food in the pantry. Others in our city are less fortunate.

Risk happens fast, and fortunes can change quickly. During a raging bull market, investors want to own the story stocks, the high-flyers. When a stock is mentioned on CNBC, Twitter, Reddit, or any social media outlet, investors buy it despite knowing little about the company. As stocks rise, some question the wisdom of diversification or the benefit of owning bonds. At some point, markets correct, and your diversified portfolio will limit your downside.

Stock market corrections are normal. Preparing for a pullback will allow you to take advantage of it and buy the dip. Bonds act as a buffer or a source of funds. They typically rise when stocks fall because investors are looking for a refuge. During the COVID correction, the S&P 500 fell more than 30%, while intermediate bonds dropped about 5%, and short-term bonds rose 2%.

Building an all-weather portfolio is your first line of defense against a risk event. It’s impossible to plan for every catastrophe, so don’t try. Rather, allocate your assets to stocks, bonds, and cash to minimize risk. Of course, there are trade-offs. If you own a large amount of bonds and cash, it will be safe, but it will mute your growth. If your allocation to stocks is high, you’ll experience larger drawdowns, but your long-term growth rates will be higher. Finding a balance between the two is part art and science.

Here are a few suggestions to safeguard your investments.

  • Have a financial plan. Before the storm hit, my wife and I had a plan. When disaster struck, we sprung into action. A financial plan allows you to act on facts, not emotion. It will be your financial emergency rescue kit.
  • Diversify your investments across size, sector, and class. Invest in a basket of globally diversified funds to give you exposure to multiple asset classes.
  • Rebalance your account. An annual rebalance will reduce your risk and maintain your asset allocation.
  • Invest in cash if you need the money in one year or less. A cash hoard allows your stocks time to recover. If you have cash on the sidelines, you won’t need to sell stocks when they fall.
  •  Invest in cash and bonds if you’re going to buy a home, a car, or pay tuition. If you need money for a large purchase, buy bonds or keep your money in cash so it’s safe and secure.

Risk and reward are linked. To capture high long-term growth rates, you need to take risks. The stock market rises about three-quarters of the time, and a quarter of the time, it falls. Welcome the corrections. A declining market allows you to buy quality companies at discounted prices. When the market recovers, you’ll be thankful you had the courage to buy when others were selling.

Be safe and happy investing.

“I always tried to turn every disaster into an opportunity.” ~ John D. Rockefeller

February 17, 2021

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets.

Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor.