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.

I Want A Correction

Stocks have been on a tear since the March COVID pullback, rising 103%! Several companies have soared more than 500%, including Tesla, Nautilus, Tupperware, and Moderna. ARK Funds, led by Cathie Wood, had three funds rise more than 170%. And don’t get me started on Bitcoin, Gamestop, or the Reddit traders. Despite the outperformance from a few sectors, I’m hoping we get a correction, and the sooner, the better.

Why do I want a correction? Am I violating my fiduciary duty if I wish for stocks to fall? After all, investors fear losing money or getting wiped out as they did in 1929. For some, it is their worst nightmare. I’m often asked when stocks will fall, and some people only call me when their account is down. Despite their concerns, I have not met anybody who has lost all their money from investing, especially if they own a globally diversified portfolio of stocks, bonds, and cash. Despite concerns about a correction, they’re normal and healthy.

By several metrics, the market is expensive. Shiller’s CAPE ratio is 34.7, the second-highest reading in 140 years.[1] The previous high was February 2000, before the Tech-Wreck, where stocks fell 49%. Tobin’s Q metric is at its highest level in 76 years. The previous high? February 2000.  Value Line’s three to five-year growth potential for stocks is 35% – a low number. Last March, their indicator touched 145% before stocks rose more than 100%. Last, the dividend yield for the S&P 500 is at its lowest level in two decades, 1.57%. In February 2009, it touched 4% when stocks bottomed following the Great Recession.

My anxiety rises when stocks enter the feeding-frenzy phase as they are now, and like they were in 1999. Social media is fueling the fire as some investors pick stocks based on memes or rocket emojis. It appears easy to make money trading stocks or options with a few clicks of the mouse, but it’s not the case. Yes, you can get lucky if you jump on the bandwagon at the right time, but over time, valuations matter – research matters. Price matters.

I look forward to corrections because I can buy great companies at lower prices. When stocks fall, investors panic. They don’t hold the line, and their diamond hands turn weak. A bear market is where you get the best prices. Also, during a correction, you will have little competition to add quality names to your portfolio. Others will think you’re crazy for buying stocks during a market meltdown, but if you want to create generational wealth, you need the courage to buy when others sell and sell when others are buying – short-term pain for long-term gain. Buy low and sell high.

Of course, stocks can rise forever and can remain overvalued for years. No one knows when the next correction will come, including me. But when it does, welcome it with open arms and a blank check. A friend once told me, “If you’re upset that your stocks are down and you want to throw a brick through my office window, tape a check to it because it’s probably a good time to buy!”

Some of my best purchases occurred during the depths of a bear market, including Amazon, Google, Microsoft, Disney, and Pepsi. During the Great Depression, Sir John Templeton bought 100 shares of every company trading below $1 per share. Most of the companies he purchased lost money, some remained stagnant, and a few were big winners. His strategy made him a billionaire.[2]

How can you take advantage of a correction? Here are a few ideas.

  • Create a shopping list of companies or funds you want to own.
  • Keep your powder dry, and move some cash to the sidelines and wait for stocks to fall, and then pounce on your best ideas.
  • Diversify your assets. A globally diversified portfolio of funds will limit your downside when stocks fall. Allocating money to bonds, international stocks, or alternative assets is a prudent investment strategy.
  • Rebalance your accounts. Our models were rebalancing some accounts weekly during the March correction because the volatility was off the charts. Our models initially rotated from bonds to stocks because we were selling expensive assets (bonds) to buy cheap ones (stocks). As the market rebounded, our models rotated through all our asset classes.
  • Sell your winners now as stocks trade to all-time highs. Lock in some profits.
  • Write options (sell calls) against stocks you own to generate income and potentially sell at a higher price.
  • Write options (sell puts) on companies you want to own at a lower price. Selling a put below the stock price allows you to generate income and potentially purchase your company at a lower price.
  • Be patient and wait for bargains. Do not chase stocks and fight the urge to follow the crowd.

I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful. ~ Warren Buffett.

February 11, 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] Ycharts – 1881 to 2021.

[2] https://en.wikipedia.org/wiki/John_Templeton

Rising Rates

Interest rates are rising. Year to date, the yield on the US 30-Year Treasury bond is up 24%, and from the July low, it has risen 75%. Though rates are near historical lows, they can rise quickly. When rates rise, bond prices fall, and at some point, they will threaten stocks as investors search for decent returns with less risk. Interest rates remained below 5% from 1875 to 1966 before climbing to 15% in October 1981.[1] The 146-year average is 4.52%.

I don’t anticipate rates to approach 15%, but small, upward movements can damage a bond portfolio. A 30-year bond will fall by 19.5% if rates rise 1%. The iShares 20+ Year Treasury Bond ETF (TLT) is down 5.2% this year. Rising rates are not all bad, however. Individuals with large cash balances should see their rates rise on their accounts.

How can you protect your portfolio or take advantage of rising interest rates? Here are a few suggestions.

  • Deposit more money to a money market fund. The rate of interest you earn on your money market fund will increase without lowering your fund’s price.
  • Invest in short-term US Treasuries or CDs with maturities of six months or less. The short term duration will allow you to capture higher rates when they mature.
  • Invest in a bond ladder with maturities of one year or less.  A recommended bond ladder is to purchase US treasures with three-month maturities, so bonds come due at 3-, 6-, 9-, and 12- months. This ladder gives you liquidity and flexibility.
  • Sell your long-term bonds with maturities of twenty to thirty years. If you own long bonds, you probably have significant gains. Sell your bonds, lock in your profits, and buy shorter-dated bonds. However, if you need the income from your bonds, don’t sell. I know it’s a contradiction, but one is a risk reduction strategy, the other is an income strategy.
  • Buy a bond fund with a duration of one to five years. The short-term holdings in the funds will fare better than long-term securities if rates rise.
  • Purchase high-quality corporate bonds. Corporate bonds offer higher rates than CDs or treasuries because they are not guaranteed.
  • Invest in tax-free municipal bonds with short-term maturities. In addition to protecting your assets, you will receive tax-free income. If tax rates rise, your after-tax rate will increase. For example, a 3% taxable bond equates to a 4.76% bond for individuals in the 37% tax bracket.  
  • Purchase an inflation-protected bond fund. The iShares TIPS bond ETF (TIP) is up 8% over the past year.

Interest rates are to asset prices what gravity is to the apple. When there are low interest rates, there is very low gravitational pull on asset prices. ~ Warren Buffett

February 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] https://ycharts.com/indicators/us_longterm_interest_rates

Supermarket Investing

When I walk into my local supermarket, magnificent smells of freshly cut flowers and a sea of fruits and vegetables welcome me. Further on, I encounter the aroma of baked bread, cookies, and cakes. My senses are overloaded, and I have yet to start shopping.

A supermarket layout is science-based, but pomp and circumstance also play a significant role in our shopping experience. It’s full of vibrant colors, smells, and sounds designed to keep us moving as we fill our shopping carts. The items we need are located in the back; the things we want are near the front. End caps display new or seasonal products designed to catch our attention. Between the front door and the milk section, we encounter presenters offering us free food and drink samples while introducing us to a new recipe or cooking trend. If we make it through the aisles unscathed, we must pass one final test – the checkout stand. While checking out, we stare at soft drinks, chips, candies, and tabloids, all impulse buys. I always shop with a list, and I never enter a grocery store while hungry to avoid the subtle traps.

Investing is similar to grocery shopping – a lot is going on, so a plan is recommended. Investing without one is like entering a grocery store without a list; if you’re not careful, you can get into trouble. A financial plan keeps you focused on your goals and helps you avoid distractions that may derail your future. It can also limit impulse purchases of investments that don’t belong in your financial basket.

We need staples to survive, like fruits, vegetables, meats, eggs, milk, etc. We don’t need peanut M&M’s, but they’re fun to eat on occasion. A portfolio designed to last generations needs a strong core of globally diversified high-quality stocks and bonds. An appropriate allocation for your core holdings is 85% to 95% of your total balance. Invest the remainder of your account in high-flyers, seasonal trades, or alternative investments if you want to give your portfolio a boost.  

The center aisles are a mix of, well, mixes, packaged foods, and canned foods; ingredients developed to enhance your meals. Portfolios require supporting investments as well. Small-cap stocks paired with large-cap companies mixed with a few bonds is a recipe for success.

My wife can make the rounds in our grocery store with her eyes closed, which is good and bad. She is an efficient shopper, but it’s possible to become complacent and ignore new items or products – investors who are pococurante risk missing new ideas or opportunities. If you let your portfolio get stale, you may fall behind your stated goals. I recommend reviewing your holdings and your plan two to three times per year to stay up to date with new trends. Avoid putting them on auto-pilot.

Should you always avoid end cap displays or check out items? No. These sections of a supermarket can introduce you to bargains, new products, or reflex purchases. They can also bring some fun to your shopping experience. Investing in seasonal trades, speculative stocks, or alternative investments may bring you joy if they work. Limiting your purchases to 3% to 5% of your portfolio value will avoid pain or destruction if you’re wrong.

When I was fifteen, I worked in a small grocery store with some friends. I earned $2 per hour and learned much about stocking shelves, bagging groceries, and watering produce. I was continually moving from one aisle to the next. It was our job to ensure the store looked good at all hours. It was a good primer for my chosen career.

As you build your shopping investment list, include a basket of large, small, and international companies. Add a mix of bonds, real estate holdings, and alternative investments. Rebalance your accounts annually and review your plan often. Think generationally, but pay attention to short term opportunities. A balanced portfolio based on your financial goals will treat you well over time.

Happy shopping!

Anyone who believes the competitive spirit in America is dead has never been in a supermarket when the cashier opens another checkout line. ~ Ann Landers

January 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.

Chaos

Yesterday was a dark day for our country. I watched in horror as an angry mob stormed the Capitol Building, besieging the capitol police. Certifying the Electoral College votes is typically a ceremonial event, administered without fanfare, but not yesterday as rioters forced Congress members to put on gas masks and flee the chamber. The last time unruly thugs stormed the Capitol Building was 1812, 209 years ago. Despite the chaos, the market snubbed the news and closed higher, and today it’s trading to all-time highs.

I talked with a few clients yesterday who were concerned about a market sell-off because of the domestic terrorist attack. They wanted to sell their holdings and wait for the storm to pass. I recommended they stay invested since the event would probably be short-lived. As I addressed their concerns, they were surprised the market was trading higher.

The market historically has overlooked political unrest and disruption. As Joe Kernen of CNBC said this morning, “The market has no conscience.” He’s right. It has no soul or moral compass. The stock market focuses on economic activity, earnings, and interest rates, to name a few. It looks forward, paying little attention to today’s news, especially if it does not impact America’s economic engine.

On September 11, 2001, foreign terrorists attacked our country. The Dow Jones fell 17.2% for about two weeks but quickly rebounded. By January 1, 2002, it recovered.

President Ronald Reagan’s assassination attempt was on March 30, 1981. I was in high school, sitting in a psychology class, and my teacher brought in a TV to let us watch the dreadful event. The Dow Jones dropped 2.25% after the shooting, but it regained the losses a few months later.

President Nixon resigned in disgrace on August 9, 1974, because of the Watergate Scandal. The Dow fell more than 20% over the next few months, but it had recuperated the losses by April 1, 1975.

President Kennedy was killed on November 22, 1963, in Dallas, Texas. The Dow dropped 5.6% on the shocking news, but by January 1, 1964, it was trading in positive territory.

If you’re concerned about chaos and uncertainty, here are a few suggestions to help you manage your investments.

  1. Do nothing. During the initial hours or days of an attack or unprecedented event, the market may fall, but it won’t stay down for long if the news isn’t impacting the economy.
  2. Buy more. If there is not a structural hit to our economy, the market will quickly recover. The best bargains for buying stocks are during the dark days of a decline.
  3. Follow your plan. Events like yesterday are short-lived, and your financial plan can last decades, so don’t sacrifice a few days of turmoil for years of growth and prosperity.

I was saddened and upset to watch the attack on our Capitol Building, and I couldn’t believe insurgents breached the security detail. Unfortunately, our country has been littered with horrible and unspeakable acts, like Abraham Lincoln’s assassination, the Pearl Harbor attack, and Bloody Sunday in Selma, Alabama. Our great nation is 245 years young with many great days ahead, and a few domestic terrorists will not derail our country’s ideals or beliefs.

May God continue to bless the United States of America.

America will never be destroyed from the outside. If we falter and lose our freedoms, it will be because we destroyed ourselves. ~ Abraham Lincoln

January 7, 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.