October marks my twentieth anniversary as a Certified Financial Planner Practitioner™, and I’ve worked on thousands of financial plans and reviewed many more. I’ve concluded there are no good or bad plans, only your plan, because it’s unique, and its success depends on your goals – no one else! But does financial planning work?
The strength of a financial plan does not depend on the number of pages, whether one page or a thousand. A financial plan is not a finished product you put in a file or store on a shelf. It never ends because life is constantly changing and is regularly interrupted by births and deaths, marriage and divorce, promotions and terminations, and many factors too vast to list. The beauty of a financial plan is the discovery and journey of planning. The self-discovery of your goals is invaluable, and refining them over time is priceless.
Flexibility is a vital component of a successful financial plan. The ability to adapt and change as you grow older will allow your dreams to flourish. Your plan at age sixty-five will be unrecognizable from the one you completed at age twenty-five. The goal is to keep progressing and be persistent.
Growing up, I wanted to run the football like Billy Sims and throw it like Fran Tarkenton. I wanted to be an offensive juggernaut, but when I got to high school, I played the offensive line, far from the limelight.
In high school, I wanted a candy-apple red 1965 Mustang but drove a lemon-yellow Volkswagen Beetle with a top speed of fifty miles per hour.
I was interviewing for a job at a local beach resort during my last summer of college – sun, surf, and sand. Instead, I took a “business” job working for Bank of America doing data entry in a windowless office.
I fell in love with advertising after reading books by David Ogilvy, Jack Trout, and John Caples. I wanted to be a copywriter but landed in finance after taking an investment course during my final semester of college.
I was born and raised in Southern California and thought I’d live there forever, but now I live in Austin after a stint in Connecticut.
Financial planning is great until life gets in the way. My life experiences shaped who I am today, and I would not change anything for the world. My plans did not turn out as expected, but my planning kept me moving forward and allowed me to adjust and adapt to find open doors as others closed. If I did not have a plan with a bigger picture, I would have become discouraged and quit at some point, but I kept charging ahead.
According to one report, Individuals who complete a financial plan have three times the assets of those who do little or no planning.[1] And according to Vanguard’s Advisor Alpha® study, an advisor can add 3% in net returns for clients. A few components in the study include rebalancing, behavioral coaching, asset location, and a spending strategy – critical ingredients for a financial plan.[2]
During the Great Financial Crisis, COVID Correction, and last year’s drubbing, our clients with financial plans were more at peace with their investment holdings, asset allocation, and goals than our clients without one. The clients with financial plans did not panic; some were opportunistic and bought the dip as the market fell. The financial plan gave us the courage and conviction to tell clients they would be fine if they stayed the course, and most did.
Our plans allow us to run several scenarios for clients when they call with questions, and we can quickly and efficiently give them answers to challenging questions and how the changes will impact their goals. In addition, we stress-test our plans against rising interest rates, sustained inflation, and stock market crashes to see how they perform under challenging situations. If needed, we can make changes.
A financial plan removes opinions from the equation because we can access reams of data through the software programs we use to help clients achieve their goals. The numbers give us confidence beyond a gut feeling of how a client’s future will fare. Of course, we have strong ideas and thoughts on how best to implement the plan.
Reflecting on the past twenty years, I’ve witnessed clients retire early, pay for their children’s college education, buy new cars, purchase vacation homes, travel the world, donate to charities, help loved ones, start a business, etc. At the heart of these life-altering decisions was the financial plan.
Last, investing without a financial plan is like flying an airplane without GPS, building a skyscraper without blueprints, or operating on a patient without going to medical school. I don’t know how people do it.
Does financial planning work? Yes, it does!
It takes as much energy to wish as it does to plan. ~ Eleanor Roosevelt
April 8, 2023
Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on your asset level.
Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor. Prices and yields are for today only and are subject to change without notice.
Have you been wondering if you should have buried your money in the backyard or stuffed it under the mattress? After all, as you review the year and the performance of our recommendations, it seems evident that stocks and bonds would fall. In 2022, we experienced rising interest rates, inflation, the war in Ukraine, and China’s COVID woes, yet, with those same headwinds and thousands more, the S&P 500 produced an average annual return of 10.12% since 1926, turning $1,000 into $11.5 million. I have the utmost confidence in our models, investments, and financial plans because I have seen them work for over three decades, and I know they will perform well in the future. I’ve learned from more than thirty years in the business that clients who diversify their assets, invest regularly, follow their plans, and remain patient will reap benefits.
The Tortoise and the Hare
Warren Buffett, the CEO of Berkshire Hathaway, is the most successful investor of our generation, with a net worth of $107.6 billion, and his stock currently trades at $468,711 per share and finished last year up 4%. Despite his staggering net worth and stock market performance, he has experienced many down years since 1965. His stock fell 48% in 1974, 23% in 1990, and 32% in 2008. It also fell 30% during COVID and dropped more than 50% in the Great Recession, and from 2007 to 2013, it lost 4.3% per year. If investors panicked and sold the stock over the past thirty years, they would have missed returns of nearly 4,000%. Mr. Buffett believes in patience and said, “Our stay-put behavior reflects our view that the stock market serves as a relocation center at which money is moved from the active to the patient.” He prefers companies with earnings, revenues, cash flows, and dividends – a slow and steady model that we try to emulate.
In contrast, Cathie Woods ARK Innovation fund trades daily and is highly active. The fund owns growth companies that may pay off in the future, like Roku, Robinhood, and Coinbase. During the peak of COVID, her fund soared 152% and, at one point, outperformed Warren Buffett and Berkshire Hathaway by 200%! However, her fund hit a brick wall last year, losing 67%, as investors shifted their focus to companies with solid balance sheets. As a result, Berkshire Hathaway has outperformed ARK by 80% since the crazy days of COVID. The tortoise wins again!
Indices
The S&P 500, Dow Jones, and NASDAQ suffered terrible losses last year, falling 8.78%, 19.44%, and 33.10%, respectively. What’s interesting about the S&P 500 is that it peaked on January 3, 2022, and fell 12.4% from January to March before the Federal Reserve started raising interest rates. Since the middle of June, it climbed by 2.24%, so most of the damage occurred in the first two and a half months, and five days accounted for 100% of the losses – April 29, May 5, May 18, June 13, and September 13.
As a comparison, the Vanguard Balanced Fund, a low-cost index fund, fell 16.87% last year, and I tracked an unmanaged group of twenty indices, and they fell, on average, 16.5%. There was no place to hide in 2022, but when stocks have dropped by 20% or more since 1957, they returned 29% the following year.
Regardless of the poor performance last year, the indices have performed admirably over the past thirty years. Despite crashes, inflation, rising interest rates, recessions, wars, and pandemics, the Dow Jones soared 1,944%, the NASDAQ jumped 1,845%, and the S&P 500 climbed 1,484%. The average annual return for the big three has been 10.21%. A $100,000 investment in January 1993 is now worth $1.85 million. And, since 1993, stocks have risen 87% of the time. Again, patience rewards successful investors.
Bonds
Bonds produced their worst year ever as the Federal Reserve raised interest rates to try and combat inflation. The yield on the one-month US T-Bill soared 8,140%, rising from 0.00% to 4.12%, and when interest rates rise, bond prices fall. The iShares 20+ Year Treasury Bond Fund ETF (TLT) crashed by 31.24% last year, losing almost as much as the NASDAQ. For the past fifty years, long-term government bonds have averaged 7.20%.
Bonds could be one of the best-performing asset classes this year if the Federal Reserve lowers interest rates. In 1994, the Federal Reserve raised interest rates by 100%, only to start reducing them in 1995. In 1995, long-term bonds soared by 31.7%.
Despite the carnage in the bond market, it now benefits us because we can offer investments yielding 3%, 4%, 5%, or more, and some of the rates are guaranteed. We have not had the luxury of higher rates for some time. For example, the last time the one-month US T-Bill yielded more than 4% was in 2007.
Stay the Course
Few people like advice that says, “Stay the course.” It’s boring, 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 and could put your financial future at risk.
We recommend a buy-and-hold strategy when managing money which is easy when stocks rise but tough when they fall. It’s a prudent recommendation because stocks rise about three-quarters of the time, and no one can time the market.
When we recommend staying the course, we review multiple components like your financial plan, asset allocation, cash flow needs, and Riskalyze report. We do not make the recommendation lightly. If the data gives us a positive reading, we do not make any changes to your portfolio; if your goals change, we will adjust your plan and investment program accordingly.
Financial Planning
Since I started the firm seven years ago, we have completed more than one hundred and forty financial plans, covering $300 million in assets.
The top five retirement goals are travel, purchasing a new car, home improvement, buying a new home, and celebrations (weddings, anniversaries, etc.).
The most popular expectations for retirees are pursuing an active lifestyle, spending time with friends and family, and living less stressfully. However, don’t wait until you retire to enjoy your life.
The two most common retirement concerns are running out of money and suffering investment losses. Running out of money in retirement is not good, and we want to ensure clients can retire on their terms and, more importantly, stay retired. Running out of money and suffering investment losses are competing concerns, and you must choose between risk now or later. If your investments are too conservative early in your career, you may run the risk of running out of money. If your assets are too aggressive later in life, suffering a significant investment loss can have dire consequences. A financial plan will assist you in selecting the proper balance between risk and reward.
Last year, our clients with financial plans were calm and more confident about their financial future and did not panic. If you want to join this impressive group, give us a call to complete your financial plan.
Recession
Will there be a recession? According to media outlets, pundits, and influencers, the answer is yes. However, the consensus on Wall Street is mixed, and we won’t know if one occurred until long after it has passed. Countless analysts are trying to read the tea leaves and signals from the stock and bond markets to forecast the recession, and, as Paul Samuelson said, “The stock market has predicted nine of the past five recessions.”
The projected global growth for 2023 is 1.8%, and so long as unemployment remains low, job openings stay high, and wages rise, it will be challenging to enter a recession. Still, if the Federal Reserve continues to raise interest rates, we could face a mild recession. Since 1945 we have experienced thirteen recessions, lasting, on average, ten months. If we enter a recession, the Federal Reserve will lower interest rates, which is positive for stocks and bonds.
Cash
The one-month US Treasury Bill is a proxy for cash and is considered the safest investment in the world. It currently yields 4.1%, above its 96-year average annual return of 3%. The S&P 500 closed down 19.4% last year, so a positive 4% return looks appealing.
Cash is a short-term haven if you need liquidity or safety, but it’s a poor investment. The current inflation rate is 7.11%, and the dollar will lose more than half its value over ten years; at the historical inflation rate of 3.25%, the dollar loses 60% of its purchasing power over thirty years. The S&P 500 has risen 1,484% over the past thirty years, averaging 9.65%. Cash always loses the inflation battle, but stocks offer a hedge.
Another negative for cash is that it never grows. Stocks are volatile but allow you to recoup your losses over time; cash won’t. Once you sell stocks to buy T-Bills, you never recover your losses. For example, if you bought the S&P 500 Index in January 2007, you lost more than half your investment (56%) by March 2009. If you panicked and sold, you never recouped your original investment, but if you remained invested through the end of 2022, you could have earned 274%, turning $10,000 into $37,410. In addition to the Great Recession, stocks fell 20% in 2018, lost 30% during COVID, and dropped 20% last year. Even though the market suffered four significant corrections in fifteen years, it almost tripled. The one-month T-Bill returned 0.84% per year before taxes and inflation during the same time frame.
ESG
Environmental, social, and corporate governance (ESG) remain hot topics for investors. Through Morningstar, we can offer direct indexing allowing you to avoid investing in particular companies or industries that do not align with your beliefs. Also, if you work for a company like Apple, we can exclude it from your portfolio, so you’re not adding to your concentrated position. The minimum investment for this service is $250,000.
Expectations
How will the stock market perform in 2023? I don’t have a clue, but I like what JP Morgan said, “It will fluctuate.” Over the past thirty years, the S&P 500 has averaged 9.65% per year, turning $10,000 into $158,400, and was positive 80% of the time. The index experienced consecutive negative years once – from 2000 to 2002. The best one-year stretch occurred from April 2020 to March 2021, when it jumped 56%. The worst one-year period happened from March 2008 to February 2009, when the index dropped 43%.
Inflation has probably peaked, and interest rates should stabilize, benefiting stocks and bonds. A weaker dollar will boost international investments, while lower inflation and interest rates could spell trouble for commodities like gold and silver.
Cash remains attractive for short-term needs. The one-month US T-Bill currently yields 4.25%, significantly higher than rates available from money-center banks like Wells Fargo or Bank of America. The interest rates on US Treasuries could remain at these levels for the foreseeable future.
We continue to shun Bitcoin and other cryptocurrencies and avoid them at all costs. It’s an asset class that continues to fail on several fronts.
Janet Jackson
Janet continues to support our firm with excellence by working directly with our clients helping them open accounts, transfer funds, or handle the required minimum distribution. In addition, she is leading our efforts to join the Schwab platform. Though the merger won’t close until Labor Day, we joined Schwab early through a pilot program, and she has been instrumental in our smooth transition.
Spencer Engelke
Spencer has been a fantastic addition to our team this past year, and he handles most of our financial planning duties and directs our weekly podcasts. He continues to flourish at PWM, and his future is bright.
He completed his coursework for the Certified Financial Planner® designation and will sit for the exam in July.
Starbucks
Our firm continues to grow; we now work with more than 160 households across fourteen states. As a result, our Starbucks growth indicator remains strong, as we increased our card mailing this year by 11%.
Thank You
I know it was a challenging year, and my heart aches for your pain, but markets always recover. We appreciate your loyalty, faith, and trust in our firm.
Sincerely,
Bill Parrott
Bill Parrott
President and CEO
Parrott Wealth Management
Austin, TX
January 7, 2023
Rejoice in hope, be patient in tribulation, be constant in prayer.
~ Romans 12:12
Note: The Financial data is from YCHARTS, TD Ameritrade, Dimensional Funds, and Yahoo! Finance. Past performance does not guarantee future performance,
My daughter starts her job in a few weeks, and we are helping her set up her apartment. After years of schooling, she is ready to begin her career, and assisting a child in launching her career takes years of planning and patience. It’s bittersweet because she is leaving the nest to create a new life in a new state, but she is ready to soar.
As a parent, I give my daughter unsolicited financial advice regularly, and sometimes she welcomes it, so here are a few more tidbits for her as she begins a new chapter.
Create an emergency fund because unexpected expenses occur often. As your income rolls in, allocate a few dollars monthly to a savings account or money market fund so you can access it quickly. Do not invest your emergency fund in stocks, bonds, or cryptocurrency.
Contribute at least ten percent of income to your 401(k) plan. If your company offers a Roth option, choose it because your money can grow tax-free for decades. Initially, allocate 100% of your funds to stocks, and do not buy bonds.
Donate ten percent of your income to groups, charities, or organizations you support. Cheerful givers are also successful investors.
Open a brokerage account to buy stocks. Investing in a taxable account gives you flexibility if you want to retire early, buy a house, or travel the world.
Buy and hold stocks. Don’t worry if the stock market rises or falls because it will do so regularly, and the market will experience corrections of 20% or more every few years. The odds of a 50% stock market crash during your working career is 100%. Down days in the market are opportunities to buy great stocks at lower prices. Don’t fear corrections.
Avoid buying gold, silver, or other commodities. It’s okay to buy gold or silver coins as collectibles but not as investments. Historically, commodity investments perform poorly relative to stocks.
Buy insurance to protect your car, home, valuables, and loved ones. Do not buy life insurance as an investment, and avoid whole-life insurance.
Avoid credit card debt at all costs. Debt is a four-letter word; if it grows, it can lead to delayed gratification or financial ruin.
Spend freely. If you’re contributing to an emergency fund, a 401(k) plan, and an investment account, then it’s okay to spend the rest of your paycheck on anything you want without guilt.
I’ve seen thousands of financial plans and investment accounts during my career, and the most successful investors I’ve met own stocks, start investing early, save money, and control spending. Individuals who fail to save or invest in their twenties or thirties struggle to make ends meet later in life.
Let’s run a few numbers as to why it’s essential to start investing sooner rather than later if your goal is to retire with a million dollars at age sixty-five.[1]
At age 25, you need to save $380 per month.
At age 35, you need to save $820 per month.
At age 45, you need to save $1,920 per month.
At age 55, you need to save $5,777 per month.
If you start investing early, your money can grow through the power of compounding and time. If you started your career forty years ago, in 1982, you enjoyed close to 10% returns as the S&P 500 rose 3,888%; for every $10,000 you invested, it’s now worth $398,000!
Investing takes time and patience. If you start early and save often, the stock market can grow your wealth, even if you make a few bad investments along the way.
Good luck, Little Bird!
You can be young without money, but you can’t be old without it. ~ Tennessee Williams.
August 9, 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. My first investment was the Franklin Utility Fund when I was 24.
[1] I used a 7% annual return, and I know $1 million dollars in forty years will not be sufficient to retire.
No. It will twist and turn for thousands of miles.
Where did it start?
Up there, atop the mountain. It starts with a raindrop, fills the lake, creates a waterfall, and makes a river.
A raindrop is so tiny. How can it make a river?
One raindrop is tiny, but billions are powerful, a force of nature that creates a raging river or a tranquil pond.
How long will it take to reach the ocean?
Months, many months.
Months?
Yes. It’s in no hurry to get where it’s going. It will meander through mountains and valleys and enjoy the journey.
What does meander mean?
Hmm. Meander. Yes. It means to stroll or walk. It will take its sweet time – faster in parts, slower in others.
Why doesn’t it go fast all the time?
It goes as fast as it needs to go. If it’s flat, it goes slower; if it is flowing from a mountain or rolling down a hill, it will go faster. It has a job to do as it travels across the country.
A job?
A job.
What do you mean?
The river is a resource for many, and it’s filled with life, like fish and plants.
Like the fish we catch.
Yes, ma’am. Big, beautiful trout.
What else does it do?
It feeds the trees and plants. It provides water to farmers so they can grow the food we eat.
What else?
It lets animals and birds drink from its banks.
Like my horse?
Yes. When Sage is thirsty, she’ll bow down to the river and lap up water to quench her thirst.
What else?
It provides power to the electric company so we can turn on our lights.
Power?
A raging river produces power, and if you can harness it, it will provide energy to millions.
What else?
Big boats float on their back, moving cargo from one town to another.
What kind of cargo?
All kinds. Grains, cars, cattle, you name it.
Toys?
Ha! Yes, especially toys.
What else?
Well, others use it for fun.
What kind of fun?
Oh, boating, for example, or fishing, or swimming.
Is this the biggest river in the world?
No, there are larger ones like the Mighty Mississippi, the Nile, and the Yangtze.
Is it the fastest?
No, others are faster, I’m sure.
Is it the slowest?
I doubt it; there are slower ones.
I see.
You should live your life like a river.
I can’t be a river. What do you mean?
Enjoy your journey – don’t go too fast or too slow. Bring life to others by helping those in need; use your time, talent, or treasure and your God-given gifts to make a difference in this world. A river is beautiful, majestic, and powerful, just like you.
Tom Brady and Drew Brees are meeting in the NFC divisional playoff game today. Tom Brady is 43; Drew Brees is 42 – the oldest match up for quarterbacks in a playoff game. Messrs. Brady and Brees will be first-ballot Hall of Famers when their careers end. Mr. Brees is the NFL leader in passing yards with 80,358. Mr. Brady is second with 79,204. Mr. Brady is the all-time leader for touchdowns with 581, Mr. Brees is second with 571. Mr. Brady ranks eleventh for games played at 301, and Mr. Brees ranks sixteenth. Mr. Brees and the New Orleans Saints won Super Bowl 45, and he was named the games MVP. Mr. Brady is the all-time leader in Super Bowl wins with six, and he was named the Super Bowl MVP four times.
A quarterback aged 40 or more is rare, and these two are defying the odds. Despite their success, they have faced criticism and doubts. The San Diego Chargers traded Mr. Brees in 2005 after successful shoulder surgery. I bet the Charges wished they had kept him on the roster. He continually faces criticism about his height and arm strength. Phil Simms said, “Listen, his arm strength was never great.”
Tom Brady was the 199th pick, drafted in the 6th round, a snub he has not forgotten. In 2016, Max Kellerman “decided to declare that Brady’s career was about to be over sooner rather than later.”[1] He also called him “a bum.” After four years, Mr. Kellerman admits he was wrong about Tom Brady’s late-term playing career.
I’ve never met Tom Brady or Drew Brees, but I suppose they ignore the criticisms, and they probably aren’t aware of most things said about their potential “demise.” Rather than listen to the experts, they work out regularly, practice often, eat well, and repeatedly perfect their craft – they follow their plan and focus on what they can control.
The average NFL career lasts 3.3 years.[2] Mr. Brady is playing in his twenty-first season, Mr. Brees is in his twentieth. To survive and excel in the NFL for two decades requires perseverance, dedication, and tenacity – traits these two NFL greats have in abundance.
As an investor, you may face criticism and doubt about your investing style or portfolio. TV personalities, experts, analysts, relatives, neighbors, friends, or social media trolls may give you pause to think about your financial future. You may hear others say: “How come you own that company?” or “Why don’t you own this company?” or “The stock market is going to crash, you should sell your stocks!” Tune out the noise and chatter.
To create generational wealth, focus on those things you can control and ignore the rest. Here is a shortlist of things you can manage.
Savings. How much money do you save per month or year? The amount you save will have the most significant impact on your future wealth. Contribute the max to your 401(k) and IRA. Automate your savings. If you save $10,000 per year for thirty years, you could have more than $1.5 million in assets when you’re ready to retire.
Expenses. You have complete control over your spending. The less you spend, the more you save. January is an excellent time to review your spending habits. If you spend some time pouring over your bank and credit card statements, you may find a few expenses to reduce or eliminate.
Investments. You can purchase any investment in the world – stocks, bonds, real estate, gold, Bitcoin, art, jewelry, etc. However, if you want to retire in style, it’s best to own investments that grow, like stocks. The 100-year average for stocks has been 10%. If you keep most of your money in cash, it will lose value every year because of inflation and taxes.
Diversification. Diversify your assets across stocks, bonds, and cash and rebalance your portfolio annually. Diversification is considered a free lunch on Wall Street.
Plan. Your financial plan is unique to your situation. To succeed as an investor, buy investments you’re comfortable owning and follow your plan; it is your financial playbook, guiding you to long-term success.
Investing is not a sporting event, but it does require a game plan with long-term strategic thinking to succeed.
If you’re wondering, Brees holds an edge over Brady in games won – 5 to 2.
“Don’t ever underestimate the heart of a champion.” ~ Rudy Tomvanovich
January 16, 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.
As we approach Thanksgiving, here are twenty things I’m thankful for in 2020.
Family
Friends
Faith
Neighbors
Pets
Health
Long walks
Good books
Provision
Democracy
Zoom
Netflix
Amazon
Barbeques
Vaccines
The Dodgers
The Lakers
My guitar
Fly Fishing
Holidays
Do not be anxious about anything, but in every situation, by prayer and petition, with thanksgiving, present your requests to God. And the peace of God, which transcends all understanding, will guard your hearts and your minds in Christ Jesus. ~ Philippans 4:6-7
Happy Thanksgiving!
November 23, 2020
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. Turkey with mashed potatoes, gravy, corn, and crescent rolls is my go-to meal on Thanksgiving. What is yours?
Exxon Mobil is leaving the Dow Jones Industrial Average after 92 years. They joined the Dow in 1928, and it’s considered one of the bluest of blue chips – a stock to own forever. Salesforce will take its spot. It’s not the first perennial holding to be substituted by a newer, swankier company. Walgreen’s replaced General Electric in 2018 after a 112-year run and Apple supplanted AT&T in 2015 after 99 years. The three former Dow Jones members spent a combined 303 years in the popular index. Procter & Gamble is now the longest-tenured company in the Dow at 88 years.
For decades, shareholders of Exxon, GE, and AT&T considered themselves set for life. A portfolio consisting of these three companies turned $30,000 into $1.2 million from 1983 to 2016, generating an average annual return of 11.8% – far outpacing the S&P 500. Yet, from 2016 through 2020, this three-stock portfolio has fallen 45% while the S&P 500 is up 68%, a difference of 113%![1]
From 1930 to 1960, Exxon, GE, and AT&T were a few of the largest companies in the world, and AT&T held the top spot for four decades. Exxon was the largest company in the world in 2011.[2] It’s now the 34th largest company in the US.
In addition to the long-term investment success of this blue-chip triad, they generated significant dividend income over the past three decades. Exxon’s dividend yield averaged 3.15%, GE’s average payout was 2.95%, and AT&T paid 4.54%. These former juggernauts raised their dividends by an average of 495% during this stretch.
However, time’s change and Exxon’s revenue has declined 31% over the past decade, and its dividend payout ratio is 207% – an extremely high metric. Exxon’s stock price has risen 68 cents over the past twenty years, and GE’s stock hasn’t budged a dime in twenty-eight years. AT&T has followed a similar path. Its share price is down more than 40% from its 1999 peak.[3]
Cisco Systems is an excellent example of not getting married to a stock. Its share price soared 3,500% from 1995 to 2000. By 2002, it had fallen 85%. Over the past twenty years, it’s down 42%, and it has never returned to its all-time high of $72.19 set in April 2000.[4]
Today, Facebook, Amazon, Apple, Netflix, Google, Microsoft, and Tesla are the largest companies, and investors plan to own them forever. And rightfully so. If you owned a basket of these high-flyers, you’d be up 97% this year! It’s hard to imagine that one of these companies could follow the fate of Exxon, GE, or AT&T, but it’s possible.
What should you do if you own a stock that you want to hold forever? Here are a few suggestions.
If your company is performing well, and it’s meeting your needs, do nothing. Let it run.
If the stock becomes a significant percentage of your wealth, consider reducing it, and redeploying your capital into another company or two. What is a large percentage? When your stock approaches 10% or more of your portfolio, start paying extra attention to it. When it breaches 25%, sell some shares to drop your weighing to 10% of your account balance or lower.
Trust, but verify. Review earnings reports and company announcements. Is the trend intact? Are they generating positive revenue, earnings, and cash flow? Is the company innovating and producing products and services people will use? If so, hold on to the stock.
Keep an eye on management. Steve Jobs, Bill Gates, Jeff Bezos, and Elon Musk are legendary leaders and visionaries. A strong management team is a crucial component to the success of a company, so keep an eye on their lieutenants as well. You can track critical employees on Morningstar or Yahoo! Finance.
Take profits. It’s okay to take profits after a strong run. Apple and Tesla announced stock splits a few weeks ago, and their stock prices have risen 31% and 47%, respectively. After a substantial gain, it’s okay to trim your holdings to lock in a profit.
Average up. Most people are comfortable averaging down, but few like to average up. What is averaging up? Let’s say you purchased 100 shares of Apple at $150 in 2019, and you bought more at $250 and $350 and $450. Your average cost is $300. Apple is currently trading for $500 per share, so your gain is $200, or 67%, despite buying the stock at higher prices.
Sell it. If your company’s fortunes change, sell it, and move on to a new company. There are thousands of companies and investment opportunities, so don’t get wedded to a stock.
Owning great companies is one of the best ways to create wealth and concentrating your holdings into a few stocks can magnify your returns. But, it’s essential to review your investments regularly to make sure they’re meeting your goals and objectives. Do not ignore fundamentals and pay attention to popular trends. Times change and being flexible to pivot to new ideas will allow your account to grow over time.
The bigger they are, the harder they fall. ~ Anonymous
August 26, 2020
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 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] Morningstar Office Hypotheticals – April 1983 to July 2020
Investors sold stocks this past week as they reacted to economic data and assorted reports on Covid-19. The economic data was bad but expected. Retail sales fell 16.4%. The previous low was negative 3.67% during the Great Recession. Manufacturing output fell by 13.7%, the most significant decline since 1919.[1] Industrial production dropped 11.2%.
The market was also startled by Federal Reserve Chairman Jerome Powell’s comments when he said the economic outlook is still “highly uncertain and subject to significant downside risks.”[2] And one billionaire hedge fund manager said, “this is the second-most overvalued market, behind only ’99.”[3] But he also purchased shares of Twitter, Microsoft, Wells Fargo, Micron, Netflix, and Energy Transfer LP.[4] Do as I say, not as I do?
Bankruptcies continue to pile up, including J.C. Penney’s, Frontier Communications, Gold’s Gym, True Religion, Ultra Petroleum, and Diamond Offshore.
The House passed a $3 trillion Coronavirus Relief Bill.
Tesla will build its next factory in Austin, Texas – Hook ‘em!
Consumer confidence rose this week.
The number of air travelers has increased by 160% since the April lows, according to the TSA website. As one client mentioned to me, “He can’t wait to drink a beer in a crowded airport.”
OpenTable® restaurant reservation data continues to improve.
Here is how stocks, bonds, and alternative asset classes performed this past week.
The S&P 500 fell 2.33%%
The NASDAQ fell 1.05%
Small-Cap Stocks fell 7.56%
Real Estate Stocks fell 7.76%
International Stocks fell 3.15%
Emerging Markets fell 2.03%
Bonds rose .47%
Gold rose 2.19%
Energy Stocks fell 6.79%
Captain Lawrence G. Getz III is the Commanding Officer of the University of Michigan’s Navy ROTC program and a Navy helicopter pilot. He flew more than 2,500 hours, including 500 combat hours. For his service, he earned the Defense Superior Service Medal, Legion of Merit, and two Meritorious Service Medals, to name a few. I recently asked him how he dealt with his emotions while flying. He said, “Compartmentalize your emotions, put them in a box, and execute your plan. Being afraid is normal, but do not make emotional decisions in highly volatile times. Do not make decisions in fear.”
We should follow Captain Getz’s advice. Reacting to fear and emotion can have long-term consequences for your family’s wealth. It’s imperative to follow your plan and focus on your goals. Difficult times will fade, and the stock market has always recovered. I sound like a broken record, but the poor stock market performance has not harmed our client’s financial plans. Be strong and keep the faith.
“Great things never came from comfort zones.” ~ Anonymous
Have a great weekend!
May 16, 2020
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 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 are not suitable for every investor.
My bible study group has been meeting virtually for the past few weeks because of the Coronavirus, and last night we prayed for twenty-five people from a list (see below) that has been circulating on social media. We incorporated it into our meeting, and it was powerful.
It is a tough time for all, but praying for others gave our group peace and comfort. I’m praying it will do the same for you as well.
The Parable of the Good Samaritan
On one occasion an expert in the law stood up to test Jesus. “Teacher,” he asked, “what must I do to inherit eternal life?”
“What is written in the Law?” he replied. “How do you read it?”
He answered, “‘Love the Lord your God with all your heart and with all your soul and with all your strength and with all your mind’; and, ‘Love your neighbor as yourself.’”
“You have answered correctly,” Jesus replied. “Do this, and you will live.”
But he wanted to justify himself, so he asked Jesus, “And who is my neighbor?”
In reply Jesus said: “A man was going down from Jerusalem to Jericho, when he was attacked by robbers. They stripped him of his clothes, beat him and went away, leaving him half dead. A priest happened to be going down the same road, and when he saw the man, he passed by on the other side. So too, a Levite, when he came to the place and saw him, passed by on the other side. But a Samaritan, as he traveled, came where the man was; and when he saw him, he took pity on him. He went to him and bandaged his wounds, pouring on oil and wine. Then he put the man on his own donkey, brought him to an inn and took care of him. The next day he took out two denarii and gave them to the innkeeper. ‘Look after him,’ he said, ‘and when I return, I will reimburse you for any extra expense you may have.’
“Which of these three do you think was a neighbor to the man who fell into the hands of robbers?”
The expert in the law replied, “The one who had mercy on him.”
Jesus told him, “Go and do likewise.”
~ Luke 10:25-37
Who is your neighbor?
If you’re not sure who your neighbor is, here is the list of twenty-five people to pray for (Note: I don’t know where the list originated, and it has been sorted randomly).
Delivery Drivers
Pastors and Church Leaders
Singles
Teachers
First Responders and Police Officers
Couples with wedding plans
Grocery Store Workers
Medical Support Teams
Foster Care Families
Those who cannot work from home
Those in abusive situations
Those displaced from their homes
Employees deemed essential who work among the public
Internet-Support Personnel
Government Officials
COVID-19 Cleaning Workers
High School and College Students
Small business owners and employees
People struggling with anxiety, depression, and other mental illnesses
Counselors and Therapists
Those facing job layoffs
Developing Nations
Military Personnel and Their Families
Expectant Parents
The homeless and those in deep poverty
Who needs prayer? Everybody. Be safe and keep the faith.
Rejoice always, pray without ceasing, give thanks in all circumstances; for this is the will of God in Christ Jesus for you. ~ 1 Thessalonians 5:16-18
April 28, 2020
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 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.
The tax season is in the rear-view mirror, so now is a great time to start planning for next year’s returns. Before you put your returns away for good, spend some time reviewing your data. Review your income, deductions, and expenses to see if you can find an opportunity to make changes.
The state and local tax (SALT) limited the deduction to $10,000, a problem for most filers. This limitation especially hurt residents in California, New York and New Jersey. Texas residents also felt the pinch due to the state’s high property taxes.
Let’s look at a few ideas and strategies you can incorporate today to potentially help you lower your taxes.
Increase your 401(k) contribution to maximize your deduction. The amount you can contribute this year is $19,000 if you’re under 50. If you’re older than 50, you can add another $6,000. The increased contributions will lower your taxable income and the investments will grow tax deferred.
Contribute to a traditional IRA. You’re allowed to deduct 100% of your contribution if your income is below $64,000 if you’re single or $103,000 if you’re married. Your investments will grow tax deferred and you don’t have to withdraw your money until age 70 ½.
If you’re self-employed, consider a SEP-IRA. The maximum amount you can contribute to your plan is $56,000. The formula for your contribution is 25% of your compensation or $56,000, whichever is less. When you retire, or you’re no longer self-employed, you can rollover your balance to an IRA.
Tax-free municipal bonds are a great way to generate income and lower your taxes. Residents in California and New York must buy bonds from their home state to receive 100% tax free income. Residents in Texas or Florida can buy bonds from any state because they don’t have a state income tax. To compare a tax-free bond to a taxable one, multiply the coupon rate times 1.4. For example, if a tax-free bond pays 3%, then the taxable equivalent is 4.5%. Of course, the higher your tax bracket, the better the after-tax rate. The actual formula is (coupon divided by 1 – your tax rate).
A health savings account (HSA) can give your returns a healthy boost. A family can contribute $7,000 and a single person can add $3,500. If you’re older than 55, you can add an extra $1,000 to your contribution. The tax deduction for a family is $2,700. A single filer can deduct $1,350.
Charitable contributions are a great way to help others and reduce your taxes. The standard deduction increased to $24,400 for married couples ($12,200 for single households), so charitable contributions may have dropped off because people didn’t have enough itemized deductions. However, if you’re in a situation to give more than the standard deduction, then charitable contributions make sense. Donor advised funds (DAF) and other strategies can help concentrate, or bunch, your donations to make sure your contribution is more than the standard deduction. In addition, you can give away $15,000 per person, per year free of taxation for all parties.
Buying growth stocks can also help lower your taxes. How so? Most growth companies don’t pay dividends. If you buy a growth company, your gain (or loss) will occur when you decide to sell. Companies like Amazon, Facebook, and Alphabet are growth companies that don’t pay dividends so you can benefit from years of growth without paying any income taxes. If you own a combination of dividend payers and non-dividend payers, then buy the dividend payers in your IRA so you don’t have to pay taxes on the current cash flow.
Taxes aren’t all that bad because they provide services that are beneficial to a free-market economy like quality roads, police protection, and safety net programs. If you’ve ever visited a third world country, you know what I’m talking about. However, you don’t have to give more money to the government than what’s legally required.
So, dust of your 2018 tax returns one last time so you can find a few opportunities to lower your taxes.
Then Jesus said to them, “Give back to Caesar what is Caesar’s and to God what is God’s.” ~ Mark 12:17
April 25, 2019
Bill Parrott, CFP®, CKA® 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 our clients can pursue a life of purpose.
Note: Investments are not guaranteed and do involve risk. Your returns may differ than 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.
