The Masters

Tiger Woods roared to life by winning the 2019 Masters – his fifth green jacket.  He last won at Augusta in 2005 and it’s his first major win in 11 years. Athletically, his win marks one of the greatest comebacks in all of sports.

His trials and tribulations are well documented, and few people gave him much of a chance of returning to glory. After his fall from grace, experts weighed in on his golfing future:

Stephen A. Smith, “His short game is gone. His health is gone.”[1] Mr smith is now suggesting “Tiger will catch Jack Nicklaus for the most major wins.”[2]

Jamele Hill said his next press release should be, “I’m retiring.”[3]

Colin Cowherd considered him a “former golfer.”[4]

Shannon Sharpe added, “He will never, ever be that guy again.”[5]

It takes perseverance and courage to pursue your goals after an 11-year dry spell. It’s even harder when people are telling you to quit and you’re a has been, but he kept swinging. Several sponsors dropped him after his fall including AT&T, Accenture, PepsiCo, Proctor & Gamble and Tag Heuer. Nike, Bridgestone Golf Balls and Taylor Made, however, stayed the course with Mr. Woods and they were rewarded when he conquered Augusta on Sunday.[6]

Investors would be wise to follow his lead, especially when it comes to perseverance. A few investment sectors have been out of favor for a long time, even decades. The urge to move your money from underperforming sectors may be high, but history tells us this may be a mistake. Ask Tiger.

Let’s look at a few investment categories in need of a win.

International Investments. Foreign markets have trailed U.S. stocks for the past 1-, 3-, 5- 10-year periods – by a lot. A $10,000 investment ten years ago in the Vanguard S&P 500 index fund (VOO) is now worth $26,280. By comparison, the same investment in the iShares MSCI EAFE ETF (EFA) is only worth $12,830 – a difference of $13,450. International stocks account for about 48% of the world’s market capitalization, so an allocation to this sector still makes sense.

Value Stocks. Growth stocks have outperformed value stocks over the past 1-, 3-, 5-, 10-, and 25-year periods.  Value stocks did outperform during the lost decade of the 2000s. What is a value stock? Some popular names include Johnson & Johnson, Exxon Mobile, Pfizer, AT&T, Walmart, and IBM. Growth names include Apple, Amazon, Microsoft, Facebook, Disney, Netflix and Mastercard.

Fixed Income. Stocks have trounced bonds for the past 92 years by a ratio of 49 to 1. A dollar invested in stocks in 1926 is now worth $7,025. The same dollar invested in bonds grew to a paltry $142. Bonds have shown brief moments of brilliance by rising 25.9% in 2008, 27.1% in 2011, and 24.7% in 2014. Despite their lackluster returns and low yields, bonds are needed for safety and liquidity, especially during times of stock market turmoil.

In hindsight, allocating 100% of your portfolio to U.S. large-cap growth stocks makes sense. But this is not a prudent strategy for most investors. Dating back to 1992, the Vanguard Growth Index fund (VIGIX) generated an average annual return of 9.7%, but it fell 58.5% during the Tech Wreck (2000 – 2002) and 49.6% during the Great Recession (2007 – 2009). During the fourth quarter of last year it fell 19.8%. Not many investors would have had the courage, or foresight, to stay invested during those tumultuous days.

At times we must walk through the valley to reach the mountain top. During the dark days it takes faith and fortitude to hold on for better days. To be a successful investor, focus on the long term, ignore the noise, diversify your holdings, invest often, rebalance annually, and keep your fees low.

So, tee it up and invest for the win.

Not only so, but we also glory in our sufferings, because we know that suffering produces perseverance; perseverance, character; and character, hope.  And hope does not put us to shame, because God’s love has been poured out into our hearts through the Holy Spirit, who has been given to us. ~ Romans 5:3-5

April 16, 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.

 

 

 

[1] Skratch TV, https://www.youtube.com/watch?v=Fue0sQs5jtI, website accessed 4/15/19.

[2] http://www.espn.com/golf/, accessed 4/15/2019

[3] Skratch TV, https://www.youtube.com/watch?v=Fue0sQs5jtI, website accessed 4/15/19.

[4] Ibid

[5] Ibid

[6] https://www.wsj.com/articles/tiger-woods-rewards-nikes-loyalty-with-masters-win-11555351215?mod=searchresults&page=1&pos=1, April 15, 2019, Suzanne Vranica and Khadeeja Safdar

Stocks & Yogurt

Consumers are stressed out over yogurt.

The Wall Street Journal recently published an article about declining yogurt sales – Yogurt Sales Sour as Options Proliferate. The main theme of the article is that consumers have too many choices.

According to the article “the average U.S. Supermarket carries 306 different yogurt varieties”[1] and the consumer is overwhelmed. The article added: “Some consumers say all that choice is giving them yogurt fatigue.”

Investors face the same dilemma as yogurt shoppers – too many investment choices. Morningstar’s database includes the following securities:

  • 115,000 Global Stocks
  • 27,000 U.S. Mutual Funds
  • 17,000 Global Exchange Traded Funds
  • 5,000 529 Portfolios
  • 13,000 Closed-End Funds
  • 15,000 Separately Managed Accounts
  • 208,000 Variable Annuity Subaccounts
  • 14,000 Unit Investment Trusts
  • 6 Million Individual Bonds

Wow! If a consumer is anxious about 300 different types of yogurts, how will they pick a few choice investments from more than 2 million securities? Information overload can cause investors to suffer from financial paralysis.

Being exposed to more choices doesn’t make things easier or better. In a famous 2000 study on jams, psychologist Sheena Iyengar and Mark Lepper published a paper on choices. The first test included 24 varieties of jam; the second sample included six. They found that the larger sample attracted more people, but less buyers. The smaller sample yielded ten times more purchases.[2]

Here’s a simple portfolio consisting of five different exchange traded funds. The funds are allocated to 60% stocks, 40% bonds and rebalanced annually. Dating back to 2003 it generated an average annual return of 7.05%. A $50,000 investment in 2003 is now worth $144,650. The best year was in 2009 with a gain of 15.89%, the worst year occurred in 2008 when it lost 20.05%.

The funds include:

  • iShares Core S&P 500 Fund – IVV
  • iShares Core S&P 600 Fund – IJR
  • iShares MSCI EAFE Fund – EFA
  • iShares US Real Estate – IYR
  • iShares Core US Aggregate Bond Fund – AGG

If five funds are too many, here’s a portfolio consisting of three Vanguard mutual funds. The funds were allocated to 60% stocks, 40% bonds and rebalanced annually. This portfolio originated in 1996 and it has generated an average annual return of 6.63%. A $30,000 investment in 1996 is now worth $130,793. 2009 was the best year for this portfolio when it jumped 25.21%. The worst year occurred in 2008 when it fell 23.3%.

The three funds include:

  • Vanguard Total Stock Market Index – VTSMX
  • Vanguard Total International Stock Market Index – VGTSX
  • Vanguard Total Bond Market Index – VBMFX

If three funds are too much, here’s one mutual fund – Dimensional Fund Advisors 60/40 Global Allocation Fund (DGSIX). Since 2003 it has generated an average annual return of 6.2%. A $10,000 investment in 2003 is now worth $25,180. Its best year was 2009 when it climbed 25.5%. Its worst year occurred in 2008 when it dropped 25.7%.

As you decide on the best investments for your portfolio, don’t make it complicated. A simple portfolio of a few, low-cost, funds is all you need. Your account will be easy to understand and follow. In addition, with fewer moving parts you’ll no longer have to watch the daily moves in the stock market.

So, dig in and simplify your investments.

The more you have, the more you are occupied. The less you have, the more free you are. ~ Mother Teresa

April 11, 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.

 

 

 

 

 

[1] https://www.wsj.com/articles/yogurt-sales-sour-as-options-proliferate-11554811200?mod=searchresults&page=1&pos=2, Heather Haddon, 4/9/2019

[2] https://hbr.org/2006/06/more-isnt-always-better, Barry Schwartz, June 2006 issue

7 Ideas For A Healthy Retirement

Ida Keeling is 103 years old and a fitness buff. She holds the world record for the 100-meter dash with a time of 1 minute and 17 seconds for the age category of 100 to 104. She started running at age 67 after one of her sons passed away and said, “Running to me is like medicine.”[1]

You don’t have to run like Miss Ida but staying physically fit during your golden years can generate multiple benefits like controlling your weight, fighting diseases, improving your mood, boosting your energy, and helping you sleep. Health is wealth.[2]

Remaining active in retirement is vital, especially if you want to be mobile later in life.

Here are a few ideas to keep you moving.

Walking or Running. Walking, and running, is an easy activity. All you need to do is put on your running shoes, open your front door, and put one foot in front of the other. Walking is a low impact activity that can keep you moving for decades. If you have good bones, then running allows you to increase your heart rate and cover more territory. You can also participate in races like 5ks or marathons. The Centers for Disease Control recommends 2.5 hours per week, or 30 minutes a day.[3] Walking 10,000 steps daily is the new normal. You can track your progress with a Fitbit or Apple Watch.

Hiking. A hike in the mountains is good for the soul and the heart. A good trail with varying terrain and endless vistas is hard to beat. Hiking in Yosemite, Yellowstone, or Rocky Mountain National Park is both challenging and exhilarating.  National parks, state parks, or local municipalities have miles of trails that you can explore while hiking.

Cycling.  Cyclists have several opportunities to log miles. Gear heads can ride a road or mountain bike if they live in area that’s safe for cyclists. However, SoulCycle® and Peloton® give you access to the road, and community, in a controlled environment. If you own a Peloton®, you don’t even have to leave your house!

Swimming. Is swimming the ultimate full body workout? Swimmers would probably say yes, and I’d agree. Like walking, swimming is a low impact sport.  Most cities offer a masters swimming program giving you exposure to coaches, pools and fellow swimmers. In fact, April is adult learn to swim month. You can find a club near you at www.usms.org.

Lifting Weights. Do you remember Hans and Franz from Saturday Night Live? Their skit was called “Pumping Up with Hans & Franz.” Lifting weights builds muscle and muscle fights fat and osteoporosis. It also lowers your risk of diabetes, prevents back pain, and improves your balance.[4] Joining your local gym will give you access to trainers and community.

Yoga. Yoga enhances your flexibility, improves your balance and builds muscle. It’s a low impact sport that can be mastered at any age. You can join a class, watch a video, or do it on your own. Yoga can also help you manage your stress level. Yoga pants are in fashion – an added bonus!

Community. Harvard has been conducting an eight decades study on adult development. They found social connections (not social media) to be good for your health while loneliness to be toxic.  A community can also improve your memory.[5] You may also learn new skills, meet new people, and live longer.

In my neighborhood, there’s a group of about 15 senior women who walk a few times per week and they’re usually laughing and talking while walking at a pretty good clip. They’re enjoying the outdoors, exercising and staying in community. A good mix for longevity.

So, get off the couch, get outside and find an activity that brings you joy. Your life may depend on it!

We want to pump you up! ~ Hans and Franz. 

April 5, 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.

In 2011 he finished the Boston Marathon with a time of 3:22. He currently hikes, bikes, and lifts weights.

Note: Investments are not guaranteed and do involve risk. Your returns may differ than those posted in this blog.

 

 

[1] https://www.runnersworld.com/runners-stories/a20866241/102-year-old-track-star/, Cindy Kuzma, 3/14/2018

[2] https://www.mayoclinic.org/healthy-lifestyle/fitness/in-depth/exercise/art-20048389, Mayo Clinic Staff, 12/14/2018

[3] https://www.livestrong.com/article/513495-how-much-walking-to-get-in-shape/, Dani Arbuckle, website accessed 4/5/2019

[4] https://www.livestrong.com/slideshow/1008208-13-benefits-weightlifting-one-tells/?slide=11, Jody Braverman, 3/1/2018

[5] https://www.health.harvard.edu/mental-health/can-relationships-boost-longevity-and-well-being, Published June 2017, website accessed 4/5/2019.

The Los Angeles Lakers

The Los Angeles Lakers are iconic. A dynasty. They’re one of the great franchises – not just in basketball, but all sports. They’ve won 16 NBA Championships. Their roster has included legendary players like Magic, Kobe, Shaq, Wilt, Kareem, Mikan, Worthy, Baylor, Jamal, LeBron and The Logo.

I grew up watching the Laker’s in the ‘80s with Show Time. Their battles with the Celtics, Pistons and Bulls were epic. A Magic led fast break, or a Kareem sky hook was magical. Listening to Chick Hearn enhanced the experience.

This season the Laker’s have fallen on hard times with a dismal record of 32-41. They’ll miss the playoffs for the 6th year in a row and snap LeBron James playoff streak. He had made the playoffs every year since 2005 and appeared in eight consecutive NBA Finals.

LeBron James is arguably the greatest player of all time. Despite his pedigree, it wasn’t enough to get his team into the playoffs. His abilities couldn’t make up for a less than stellar roster. When Mr. James was winning championships, he was surrounded by strong teammates like Dwayne Wade, Chris Bosh and Kevin Love.

It takes more than one strong performer to generate wins. It takes a team balanced with specialists.

Most investors are familiar with story stocks like Facebook, Apple, Amazon, Netflix, or Google (Alphabet). These high-flying brand names probably anchor most individual portfolios. It may be easier to identify these companies because they’re constantly mentioned on the airwaves and social media. But how do you expand beyond these highfliers? How do you build a supporting cast? How do you identify the 15th best stock in your portfolio?

Is it possible for a superstar company like Apple or Amazon to carry a portfolio of average, or below average, stocks? If you owned Weight Watchers, Camping World, Stamps.com, PG&E, PetMed Express, Red Robin Gourmet Burgers, Shutterfly, Kraft Heinz, Tupperware, United Rentals or Zillow your portfolio would have had disastrous results as each of these stocks was down more than 35% last year.

A portfolio of individual stocks may leave you exposed to concentrated losers, especially if you only own a handful of companies.  In addition, your portfolio may ignore categories like small companies, emerging markets, real estate holdings, or (gasp) bonds.

A diversified portfolio of low-cost mutual funds or ETF’s will give you an opportunity to find winners around the globe.

Dimensional Fund Advisors Global Allocation Portfolio is an excellent example of a diversified portfolio. The fund’s asset allocation is 60% growth, 40% income. It owns more than 13,500 securities scattered around the globe through eleven different mutual funds with exposure to stocks, bonds and real estate. It has generated an average annual return of 9.47% for the past 10 years.[1] It’s not dependent on one superstar stock. It performs well because it’s diversified with a strong supporting cast.

Rather than trying to find one stellar stock, build your investment portfolio with a broad mix of low-cost mutual funds based on your financial goals. Your diversified account will give you exposure to several magnificent companies. It will also remove anxiety by eliminating the need to find the “best” stock. You’re no longer dependent on the daily movements in the stock market because you now own thousands of investments from around the world.

So, go ahead and draft a portfolio of low-cost funds based on your goals and start winning the investment game today!

The game’s in the refrigerator, the door’s closed, the light’s out, the eggs are cooling, the butter’s getting hard and the Jell-O’s jiggling. ~ Chick Hearn

March 26, 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.

 

[1] YCharts: March 2009 – March 2019

Are You Behind The 8-Ball?

Several years ago, I met with a couple in their mid-fifties who reached out to me because they needed help with their budgeting. I had known them for a few years, and it appeared they were doing well based on our past conversations and their Facebook posts. Looks can be deceiving, however.

As I reviewed their financial situation, I was shocked at what I saw. They didn’t own their home and they had a mountain of debt.  Their only asset was a small checking account. If they attacked their debt aggressively, it would have taken them more than fifteen years to become debt free. This assumes they were willing to curtail their spending, which was going to be a tall order. Their high debt level was robbing them of their ability to establish an emergency fund or save for retirement.

It will be challenging for this couple to make ends meet, especially in retirement. With zero assets saved for retirement, they’ll have to rely on Social Security. The average Social Security check is $1,400.[1] If they both received this same amount their annual retirement income would be $33,600 – before taxes.

In addition, one of the spouses was reluctant to go back to work because most of the jobs being offered were beneath his skill set and level of training.

During my career I’ve met with about a half-dozen families who were in similar financial situations. It’s heartbreaking. As a financial planner, I never want to tell anybody bankruptcy is their best option, but, on occasion, it is.

What should you do if you’re behind the financial 8-ball? Here are a few suggestions.

  1. If you’re in a financial hole, stop digging. Reduce your expenses. Stop spending. Create a budget. Cut up your credit cards. After analyzing your spending habits create a needs-based budget. What are needs? Food, clothing and shelter. Until your financial situation improves put your wants and wishes on hold.
  2. Reduce your financial footprint. Rent a smaller home. Sell one of your cars. Bring your lunch to work. Brew your own coffee. Get rid of cable. Play board games with your family. Visit a National Park for vacation.
  3. Contact your bank or credit card companies to negotiate better terms. They might reduce your interest payment or waive late fees. According to Credit Karma they may offer you a hardship plan due to a job loss or illness.[2]
  4. Find a non-profit or credit-counseling company to help you reign in your debt. These organizations will help you with budgeting and debt consolidation.
  5. Get a job. Any income is better than no income. As I mentioned, the husband in this article was reluctant to get a job that was beneath his social status. The current unemployment rate is 3.8% so finding a job shouldn’t be too difficult. At my local Home Depot, they have scores of orange signs screaming: “We’re hiring.” A sales associate at Home Depot can make between $11 to $14 per hour.[3]
  6. Cut your kids loose? Is it time for your adult child to support themselves? Are they ready to leave the nest? According to a recent Barron’s article, parents are spending $500 billion per year supporting adult children and their families.[4] This money is a drain on the parent’s resources forcing many to continue working well beyond their golden years. Chris Hogan, author of Everyday Millionaires, reports that 71% of millionaires do not provide monthly support to children over the age of 25. I love my daughter dearly, but after college she’ll need to start working.

Life is hard and balancing financial resources is difficult. I’m currently teaching a financial class at my church and one of the biggest benefits from the people attending has been identifying how their money is being spent. If you know where your money is going, you can make life changing decisions today. I know you can do it!

The rich rule over the poor, and the borrower is slave to the lender. ~ Proverbs 22:7

March 23, 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.

 

 

[1] https://www.fool.com/retirement/2018/10/16/heres-the-average-social-security-benefit-for-2019.aspx, Maurie Backman, October 16, 2008

[2] https://www.creditkarma.com/advice/i/negotiate-debt-credit-card-company/, Satta Sarma Hightower, December 4, 2018

[3] https://www.payscale.com/research/US/Employer=The_Home_Depot_Inc./Hourly_Rate

[4] https://www.barrons.com/articles/how-to-protect-your-retirement-from-your-kids-51553285595, Reshma Kapadia, March 23, 2019

Beware Ten Year Track Records

Mutual fund companies and asset managers will start touting their 10-year performance record with dazzling numbers. The marketers will try to lure you in based on their outsized performance. But, before you invest, dig deeper. Ask to see their 15-year track record. If they don’t have one, review their performance from 2008. How did the fund perform during the Great Recession?

These companies are rejoicing, as they should, because it’s March 2019 and they’re now able to report their 10-year track record without including the disastrous year of 2008. The bear market is finally in the rearview mirror for reporting purposes.

How significant is this change? Well, the 10-year average annual total return for the S&P 500 from March 2009 to 2019 has been 16.5%. By comparison, the 10-year return ending 2018 was 7.13% – a difference of 9.37%! Since 1926 the S&P 500 Index has averaged 10%, so the recent returns are well above the historical average.

Of course, the returns are what they are, but they’re exaggerated due to the sharp sell-off during the Great Recession when the S&P 500 Index fell 53%. The index bottomed on March 9, 2009 and then it went on an extraordinary run for the next 10 years, rising 317%! If, and it’s a big if, you invested $10,000 at this juncture it would be worth $41,750 today.[1]

Despite these outsized gains a majority of U.S. Large Cap Funds still underperformed their index. In fact, only 10.9% of actively managed mutual funds beat their index over the past 10 years. The funds with the lowest cost did slightly better as 17.3% of this group beat the index. However, funds with high fees were destroyed as only 2.1% managed to do better than the market.[2]

Here are a few suggestions to help you build a mutual fund portfolio.

  • Invest in low-cost mutual funds managed by Dimensional Fund Advisors or Vanguard. Adding Exchange Traded Funds (ETFs) from Blackrock or Vanguard will help keep your costs low.
  • Diversify your assets across large, small and international funds. Adding bonds and real estate holdings will further diversify your portfolio.
  • Build your portfolio around your financial goals and risk tolerance. These two ingredients will help determine your asset allocation.
  • Time is your friend when investing in the stock market. A time horizon longer than five years should include a heavy dose of equity funds.
  • Rebalance your investments once or twice per year. This will keep your asset allocation and risk tolerance in check.
  • Review past returns for as long as the data is available on your fund. You can research this data on several sites including Yahoo! Finance, Morningstar, YCharts, or the Wall Street Journal.
  • Analyze the fee structure. Avoid funds with a front-end sales charge, a deferred sales charge, or a 12b-1 fee.
  • Incorporate a buy and hold philosophy. Don’t fret the daily fluctuations in the market or listen to the “experts” about the pending correction.

This past decade has treated investors well. What will the next decade bring? Who knows, but if history is a guide, it will be a good one.  Stay invested my friends.

I can only control my own performance. If I do my best, then I can feel good at the end of the day. ~ Michael Phelps

March 20, 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. Past performance does not guarantee future results.

 

 

 

 

 

 

 

[1] YCharts – March 9, 2000 – March 20, 2019

[2] https://office.morningstar.com/research/doc/Feb%2007%202019_US_ActivePassive_Barometer_-_7_Takeaways_from_the_2018_911724, Ben Johnson, 2/7/2019

7 Ways to Handle A Windfall

Growing up, my friends and I often attended the horse races. One afternoon, I hit an exacta and won $150 – a fortune for me at the time. I bought dinner for my friends with my windfall.

Financial windfalls can come from various sources like an acquisition, year-end bonus, tax-refund, or lottery winnings. A windfall is a relative term, of course.  A $10,000 windfall is pocket change for Bill Gates, but life changing for someone with limited means. Regardless of the source or the amount, you’re now faced with several financial decisions. Here are 7 ideas to help you with your new-found wealth.

Give. Giving a portion of your windfall to help others will benefit many. According to the World Bank, half the world lives on less than $5.50 per day, so donating your money to an organization or group you support will pay dividends to a multitude of people.[1]  In addition, you’ll be able to write off your contribution on next year’s tax return.

Reduce your debt. If your windfall is substantial, reduce, or eliminate, your debt. Let’s say you have 20 years left on a $300,000 mortgage. If you paid off your note, you’d save about $238,000 in interest and $19,000 in annual mortgage payments. Can you find a better way to invest or spend $19,000 per year?

Create an emergency fund. Use your bounty to establish an emergency fund. Your enhanced cash flow can be used as a financial buffer. A recommended amount to save is 3 to 6 months of expenses deposited in a savings account or money market fund. If your expenses are $10,000 per month, then the value of your emergency fund should be $30,000 to $60,000.

Invest. Investing your haul will help grow your nest egg. A $10,000 investment in the Vanguard 500 Index Fund five years ago, is worth $16,400 today.[2]

Spend. Do you want a new boat? Car? If your financial house is in order, go for it. Spend a portion of your windfall on something you’ve had your eyes on for a while.

Take a trip. Hiking in the mountains or walking on the beach is good for the soul. Spending money on experiences may be more beneficial than buying things. A lifetime of family memories is worth the expense. Top travel destinations this year include the Amalfi Coast, Machu Picchu, and Yellowstone National Park.[3]

Remodel. Is your kitchen ready for an upgrade? Is it time to put in a swimming pool? Now’s your chance. The projects generating the best payback are kitchens, garage doors, and decks.[4]

Before you make any financial decisions spend time deciding on the best course of action for you and your family. Avoid an impulse purchase. Hold a family meeting to get input and buy in from your spouse and children. Regardless of what you do, don’t borrow to leverage your windfall. Pay cash and stay out of debt.

Working with a financial planner to help you decide on how to proceed would be a wise decision. A planner can guide you and your family on the best way to allocate your resources.

I almost forgot, congratulations on your windfall!

Money can’t buy happiness, but it will certainly get you a better class of memories. ~ Ronald Reagan.

March 19, 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.

 

 

[1] https://www.worldbank.org/en/news/press-release/2018/10/17/nearly-half-the-world-lives-on-less-than-550-a-day, website accessed March 18, 2019

[2] Morningstar Office Hypothetical Tool: 2/28/2014 – 2/28/2019

[3] https://travel.usnews.com/gallery/the-worlds-30-best-places-to-visit-in-2018-19?

[4] https://www.bankrate.com/finance/real-estate/best-home-fixes-for-the-money-1.aspx, By Natalie Campisi, April 13, 2018

Operation Varsity Blues

Operation Varsity Blues is the FBI investigation used to charge 50 people “with being part of a long-running bribery scheme to get privileged kids with lackluster grades into big-name colleges and universities.”[1] The FBI sting netted two actresses: Felicity Huffman from Desperate Housewives and Lori Loughlin from Full House. In addition, 33 parents have been charged including the former CEO of PIMCO and the founder of TPG Growth.[2]

The alleged scheme involved bribes, donations to fake charities, changed SAT and ACT scores, and “athletes” recruited for sports they never played.

The amount of money involved in this alleged scheme is staggering – $25 million!  Lori Loughlin and her family reportedly paid $500,000 to get their daughters admitted to USC as part of the crew team though they don’t row.[3]

We want the best for our children, of course, but how far should we go? Does attending the “right” school matter? Is a private school better than a public one?

Chris Hogan, the author of Everyday Millionaires, sheds light on this subject. According to Mr. Hogan, 62% of millionaires graduated from a public college, 8% attended a junior college and 9% never graduated. In addition, 43% of millionaires had a B average or lower in college.  Former president George W. Bush said, “To those of you who received honors, awards and distinctions, I say well done. And to the C students, I say you, too, can be President of the United States.” Mr. Bush graduated from Yale with a GPA of 2.35.

The University of Wisconsin currently has the most CEOs on the Fortune 500 list with 14. Wisconsin is a public university.[4]  The current tuition to attend Wisconsin is $22,500, including room, board, books and supplies.[5] Go Badgers and On Wisconsin!

If you have children who will eventually attend college, here are a few suggestions to help you with your journey.

  • Invest early and often in a 529 plan. The money will grow tax-free and when you’re ready to pay tuition your distributions will also be tax free.
  • If you have the financial resources to send your kid to a small private school, then go for it. However, if you don’t, then explore the junior college – state college combination. You and your family will save hundreds of thousands of dollars in tuition. You might avoid student loans as well.
  • Involve your children in charity work. Let them help others through volunteering, mission trips, or tutoring. This will give them a strong work ethic and keep them humble by serving others who are less fortunate.
  • Get them involved, legally, in athletics, band, choir, theater, or robotics. Extracurricular activities will build character. It will also give them the gift of team work and fair play.
  • It’s okay for your child to work during high school and college. Earning a paycheck and learning the language of business will serve them well for decades. Working at a fast-food restaurant, grocery store, or big-box retailer will teach them much about life. It may even provide a better education than they’ll receive in the classroom.
  • Grandparents, and others, can give $15,000 per person, per year including your child. Utilizing the gift tax exclusion is a great way for grandparents to reduce their estate and help pay for college. If grandparents are willing and able, this is a great funding option.

I was disgusted and upset as I read articles about the scam. The fraud and deception involved is off the charts. More importantly, there’s some kid out their working a part time job trying to save money so she can go to college and her spot may have been taken by one of these fraudsters.

“You got to be the dumbest smart kid I know.” —Bud Kilmer, Varsity Blues

March 13, 2019

Bill Parrott 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.

 

 

 

 

[1] https://www.washingtonpost.com/podcasts/post-reports/operation-varsity-blues-a-college-entrance-bribery-scheme/?noredirect=on&utm_term=.9bb7f2a0c178, March 12, 2019,

[2] https://www.wsj.com/articles/who-are-the-33-parents-charged-in-the-college-admissions-cheating-scandal-11552443487?tesla=y&mod=article_inline, March 12, 2019, WSJ Staff

[3] https://www.wsj.com/articles/lori-loughlins-daughter-a-social-media-celebrity-is-caught-up-in-college-admissions-scandal-11552430211?mod=article_inline, March 12, 2019, Erich Schwartzel

[4] https://www.cnbc.com/2018/11/28/these-30-colleges-produced-the-most-current-fortune-500-ceos.html, November 29, 2018, Abigail Hess

[5] Money Guide Pro

Free Solo

Free Solo is a remarkable movie about Alex Honnold’s ascent of El Capitain. It was a masterpiece of a movie and the voters agreed as it won an Academy Award® for best documentary feature. The New York Times said, “Alex Honnold’s Free Solo climb should be celebrated as one of the great athletic feats of any kind, ever.” I concur.

My palms are still sweating thinking about his climb, especially when he successfully completed his karate kick maneuver near “The Boulder Problem.” He climbed the Freerider route that has 30 pitches and “it was newsworthy when a climber was able to summit using ropes for safety.”[1]

El Capitain is a beast and it dominates the Yosemite Valley. It’s 3,000 feet from base to top, an imposing vertical wall of granite.

Mr. Honnold didn’t wake up one morning and decide to free solo El Capitain. He spent years planning his route, working with his team, and taking copious notes. He was singularly fixated on achieving his mission.

Investors can learn much from Mr. Honnold’s incredible achievement.  Here are a few ideas that you can employ today.

Team. Mr. Honnold did the climbing, but he was surrounded by a team of elite climbers including his long-time climbing partner, Jimmy Chin. Mr. Chin and his team not only filmed the climb, but they helped him plan much of his ascent. Mr. Honnold consulted his team constantly. He and his team climbed El Capitain often exploring routes, holds, angles, nooks, and so on.

A team of advisors can help you achieve your goals. Working with a financial planner, CPA, and estate planning attorney will provide you with insight and data to make sure you’re making the best decisions for you and your family. Surrounding yourself with wise counsel is, well, wise.

Plan. He journaled often, taking notes whenever he had the opportunity. His notebook was filled with detailed notes and figures about his route.

Committing your plans to paper and taking notes about your progress can improve your investment and planning results. A quick review of your notes to make sure you’re on the right track is recommended. Your plan and journal will be your financial guide.

Live. He lived (lives) frugally and well below his means. In fact, he lived in a van down by the river during much of the shoot and it had everything he needed to live. When he and his girlfriend bought a home in Las Vegas he looked uncomfortable and even more uncomfortable shopping for a refrigerator. He finally settled on a small refrigerator, one too small for the space in his house. His house looked like the Taj Mahal compared to his van.

Living below your means is paramount if you want to obtain financial success. Controlling your expenses and watching your bottom line will allow you to live a stress-free financial life. Lowering your expenses will help build margin in your life allowing you to do the things you love.

Patience. It took him nearly 4 hours to complete the climb. And, prior to his amazing climb, he abandoned his first attempt. He was patient and deliberate with each move. At times he moved quick, others slow – his moves were calculated. At one point during his climb, he had to descend before he could ascend.

Investing success takes time – years, so don’t worry about the short-term moves in the market. Concentrate building wealth slowly, over time. Avoid quick-rich schemes and other promises of short-term profits.

Give. Mr. Honnold has established the Honnold Foundation (www.honnoldfoundation.org). Its mission is to reduce environmental impact and address inequality by supporting solar energy initiatives worldwide.

You can follow his lead by establishing your own foundation, contributing to a donor advised fund, or donating to organizations you support. Using your resources to help others will benefit many, including yourself.

You may not want to free solo El Capitain, or any other rock for that matter, but his techniques and tactics may help you improve your investment results. Focus on your long-term goals, follow your plan, save often, live below your means, and give to those you support.

Happy climbing!

Trust in the Lord forever, for the Lord God is an everlasting rock. ~  Isaiah 26:4

March 8, 2019

Bill Parrott 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. I went rock climbing once in Joshua Tree and it was a blast. I used a rope.

 

 

 

 

 

 

[1] https://www.nationalgeographic.com/adventure/features/athletes/alex-honnold/most-dangerous-free-solo-climb-yosemite-national-park-el-capitan/ Mark Synnott, October 3, 2018.

A Watched Pot

A watched pot never boils, or so I’m told. When I was much younger, I put this theory to test and, to my surprise, the water did boil as I kept my eyes glued to the pot.

Watching water boiling, grass growing, or paint drying is boring and a waste of time. Similarly, watching your investment accounts daily is not productive. Your investments will rise or fall whether you watch them or not. In fact, they may perform better if you don’t watch them at all.

In a study by Greg B. Davies and Arnaud de Servigny the authors discuss how often people check their investment accounts and their corresponding performance. They found that people who check their account balances daily experienced a loss 41% of the time. Individuals who checked their balances every five years experienced a loss about 12% of the time and those who checked it every 12 years never lost money.[1]

Last December stocks gyrated dramatically. If you looked at the stock market on Christmas Eve, it was down 3%. Had you waited until the day after Christmas to check in on the stock market, it climbed 5%. The Dow Jones averaged a 9.4% average annual return for the past five years. A $10,000 investment in the Dow Jones Industrial ETF (DIA) five years ago is now worth $17,798. However, during this impressive run, the market experienced several down days. The Dow had 107 down days of 200 points or more and two days where it fell over 1,000 points. And, 45% of the time, the index closed in negative territory. If you were micro-managing your portfolio, your urge to sell may have been high during these down days.

Trying to time the market is near to impossible. Rather than focusing on the daily moves in the market, pay attention to those things you can control. Here’s a list of items you should be watching.

  • Focus on your long-term goals and review them annually. Your goals will help guide your financial decisions.
  • Review your accounts quarterly or semi-annually. If they are allocated properly, you won’t need to make daily adjustments.
  • Review your fees often. Read the small print to make sure your fees are inline, and you’re not being over charged for services you didn’t agree to.
  • Check your credit reports annually. Credit Karma also recommends checking them before a major purchase or applying for a new job.[2]
  • Credit card and bank statements should be viewed monthly. A scan of your statements is wise to make sure your debits and credits are being applied correctly.
  • Utility bills and other household statements should be checked semi-annually. Your statements may be delivered electronically, and your payments deducted automatically from your bank account, so checking these accounts for additional fees and balances is recommended.
  • Your asset allocation should be reviewed annually. Over the course of a year, your accounts may move substantially. If your account balances are not in line with your risk profile, rebalance them to your original asset allocation.
  • Your financial plan should be reviewed every two to three years.
  • If you have a family will or trust (and you should), it should be reviewed every five years unless you have a major lifestyle change.
  • Your insurance policies – home, life, auto, should be reviewed annually.

Keeping a watchful eye on your household metrics is paramount. It’s important to be on guard and vigilant when watching your finances and other items that are important to your family, so you don’t get boiled accidentally.

Be alert and of sober mind. Your enemy the devil prowls around like a roaring lion looking for someone to devour. ~ 1 Peter 5:8

March 5, 2019

Bill Parrott 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.

 

 

 

[1] Greg B. Davies, Behavioral Investment Management: An Efficient Alternative to Modern Portfolio Theory (McGraw-Hill, 2012), p. 53. The Behavioral Investor by Daniel Crosby, Ph.D. – Kindle Edition, location 1423, accessed 2/10/19.

[2] https://www.creditkarma.com/credit-cards/i/how-often-check-credit-reports/, by Christy Rakoczy Bieber, 12/4/2018.