The Crow and the Pitcher

The Crow and the Pitcher is a famous Aesop fable. The crow is thirsty and stumbles across a pitcher of water, but he can’t reach the water because the neck of the pitcher is too narrow. The crow picks up small rocks and pebbles to drop them into the pitcher and raise the water level. His plan works, and he’s able to get his drink.

As investors, we can learn much from the action of the crow. If we invest a little money systematically, it will eventually grow.

Investing $100 per month into Vanguard’s S&P 500 index fund grew substantially over time. Here’s how much the account balance was worth after each decade.[1]

  • 10 years = $23,812.
  • 20 years = $64,815.
  • 30 years = $180,228.
  • 40 years = $673,745.

Ignore the market turbulence, invest always, focus on your long-term goals, and good things will happen.

A bird is three things: feathers, flight and song, and feathers are the least of these. ~ Marjorie Allen Seiffert

August 27, 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. 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.

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. Options involve risk and aren’t suitable for every investor.

 

Illustration credit = Campwillowlake

 

[1] Morningstar Office Hypothetical. VFINX, month end July 31, 2019.

The Hare and the Tortoise.

The Hare and the Tortoise is a classic Aesop Fable about an over confident hare and an unassuming tortoise who engage each other in a foot race.  The fleet-footed hare is so assured of his abilities to win the race he decides to take a nap on the race route while the lowly tortoise keeps on walking.  When the hare finally rouses from his slumber he realizes the tortoise is about to win the race and despite the hare’s best efforts to catch the tortoise he falls short and loses the race.

In the sixth grade, I wanted to run on the 4 x 100 relay team for our elementary school track team but I was an extremely slow runner.  I knew I wouldn’t make the A team so I convinced the coach to add a C team just in case all the boys on the A and B teams got hurt before the meet.  He humored me and added a third relay team.  As I got older I started running marathons.  In a marathon, the key to a successful race is to stay focused on the pace and not worry about the other runners especially during the early part of the race.  I knew If I stayed on my pace I’d eventually catch more runners just like the tortoise.

During a bull market, investors get antsy because several investments appear to be doing better than their existing holdings so they want to abandon their plan, sell their investments and buy the high fliers.

I did some research on a high flier portfolio compared to a basket of low cost, index funds and here is what I found.

This high flier portfolio generated a 1-year return of 27.5%, a 5-year return of 14.77% and a 10-year return of 5.84%.[1]  This portfolio consisted of the following active mutual funds:

CGMIX – CGM Focus

KSCOX – Kinetics Small Cap Opportunities

LMNOX – Miller Opportunity

OAKMX – Oakmark Investor

DEMIX – Delaware Emerging Markets

LSIGX – Loomis Sayles Investment Grade Fixed Income

The low-cost portfolio generated a 1-year return of 15.37%, a 5-year return of 11.57% and a 10-year return of 6.15%.[2]  This portfolio consisted of the following mutual funds:

DFEOX – DFA US Core Equity 1

DFQTX – DFA US Core Equity 2

DFSTX – DFA US Small Cap

DFIEX – DFA International Core Equity

DFCEX – DFA Emerging Markets Core

DFIGX – DFA Intermediate Government Fund

In the end, the low-cost portfolio caught and passed the high-flying portfolio.  The high-flying portfolio was also weighed down with higher fees.  The weighted average fee for the active portfolio is 1.12% while the fee for the low-cost portfolio is .28%.

The urge to abandon your long-term plan and chase short term gains may be high but I caution you to employ this tactic.   Your financial plan coupled with a low cost, balanced portfolio will help you create generational wealth.

But if we hope for what we do not see, we wait for it with patience. ~ Romans 8:25 

Bill Parrott is the President and CEO of Parrott Wealth Management, LLC.   For more information on financial planning and investment management, please visit www.parrottwealth.com

September 27, 2017

Note:  Your returns may differ than those posted in this blog.  Past performance is not an indicator of future performance.

[1] Morningstar Office Hypothetical Tool.

[2] Ibid.