I Don’t Want to Invest In Stocks

Investors are nervous; despite the recent rally in stocks, and they are looking to sell shares because of the virus or the economic environment. It’s forcing some individuals to reconsider their exposure to risk assets. As the market climbs higher and interest rates fall to zero, what else can you do with your money?

If you want to sell your stock holdings, and you’re not excited about investing in bonds, consider a few other alternatives for your assets. Here are a few suggestions.

  1. Reduce your debt. Though interest rates are low, reducing or eliminating your debt is a smart choice, especially debt you can’t deduct like credit cards or auto loans. It doesn’t make sense to store your cash in a bank account with a zero percent interest rate if you’re mortgage rate is 3%, 4%, or higher. Let’s assume your current mortgage balance is $250,000, with twenty years remaining, and it carries a 4% interest rate. If you pay it off today, you will save $113,588 in interest payments.
  2. Buy a second home. Buying a second home in the mountains, at the beach, on a lake, or in the country sounds inviting. In a COVID-19 world, a little elbow room would be nice. Several years ago, I helped a friend run numbers before he purchased a lake house. He made the plunge, and his family has enjoyed the property for many years. Recently, a client purchased a small ranch in central Texas after we completed his financial plan. The plan validated his decision. My grandparents owned an immaculate second home in Laguna Beach – family and friends used it often. A second home can create experiences and memories that last a lifetime.
  3. Remodel your home. The shutdown is creating a remodeling boom. Individuals are upgrading kitchens, bathrooms, and backyards. If you plan to stay in your home for another five to seven years, then give it an upgrade. If you don’t want to spend big bucks, consider a paint job or a few small landscaping projects. According to HGTV, bathrooms, landscaping, and kitchen upgrades have the best ROI.[1]
  4. Donate to a charity. Nonprofits and charitable organizations are struggling, so any money you donate will go along way to help those in need. Consider contributing to groups or organizations you support. A Google search for nonprofit organizations in your neighborhood will yield many results.
  5. Love your neighbor. Are you aware of any friends or relatives who are struggling financially? Do they need a new car? Can you help them pay their medical bills? According to the BBC, “The US is expecting an avalanche of evictions.”[2] If you know someone who is on the brink of being evicted, pay their rent.

Money should be spent; it’s meant to change hands, and hoarding cash is not a wise investment. If you’re not sure how much to spend on a home project or donate to your favorite charity, consider a financial plan. Your plan will help you quantify and prioritize your goals. When a client asks me if they can buy a car or a home or donate money, we will review their financial plan together. And, more often than not, they can proceed. A financial plan gives them the confidence to act on their wishes.

So, if you’re not ready to invest in the stock market, look for alternatives.

“Each time you muster up what it takes and go for it, the next go-round becomes that much easier. Real and important changes begin with small, courageous acts.” ~ Chip Gaines

July 14, 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] https://www.hgtv.com/lifestyle/real-estate/top-home-updates-that-pay-off-pictures

[2] https://www.bbc.com/news/world-us-canada-53088352, Jessica Lussenop, June 19, 2020

How Can You Help?

It has been a brutal, exhausting year, and people are hurting. COVID-19 and the racial tension has cast a pall on 2020, and people are living with heavy hearts. As a result of the economic, political, and social turmoil, small charities are in a pinch. Local nonprofits are on the ground in your community doing work few people are willing to do, and they need your assistance. What kind of help do they need? Financial support. These vital organizations rely on donations to keep their doors open, and the recent economic trouble is leaving their coffers empty.

Small nonprofits are the original first responders. Local nonprofits know what they are doing because they have spent years cultivating relationships. In a recent Wall Street Journal article about small charities, they wrote, “The coronavirus pandemic has highlighted the importance and the agility of small community-based charities, especially in a crisis. Often these groups don’t get much attention. They are overshadowed and out-funded by big better-known nonprofits like the American Red Cross and the Salvation Army.” They added, “Local charities also often know who most need help.”[1]

If you decide to give, give only your resources, and leave your opinions at home. Nonprofits don’t need your advice on how to improve their organization. Also, don’t tell the organization how to best spend your donation. If you don’t trust them to handle your gift correctly, give it to someone else.

How can you help? Here are a few ideas on how to donate to nonprofits.

  1. Cash. Cash is easy to give away – quick and efficient. The IRS generally allows you to deduct 50 percent of your adjusted gross income (AGI) for tax purposes. If you give more than 50 percent of your AGI, the IRS allows you to carry your donation forward for up to five years.
  2. Appreciated Securities. If you own stock with a considerable capital gain, consider donating it to your favorite charity. When you gift your shares directly to your charity, you will avoid paying a capital gains tax, and you can deduct the fair market value of your gift. The charity will sell the stock to receive the cash, and they, too, will avoid a capital gains tax.  For example, if you purchased 100 shares of Amazon ten years ago for $110, you have an unrealized gain of $2,582 per share based on a closing price of $2,692. By donating your shares, you avoid the capital gains tax of $51,640 on your gain of $258,200. The charity receives $269,200.
  3. Qualified Charitable Distribution. The IRS allows you to satisfy your required minimum distribution by donating your money directly to a charity from your IRA. You can donate up to $100,000 with a qualified charitable distribution (QCD). You can avoid paying taxes (legally) with a QCD distribution, and it will satisfy your required minimum distribution for the year.
  4. Donor-Advised Fund. If you want to support several charities, but you’re not sure how much to give, or when to give it away, then consider a donor-advised fund (DAF). You can contribute cash or securities to a donor-advised fund, receive a charitable deduction, and then payout your donation over several years. Once you fund your DAF, you can take your time to decide how much money to give to your charities. You can also sell your assets inside the DAF and reinvest the proceeds into a diversified portfolio of stocks, bonds, or funds.
  5. Charitable Remainder Trust. If you own appreciated stock, land, or some other asset, you can transfer it to a Charitable Remainder Trust (CRT) to generate income. After you transfer the investment to your trust, you can sell it to avoid the capital gains tax. You can deduct your donation from your taxes and reinvest the proceeds. The CRT allows you to withdraw 5% to 8% of your account balance each year. At your death, the assets in the trust will transfer to your charitable beneficiary. The CRT is a great way to avoid a capital gains tax, diversify your portfolio, and benefit your favorite charity.  Your gift to a charitable remainder trust is irrevocable.
  6. Charitable Lead Trust. A Charitable Lead Trust (CLT) is the opposite of a Charitable Remainder Trust in that your charity of choice will receive the income from the trust, and your beneficiary will inherit the asset on your death. If you want to transfer assets to your children, the CLT is an excellent choice because it removes the asset and growth from your estate. The CLT is a limited-term trust, and it is irrevocable.
  7. Private Annuity. A private annuity works well with colleges, universities, and nonprofits. You can donate stock, land, or any asset to your charity, and they can establish a private annuity for you so that you can receive income for life. Your charity can sell your asset tax-free and use the proceeds to fund their operations. They will create an annuity for you and your family based on the size of your gift. You will receive a monthly, quarterly, or annual check for ten or fifteen years along with a tax deduction.
  8. Private Foundation. You can establish your own nonprofit to benefit other nonprofits to create perpetual gifts. Donations to your foundations are limited to a 30 percent deduction for cash and 20 percent for appreciated securities. A private foundation is expensive to maintain, and you will need to create a board of directors.

If you don’t have financial resources to give, donate your time. Small nonprofits are in dire need of helping hands to assist them with a variety of tasks. A Google search for nonprofits in your neighborhood will yield plenty of fruit and give you several choices of groups to serve

Our church serving model is FUN: F stands for flexibility, U stands for useful, and N stands for not about you. When you’re ready to give or serve, don’t forget to have some fun!

When someone has been given much, much will be required in return; and when someone has been entrusted with much, even more, will be required. ~ Luke 12:48

June 27, 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] https://www.wsj.com/articles/how-a-small-charity-pivoted-to-get-food-to-those-hit-by-covid-shutdowns-11593010891?mod=itp_wsj&ru=yahoo, Betsy Morris, June 24, 2020

The Giving Season

November is the beginning of the giving season. From now until the end of the year, charities and non-profits will receive much-needed dollars to help fund their mission. For several organizations, the money they receive in the next few weeks will subsidize most of their annual budget. Individuals typically wait until the end of the year before they give because they don’t have a giving or philanthropic plan.

For where your treasure is, there your heart will be also. ~ Matthew 6:21.

During my financial planning meetings, I ask people if they have a charitable giving strategy or if they donate money regularly; thankfully, most people are generous. I once worked with an individual who didn’t believe in giving money away while he was living. He was going to donate his money at his death through his estate. He was missing an opportunity to see his gifts bear fruit.  I didn’t tell him that people who don’t give today won’t give tomorrow.

Each one must give as he has decided in his heart, not reluctantly or under compulsion, for God loves a cheerful giver. ~ 2 Corinthians 9:7.

Most individuals don’t have a coordinated giving plan, and as a result, they wait until the last minute to make donations. Without a strategy, you may be missing valuable deductions, so here are a few ideas to help you with your charitable contributions.

Appreciated Securities.  The stock market has done well, so you probably have stocks with unrealized capital gains. When you donate appreciated securities to a charity, you get the deduction, avoid a capital gains tax, and your charity receives the money. Let’s say you purchased YETI Holdings in January at $14.84, and today it’s selling for $31.90 for an unrealized gain of $17.06 or 115%. You can gift your shares directly to your charity and avoid paying taxes on the appreciation. The charity will sell the shares on the open market to receive the cash, and they, too, will avoid a capital gains tax. You must donate your securities to a 501c3 organization to receive a deduction

Qualified Charitable Distribution.  The IRS allows you to satisfy your required minimum distribution by giving your money directly to a charity from your IRA. It’s called a qualified charitable distribution (QCD), and you’re allowed to donate up to $100,000 per year. The QCD will enable you to avoid paying taxes on the distribution, and it will satisfy your required minimum distribution.

Donor-Advised Fund (DAF). A Donor Advised Fund allows you to transfer appreciated shares to the fund. Once inside the DAF, you can sell your shares and purchase new investments without realizing a capital gain. You can deduct the contribution from your taxes, and it occurs in the year of your gift, not in the year of distribution. You don’t have to distribute the proceeds immediately, so if you’re not sure which charities to support, you can defer the payment until you identify the organizations. For example,  you can transfer $100,000 worth of ABC Inc. stock to your Donor Advised Fund, sell it, reinvest the proceeds, and then send a portion of the funds to your favorite charity. The funds that remain inside your DAF will grow tax-free.

Charitable Remainder Trust (CRT). This trust allows you to transfer your shares to a Charitable Remainder Trust, sell your holdings, diversify your assets, and receive income from the proceeds. At your death, your charity will receive the remainder of the trust assets. The stock, once transferred, can be sold free of taxation and the proceeds reinvested into a diversified portfolio of stocks, bonds or funds. Your contribution to the trust qualifies for a charitable deduction. The amount of income you can receive from the trust is between 5% and 8% of the portfolio value. You will pay ordinary income tax on the income you receive.

Cash.  Cash is king, and it’s easy to give away. The IRS allows you to give away $15,000 per person per year without having to pay taxes. However, you won’t receive a tax deduction, but you’ll be able to help the next generation. For example, if you have four children and ten grandchildren, you can give away $210,000 this year. You can also give $15,000 to friends and strangers if you want.

The end of the year is a great time to give money to those in need, and it’s always the right time to help others.  However, an annual charitable giving strategy may be beneficial to your long-term planning and budgeting needs.  A philanthropic plan can pay huge dividends to you and those you support.

Do not withhold good from those to whom it is due, when it is in your power to do it. ~ Proverbs 3:37.

November 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. 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.

 

 

 

 

How to Generate More Income.

Interest rates remain stubbornly low and this is an issue for individuals looking for income.   How can you generate more income in this low interest rate environment?

Here are three simple strategies you can employ today to help you generate more income.

Systematic Withdrawal Plan:   If you own mutual funds, a systematic withdrawal plan (SWP) will allow you to generate monthly, quarterly or annual income from your existing mutual funds.   For example, in 1976 you decide to invest $100,000 in the Vanguard S&P 500 Index Fund (VFINX) and withdraw 4% of the account balance each year.   At the end of July, you would have received over $930,000 in total income and the fund balance grew to $1.34 million!   In 1976, your annual income was $4,000 and this year it will be $53,600, an increase of 1,240%.[1]

Option Writing.  Writing options or selling calls on stocks you own is a great way to pick up more income.  Let’s say you own 1,000 shares of ABC company trading for $37 per share.  If you decide to sell your shares at $40, you can employ a covered call strategy.   A hypothetical option expiring in October may be priced at .50 cents.  You can write ten call contracts on your ABC holdings because one contract equals 100 shares of stock.   1,000 shares, or ten contracts, at .50 cents will generate $500 before fees and commissions.  If ABC stock trades above $40 per share on the October expiration, you must sell your stock at $40 regardless of how high it trades above $40.  If ABC stock settles below $40 on expiration, you get to keep your shares and you can write another ten contracts for November or December.[2]

Charitable Remainder Trust.  If you own appreciated stock, land or some other asset, you can transfer the investment to a Charitable Remainder Trust to generate income.  Once your investment has been transferred to the trust, you can sell it and avoid all capital gains.  In addition to avoiding capital gains, you’ll get a tax deduction for your contribution.   After the asset has been sold, you can reinvest the proceeds into investments of your choice and withdraw 5% to 8% of the account balance each year.  At your death, the assets in the trust will transfer to your charitable beneficiary.   The CRT is a great way to avoid a capital gains tax, diversify your portfolio and benefit your favorite charity.

These strategies are easy to incorporate and may benefit your family.  If you want to learn more about income producing ideas, please give me a call.

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.

August 24, 2017

 

[1] Morningstar Office Hypothetical Tool, 8/31/1976 to 7/31/2017.  Your rate of return may vary and your results may differ.  They hypothetical does not include fees or taxes which will adjust the results.

[2] Options involve risk and are not suitable for every investor.

Don’t Read If You’re Under 50!

Turning 50 is a huge milestone and an exciting time.  Age 50 is considered the gateway to the golden years with much to look forward to especially with a projected life expectancy of 31 years.  The pressure to look and act cool also wanes as you grow older.  If you want to wear sweaters with shorts or sandals with socks, go for it.   If you want to eat dinner at 4:00 and be in bed by 8:00, knock yourself out.  If you want to wear a big floppy hat, wraparound sunglasses, long sleeve shirts and cover yourself in zinc oxide before heading off to the beach, who’s going to stop you?

Age 50 is also the year when most individuals get serious about retirement planning.  A person who is 49 years, 11 months, and 29 days old has little interest in retirement planning.  When they turn 50 they freak out because retirement is now on the horizon.  Age 65 is still the preferred retirement age for many workers so turning 50 means there are only 15 years until they ride off into the sunset.  Fifteen years isn’t a long time and this is what makes individuals nervous.

By age 50 you should have 5 times your annual salary saved according to a report by CNBC.[1]  If your annual income is $100,000 you should have $500,000 in savings.  Congratulations to you if you’ve achieved this savings milestone.  If your current asset level falls short, have no fear because you still have time to salvage a comfortable retirement.

Once you turn 50 you can contribute more money to your retirement accounts.  The government allows you to invest an extra $1,000 to your IRA and $6,000 to your 401(k).  The additional savings will help you make up for lost time.

As you march through the golden years, here are a few things to consider.

  • Health is wealth. It pays to take care of yourself.   As you age, time and gravity are working against you so focus on eating well and working out.   Eating fruits, vegetables and anything that swims or flies will be good for the ticker.   Hit the gym and put a few miles on the road to get some quality exercise.  According to the American Academy of Family Physicians exercise prevents chronic disease and improves your mood.[2]
  • Help others. A benefit of aging is you’re able to help others spiritually, emotionally and financially.  It’s time to put your wisdom and resources to work.
  • Give. A philanthropic plan will pay dividends for you and others. A thoughtful giving plan will help others for many years while giving you income and estate tax benefits.
  • Pursue your dreams. Do you want to start a business?  Explore distant lands?  Try a new hobby?  The golden years are a perfect time for you to start checking off items on your bucket list.
  • Own stocks. Stocks will allow to grow your wealth and generate more income.  Stocks will also help you offset the force of inflation.   You need to own assets that will grow over time so your purchasing power grows or stays constant.  A 3% inflation rate will lower your purchasing power by 59%.  A dollar today will be worth 41 cents in 30 years.

Aging is a benefit not afforded to many so enjoy the ride.  Attack your golden years with spunk and gusto.  Live your life to the fullest so you have no regrets when Gabriel blows his horn.

How old would you be if you didn’t know how old you were?  ~ Satchel Paige.

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

May 21, 2017

[1] http://www.cnbc.com/2017/02/22/heres-how-much-money-you-should-have-saved-at-every-age.html, Kathleen Elkins, 2/22/2017.

[2] https://www.agingcare.com/articles/exercise-benefits-for-the-elderly-95383.htm, Marlo Sollitto, website accessed May 20, 2017.