Tag: Election 2020

Evidence

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I like math. It’s pure and definite; the answers are indisputable. In junior high and high school, I had spirited conversations with my English teachers because our interpretation of events differed considerably. It was my opinion against theirs, and they frequently won because they were grading my papers. However, I always felt a little cheated because if they didn’t like my topic or handwriting, they’d knock me down a notch or two. One teacher didn’t like athletes, so she was upset when I turned in a book report on Roberto Clemente. On the other hand, my math teachers evaluated my work based on facts and time-tested formulas, which made sense.

Opinions, guesswork, and assumptions run rampant on Wall Street, especially in the absence of facts. Without facts, individuals create a story that is often wrong. Convinced the market would fall if Biden won the election, investors sold stocks. Others felt COVID would continue to drive stocks down in value. But, since election day, the Dow Jones Industrial Average is up almost 8%. Helping propel the Dow higher is news from Pfizer that they may have found a vaccine for COVID.[1] Short-term thinking is an investor’s worse enemy.

A bit of market knowledge may help you stay invested during times of turmoil and ambiguity. Here are a few facts.

  • Individuals who complete a financial plan have three times the assets of those who do little or no planning.[2]
  • Stocks outperform bonds. The 93-year average annual return for common stocks has been 10.2%, while long-term government bonds returned 5.6%. A $1 investment in large-company stocks is now worth $9,237, while $1 invested in bonds is worth $175.[3] 
  • Small-company stocks outperform large-company stocks. The Dimensional U.S. Small Cap Value Index averaged 13.2% from 1928 to 2019. A $1 investment is now worth $90,337.  The Dimensional Large-Cap Value Index averaged 11.2%. A $1 investment in this large-cap index is now worth $17,219.[4]
  • Asset allocation accounts for 93.6% of your investment return. The remaining 6.4% comes from market timing and investment selection.[5]
  • Passive index investing is better than active stock picking. The Standard & Poor’s passive v. active study reveals that over 15 years, 95% of active fund managers fail to outperform their benchmark, also the case for 1, 3, 5, and 10 years.[6]
  • Lower fees are imperative. Less is more. Your advisor should provide you a list of charges for their services, including the investments they offer. If your advisor is charging you more than 1% of your assets, a high hourly rate, or a monthly retainer, you may need to make a change.
  • Working with an investment advisor can help you increase returns. A study by Vanguard quantified an advisor relationship can add 3% in net returns.[7] An advisor can help with financial planning, estate planning, investment planning, charitable planning, and much more. 
  • US stocks rise about 75% of the time. Since 1926, the S&P 500 has risen 69 times and fallen 25.
  • Since 1926, inflation has averaged 2.9%, and US T-Bills have returned 3.3% per year. Your net return, before taxes, has been .4%.
  • The stock market always recovers. In March, the Dow Jones was down 37%, falling to 18,591. Today it’s approaching 30,000 – a record level.

To create generational wealth, own stocks, overlook short-term moves, focus on facts, ignore conjecture, and good things will happen.

“These are the facts of the case – and they are undisputed.” ~ Kevin Bacon, A Few Good Men

November 9, 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.

[1] https://www.pfizer.com/news/press-release/press-release-detail/pfizer-and-biontech-announce-vaccine-candidate-against

[2] http://www.nber.org/papers/w17078

[3] Dimensional Funds 2020 Matrix Book.

[4] Ibid.

[5] Determinants of Portfolio Performance, Financial Analyst Journal, July/August 1986, Vol 42, No. 4, 6 pages; Gary P. Brinson, L. Randolph Hood, Gilbert L. Beebower.

[6] https://us.spindices.com/documents/spiva/spiva-us-year-end-2016.pdf

[7] https://www.vanguard.com/pdf/ISGQVAA.pdf

Same As It Ever Was

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Election day has come and gone, and pollsters once again missed their mark. In 2016, they forecasted a Clinton landslide, and she lost. This year, Biden was projected to win by double digits, and a blue-wave would overtake the House and Senate. The election is not officially over, but it won’t be a double-digit victory, and we did not experience a blue-wave. Same as it ever was.

In 1948, Thomas Dewey was declared a winner over Harry Truman by the Chicago Tribune. They were wrong. Harry Truman famously held up their newspaper with the headline: “DEWEY DEFEATS TRUMAN.”[1]

In 1946, Darryl Zanuck, movie producer at 20th Century Fox, said, “Television won’t last because people will soon get tired of staring at a plywood box every night.”[2] Have you binged on Netflixed lately?

Decca Recording Company refused to sign the Beatles in 1962 because “We don’t like their sound, and guitar music is on the way out.”[3] They probably had a hard day’s night by not signing the Beatles.

Ken Olson, president, chairman, and founder of Digital Equipment Corporation, said, “There is no reason for any individual to have a computer in his home.”[4] Can you imagine working from home without a computer during the pandemic?

The San Francisco 49ers were a pre-season favorite to win Super Bowl 55, but since they started playing actual games, they will finish in the middle of the pack, at best.

Forecasting anything is challenging, especially in the short-term.

It will snow in Colorado this year, but who knows when it will start, how much will accumulate, and when it will end. No one knows if it will snow on December 7 in Estes Park, but it may.

Trying to predict the direction of the stock market may be the most challenging to forecast. Fortune Magazine told readers last week to “Buckle up, investors: it might be a rough few days.” One Wall Street veteran said, “The S&P 500 ‘could easily dip into correction territory on Monday; it wouldn’t be surprising if that happened.'”[5]  What happened? The Dow Jones rose 5.08% or 1,346 points.[6]

The stock market has averaged 10% per year for the past 100 years regardless of who wins the Super Bowl, snows in Colorado, or occupies the White House.

The bottom line is that no one knows what will happen today, tomorrow, next week, or next year.

As an investor, what can you do if no one can predict the future? Here are my suggestions.

  1. Invest according to your goals. A financial plan can help you quantify and prioritize your goals. Are you saving for college or retirement? Do you want to buy a new car or a vacation home? Your goals will determine your asset allocation. If you need your money in one year or less, invest in cash. If your time horizon is five years or more, invest in stocks.
  2. Invest for growth. For the past twenty-five years, my asset allocation has been 75% stocks, 25% bonds regardless of market conditions. When stocks rise, I rebalance my portfolio to buy more bonds. When they fall, I sell bonds to buy stocks. I don’t care what the stock market does today because I don’t need my money for another fifteen years or so. And, on some days, I can’t remember if the market was up or down.
  3. Don’t time the market. After the market correction in March, several investors sold stocks and parked their money in cash, missing a 50% rebound in stocks. Last week, I fielded a few calls to see if we should sell stocks before the election and repurchase them after it was over. I told them to stay invested, thankfully. Investing is not a binary event. Moving from stock to cash and back is a loser’s game.
  4. Save early and invest often. The amount of money you save will significantly impact your wealth more than trying to time the market. Investing $1,000 per month at 7% will be worth $1.2 million in thirty years. The more money you save today, the larger your account balance will be tomorrow; it’s simple math.
  5. Invest in a globally diversified portfolio of low-cost funds. Global exposure will give you access to large, small, and international companies. A diversified portfolio works well over time because you never know when, where, or why which markets will move.

Trying to predict the future is a waste of time and energy, so don’t do it. Rather than worrying about what will happen tomorrow, live for today, enjoy your life, love your neighbor, and count your blessings.

Therefore do not worry about tomorrow, for tomorrow will worry about itself. Each day has enough trouble of its own. ~ Matthew 6:36

November 5, 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.

[1] https://www.history.com/news/7-failed-predictions-from-history

[2] https://www.boredpanda.com/bad-future-predictions-timeline-history/?utm_source=google&utm_medium=organic&utm_campaign=organic

[3] http://www.atchuup.com/famous-predictions-proven-wrong/

[4] Ibid

[5] https://fortune.com/2020/10/30/the-sp-500-could-easily-dip-into-a-correction-before-the-election-on-tuesday/, Anne Sraders, October 30, 2020

[6] YCharts – DJIA, 10/30/2020 – 11/4/2020

7 Things To Do Before the Election

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The presidential election is less than forty days away, and investors are getting nervous.

Forty days before the 2016 election, the markets remained relatively quiet, and the S&P 500 barely budged – falling .54% from the end of September to election day. Volatility spiked fifteen days before the election, but it did not have any impact on the market.

Forty days after the 2016 election was over, the S&P 500 rose 5.54%, and volatility dropped significantly. If you remained invested through the election cycle, you probably made money. The market finished 2016 in positive territory, rising 9.54%.

Here are seven steps to take as we get closer to election day.

  1. Do nothing. Historically, elections have had little impact on the long-term direction of the market.
  2. Raise cash.  A cash reserve gives you flexibility if you want to buy stocks if they should fall.
  3. Identify stocks. Create a shopping list of five to ten companies you want to own. If they drop in price, add them to your account.
  4. Sell everything. If you’re worried about a market crash, sell your holdings and move your assets to cash. If you sell your stocks in a taxable account, you may incur a significant capital gains tax.
  5. Sell calls. Selling calls on stocks you own is an excellent strategy for generating income. It can also provide some downside protection.
  6. Buy puts. A put option provides downside protection for your portfolio. You can purchase a put option on a single stock like Apple or Tesla, or you can protect your entire portfolio. Buying put contracts is expensive, but it allows you to remain invested without selling your stocks.  
  7. Vote. Several states are open for early voting. Here is a link to a voter registration site: https://vote.gov/

Happy voting!

After forty days, Noah opened a window he had made in the ark and sent out a raven, and it kept flying back and forth until the water had dried up from the earth. ~ Genesis 6:6-7

September 28, 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.