Obstacles To Wealth

The Evergreen container ship ran aground in the Suez Canal, and it’s disrupting global trade. Efforts to dislodge it from the shore have been futile, and it may be weeks before the canal is open. Meanwhile, several hundred ships are waiting to pass through the channel. Last year, 19,000 ships used the canal, representing 12% of global trade.[1] Many products are in limbo, and I sure hope we don’t experience another toilet paper shortage.

The 120-mile Suez Canal was completed in 1869, connecting the Mediterranean and Red Seas. It allows ships to avoid traveling around the Cape of Good Hope, eliminating an extra 6,000 miles. The canal facilitates faster trade between Europe, Asia, and the United States.[2]

It’s impossible to predict what events will impact global trade or economic conditions. I doubt anyone expected a container ship to get stuck in a canal for weeks, but here we are. The vessel will eventually move from the shore allowing ships to flow freely, so the long-term economic impact should be negligible.

Countless things can disrupt your wealth creation. Obstacles are everywhere. Here are a few things that may disrupt your financial future.

  • You hold too much cash. A significant cash position can hinder your long-term returns. If you’re not using your money for a specific purpose, consider investing it in stocks or bonds. Over time, cash will lose value to inflation and taxes. A 3% inflation rate will reduce your purchasing power by 25% over ten years.
  • Your portfolio is too conservative. Allocating a high percentage of your account to cash or bonds will limit your growth. If your time horizon is three to five years or more, allocate a sizable portion to stocks, even if you’re retired. A portfolio with 80% stocks and 20% bonds averaged 14.5% for the past five years. If we flip the allocation – 20% stocks and 80% bonds, it generated an average annual return of 8.19%.[3]
  • You don’t have a will or trust. Investors are mainly worried about stock market corrections. No one wants to lose 10% to 20% of their portfolio, but if you don’t have a proper estate plan, your heirs may have to pay 40% or more in taxes to the IRS.
  • You don’t own life insurance. Life insurance is mandatory if you’re a young family with kids or you carry a significant amount of debt. Life insurance is also a resourceful tool for paying estate taxes or passing on a more substantial estate to your heirs.
  • You’re not saving enough. An excellent strategy for creating wealth is to save more money. It’s a strategy where you have total control. The more money you invest today, means more money for you tomorrow. How much should you save? My recommendation is at least 10% of your income. My personal goal is a 10-10-10 model: give 10%, invest 10%, save 10%.
  • You’re spending too much money. The opposite of not saving enough money is spending too much. You can control your spending, and the less you consume, the more you can save. The two are linked.
  • You lack diversification. A diversified portfolio can help you o avoid short-term setbacks. Last year, when stocks were falling, bonds performed well, and this year, small-cap stocks lead the way. A globally diversified portfolio of stocks, bonds, and cash is a prudent investment strategy.
  • You’re too concentrated. Don’t put all your eggs in one basket or all your products in one container. If 100% of your merchandise is in a container on the  Evergreen, you’re in trouble. A portfolio that relies on one or two stocks does well when they’re rising, but it could damage your returns when they fall. Limit your single stock exposure to 10% of your account balance.
  • You don’t have a  plan. Your financial plan is your GPS, and It will help you navigate treacherous waters. Last March, during the COVID correction, we relied on our client’s financial plans to remain invested. When the market rebounded, our clients profited.

It’s easy for a small thing to magnify a bigger problem, and most of the time, it’s not evident until after the fact. To avoid a minor issue turning into a major one, work with a Certified Financial Planner® who can help you create a plan based on your goals.

We may have all come on different ships, but we’re in the same boat now. ~ Martin Luther King, Jr.

March 15, 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.


[1] https://www.abc.net.au/news/2021-03-27/what-is-the-suez-canal-and-how-many-ships-go-through-it/100032734#:~:text=Almost%2019%2C000%20ships%20passed%20through,the%20Canal’s%20150%2Dyear%20history.,

[2] https://www.washingtonpost.com/business/energy/why-a-canal-built-in-1869-is-more-important-than-ever/2021/03/26/2aef3bb8-8dfe-11eb-a33e-da28941cb9ac_story.html, By Robert Tuttle, Bloomberg

[3] DFA Reteurns Web: long-term bonds and S&P 500 index

Bamboo Shoots

I’m reading Chop Wood Carry Water by Joshua Medcalf.

In one chapter, he writes about planting and growing bamboo. After planting the bamboo seed, it must be watered every day. It’s possible to see little to no growth after three to five years. The author adds: “What you don’t see happening is what is taking place beneath the surface. Beneath the surface, a massive, dense foundation of roots is spreading out all throughout the ground to prepare for the rapid growth that the bamboo will experience. So, you keep water it and watering it, and eventually, after five years of seeing nothing at all happen above the surface, the bamboo tree shoots up to over ninety feet tall in just six weeks.”[1]

The author highlights the invisible growth and hard work it takes to be successful – to trust the process. He adds, “Most people want the ninety-foot-tall bamboo tree without the five years of process.

Investors can learn much from this passage in the book. Investors want instant gratification, with little downside. If a stock doesn’t rise quickly, it’s replaced by another in hopes it will fare better. If a portfolio is not growing fast enough, investors want to overhaul it to accelerate the growth rate.

From January 2000 through January 2011, the S&P 500 generated a negative return, eleven years without growth. If you sold the fund in 2011, you missed a 262% return on your investment.[2]

It requires patience, courage, and wisdom to create generational wealth.

January 4, 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.


[1] Chop Wood Carry Water, Joshua Medcalf, page 64

[2] Vanguard 500 Index Fund, 1/1/2000 to 1/4/2021, YCharts

Ten Ideas for 2021

This year felt like a decade. We are twenty days from the start of a new year, and it can’t get here fast enough. I’m expecting next year to be much better because it can’t get much worse – right? It’s been a wild ride for investors this year, but if you stayed the course, you probably made money. The NASDAQ, S&P 500, and Dow Jones are solidly in the green, despite falling more than 30% in March and April. The NASDAQ is leading the major US indices this year, rising 38%.

It took courage to remain invested, and even more to buy stocks at the low. As we approach the new year, what should you do now? Here are ten ideas.

  1. Review your financial plan and investment goals. Are you still on track? Do you need to make any adjustments? Last January, we helped clients review their financial plans. Several reached their goals, so we reduced the risk in their portfolios and adjusted their goals. We also encouraged our clients to remain invested during the March decline because it did not impact their long-term goals. Our financial planning process helped clients navigate the uncertainties of 2020.
  2. Review your asset allocation. Are your assets appropriately allocated? January is an ideal time to rebalance your accounts to ensure your risk level aligns with your long-term goals.
  3. Lock in profits. If you own a winning stock or two, consider selling some shares to defer your tax payment to 2022.
  4. Maximize your company retirement contributions. You’re allowed to contribute $19,500 to your 401(k) or 403(b) plan, and if you’re fifty or older, you can add $6,500 for a total of $26,000. Note: If you turn fifty in 2021, start your catch-up additions on January 1. You do not need to wait until you’re 50 to start contributing. For example, if your birthday is on December 31, 2021, you can increase your contributions on January 1, 2021.
  5. Maximize your SEP-IRA contributions. Do you own your own business? If so, you can contribute $57,000 or 25% of your income (whichever is less) to a SEP-IRA
  6. Contribute to a Roth 401(k) or 403(b). Regardless of your income, you can contribute to a Roth 401(k), and your Roth contributions and earnings will grow tax-free.
  7. Fund your IRA’s. The maximum contribution is $6,000, or $7,000 if you’re fifty or older.
  8. Open a health savings account (HSA) if you belong to a high-deductible healthcare plan. Families can contribute $7,200, individuals $3,600. If you’re 55 or older, you can deposit an extra $1,000.
  9. Open a donor-advised fund (DAF). A DAF is an excellent way to fund charitable donations. You can make significant contributions today and distribute the funds at a later date. If you want to donate to charities, but you’re not sure who should benefit from your generosity, this account is an excellent choice. In addition, you’ll receive a nice tax deduction.
  10. Buy stocks. In a zero-interest rate world, it’s near-impossible to create wealth if you only invest in cash or bonds; you need to own a basket of quality stocks. The Dow Jones has risen 256% this century, or 7.15% per year. If you invested $10,000 on January 1, 2000, it would be worth $35,670 today. A similar investment in bonds is worth $14,470.

Creating generational wealth requires optimism, wisdom, patience, courage, and luck. To increase your odds of success, consider completing a financial plan. According to one study, individuals who finish one have three times more assets than those who do little or no planning.[1] It will guide you through rising markets, falling markets, good economies, bad economies, greed, fear, doubt, and anxiety; it’s a financial GPS.

Hope springs eternal, and I’m optimistic 2021 will be a year of joy and celebration. After all, the Roaring Twenties started not long after the Spanish Flu pandemic ended.

“Optimism is the faith that leads to achievement. Nothing can be done without hope and confidence” ~ Helen Keller

December 11, 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.

Data source: YCharts


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

21 Predictions for 2021

It’s the season of Wall Street predictions, so I’m throwing my hat into the ring to offer 21 projections (guesses) for 2021. If I predict all 21 correctly, I’m sure to garner immense fame and fortune. I may even be herald as the next great futurist with book deals, movie offers, and television appearances to follow. If I’m wrong and all my ideas fail, there’s no downside because most forecasters are wrong about the future. If you need proof, look no further than 2020. How many experts, gurus, wizards, pundits, and pontificators correctly predicted a global pandemic, a stock market crash, working from home, or the rise of Peleton? I will tell you – none.

Here are my 21 predictions for 2021.

  1. The 100-year average annual return for the S&P 500 has been 10%, so the stock market will earn 10% next year.
  2. The current inflation rate is 1.18%, well below the 106-year average of 3.22%. Inflation will stay below 2% for the first half of the year before rising above 2.5% during the second half as we emerge from our COVID quarantines.
  3. Pfizer, Moderna, and other pharmaceutical companies will distribute the COVID vaccine globally, and global economic activity will escalate in the second half of 2021.
  4. The yield on the 10-year US Treasury note is .95%, far below the 58-year average of 6.02%. The rate will rise above 3% as inflation returns.
  5. Small-cap stocks will outperform large-cap stocks. For the past six months, the small-cap index has outperformed the NASDAQ and S&P 500; this trend will continue.
  6. International stocks will outperform US stocks. Since June, they have bettered the NASDAQ and S&P 500.
  7. Long-term bonds (20+ years) will deliver negative returns next year as inflation returns and interest rates rise. The iShares 20+ Year Treasury Bond ETF (TLT) is down 2.5% since June. If interest rates 1%, the price of a 20-year bond will fall approximately 15%.
  8. Working from home stocks (DOCU, PTON, ZM, etc.) will fall in price as we return to our offices and leave our homes, and investors focus on valuation metrics like earnings and cash flow.
  9. The US Gross Domestic Product growth rate will rise above 5%, well above the 73-year average of 3.16%.
  10. Prices for vacation homes will continue to surge as families escape big cities like Los Angeles, San Francisco, Chicago, and New York. Ranches, beach homes, and mountain cabins will remain popular investments. My home town of Austin, Texas, will be a significant beneficiary of this trend.
  11. Companies will allow their employees to work from home or anywhere, further depressing corporate real estate valuations like office properties.
  12. Bitcoin will replace the US Dollar, the Euro, the British Pound, and the Yen as the global currency. Not really, but it will remain a volatile alternative asset class similar to gold, oil, or timber.  PayPal and Square will expand their Bitcoin offerings, so Bitcoin’s price should continue to rise.
  13. The unemployment rate will fall below 5%. It currently stands at 6.7%, and the 72-year average has been 5.77%.
  14. US public debt will climb above $30 trillion as Washington pumps more stimulus money into the economy. The current balance is $26.48 trillion. The increase in debt will have little impact on interest rates or the stock market.
  15. Merger and acquisitions will be robust next year as corporations look to expand their offerings. Low-interest rates and large cash balances will fuel the M&A boom. Apple will lead the way as they sit on $193 billion in cash and short-term investments.[1] If Apple wanted to, they could even buy a few countries like Hungary, Morocco, or Costa Rica.
  16. A new Roaring Twenties will start during the second half of 2021.
  17. Formal dress wear, high-end clothing, and custom outfits will make a comeback as people will tire of wearing yoga pants, sweats, and slippers. No one will be happier than my dad when this happens.
  18. Charitable donations and volunteerism will rise as people reach out to those economically stranded due to the pandemic.
  19. National park attendance will mushroom next year as people explore our great nation.
  20. The Baylor Bears men’s basketball team will win their first-ever NCAA championship under the leadership of Scott Drew – the Wizard of Waco.
  21. 2021 will be a good year because my mom says good things happen in odd years, and I never bet against her or her wisdom. My prayer is that 2021 will be less odd than 2020.

I was a peripheral visionary. I could see the future, but only way off to the side. ~ Steven Wright.

December 4, 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.

The are predications and guesses only, and actual events may vary.

Data provided by YCharts as of 12/4/2020,


[1] https://www.cnbc.com/2020/07/30/apple-q3-cash-hoard-heres-how-much-apple-has-on-hand.html, Jessica bursztynsky, July 30, 2020

The Miser

The Miser is a classic Aesop Fable. It’s a story about a man who buries his gold under a rock. He visits his gold stash so often that a thief follows him and steals it. The miser is distraught when he realizes it’s gone, though he had no plans to use the gold to buy things. A lot of us are probably like the miser in the story. We check our investments daily to make sure they are safe and sound, but we don’t intend on using them to purchase anything. We’re happy when our balances rise and sad when they fall.

Money is a useful asset, intended to buy goods and services. It’s the heartbeat of commerce. But, some investors are reluctant to spend for fear of running out of money.  Since March, investors have poured $3.6 billion into savings accounts and money market funds. While it’s prudent to save money for the future, hoarding it today does not benefit anyone.

I’ve completed more than 100 financial plans over the past five years, and one of the most common fears is running out of money in retirement, a valid concern. However, this fear should not stop you from living your life today. If you don’t plan on spending your money to live, your no worse than the miser in the story. And, you can’t take it with you once you’re dead.

Here are a few ideas to help you with your spending.

  • Complete a financial plan. Your plan will guide your spending and give you projections for your assets. Once you see your spending plan on paper, you may be more comfortable in tapping your nest egg, and if you’re not pleased with the results, it can be adjusted to meet your needs.
  • Spend on experiences. If you’re reluctant to buy things, spend your money on experiences. Is a post-COVID trip in order? How about purchasing a vacation home so you and your family can create lasting memories? According to Momentum Worldwide, 76% of consumers prefer to spend money on experiences than material items.[1] My family and I enjoy visiting National Parks in the summer and skiing in the winter; it has been money well spent. My grandparents owned a vacation home in Laguna Beach, and I have fond memories of visiting it often.
  • Donate to your favorite charity. Despite a roaring stock market and robust real estate returns, people are hurting. Recently in Dallas, more than 6,000 cars and 25,000 people waited in line to receive food from local food banks.[2] Donating to your local food bank or other charities will help those in need, and it will help you as well. The IRS allows you to send up to $100,000 from your IRA to a certified charity through a Qualified Charitable Donation (QCD). If you own stock in a taxable account that has appreciated, consider donating it directly to a charity. You can write off the fair market value, and your charity can sell it free of taxation and use the proceeds to fund their operation.
  • Help the next generation. You can give away $15,000 per person per year, and your lifetime gift tax exclusion is $11.7 million (2021). If you give money away while living, it will allow you to witness the beauty of helping others while reducing your taxable estate. The government is giving you a gift to give money away, so take advantage of their generosity.
  • Donate now, give later. A donor-advised fund allows you to make a considerable contribution today and defer distributions to a later date. Your irrevocable gift is deductible in the year you make it even if you do not distribute any funds. The money can be invested for growth or safety, potentially allowing you to give more money away as your investments grow. For example, if you contribute $100,000 to a DAF today, you’ll be able to write it off your taxes regardless if you distribute any funds or not. Here is a link to Schwab’s Donor-Advised Fund: https://www.schwabcharitable.org/donor-advised-funds
  • Spend your gains. A balanced portfolio consisting of 60% stocks and 40% bonds is up 10.75% for the year.[3] If you invested $1 million on January 1, your gain would be $107,500, so you could spend this amount without invading your principal.
  • Spend your income. A portfolio of dividend-paying stocks or income-producing bonds is an excellent way to spend money without touching the principal portion of your account. If your account generates 3% in income, you can withdrawal $30,000 from a $1 million portfolio.

It’s a delicate balance between spending money today or saving it for the future, but it’s possible, especially with proper planning.  Also, tomorrow might not come, so spending money while you’re happy and healthy is recommended.

Happy Spending!

Here is a link to Aesop’s Miser Fable: http://www.read.gov/aesop/112.html

Spending money is much more difficult than making money. ~ Jack Ma

December 3, 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.prnewswire.com/news-releases/76-of-consumers-prefer-to-spend-on-experiences-than-on-material-items-new-study-finds-300937663.html, website accessed December 2, 2020

[2] https://www.cbsnews.com/news/thousands-line-up-in-dallas-texas-to-receive-food-ahead-of-thanksgiving-food-bank-donation/, by Danielle Garrand, November 16,2020.

[3] YCharts – 1/1/2020 to 12/03/2020, PWM ETF Moderate portfolio

The Hare, The Tortoise, & Stocks

The Hare and the Tortoise is a classic Aesop fable. A story we know well.  The hare mockingly asking the tortoise, “Do you ever get anywhere?” Of course, we know how the story ends. The tortoise “kept going slowly but steadily, and, after a time, passed the place where the Hare was sleeping.” Practicing a life of slow and steady is harder than it looks. We are an impatient nation addicted to getting our way as quickly as possible.

I recently lost a client who wanted to arrive at the finish line faster than scheduled. He mentioned a relative who was investing in growth stocks and generating returns of “20% to 30% or more.” Since the market low on March 23, the NASDAQ has risen 71%, and stocks like Shopify and The Trade Desk have risen more than 320%. The recent pandemic has turned Robinhood traders into stars, and one celebrity repeatedly mocks Warren Buffett and has said, “Trading is easy.”

The curious thing about my call with my former client is that it resembled one I had with another client in December 1999. At the time, the NASDAQ had risen 53% in two months as investors speculated on internet and dot com stocks. He, too, wanted to grow his account faster. He was not satisfied with his returns, and he felt like he was missing his chance to strike it rich. The NASDAQ would rise another 24% as it reached a peak in March 2000. The NASDAQ would fall 78% before it hit rock bottom in December 2002. If you invested at the market top in 2000, you had to wait sixteen years before the index eclipsed its previous high.

At times, I think it’s easier to make 50%, 100%, or more in short-term trading bursts than earn 8% for 10, 20, or 30 years. It’s possible to catch lightning in a bottle, but the key to creating generational wealth is how you react after a market crash. How many investors in 1999 remained invested for sixteen years to recover their costs or buy stocks at low prices? My guess, not many.

When the market corrects, the slow and steady crowd takes over, systematically investing while following their plan. Warren Buffett said, “The stock market is a device for transferring money from the impatient to the patient.”

The 100 year average for stocks has been 10%, and it’s been 5.6% for long-term bonds. Since 1926, a portfolio consisting of 50% stocks, 50% bonds generated an average annual return of 8.55%, and it has made money 79% of the time, which means 21% of the time it lost money.[1] And, in some years it lost a lot. In 1931, the portfolio lost 38%; from 1984 to 1987, it dropped 19.8%. How you manage your investments and emotions in down years determines your wealth in up years.

A 50/50 portfolio has performed well for 1, 3, 5, and 10-years, averaging 12.18%, 12.10%, 10.54%, and 10.73%, respectively.[2] The 20-year average annual return has been 7.87%. You don’t need to make substantial gains to achieve your goals, though it would be nice. If you earn 8% per year, you can double your money every nine years.

I started my investment career in May 1989, and since then, the NASDAQ, Dow Jones, and the S&P 500 are up considerably, rising 2,660%, 1,130%, and 1,070%, respectively. However, during the past thirty years, the market has fallen several times. The NASDAQ fell 78% from 2000 to 2002. In 2008 and 2009, the S&P 500 dropped 48%. In December 2018, the Dow Jones pulled back 18.15%. This year, the three indices fell an average of 33.5%.  If you invested in each index equally for the past three decades, your average annual return was 8.94% before dividends. A $10,000 investment is now worth $130,500.

Individuals who complete a financial plan are likely to stay invested through good markets and bad. If you don’t have a plan, you may panic and sell your stocks when times are tough. In March and April, we fielded several calls from clients who wanted guidance on how to handle the sell-off. We reviewed their plans and told them to remain invested because the market correction did not impact their financial goals.

The hare lost the race because he was impatient and overconfident. If he had a plan and followed it, he would have beaten the tortoise by a mile, and Aesop would not have written his famous fable.

The race is not always to the swift. ~ Aesop Fable

November 13, 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] Dimensional Funds Returns Web 

[2] Ibid

Evidence

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

My Pilot

My last flight before COVID shut us down was an uneventful one from Denver to Austin. The flight lasted just under two hours, arriving as scheduled. My pilot brought me home safely. She probably examined a thousand items before we left Denver, like checking the aircraft, reviewing her flight plan, strategizing with her first officer, and so on. Once she felt confident with her plan, we were ready to take to the skies.

When I fly commercially, I trust my pilot to fly me to my destination safely. I don’t want to go to another city, do barrel rolls, go vertical, break the sound barrier, or land on a highway. The flight should be boring, mundane, and lack excitement.

 In 1987 I was flying home from Europe on board a TWA 747. While on our final approach to JFK, the pilot lowered the flaps and put the landing gear down. When we got near the runway, he hit the afterburners, raised the flaps, and retracted the landing gear; we were on our way to Canada. The air traffic controller closed the runway seconds before our scheduled landing because of a significant snowstorm. It was a white knuckle moment as we banked right and headed north. After a few hours in Canada, we returned to New York. Scary, eh?

If a pilot does her job correctly, I get to my destination. When I travel, I usually arrive at my location without any issues. However, I may arrive late, miss a connection, or get diverted to another airport. Regardless, I eventually get home.

One of my primary duties as a financial planner is to help my clients achieve their goals. I try to do this carefully and efficiently. Often, clients achieve their goals without much fanfare, but occasionally, things get a little messy, especially when stocks fall. During a correction, dreams may be delayed or deferred, but we can reach them if we stay focused on their plan.

A financial plan, like a flight plan, will be your guide to help you achieve your goals. Don’t invest without one!

“Every takeoff is optional. Every landing is mandatory.” ~ Anonymous

October 29, 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.

Late to the party?

It’s a bit awkward to arrive late for a party, especially if it’s very late. Walking into a room full of strangers once a party has started can be intimidating or embarrassing because it forces you to interrupt conversations or eat food picked over by the punctual guests.

I was late to a junior high roller skating party once because I wrote down the wrong starting time. When I entered the rink, my friends were already having a good time, and there were no more skates available in my size, so I rented a size 15 skate (about six sizes too big). I was uncomfortable and nervous about joining one of the cliques, and my large skates didn’t help.

If you’re late to your retirement party, have no fear because all is not lost. If you’re in your forties or fifties and have not saved any money for retirement, it may feel like you’re doomed to work forever, but that’s not the case.

The best time to start saving for retirement is in your teens or early twenties and invest thousands of dollars in high-flying stocks like Amazon or Tesla. An eighteen-year-old investing $1,000 monthly will have about $13 million at age 65. However, this is lunacy because few teenagers have the foresight, wisdom, or money to start investing (except Warren Buffett). When I was eighteen, I didn’t have a job, and I only had $60 in my savings account.  Besides winning the lottery or inheriting millions of dollars, what can you do to improve your retirement shortfall? Here are a few suggestions.

  • Inventory your assets and review your investment holdings. Locate your investment statements for your 401(k), IRA, and brokerage accounts. What do you own? What is the current value of your investments? How are your assets allocated?
  •  Calculate your liabilities. Identify your debts – home, car, credit card, student loans, etc. to figure out which ones you can refinance, reduce, or eliminate. How much money do you owe to others? What are your monthly payments? What interest rate are you paying on your debts?
  • Review your monthly expenses. Where is your money going? Establishing a budget or spending program will help you find excess dollars for savings. In a post-COVID world, you’re probably paying for things you no longer need or aren’t using, such as a gym membership. Look for items in your spending that can be reduced or eliminated.
  • Invest for growth. Stocks outperform bonds, cash, and inflation. Purchase stocks for the long haul, and they will help you make up for the lost time. The 94-year average annual return for stocks has been 10.1%.
  • Avoid speculating or gambling. It’s tempting to daytrade, buy penny stocks, or purchase options but avoid the urge. If you continually try to hit home runs, you’ll strike out often. Speculating with money you can’t afford to lose is madness.
  • Contribute the maximum amount of money to your 401(k) and IRA accounts. The government allows you to contribute $19,500 to your 401(k) plan, or $26,000 if you’re 50 or older. You can contribute $6,000 to an IRA plus an extra $1,000 if you’re 50 or older.
  • Automate your savings. Establish a monthly investment program into a few mutual funds and a savings account. Automating your savings will eliminate human error and emotions.
  • Ignore the stock market. Trying to time the stock market is impossible and a waste of time. While you’re building your retirement nest egg, be a net buyer of stocks, notably when they fall.
  • Review your progress. A quarterly review of your spending habits will allow you to adjust your plan as needed.
  • Work with a financial planner. Your planner will be your guide, accountability partner, and financial Sherpa. Working with an advisor can help you increase returns. A study by Vanguard quantified an advisor relationship can add 3% in net returns.[1]   

Your retirement journey may feel insurmountable, but you can do it – particularly with a financial plan.  Saving money is akin to starting an exercise routine. It won’t be easy, but each day will get better than the next. It’s challenging to see results at first, but you will notice significant changes over time.  

Happy Retirement!

“Life is a party. Dress for it.” ~ Audrey Hepburn

October 15, 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.vanguard.com/pdf/ISGQVAA.pdf

And Down The Stretch They Come!

Dave Johnson is known for this call, “And down the stretch they come!” Mr. Johnson has been calling horse races since the early 1970s, including the Kentucky Derby, Preakness, and Belmont Stakes. There are few things more exciting in sports than watching horses make the final turn towards the finish line – the stretch run.

We’re entering the fourth quarter, and 2021 is less than 100 days away – thankfully. We are in the stretch run. When horses enter the starting gate, the optimism is high; each horse has a chance to win. As the race progresses, the fastest horse separates itself from the field, and jockeys need to adjust their strategy to catch the leader. This year started with much hope, especially after a stellar 2019. The Dow Jones was up  3% through February before the world imploded with the Coronavirus. As the pandemic spread, the market fell 37%. For the past six months, we had to adapt to a new normal – masks, social distancing, self-quarantines, Zoom Calls, hand sanitizer, and a shortage of toilet paper. Hopefully, we finish the year on a positive note with strong momentum for 2021.

As we approach the end of the year, what can you do to enhance your investment portfolio for 2021 and beyond? Here are a few suggestions.

  • Let your winners run. A jockey who is riding a winning horse needs to hold on to finish the race as Ronney Turcotte did when he rode Secretariat during the home stretch of the Belmont Stakes in 1973. If you’re sitting on winning stocks, hold them until next year before realizing your gains.
  • Sell your losers. If you own a stable of losing stocks, sell them to realize your losses for this year. You can offset your gains dollar for dollar, and if you don’t have any profits, you can carry your losses forward forever. Hall of Fame pitcher Don Drysdale sold his racehorses because he said the slow ones eat as much as the fast ones.
  • Diversify your holdings.  Owners and trainers race several horses during a season – some win, some lose. A globally diversified portfolio of stocks, bonds, and cash will allow you to finish in the money more often than not. Spread your bets across several sectors.
  • Review your accounts. What worked and what didn’t? Analyzing your results is vital for investment success. Are you still on pace to achieve your financial goals? If you’re not sure, give us a call. We can help.
  • Adjust. What changes do you need to make for 2021? Is your portfolio sturdy enough to weather all types of market conditions? What changes can you make today to better position your investments for a profitable run next year?
  • Look for long shots. The technology sector will likely lead wire to wire this year, but sectors like energy and financials were left stuck in the mud. Look for investments that may rebound next year.
  • Celebrate your success. Are your investments on pace to finish the year in positive territory? Will you be in the winner’s circle at the end of the year? If you were financially successful, consider sharing your winnings with those in need. Donating money to a non-profit will benefit others and help you reduce your taxes – a win, win.

This year has been brutal, and it can’t end fast enough. We are in the stretch run, so use these next few months to get your house (barn) in order. I know you can do it. I’m betting on you to win big next year.

Riders up.

Do you give the horse its strength or clothe its neck with a flowing mane? Do you make it leap like a locust, striking terror with its proud snorting? It paws fiercely, rejoicing in its strength, and charges into the fray. It laughs at fear, afraid of nothing;  it does not shy away from the sword. The quiver rattles against its side, along with the flashing spear and lance. In frenzied excitement it eats up the ground;  it cannot stand still when the trumpet sounds. At the blast of the trumpet it snorts, ‘Aha!’ It catches the scent of battle from afar, the shout of commanders and the battle cry. ~ Job 39:19-25

September 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.