Tag: Financial Planning

Mission Accomplished?

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What happens when you achieve your goals? I’ve pondered this question lately as a few clients have retired. Do you set new goals or rest on your laurels?

I believe in setting actionable goals. As a kid, I wanted to be a collegiate athlete because my dad played baseball at the University of Arizona and Occidental College. I wanted to start a company because my grandparents owned a business. While running 5Ks, I set a lofty goal to run the Boston Marathon. I achieved all three goals.

What can you do if you reach your life goals? Here are a few ideas.

  • Set new goals. If you’ve checked all your life boxes, set new goals, start a new challenge.
  • Mentor. Can a student or your professional benefit from your life experiences? The next generation needs your help setting goals and defining their mission.
  • Start a hobby. During Covid-19, I learned the basics of playing the guitar. My guitar skills are low, but I enjoy strumming.
  • Travel. Can you take your show on the road? Learn another language and travel the world to meet new people.
  • Join a nonprofit. Nonprofits need your expertise. Can you volunteer with your favorite charity or organization?
  • Face your fears. Is it time to dive with sharks, scale a mountain, or run with the bulls? If you’ve played it safe your entire life, now is the time to push the envelope.
  • Exercise. If you’ve achieved your goals, use your free time to improve your health. Can you find thirty minutes daily to hike, bike, or walk?
  • Adopt a pet. A dog or cat can bring much joy and companionship.
  • Build a bigger table and break bread with your neighbor. Open your home to your neighbors to share a meal.
  • Forgive. Life is too short; mend a fence today.

Cooking is all about people. Food is maybe the only universal thing that really has the power to bring everyone together. No matter what culture, everywhere around the world, people eat together. ~ Guy Fieri

April 23, 2024

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management. 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.

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. Prices and yields are for today only and are subject to change without notice. Past performance is not a guarantee of future performance.

Today or Tomorrow?

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One of my favorite Aesop Fables is The Ant & The Grasshopper. The ants worked diligently to store food for the autumn while the grasshopper was busy making music. The grasshopper did not have time to work the fields and save for the future, a costly mistake.

Here is the fable.

One bright day in late autumn, a family of Ants was bustling about in the warm sunshine, drying out the grain they had stored up during the summer, when a starving Grasshopper, his fiddle under his arm, came up and humbly begged for a bite to eat.

“What!” cried the Ants in surprise, “haven’t you stored anything away for the winter? What in the world were you doing all last summer?”

“I didn’t have time to store any food,” whined the Grasshopper; “I was so busy making music that before I knew it, the summer was gone.”

The Ants shrugged their shoulders in disgust.

“Making music, were you?” they cried. “Very well; now dance!” And they turned their backs on the Grasshopper and continued their work.

There’s a time for work and a time for play.

A challenge I’ve seen during my career is to live for today or save for tomorrow, and, unfortunately, there is not an easy answer. It’s essential to save for tomorrow so you can afford to retire on your terms. On the other hand, you can’t ignore today’s demands.

I recently talked with a young client planning a trip to Europe but canceled her plans because her insurance premiums and property taxes increased significantly. She’s postponing her trip until her finances improve. An older client was contemplating returning to work to make ends meet.

Here are a few suggestions to help you live for today while saving for tomorrow.

  • Develop a spending plan. A spending plan will help you allocate your dollars so you can live for today while planning for tomorrow. A well-constructed spending plan will free you from the burden of battling the needs of today or tomorrow. Here is a link to EveryDollar: https://www.ramseysolutions.com/ramseyplus/everydollar
  • Start an emergency fund. An emergency fund of three to six months of expenses can help weather a storm if you need short-term assistance. If your job is safe and secure, three months of savings is sufficient. Six months to a year if your job is risky or unstable.
  • Invest in a taxable brokerage account. A taxable brokerage account allows you to access your funds without penalty, a valuable feature if you want to retire before age 59.5. You can also use the account to fund a car purchase, a trip, education, or retirement. Since COVID-19, we’ve seen a spike in individuals wanting to retire early, highlighting the importance of investing in taxable accounts.
  • Fund your retirement accounts. Contributing the maximum amount to your company retirement plan is the best way to save for your future and achieve financial independence because it is an automated process that removes procrastination and market timing. The maximum amount is $23,000, and the catch-up provision is $7,500. If you can’t contribute the maximum amount, aim for 10% of your income. If that’s too much, do what you can, especially if you’re young.
  • Don’t delay. Time is friend and foe to the investor. A twenty-five-year-old can save $158 monthly to become a millionaire at age 65, whereas a fifty-five-year-old must save $4,882.
  • Invest in good habits. Automate your savings and expenses to ensure financial peace. Automation removes the guesswork from investing and eliminates late fees on your obligations.

The Franklin Utility Fund (FKUQX) was my first investment. I started investing shortly after October 19, 1987, when the Dow Jones fell 22%. I invested $150 to start and $25 monthly. I used the funds for several items, like taking a trip or buying a car. It wouldn’t make me rich, but it started the flywheel for a successful investing career and pending retirement (someday).

It’s important to invest for today and tomorrow, but the bottom line is that you must prioritize retirement because you can get a loan for every other endeavor– car, home, school, etc.- but you can’t get one for retirement.

Good planning and hard work lead to prosperity, but hasty shortcuts lead to poverty. ~ Proverbs 21:5

April 20, 2024

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management. 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.

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. Prices and yields are for today only and are subject to change without notice. Past performance is not a guarantee of future performance.

Where Are My Returns?

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The Nasdaq has risen 31% over the past year, and the S&P 500 is up  22%. Are you pondering your returns after reviewing your first-quarter statements? Likely, your accounts underperformed if you invested in bonds, international stocks, or small-cap holdings. Why not allocate 100% of your assets to large-cap United States stocks if this is the case?

Let’s explore some history.

  • International stocks outperformed the S&P 500 from 1970 to 2011. The MSCI EAFE Index averaged 10.17% annually, while the S&P 500 generated 10.03% yearly.
  • International small-cap stocks have outperformed the S&P 500 index from January 1970 to March 2024 by an annual margin of 2.6%. It might not sound like a big difference, but if you invested $10,000 into each index, you’d have $6.7 million more in the international small-cap index.
  • Since 1927, US small-cap value stocks have trounced the S&P 500 by 2.88%. A $1 investment in the small-cap index is now worth $163,289, whereas a dollar invested in the S&P 500 is worth $12,386.
  • During the lost decade from 2000 to 2010, the Nasdaq fell 74%, the S&P 500 lost 9.10%, while small-cap stocks, international investments, and bonds produced positive returns. (See chart)
  • During the Great Financial Crisis (GFC) from 2007 to 2009, the S&P 500 and Nasdaq fell by more than 50%. Long-term bonds jumped 24%.
  • Stocks and bonds crashed in 2022, but US T-Bills generated a positive return.

It’s normal to focus on recent returns and consider moving all your assets to the most popular investments like gold, Bitcoin, the Nasdaq, Nvidia, etc. However, diversification is still the best choice for most investors because you never know when, why, or how stocks will move. Also, trying to predict the best-performing investment is impossible.

Stay diversified, my friends.

Trying to predict the future is like trying to drive down a country road at night with no lights while looking out the back window. ~ Peter Drucker

April 17, 2024

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management. 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.

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. Prices and yields are for today only and are subject to change without notice. Past performance is not a guarantee of future performance.

The data for interest rates, returns, prices, and yields are from Ycharts and Dimensional Funds Webtool.

8 Ways to Handle A Windfall

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Growing up, my friends and I regularly went to the Santa Anita Racetrack to wager on the horse races. One afternoon, I hit an exacta and won $150 – a fortune for me then, and I treated my friends to dinner at a nice restaurant 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 it is life-changing for someone with limited means.

A lucky winner in New Jersey recently won $1.13 billion through the Mega Millions lottery drawing, and last August, the Powerball lottery paid $2.04 billion to one fortunate individual in Los Angeles. While hitting the jackpot worth billions from the lottery might be rare, regardless of the source or the amount, you now have numerous financial choices. Here are eight ideas to help you with your new-found wealth.

Pause. 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.

Advice. Hire a team of attorneys, CPAs, and financial planners to guide you through the legal and financial maze of protecting your assets. If you received a significant windfall, creating systems to ensure your money lasts generations is essential.

Plan. A financial and estate plan will capture your hopes, dreams, and fears for you and your family. A proper plan is beneficial for today and tomorrow.

Give. Giving a portion of your windfall to help others will benefit many. In addition to helping others, you can write off your charitable contributions, and a donor-advised fund is an excellent vehicle for your donations. Here is a link to Schwab Charitable –  https://www.schwabcharitable.org/

Reduce your debt. If your windfall is substantial, reduce or eliminate your debt.

Create an emergency fund. An emergency fund is essential, and I recommend a three to six-month cushion. For example, If you spend $10,000 monthly, your emergency fund should be $30,000 to $60,000.

Invest. A globally diversified portfolio of low-cost funds is all you need to grow your assets. A simple buy-and-hold strategy will allow you to capture the long-term trends of the markets. Purchasing complicated investment products like limited partnerships, whole life insurance policies, or private placements is unnecessary.

Spend. Do you want to buy a vacation home or a new boat? How about a car? Are you ready to travel the world or remodel your kitchen? If your financial house is in order, go for it. It’s okay to spend money on things you’ve had your eyes on for a while, especially if you have dealt with the other issues highlighted above.

I almost forgot; congratulations on your windfall!

I love money. I love everything about it. I bought some pretty good stuff. Got me a $300 pair of socks. Got a fur sink. An electric dog polisher. A gasoline-powered turtleneck sweater. And, of course, I bought some dumb stuff, too. ~ Steve Martin

March 27, 2024

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management. 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.

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. Prices and yields are for today only and are subject to change without notice. Past performance is not a guarantee of future performance.

Financial Travel Agents

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The travel industry has experienced significant changes since the birth of the internet. According to the Bureau of Labor Statistics, travel agents may decline by 12% to 72,000 by 2026.[1] Companies like Booking.com, Trivago, Expedia, and Kayak have filled this void as individuals book and schedule trips without leaving their couches.

With abundant travel websites now available, do you need a travel agent? It depends on your trip, of course. If you’re booking a flight from Austin to Denver or reserving a hotel room in San Diego, then it doesn’t make much sense. However, it’s wise to hire a travel agent if traveling to several countries by land, sea, and air. Your agent can help you navigate airports, customs, hotels, etc.

Travel agents can enhance your trip experience by tapping their resources and knowledge to deliver superior client services, and they can design a once-in-a-lifetime trip for you and your loved ones. The goal of the travel agent is to provide a hassle-free trip within your budget.

The investment industry, like the travel industry, has endured substantial changes because of the internet. The rise of discount firms, robo-advisors, and online calculators has changed the landscape in the investment world—firms like Schwab, Robinhood, Fidelity, and Vanguard have diverted billions of assets away from traditional Wall Street firms like Merrill Lynch, UBS, and Morgan Stanley. Online firms have made it easy for individual investors to point, click, and trade without any guidance from a professional.

Unlike the travel industry, the number of personal financial advisors may increase by 15% annually by 2026 to over 312,000.[2]  According to the CFP Board, 95,000 Certified Financial Planners comprise 25% of the advisor population. If you want to improve your investment understanding, work with a financial planner, a registered investment advisor, and a fiduciary.

A financial planner can expand your investment horizon by designing, allocating, and managing an investment portfolio based on your goals. A planner can also assist you with retirement, estate, education, and philanthropic planning, to name a few practice areas.     

A written financial plan represents your hopes, dreams, and fears. A good planner will align your goals, risk tolerance, and investments, and the alignment improves the investment experience.

Does everyone need a financial planner? Like the travel agent, it depends. If you want to buy a particular stock or fund, you can do this with the click of a mouse – no guidance is required. However, a financial planner can be a tremendous resource if you want input on planning for retirement, paying for your child’s education, creating a budget, analyzing your taxes, or reviewing your estate.

The role of a planner goes beyond financial advice. A planner can also provide emotional support when stocks gyrate violently, and portfolio values swoon. With a financial plan, they can direct you through the market turmoil by focusing on your goals. Market turbulence is often a short-term distraction from reaching your long-term goals.

As you embark on your financial journey, look to a Certified Financial Planner to guide you to your financial destination.

Bon voyage!

Twenty years from now you will be more disappointed by the things you didn’t do than by the ones you did do. So, throw off the bowlines, sail away from the safe harbor. Catch the trade winds in your sails. Explore. Dream. Discover. ~ Mark Twain

March 20, 2024

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management. 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.

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. Prices and yields are for today only and are subject to change without notice. Past performance is not a guarantee of future performance.

[1] https://www.bls.gov/ooh/sales/travel-agents.htm

[2] https://www.bls.gov/ooh/business-and-financial/personal-financial-advisors.htm

Storage Wars

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Driving around my neighborhood, I noticed several large storage units. A Google search for storage units near my house netted about twenty facilities, with more in the works. Storage units are necessary for short-term moves or projects, but others may suffer from affluenza or hoarding. If you depend on a storage facility because you have too much stuff, it’s time to part ways with some items.

If you’ve watched Storage Wars, you know people covet some crazy items. However, most items like bed frames, mattresses, dresser-drawers, mirrors and other household goods are standard. Do you still need to keep your water beds, eight-track tape players, Cabbage Patch Kids, or rotary phones? If not, give them away.

Financially speaking, more stuff means higher expenses. The higher your household expenses, the more assets you need to retire. It’s simple math. If your annual expenses are $100,000, you need about $2 million in assets to retire. If your expenses increase to $150,000, you need approximately $3.75 million. The ability to reduce your costs gives you a chance to retire sooner with fewer assets. Every $10,000 you can cut from your expenses equals $250,000 less in assets. 

Here are a few tips to help you dig out from your pile of stuff.

  1. Inventory the items you need and separate them from everything else. If you don’t need it, donate the items to your favorite charity. It will help others and potentially give you a tax deduction.
  2. Sell your items at a garage sale. One person’s trash is another person’s treasure.
  3. Post to Facebook. Does your neighborhood have a Facebook page? If so, post your items on the site.
  4. Eliminate your storage unit. A 10 x 10 climate-controlled storage unit costs about $175 per month or $2,100 per year. You can save money by eliminating or reducing this expense, especially if you’ve donated or sold all your items.
  5. Track your monthly and annual expenses. A budget can help you make better spending and financial decisions.  
  6. Are you an empty nester? Downsizing to a smaller home can remove a huge chunk from your annual expenses — a smaller home requires less stuff.
  7. After you’ve eliminated some expenses, invest the savings. If you can save $500 monthly because of your cost-cutting efforts, it could be worth more than $122,000 in ten years. (See chart)
  8. Start today, and do not procrastinate. The sooner you eliminate items, the better your financial future will be!

My wife and I eliminated our excess items a few years ago, which has been liberating. The freedom we received from less junk and lower expenses has allowed us to do more with less. 

“Do not store up for yourselves treasures on earth, where moths and vermin destroy, and where thieves break in and steal. But store up for yourselves treasures in heaven, where moths and vermin do not destroy, and where thieves do not break in and steal. For where your treasure is, there your heart will be also. ~ Matthew 6:19-21.

March 15, 2024

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management. 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.

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. Prices and yields are for today only and are subject to change without notice. Past performance is not a guarantee of future performance.

Spring Cleaning

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Snow melts, flowers bloom, grass grows, and Robins sing. Spring has arrived, and it’s time for some spring cleaning.  

When my family lived in Connecticut, we loved the arrival of spring. Once the snow melted, we’d put our yard back together. We picked up branches and tree limbs, cleared flower beds, and added layers of mulch. On the inside, we opened windows, let the fresh spring air whip through our house, and forced the stale winter air out of our home. 

Your investment portfolio and estate plan may need some spring cleaning as well. Here are a few tips to help you prune and trim as necessary.

  • Prune. If you’re holding a losing investment, it may be time to sell it and move the money into a new idea. Prune your portfolio as you prune your garden; it can pay dividends.
  • Trim. Do you need to trim some gains? If you own a stock that accounts for more than 25% of your portfolio, take some gains to reduce your risk exposure.    
  • Rebalance. Is it time to rebalance your portfolio? Rebalancing your account will reduce risk and keep your original asset allocation intact. For example, if your portfolio was 50% stocks and 50% bonds in 2019, today, it’s 67% stocks and 33% bonds. The stock market has soared since 2019, while the bond market has not. As a result, your portfolio is too aggressive based on your original allocation. (See chart)
  • Update. Do you need to update your will or trust? Has your family grown? Did you buy or sell any assets? Did you move to a new state? If so, make the appropriate changes so your estate documents match your final wishes.
  • Review. Review your beneficiary designations to ensure they align with your original intentions, especially if you were married or divorced this past year. Do you want your assets to go to your ex-spouse if something should happen to you?
  • Create. Create a financial plan. A well-constructed financial plan will help you with your annual spring cleaning. Your financial plan aligns your financial goals with your investment portfolio.

Sitting on a deck under sunny skies is an excellent backdrop to review your portfolio. A small change today can bear much fruit tomorrow.

Happy spring cleaning!

For behold, the winter is past; the rain is over and gone. The flowers appear on the earth, the time of singing has come, and the voice of the turtledove is heard in our land. ~ Song of Solomon 2:11-12.

March 13, 2024

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management. 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.

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. Prices and yields are for today only and are subject to change without notice. Past performance is not a guarantee of future performance.

What If?

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What if the Federal Reserve does not lower interest rates this year? What if they leave them alone? Since 1990, the Federal Reserve has tinkered with interest rates 76% of the time or 26 years out of  34 in which they took action. Sometimes, they would step on the gas and lower rates; other times, they applied the brakes and raised rates. The Fed left rates alone from December 2008 to December 2015, when the S&P 500 soared 123%.

Long-term interest rates have averaged 4.18% since 1990, when the Federal Reserve started using the Federal Funds rate to control economic activity. The rate today is 4.09%. Despite all the adjustments, long-term rates are trading near the average rate for the past 34 years. US GDP climbed 364% during this period, averaging 4.72%, while the S&P 500 is up 1,270%, averaging 8.10% annually.

I’m not sure it matters if the Federal Reserve raises a quarter of a point here or lowers a quarter there because global market forces are so powerful. However, stock and bond markets wait anxiously for Fed announcements to see if they will change the direction of interest rates. The Fed only controls the Fed Funds Rate; the remaining rates from one month to thirty years are left to market participants to determine current levels. I like the 1-month US T-Bill as an indicator of short-term interest rates, and since last July, it has remained unchanged, pegged at 5.49%. The current Fed Funds rate range is 5.25% to 5.50%. Maybe the market knows something?

The Federal Reserve is important, but we don’t need to worry about them raising or lowering rates at each meeting because market forces tell us all we need to know about the direction of rates. I prefer to put my faith in millions (billions?) of market participants instead of twelve voting members of the Federal Reserve.

Investors and financial experts try to guess what the Federal Reserve will do with interest rates, and they only have two choices – raise or lower rates- and they often get it wrong. A recent Wall Street Journal article states, “Wall Street has been caught offside in both directions while betting on the path of interest rates over the past few years.”[1]

What if the Federal Reserve does not lower rates this year? I don’t think it matters. Gambling on Federal Reserve actions is exhilarating for some, but you’ll do better to focus on your financial plan and long-term goals.

Never let an inventor run a company. You can never get him to stop tinkering and bring something to market.~ E.F. Schumacher

February 10, 2024

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.

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. Prices and yields are for today only and are subject to change without notice. Past performance is not a guarantee of future performance.

[1] https://www.wsj.com/finance/investing/investors-fed-interest-rates-a842073c, Eric Wallerstein, WSJ, February 8, 2024

Are You Too Frugal?

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The person who dies with the most toys – loses!

John Bogle, the founder of Vanguard, recently passed away with a net worth of $80 million. By Wall Street standards, $80 million is pocket change, especially for someone who founded one of the world’s largest investment and asset management firms. Vanguard has $7.6 Trillion in assets under management. By comparison, Stephen A. Schwarzman, CEO of The Blackstone Group, has a net worth of $37.7 billion. Blackstone’s assets under management are $1 trillion.

Mr. Bogle is known for being frugal, probably to a fault. He once said, “I don’t like going into stores. I don’t like the whole process of buying things.” He didn’t like spending money on himself, but he did donate to charities and schools, including The John C. Bogle Center for Financial Literacy, Blair Academy, and Princeton.

It’s good to be frugal and watch your budget, but can you be too frugal? I believe so. For example, dropping your daily Starbucks habit could save $152,000 over the next 30 years, but would you be happy? I’ve seen individuals who look to save a dollar or two on small ticket items but hold 100% of their assets in cash, CDs, or T-Bills. Move some assets to stocks to make more money over time rather than trying to save a few nickels by kicking your coffee habit. Since 1945, stocks have averaged 11.2% per year while T-Bills have returned 3.8%, a difference of 7.4% per year! You can afford multiple lattes with the money you make from stocks. Mr. Bogle’s asset allocation was 60% stocks and 40% bonds in his retirement accounts. His taxable allocation was more aggressive, allocating 80% to stocks and 20% to bonds.[1]

Here are a few suggestions for you to spend more money and be less frugal.

Spend. The goal is not to die with the most assets but to use your net worth to live, enjoy life, and bless others. If you’re concerned about spending money on things, spend it on experiences. A family trip to a national park is not only a great experience, it’s economical.  

Give. Are you blessed with abundant assets? If so, give them away. Donate your resources to charities or organizations you support. Your gift will help others, and you’ll benefit from a tax write-off.

Retire. Retiring allows you to travel, spend more time with loved ones, mentor others, or volunteer.

What if you’re not worth $80 million? How do you know how much money you can spend before running out? A financial plan creates a spending plan based on your assets and goals. It also recommends an appropriate asset allocation and risk tolerance level to maximize your return.

So, go ahead, buy the latte, and enjoy your life!

A nickel ain’t worth a dime anymore. –Yogi Berra

February 9, 2024

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.

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. Prices and yields are for today only and are subject to change without notice. Past performance is not a guarantee of future performance.

[1] https://www.investopedia.com/articles/financial-advisors/012716/where-does-john-c-bogle-keep-his-money.asp, Richard Best, 4/26/2018

A Quiet Billionaire

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Most investors have heard of Warren Buffett and Peter Lynch, but what about Herbert Wertheim? Dr. Wertheim is worth $5 billion, according to Forbes. In a Forbes Magazine article, he credits his substantial wealth to buying and holding individual stocks forever. Dr. Wertheim said, “My goal is to buy and almost never sell.”[1]

His strategy follows the tracks of Messrs. Buffett and Lynch, who own great companies and hold them for years. His top two holdings are Apple and Microsoft, which he “purchased decades ago during their IPOs.”

Apple and Microsoft look like no-brainers today, but they suffered mightily on their way to greatness. Apple fell 71% in 2000, dropped 57% in 2008, and crashed 26.4% in 2022. If you purchased Apple in 1980 and held it through 1997, you made $8.

Microsoft stock fell 63% in 2000, 22% in 2002, 45% in 2008, and 28% in 2022. If you purchased Microsoft in January 2000, it took fifteen years to recover your cost.

Dr. Wertheim is an optometrist by training and is keen on understanding patents. He put his knowledge to work when he discovered a “small airline parts maker” named Heico. It was trading for 33 cents per share, and he said, “Heico was a disaster.” However, he understood the company, and his original investment of $5 million is now worth $800 million![2]

How can we benefit from Dr. Wertheim’s insight?

  • Buy. Buy companies you’re familiar with – a classic Peter Lynch move. In addition, make sure you understand what you’re buying, and don’t buy a company if you can’t explain what it does to others.
  • Patience. To generate wealth, hold onto stocks during the dark days. Dr. Wertheim did not panic and sell his holdings. He adds, “If a stock continues to go down, and you believe in it and did your research, then you buy more.”
  • Hold. If you own quality investments, hold them forever. Timing the market based on economic indicators, price levels, or expert opinions is madness.
  • Give. Dr. Wertheim and his wife Nicole have pledged to give half their wealth to groups and organizations they support.
  • Enjoy. The Wertheims travel often and enjoy the gift of time. Dr. Wertheim says, “Having time is the most precious thing.”

You might not become a billionaire, but you can pick up a few extra dollars by following the lead of great investors like Dr. Wertheim.

The real key to making money in stocks is not to get scared out of them. ~ Peter Lynch

February 8, 2024

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.

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. Prices and yields are for today only and are subject to change without notice. Past performance is not a guarantee of future performance.

[1] https://www.forbes.com/sites/maddieberg/2019/02/19/the-greatest-investor-youve-never-heard-of-an-optometrist-who-beat-the-odds-to-become-a-billionaire/#7e309eb722e8, By Madeline Berg, 2/19/2019.

[2] https://www.forbes.com/sites/maddieberg/2019/02/19/the-greatest-investor-youve-never-heard-of-an-optometrist-who-beat-the-odds-to-become-a-billionaire/#7e309eb722e8, By Madeline Berg, 2/19/2019.