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.

Hope Is A Strategy

Hope is in short supply, and people are hurting. We’re battling a global pandemic, fires, floods, racial tension, economic uncertainty, and political turmoil – dark days, indeed. It’s hard to imagine it getting better, but it will. Try to find the good among the bad. Mr. Rogers once said, “When I was a boy, and I would see scary things in the news, my mother would say to me, ‘Look for the helpers. You will always find people who are helping.'” Great advice. There’s always a silver lining. It takes courage to rely on hope and faith, but it’s essential that you do if you want to succeed.

What is hope? Webster’s dictionary defines it as a desire with expectations of obtainment, and to expect with confidence.  Powerful words. In addition to confidence, it takes patience, humility, and wisdom to rely on hope because we can’t see it or touch it. It’s not tangible.

The investment community says hope is not a strategy, but I disagree. Financial planners and investment managers, including me, tell clients they must plan to achieve their goals. It’s true, a financial plan is needed, but you also need hope, especially when the stock market crashes as it did in March. As Mike Tyson said, “Everybody has a plan until they get punched in the mouth.” When your plan is not working and the days are dark, you need faith that things will be better tomorrow. Hope implies optimism.

I rely on financial planning software, Excel spreadsheets, and my faithful HP12c calculator to help clients obtain their goals. I also use these resources for my business. When I launched my firm five years ago, I was full of hope and faith. It’s all I had. I was confident my business would flourish, so I didn’t worry about not having clients. I pursued each day with optimism. And, day by day, I built my business.

In helping others reach their financial goals, I must have faith in the long-term trend of the stock market and the resilience of the American economy. I have centuries of data supporting my thesis when I talk to clients about their future, but the information is historical. It already happened. How do I know it will continue? How do I know the stock market will be higher 100 years from now? I don’t, nor does anyone else. It’s a guessing game. However, as history as our guide, I like our odds of success.

When times are tough, like now, it’s imperative to have faith in the future. I was talking to a client this week who is struggling.  We talked through a few issues, and I suggested focusing on the good things and to look at all the positive signs in his life. It’s hard to be upbeat, but it’s necessary to keep moving forward.

Here are a few suggestions to help you keep moving forward.

  • Serve others. Volunteer your time to help those in need. Serving people who can only repay you with a smile, hug, or handshake is time well spent.
  • Donate. If you have financial assets, consider donating money to your local food bank or soup kitchen. A Google search for non-profits in your neighborhood will produce several results. Pick one and send them a check.
  • Deliver. Do you know a neighbor who can use a helping hand? Cook them a meal. Mow their lawn. Wash their car. Buy them a cup of coffee. Listen to their story.
  • Sing. It’s hard to feel sorry for yourself when you’re singing, especially with others. For the record, I have a horrible voice, and I can’t sing, but I do it anyway.
  • Mentor. Kids need mentors and tutors now more than ever as schools shut down, and parents return to work. Do you have time to help someone with their studies?
  • Plant. Plant some trees, bushes, or flowers. Start a garden. Add some color to your backyard. Hang up a hummingbird feeder or install a birdbath.
  • Laugh. Watch a comedy or read the comics. My family has a collection of Far Side cartoons by Gary Larson. We flip through the pages occasionally to get a belly laugh.
  • Exercise. A walk or run can give you a quick reset. Play tennis or golf. Ride a bike. Go for a swim.
  • Watch. Wake up early to watch a sunrise or gather some friends to view a sunset. When I lived in Mission Beach (San Diego), hundreds of people would walk to the boardwalk to look at the sunset. I’ve never been disappointed by the beauty of nature.
  • Adopt. A dog or cat can bring joy to your household. Visit your local humane society to adopt an animal. If you don’t want to care for a pet, watch some Youtube videos about animals – it will put a smile on your face.
  • Pray. Plug into a higher power source.  

As a nation, we have endured worse. It’s a difficult time for all, but it will pass. Focus on the things you can control, don’t worry about tomorrow, and keep the faith.

Gotta have hope!

Now faith is confidence in what we hope for and assurance about what we do not see. ~ Hebrews 11:1

September 18, 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 Indianapolis 500

Drivers start your engines!

Today marks the 104th running of the Indianapolis 500 – “The Greatest Spectacle in Racing.” Drivers will travel at speeds of 225 miles per hour or more in pursuit of auto racing’s most iconic trophy. The 1911 winner, Ray Harroun, averaged 75 miles per hour, slower than some currently posted highway speed signs.

Race day is exciting, and the spectacle is legendary. Crowds of people usually pour into the brickyard to be part of the scene, and millions more will watch it on TV.  The singing of our National Anthem, the singing of “Back Home Again in Indiana,” and the stealth bomber flyover add to the enthusiasm of the day.

Most of the attention will be on the 33 drivers, and rightly so, as they’ll be the ones responsible for executing the plan. However, behind them is an army of support staff like strategists, spotters, spouses, and owners. Teams work as one to make sure the driver can win the race by strategizing and planning for a successful outcome. The plan is their road map for the race.  As the race continues, they must adjust their strategy based on new data like car performance, track conditions, and weather.

In addition to a fast car and the driver’s skill, they’ll need a little luck to win. In 2011 Dan Wheldon was trailing the winner until the last lap when J.R. Hildebrand’s car hit the wall on the final turn. Hildebrand’s accident allowed Wheldon to win.  Wheldon would’ve finished second, at best, had Hildebrand not crashed.

Regardless of how fast these cars travel, drivers will pass each other often and spend a majority of the 500 miles jockeying for a position to win. Drivers need to focus on their team goals, trust the process, and not worry about the competition.

Unfortunately, drivers may experience a crash. When this happens, the yellow caution flag will fly, and drivers must slow down for the cleanup crew to clear the track before racing can resume. Accidents and crashes are unexpected, of course, so it’s best to try and minimize the damage. Drivers do not live in fear of a crash, and nor should you.

What can an investor learn from the Indianapolis 500? Here are a few thoughts.

  • Drive your race. People travel at different speeds to reach their goals. If you’re on the right track, don’t worry about others. Your plan only applies to you and your current situation.
  • Create a financial plan. Your plan will help guide you through the race of your life. It will be your roadmap to success.
  • Adjust and review your plan. Drivers adjust their plans based on new data. As you review your plan and goals, you should adapt to new data as well. Flexibility is paramount.
  • Work with your team. A driver relies on their team to win, and your trusted advisors can help you reach your goals. A CPA, attorney, real estate agent, mortgage broker, insurance agent, financial planner, and an investment manager should be in your pit crew.
  • Diversify your investments. In the market, like racing, crashes happen. It’s not possible to predict when they will occur, so your best defense is a diversified portfolio of stocks, bonds, and cash.
  • Celebrate your wins. It’s essential to enjoy the fruits of your labor. If you’ve reached a goal, celebrate it with gusto – and milk!

After 500 miles, the winner will capture the checkered flag, drink their milk, and kiss the bricks at the finish line. The team will celebrate the victory for a few days and then start planning for the next race. You might not pass under a checkered flag when you’ve achieved your goals, but you’ll know when you’ve won your race.

Nothing compares to the Indianapolis 500.  ~ Mario Andretti

August 21, 2020

 

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management located in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is T.D. 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.

101 Financial Plans

101 Dalmatians™ was a favorite movie for my daughter, and we often watched it together as the dogs battled their Villain – Cruella de Vil. If you owned 101 dalmatians, I would think you’d learn a thing or two about raising dogs.

Since I started my financial planning and investment management firm five years ago, we have completed more than one hundred financial plans. The numbers do not include stand-alone modules we offer like Social Security optimization, estate planning, education planning, budgeting, investment reviews, or student loan repayment strategies. Money Guide Pro, our planning software, recently added an analytics feature, and the data is noteworthy.

Financial planning is the cornerstone of what we do at our firm, and we offer it to all clients. During the pandemic crash in March, we were able to evaluate all our plans in real-time. The correction did not hurt our client’s goals, and, as a result, we remained fully invested through the decline, giving us a chance to make money as stocks recovered. Our goal is to have 90% of our clients complete a detailed financial plan. We’re currently at 79%. Why not 100%? Some clients have more money than they can ever spend, so we focus on other programs like asset protection or estate planning.

The Data

Here are some statistics from our financial plans.

Total completed financial plans = 106

Average client age = 56

The cohort with the most financial plans = Ages 51 to 64

The group with the most assets = Age 65+

Average plan assets for clients with incomes greater than $100,000 = $1.9 Million

Goal, Expectations, and Concerns

The top five retirement goals: travel, purchase a new car, home improvement, buy a new home, and celebration (wedding, anniversaries, etc.).

The number one concern for individuals who want to retire before age 65 is paying for healthcare. If you’re going to retire early, affordable healthcare should be a priority. It’s common for healthcare premiums to cost $1000 to $2,000 per month, so do your homework!

The number one concern for couples with young children is paying for college. The sooner you start saving, the better. The annual cost of college is rising by about 6% to 7% per year or twice the rate of inflation. According to Money Guide Pro, the current tuition for a public, in-state college is about $26,000 per year.

The most common expectations for retirees are pursuing an active lifestyle, spending time with friends and family, and living with less stress. A word of warning: do not wait until retirement to enjoy your life.

The two most common retirement concerns are running out of money and suffering investment losses. Running out of money in retirement is not good. One of our firm goals is to make sure clients can retire on their terms, and more importantly, stay retired. Running out of money and suffering investment losses are competing concerns, and you must choose between risk today or risk tomorrow. If your investments are too conservative early in your career, you may run the risk of running out of money. If your assets are too aggressive later in life, suffering a significant investment loss can have dire consequences. A financial plan will assist you in selecting the proper balance between risk and reward.

Assets and Income

The most significant asset for individuals is their home, 401(k) plan, or business. Lately, there’s a lot of discussion about renting or buying a home. My recommendation is to be a buyer, not a renter. Your home will provide shelter and memories, and it should appreciate over time – typically at the rate of inflation.

A company retirement plan offers a systematic way to create wealth. A constant contribution to your retirement account, compounded over decades, will yield substantial results. The people with the most significant retirement balances are typically teachers and individuals who work for their employers for many years. The maximum contribution to a 401(k) or 403(b) plan is $19,500. If you’re fifty or older, you can add $6,500.

If you’re a business owner, monetizing your company can be a significant portion of your retirement assets. I recommend getting a business valuation every few years. The assessment can help you plan for retirement, along with your estate and insurance needs.

However, your best asset is you and your ability to generate revenue. You may work for forty-five years or more. If your average annual salary is $100,000, you will make $4.5 million in income. Let’s assume you save 10% of your salary per year, or $10,000. At a conservative growth rate of 5%, your account balance would be worth about $1.6 million when you retire.

What’s Missing?

What is missing from the financial plans? Insurance. Life insurance, long-term care, and disability insurance are understated investment tools. Most people have life insurance through work, but the non-working spouse usually does not own any policies, a huge mistake. The primary breadwinner assumes they’ll be able to support the family financially. On the surface, this may be true, but how do you replace all the services a non-working spouse provides? And, if you’re the breadwinner, you may not have any desire to return to work after losing your spouse.

An assisted living facility, or nursing home, can wipe out a generation of savings if you don’t have the proper coverage. A long-term care insurance policy will provide you care when needed and preserve your assets for your children or grandchildren.

You can only die once, but you can be disabled multiple times. If you are your most valuable assets, shouldn’t you insure yourself against a loss of income? A disability policy will provide income to you if you can’t work, allowing you to pay your expenses and let your investment assets grow.

What’s Next?

A financial plan can bring you peace of mind. Will it be perfect? Hardly. But, a well-constructed plan can quantify your hopes and dreams. If you’re waiting for perfection, you will never act. Your plan will direct your retirement expectations, determine income streams, and establish your investment allocation. It can also address other issues, like insurance, real estate, and liabilities.

If you don’t know where to start, give us a call. We are here to help.

“You think dogs will not be in heaven? I tell you, they will be there long before any of us.” ~ Robert Louis Stevenson


August 6, 2020

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management located in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets.

Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor.

 

 

 

 

 

 

I’m Afraid to Invest

It is a tough time to be an investor. The political, social, and racial environment is troubling.  Despite the stellar long-term performance of the stock market, investors are nervous about committing capital to stocks. If you’re frightened to invest, consider a monthly dollar-cost averaging program.

Let’s assume you can invest $120,000 today, but you’re not ready to push all your chips to the center of the table. In this case, invest $1,000 per month for ten years in Vanguard’s 500 Index Fund. Did this strategy work? After ten years, your $120,000 is now worth $219,537 – generating an average annual return of 11.8%.

If you expand your time horizon to twenty years, your $1,000 monthly investment is now worth $651,021, earning 9.1% per year.

How about thirty years? After thirty years, your automated monthly investment program of $1,000 is now worth $1.72 million, averaging 9% per year.

What about a forty-year timeline? After forty years, your investment is now worth $6.16 million, producing an average annual return of 10.4%.

Let’s look at a fifty-year time horizon. We now will invest $1,000 per month into the Investment Company of America mutual fund because the Vanguard 500 Index fund is not available. Your investment is now worth $57.76 million. The average annual return was 10.9%.

After sixty years, your dollar-cost averaging program has turned your $1,000 monthly investment into $195 million! The average annual return was 11.2%.

After fifty or sixty years, the numbers are ridiculous and probably not obtainable for most investors. I doubt many, if any, people can commit to investing monthly for sixty years. However, if you’re skittish, starting a monthly investment program could be your ticket to better returns.

Times are hard, but probably no worse than they have been over the past sixty years. Despite challenging times, the stock market has always marched higher. The key to long-term investment success is to follow your plan, save your money, and invest often. Do not let short-term market moves, or the media, derail your financial plans.

Be not afraid of growing slowly; be afraid only of standing still. ~ Chinese Proverb

June 29, 2020

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management located in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets.

Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor.

Investment source: Morningstar Hypothetical, returns are pre-tax, net of fees.

Three Point Five Percent

Less than three and a half percent of Certified Financial Planners™ are African American or Latinos. I was shocked, but not surprised, by the data as I read the 2017 Racial Diversity in Financial Planning report from the Center for Financial Planning.[1] At the time of the report, there were 80,000 CFP® professionals, so less than 3,000 of our members were African American or Latinx. Our Financial Planning Association chapter in Austin likely has similar percentages – unfortunately. On a recent Zoom call with chapter leaders from around the country for the Financial Planning Association, I don’t recall seeing one person of color among the forty or fifty participants.

There are many reasons why the percentages of financial planners for African Americans and Latinos are low. The report cited three reasons: a lack of industry awareness, few mentors, and escalating costs. Most minorities aren’t aware of financial planning as a profession until after they graduate from college and start working in a different industry.[2]

The recent racial events have once again raised the awareness of a lack of diversity in the financial planning sector. In an industry dominated by older white males, of which I am one, something needs to change, and soon.

As a white male over fifty, I’ve never experienced oppression or hatred. I’ve been bullied at times but never oppressed, but my grandfather had. He was born Asuncion Jimenez to Braulio and Victoria – Tata and Nana. His parents were born in Jalostotitlan, Jalisco, Mexico, and they migrated to Los Angeles in the early 1900s – a journey of about 1,600 miles.

My grandfather never discussed racism, so I asked my mom and aunts if they heard him talk about being ostracized. As one story goes, when he registered for high school, he was assigned to the trade school classes because of his name, so a few days later, he changed it to James and re-enrolled in school to take college prep courses. After a few weeks passed, the school called his mom to find out what happened to Asuncion because he hadn’t shown up for school. My grandfather told his mom, and the school, he changed his name so he could register in different classes. However, his battle wasn’t over. Because he was a Mexican, he could not take AP courses, but after hearing an argument in the hall, the principal allowed him to enroll. His high school principal was Ethel Percy Andrus, who founded AARP.  (Sidebar: Ms. Andrus was the first woman high school principal in California and my wife obtained her Ph.D. from The Ethel Percy Andrus Gerontology Center at USC). My grandfather graduated as the Valedictorian from his high school with a scholarship to Stanford, but he couldn’t attend because of the depression. His parents needed his help in raising his nine siblings.

Because he was Mexican, the kids made fun of him by calling him “Mex.” He was hard of hearing, so he thought they were calling him “Mix” after the famous cowboy actor Tom Mix. The kids eventually left him alone because he was unfazed by their insults, according to my aunt.

My grandfather, ever the optimist, never complained about anything. When he went to the movies as a kid, he was forced to sit in the balcony, which he preferred. At church, he had to sit in the back pews due to his race.

He also faced opposition from his future in-laws. My grandmother’s maiden name was Hamilton, and her family migrated from England. Her parents were not in favor of their marriage, so they eloped.

My grandfather was a financial success after starting two businesses. If you ever ripped open a bag of chips, enjoyed a hot tortilla, or eaten in a restaurant, you benefited from his handy work. He was inducted into the Tortilla Hall of Fame, and several of his inventions are still visible in the restaurant industry.

At his death, most of his estate was donated to U.C. Santa Barbara and Occidental College to provide scholarships to first-generation college students. His lasting gift will provide academic preparation for K-12 students in Fillmore, California, where he owned two ranches.[3] My grandfather was a doer, a man of action.

So, now what? As president of the Austin Financial Planning Association, I have been talking almost daily to last year’s president, and the president-elect about making diversity and inclusion a priority. We contacted two Historically Black Colleges and Universities in the Austin area to provide awareness, mentors, and scholarships to students interested in financial services. Our goal is to offer semester internships, monthly in-person meetings, and weekly check-ins for the students. We will also provide them with a one-year student membership to our financial planning chapter so they can attend our meetings. Our goal is to increase industry awareness and financial literacy for those interested. If we’re successful at the college level, I hope we can deliver our model to high school students.

I’m just one person, so I need your help. If we all did our part, we could make a huge difference. In your market, look for opportunities to hire, mentor, educate, or inform individuals about the need to increase awareness and expand diversity and inclusion in all industries. It’s time.

But let justice roll down like waters and righteousness like an ever-flowing stream. ~ Amos 5:24

June 18, 2020

 

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management located in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets.

Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor.

[1] https://www.cfp.net/knowledge/reports-and-statistics/diversity-and-womens-research/racial-diversity-in-financial-planning-where-we-are-and-where-we-must-go

[2] Ibid

[3] https://www.news.ucsb.edu/2006/012089/food-industry-leader-makes-major-gift-ucsb-help-more-fillmore-students-go-college

What I Miss?

The NASDAQ, Dow Jones, and S&P 500 are posting positive returns over the past year, and the NASDAQ is up more than 9% for the year. These leading indices were down more than 30% less than three months ago as investors reacted to the COVID-19 virus. Since the virus outbreak, our country has experienced depression-era economic data and witnessed civil unrest. Investors have been scratching their heads to try and reconcile the performance in the stock market with the reality on the streets.

The stock market is up more than 40% from the March 23 low, and it has turned in the best 50-day performance in history. It’s hard to fathom a stock market trading at all-time highs while our economy and cities struggle. We have experienced the worst pandemic in more than 100 years, the bleakest economy since the depression, and, according to some, racial tensions not seen since 1968. However, the market is forward-looking and data-driven, and it’s anticipating our country will realize better days ahead.

In March, investors, and a few financial professionals, panicked. One prominent investment firm in Texas sold their client’s entire stock holdings in early March to ride out the storm. I believe his clients are still in cash.  A renowned hedge fund manager said, “Hell is coming.”[1] Another stated, “I would say it’s one of the most overvalued, maybe the second-most overvalued I’ve seen.”[2] Sometimes the safest investment strategy is to do nothing. And trying to time the market is a fool’s errand

With hindsight, market timing appears easy, but it’s not. It’s impossible. Boeing is now trading above $200, so buying it in March at $95 seemed like a no brainer. But, at the time, airline capacity had fallen by 95%, and Boeing was battling the government to obtain certification for its 737 Max. There are twenty-two analysts that follow Boeing, and their average price target is $157, or 26% below its current price.[3] Despite Boeing’s recent performance, it is still down 47% from its high.

After more than thirty years in the investment business, I’m still looking for a better strategy than buy and hold. Owning a globally diversified portfolio of low-cost funds is still hard to beat. During the first few weeks of the market rout, bonds performed well. They provided safety and support.  As the market recovered, the baton was passed to different asset classes like growth stocks, value stocks, international companies, emerging markets, real estate, and small-cap stocks. Each sector performed well at one time or another. Each category contributed to the performance of the portfolio.

Our investment models were active during the market correction. They are designed to keep our client’s asset allocation and risk tolerance in check. Initially, we were selling bonds to buy stocks, and then as the market rebounded significantly, we sold stocks to buy bonds. At one point, our models were allocating money to real estate funds, despite being down more than 40%. I was hyperventilating as our software allocated funds to this asset class. The real-estate allocation has been a stellar performing asset class over the past couple of months, outperforming most of our other asset classes. Our models are now in positive territory for the past year.

A globally diversified portfolio of mutual funds is not sexy. While some funds are rising, others are falling. It seems I’m forever apologizing for an underperforming asset class. Investors, apparently, only want to own funds that grow in value, but the funds are always changing leadership positions, which is the root of diversification.

What is the best way to find a portfolio that is the right fit for you? A financial plan is a powerful tool to help you define and refine your goals. Your advisor will use the data to align your investments with your objectives. If your finances are in sync with your aspirations, you’re more likely to stay invested through thick and thin. As the markets fell, we were regularly stress-testing our client’s financial plans, and the drop impacted not one. Despite the rout, our client’s financial plans remained intact. If your strategy is working and you’re on track to reach your goals, do not make any changes, and dare to stay invested.

Most experts do not know what’s going to happen tomorrow, and the stock market has been tormenting professionals for centuries. Do not let the opinions of others derail your dreams. Instead, focus on your goals, think long-term, pay attention to your plan, and hold onto your investments.

“Sometimes, the most important thing to do is to do nothing.” ~  Debasish Mridha

June 5, 2020

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management located in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets.

Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and are not suitable for every investor.

 

 

 

 

[1] https://www.theguardian.com/business/2020/mar/27/hell-is-coming-how-bill-ackmans-tv-interview-tanked-the-markets-and-made-him-26bn, Rubert Neate, March 27, 2020.

[2] https://www.marketwatch.com/story/this-is-second-most-overvalued-stock-market-that-billionaire-investor-david-tepper-has-ever-seen-2020-05-13, William Watts, May 14, 2020.

[3] https://money.cnn.com/quote/forecast/forecast.html?symb=ba#:~:text=Boeing%20Co%20(NYSE%3ABA)&text=The%2022%20analysts%20offering%2012,the%20last%20price%20of%20184.30., website accessed June 5, 2020

Planning with Uncertainty

Zero Dark Thirty is a thriller about the global pursuit of Osama Bin Laden. A CIA operative determines he is living in a compound in Pakistan, but few believe her analysis, until the meeting scene. During this scene, the power players assess the likelihood that Bin Laden is living at the compound. One associate tells the group, “We don’t deal in certainty, we deal in probability.”[1] The members are approximately 60% positive that he is living at the site until they ask Maya what she thinks. She says, “A 100% he’s there. Okay, fine, 95% because I know certainty freaks you guys out, but it’s a hundred.”[2]

Financial planning is clothed in uncertainty – a combination of math, assumptions, predictions, and guesses. Most financial planning models rely on intuitions about the future, and financial planners are aiming at moving targets. A change to one metric will reverberate through the plan. If I modify the rate of return by 1%, it can have life-altering consequences for a client. Despite the uncertainty, a written plan is still recommended for all investors, because as John Maynard Keynes said, “It is better to be roughly right than precisely wrong.”

Regardless of the environment, uncertainty is ever-present even in the best of times. Last year the stock market and economy were humming. The future was bright, investors were confident, but then the Coronavirus arrived, and uncertainty escalated quickly.

To learn more about planning with uncertainty, I contacted Captain Lawrence G. Getz III, Commander of the University of Michigan’s Navy ROTC program. Captain Getz is a Navy helicopter pilot who has flown more than 2,500 hours, including 500 combat hours in the SH-60 Seahawk helicopter. He was also the Executive and Commanding Officer of the USS Kearsarge. For his service, Captain Getz has earned the Defense Superior Service Medal, Legion of Merit, and two Meritorious Service Medals, to name a few. Captain Getz knows plenty about planning with uncertainty, and he has learned a thing or two during his twenty-nine years in the Navy.

Before each mission, he and his team would script out their pre-planned responses (PPR). Captain Getz said, “It‘s like Tom Brady throwing to different receivers. If one is covered, he looks for the next receiver, and so on until he finds an open one.” He added, “Tom Brady and his teammates practice the routes, they are pre-planned.” Part of his planning is to make smart decisions every day and take precautions. “The smart decisions you make today will make you better years, and decades from now,” he added.

“No plan survives the first contact, but the training and trust will get you through the bad days,” said Captain Getz. I asked him how he dealt with his emotions while flying. He said, “Compartmentalize your emotions, put them in a box, and execute your plan. Being afraid is normal, but do not make emotional decisions in highly volatile times. Do not make decisions in fear.” He added, “We are always dealing with VUCA – volatile, uncertain, complex, and ambiguous situations.”

Emotions play a significant role for investors. If you let them manipulate you, it can have negative consequences on your financial future. I asked Captain Getz how individuals should deal with fear, and he said, “Look to historical spikes. Individuals had the same concerns and fears ten or twenty years ago as people do today, but we (Americans) made it through. We are resilient. We put our head down and make it out.” He talked about people’s reaction to New Orleans after Katrina ripped through The Big Easy. He said, “People did not want to rebuild the city; they wanted to tear it down. But that’s not what we do; we make it better.”

In a recent report from Morningstar: A Behavioral Guide to Market Volatility, they note that “volatile times can also make us more prone to behavioral mistakes.” They added, “When we predict what’s going to happen in the future, our minds naturally reach for what happened most recently.”[3] We believe current events will last forever.

Captain Getz relies on his team through pre-planned responses and constant communication. How does he know when it is time to waive off a mission? When is it time to get out of a bad situation? He said, “His team talks before each mission.” For example, he tells them, “If he is on final approach, and he is taking enemy fire they should remind him to waive off.” Communication and planning are paramount.

Reviewing each mission is critical to his team’s success, and they will evaluate each one when they return to base. He said, “You have to check your ego at the door and have the conversation about the mission. Was it clear? What did you think? We must communicate to work better.”

Captain Getz flew with a Smart Pack strapped to his knee – a 5×7 card, a checklist for each mission. The card included details about the mission, navigation, code words, etc. He said, “If I forgot my name, I could look down at the card and follow the plan.”

Building and developing a team to deal with uncertainty is also important to Captain Getz. He relied on his team frequently, and he spent considerable time hanging out with his crew. His team would work out, walk, eat, read, and drink together. The camaraderie “made them better teammates.”

I asked Captain Getz how he celebrated his victories. He said, “Celebrate humbly, take pride in your work, take pride in working well together.” He added, “I look to provide meaning, and I know we are serving something bigger than ourselves.”

As an investor, how can you incorporate Captain Getz’s wisdom? Here are a few suggestions.

  • Develop a written plan for your pre-planned responses (PPR). Your written plan will help you navigate your financial future. Decide beforehand how you will react to a falling market, a shifting economic environment, or a change to your employment status.
  • Build a team. In addition to your financial planner, incorporate your CPA, attorney, insurance agent, mortgage banker, and other professionals to assist you with your planning needs. Your team can guide you through challenging times; they are your financial support group.
  • Communicate with your team and loved ones. Let those most important to you know about your financial intentions. Inform them of your plans and show them where you keep your relevant documents like wills and trusts. If your situation changes, let them know as soon as possible.
  • Make smart, short-term decisions every day. Your daily decisions will have generational consequences.
  • Control your emotions. Avoid all financial decisions if you’re afraid or fearful. Talk to your team or reference your plan before you proceed. If you’re emotionally paralyzed, wait 24 hours before making any adjustments. As an investor, you can only control how much you save and how much you spend; everything else is beyond your grasp, so let it go.
  • Do not wait for perfection. If you’re waiting for 100% certainty before proceeding, you’ll never execute your plan. By the time the all-clear signal is given, it’s too late to act. Make the best decision you can with the information you have and advance accordingly.
  • Review your plan. Review your plan regularly to ensure your goals are still intact. Do not revise it if you are on target to achieve your goals. If your plan has been dislocated due to the recent market turmoil or some other factor, adjust it as needed. I recommend reviewing your plan quarterly.
  • Celebrate your victories. It’s okay to enjoy the fruits of your labor and celebrate your wins. If you have reached your goals, rejoice in your success.
  • Serve others. Serving others with your time, talent or treasure is humbling, especially if you’re helping those who can’t pay you back. It’s hard to worry about yourself or feel discouraged when you’re lending a hand to someone in need. During this economic downturn, look for opportunities to do some good.

We are in uncertain times, but we will prevail. Our country has faced many challenges, but we’re still standing. We are still fighting.

Fair winds and following seas.

“A good Navy is not a provocation to war. It is the surest guaranty of peace.” ~ Theodore Roosevelt

May 18, 2020

 

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management located in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets.

Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and are not suitable for every investor.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

[1] https://www.youtube.com/watch?v=irG0wGzw7Ok, Website accessed May 17, 2020

[2] Ibid

[3] A Behavioral Guide to Market Volatility: How Behavioral Science Can Help Advisors During Market Turmoil. Morningstar Research by Samantha Lamas, Behavioral Researcher and Steve Wendel, Head of Behavioral Science

My Fitbit

My wife and daughter own Fitbits. I didn’t want to be left out, so I bought one too. The main reason for getting our Fitbits is our healthcare plan will give us points we can use to purchase gift cards. Of course, we want to get fit, but our real motivation is to rack up the points.

My Fitbit tracks my sleep, steps, heart rate, weight, water intake, calories, and so on. My goals are to walk 10,000 steps per day and exercise at least five days per week. So far, it’s going well. My Fitbit buzzes when I reach my goal, and if I have been sitting for extended periods, it will remind me to get up and walk around. My daily record, so far, has been 26,000 steps, which included walking, mowing my lawn, and cycling around my neighborhood. For my efforts, I earned the following badges: skydiver, skyscraper, penguin march, and classics. I guess these are good badges.

My Fitbit is like an electronic coach I wear on my wrist, a constant reminder to keep moving, keep pursuing my goals despite the obstacles.

A financial plan is like a Fitbit. A plan records and tracks your essential financial data to make sure you’re on pace to achieve your goals. Unlike your Fitbit, your plan comes with a financial planner. Your planner will be your coach and confidant, encouraging you to keep moving despite the headwinds.

As the stock market falls and the economy crumbles, a financial plan may bring you peace. Despite the destruction in the market this year, our client’s financial plans and goals remain intact. We monitor our client’s data regularly and adjust as needed. When a client inquires about their investments, I can review their financial plan to let them know they’re still on pace to achieve their goals.

A financial plan is mostly data-driven, a combination of assets, ages, goals, time-horizons, risk tolerance levels, etc. It’s a numbers game, and the data gives clients the confidence they need to keep moving forward.

Here are five reasons why it’s essential to complete a financial plan.

  • Individuals who complete a financial plan have three times the assets of those individuals who do little or no planning.[1]
  • A plan will quantify and visualize your goals. Do you want to retire early? Buy a second home? Travel the world? Your plan can answer these questions and several more.
  • A plan can improve your budgeting and spending goals. A spending plan can give you control over your cash flow, allowing you to buy what you want – if it’s in the budget!
  • Your plan will be your financial guide, whether your saving money for college or retirement. It will be your GPS. It will keep you on the right path.
  • It will keep your emotions in check, especially when global markets are falling apart.

For our part, as a planner, we will do the following:

  • Understand your personal and financial circumstances.
  • Help you identify and select goals.
  • Analyze your current and potential course of action.
  • Develop financial planning recommendations.
  • Present your recommendations.
  • Implement your recommendations.
  • Monitor your progress.

Once your plan is in place, I recommend meeting with your planner quarterly. After you’re satisfied with the results, an annual review is all that is needed.

A Fitbit can’t make me work out, nor can a plan make me develop healthy financial habits. I must do the work and put in the time, but if I do, I know good things will happen.

Success is walking from failure to failure with no loss of enthusiasm.” ~ Sir Winston Churchill

May 13, 2020

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management located in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets.

Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and are not suitable for every investor.

 

 

 

 

 

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

What Do You Cherish?

The Coronavirus is stripping us of life, liberty, and the pursuit of happiness. We have been knocked to our knees, delivered a standing eight count. It’s a challenging time for all, regardless of age, race, or wealth. Difficult times do not discriminate.

During this lockdown, what has been important to you and your family. What have you enjoyed doing to pass the time? Make a list of the things you’ve liked doing during this stoppage.

Here is my list –

  • Long walks with my family
  • Working out with my family
  • Reading books
  • Movie night
  • Zoom meetings with my Bible study groups
  • Zoom meetings with my parents, my in-laws, and my sister’s family
  • Learning to play the guitar
  • Fresh air and crystal-clear water
  • Nights with bright stars
  • Playing board games
  • Building a vegetable garden
  • Planting more rose bushes
  • Painting rocks and leaving them on the sidewalks for others to find
  • Working from home
  • My dog and cat sleeping in my home office
  • Fly fishing
  • Cycling

My list will be just as relevant to me in retirement as it is today. If I enjoy taking long walks and playing board games now, I’ll probably appreciate them in twenty years. Simple pleasures. Simple goals.

Financial planning is part art and part science. It tries to merge facts with emotion. When I ask someone what their retirement goals are, I often get standard answers like traveling more or purchasing a second home. It’s a tough question, especially if you’re under age 40, but now the Coronavirus may give you clarity of what you cherish because we have all lost something. What was essential to you on January 1, probably isn’t today. The forced downtime may give you transparency on what matters to you and your family.

In addition to the things you’ve enjoyed doing during the shutdown, what do you miss? What are you craving to do once the quarantine lifts? My parents are social beings, and they love dining out with friends, and I know they can’t wait to make a reservation at their favorite restaurant.  I love college football, and I am looking forward to attending several games in the fall – Sic ‘Em Bears!

What do older adults regret? Lydia Sohn wrote an article for CNBC where she interviewed several congregants and friends age 90 to 99. The interviewees regretted not cultivating closer relationships with their children, taking risks to be more loving, and not spending more time with the people they loved.[1] Now is an excellent time to connect or reconnect with your loved ones. Don’t wait.

Whatever is important to you now, pursue it and protect it at all costs. The things you love should be at the top of your planning list. Figure out what they are and write them down – who knows, you may already have all you need!

I know what it is to be in need, and I know what it is to have plenty. I have learned the secret of being content in any and every situation, whether well fed or hungry, whether living in plenty or in want. ~ Phillippians 4:12

April 13, 2020

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management located in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets.

Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor.

[1] https://www.cnbc.com/2019/07/03/advice-from-90-year-olds-how-to-live-a-long-happy-and-regret-free-life.html, By Lydia Sohn, July 3, 20109