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

A Few Ways to Save a Few Dollars

Desperate times call for drastic measures. As the Coronavirus shuts down the planet, you may be looking for ways to save a few extra dollars. Now is an excellent time to review your spending habits and create a budget. However, creating a budget is about as fun as getting your wisdom teeth pulled, but it’s imperative to know where your money is going.

The best way to prepare a budget is to review your credit card and bank statements for the past six months. After you dissect your statements, find areas where you can make changes. Organize your expenses into broad categories like home, work, education, children, entertainment, etc. After setting up your groups, subdivide them further. For example, the home category might consist of food, utilities, landscaping, and so on. Dividing your expenses will help you refine your budget.

Identifying your automatic payments is another opportunity to reduce your overhead, especially if you set them up years ago. Are there any you can eliminate or suspend during this downturn? Common electronic monthly payments include book or magazine subscriptions, childcare, tutors, club dues, entertainment, house cleaning, and lawn care services. Can you mow your lawn or clean your home? If you have kids at home, introduce them to manual labor like mowing your lawn or cleaning the house. Many years ago, I was mowing my lawn when a friend of my daughter’s told me she had never seen one of her friend’s parents mow their yard before.

Walking, hiking, biking, have temporarily replaced the gym. Do you miss working out at your local gym? If no, ditch the membership.

Currently, there is nothing worth watching on TV, so can you finally cut the cord? Do you need cable TV or a landline? I have not missed watching TV, and I’ve spent my free time playing board games, reading books, or learning to play the guitar. When I do watch a show, it’s on Netflix or Amazon Prime.

Family dinners are back in fashion now that restaurants are closed, allowing you to spend less money dining out. We are getting creative with dinners, and we are limiting our takeout dining.

My family and I recently built a vegetable garden, so in about 45 days, we will have a bumper crop of tomatoes, lettuce, beets, and cucumbers. I’ve seen posts on social media where others are also building gardens. If you have space in your yard, consider making one.

If you have adequate savings, use your cash to pay off high-yielding debt. In a zero percent world, it makes no sense to keep paying on a note with interest rates at 4%, 5%, or higher. We recently paid off a car, and we’re using the old payment for other purposes.

Refinance your mortgage. The drop in interest rates is an opportunity to lower your mortgage payment. It’s also an excellent time to refinance to a 15-year mortgage. The interest you’ll pay for a 30-Year, $300,000 mortgage is $215,600. If you refinanced to a 15-year, your interest payments would drop 66% to $72,900, a savings of $142,700!

I like my home office, so I’m contemplating letting my office lease expire in September. I can save a few thousand dollars a month by working from home and I can apply the extra savings to technology or marketing. Zoom has been a tremendous benefit, and I’m happy to avoid rush hour traffic. My dog and cat are loyal office mates, and they don’t drink all the coffee! Are you in a position to work from home permanently? If so, explore this option to see if it makes sense.

Insurance is another area where you can make changes to your budget. If you have adequate savings, raise your deductible on your policies. By increasing your deductible, you’ll be able to lower your monthly premium. Talk to your insurance agent to get a few quotes at different deductible levels to find out how much money you can save.

Can you get rid of a car or two? We have three vehicles, but we are currently only using one – barely. Is it possible for your family to share a car? Can you rely on Uber or Lyft? If so, consider selling a car to raise cash or eliminate your car payment.

Do some spring cleaning. Can you find items to sell in your attic or basement? Once you find something to sell, list it on Craig’s List or eBay – one man’s trash is another man’s treasure.

When you finish your budget, you’ll know where your money is going, allowing you to spend less and save more.  With technology, it has never been easier to create a budget – yeah!  You can use Mint.com or Every Dollar to automate the budgeting process, so it becomes second nature.

If you’re able to reduce your spending or cut back on services, allocate the money to your savings account or emergency fund. Increasing your savings account balance will give you a cushion if the shelter-in-place extends into the summer.

Good luck and happy hunting!

 For where your treasure is, there your heart will be also. ~ Luke 12:34

April 2, 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.

 

 

My Gym

I work out at my local gym twice per week, mostly to lift weights. The amount I lift today is a fraction of what I used to lift while playing football in college, but it keeps me in shape.

My gym is a cross-section of men, women, young, old, fit, and almost fit. During the football offseason, members of the local high school team use our gym to supplement their school workouts. These young men are full of energy and bravado, and they have no coordinated plan for their workout regime. They lift, look in the mirror, look at their phone, talk to their friends, and repeat this process until they leave. They also say “bro” – a lot! I was probably that way in high school, too, except I didn’t have a cell phone. I know if they followed a routine, they’d see better results.

While playing football at the University of San Diego, we had two weightlifting coaches, one a former Navy Seal. They joined our program after my sophomore year and put our team on a weightlifting schedule for the entire year, including football season. I noticed a substantial improvement in my strength and endurance while following their plan.

Now that I’m older and, hopefully, wiser, I still follow their plan because it works. The formula is simple and easy to follow. It was because of their strategy and coaching that allowed me to experience better results.

A plan makes all the difference in the world for almost everything, notably investing. A financial plan can help investors improve their results by giving them a guide on how to achieve their goals. It addresses several issues, including investments, insurance, education, retirement, budgets, debt management, Social Security analysis, to name a few.

Like weightlifting, you won’t see results in a day from your financial plan. It may take months or years before your plan starts to bear fruit. And, like exercise, there will be up days followed by down days requiring you to be patient. During the down days or setbacks, it’s imperative to keep moving forward, regardless of your short-term results. If you completed your plan in October 2007, you were met with a wicked bear market where stocks fell more than 50%. I’m sure you didn’t expect to lose half your investment value within a few months, but if you followed your plan and stayed committed to it, you were able to enjoy a substantial rebound in the stock market from the lows of the Great Recession.

Exercising and investing require regular check-ups to measure your progress. Weightlifters constantly adjust their workouts depending on several factors, investors should do the same. Reviewing your strategy often is recommended based on your circumstances. At our firm, we offer quarterly reviews for our clients to make sure their plan and investments are meeting their needs. I also encourage clients to contact us during a life change – marriage, death, the birth of a child, a job promotion, retirement, etc. It’s easier to tweak your portfolio periodically than it is to do a significant restructuring.

Your plan desires action. If I have a written program for lifting weights, but I don’t follow it, I’m never going to get in shape. After you finish your written financial plan, you need to follow through with the recommendations of your advisor, don’t put it on your shelf to collect dust. Several years ago, I was working with a client who finished setting up a living trust for his family, but he didn’t transfer any assets into the trust. I told him he needed to follow through on his attorney’s recommendations to re-title his assets. He assumed, incorrectly, that since he finished the trust document, he did not need to do anything else. He needed to act on the plan.

Exercising is a lifelong pursuit, as is investing. A consistent, well thought out plan will deliver reliable results over time. Write down your goals, follow your dreams, work with a professional, and good things can happen.

What makes a weightlifting program successful? Your hard work and dedication. ~ Greg Everett

January 28, 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.

 

 

 

 

Ice Cream and Investing

My friends and I would ride our bikes (Schwinn’s) to Thrifty’s Store to get ice cream. Thrifty’s ice cream was the best, and it was economically priced for young kids – 5 cents for a single, 10 cents for a double, 15 cents for a triple. Thrifty’s used an ice cream gun to produce near-perfect cylinders, ideal for stacking a triple scoop in a sugar cone. My three go-to flavors were mint chip, chocolate chip, and rocky road – in that order. I had no desire for peach, strawberry, or vanilla. Thrifty’s, at the time, only had about ten flavors, so if my friends wanted more variety, we’d ride to Baskin-Robbins. I would still order my three favorites, however.

Ice cream and investing have much in common because it has something for everyone — some like vanilla, others chocolate. Individual stock pickers might spend hours doing research, reading reports, talking to companies, or listening to analysts hoping to find a unique flavor at a bargain. Or worse, they may watch an expert on TV talking about ice cream, and without any knowledge, they buy gallons of the flavor before tasting it because some guy told him it was going to be good.

Mutual fund investors rely on others to choose the ice cream for them, regardless of flavor. The investors give up the right to select peach or mocha because the flavors are handpicked by the money manager. A mutual fund ice cream owner will get the best flavors, and the worst. In addition to my three favorite flavors, I will also get ones I don’t like. However, the tasty flavors will outnumber the bad ones, and over time, the bad ones will go away.

Trying to pick individual stocks is challenging because you’re continually searching for the next big winner on a limited budget. Today if you decide to buy several ice cream cones with a dollar, you’re not going to get many, or any. And, if you’re fully invested, you must sell one stock to buy another. Do you sell vanilla to buy chocolate? Trading stocks can be expensive, and it’s not tax efficient.

Owning a globally diversified portfolio of low-cost mutual funds is a better solution for most investors because you can own several thousand stocks and, gasp, bonds. I prefer not to eat strawberry ice cream, but millions do. If my mutual fund owns strawberry ice cream, I win even if I don’t eat it. My globally diversified portfolio gives me exposure to stocks on the other side of the world that I would not have chosen myself. Chinese people like black sesame ice cream, Indians want jackfruit, and Swedes prefer ice cream with lingonberries[1]. If I didn’t own a global portfolio, I would miss out on these distinctive flavors.

Here are a few reasons to own a globally diversified portfolio of low-cost mutual funds.

  • Your investment portfolio is a function of your goals, whether you’re aggressive, conservative, or somewhere in between. If your investments match your goals, you’re more likely to hold on to them regardless of market conditions allowing you to capture the upward trend in the stock market.
  • Your costs will go down because you won’t need to trade because your account is being managed for the long haul by your fund managers.
  • Mutual fund companies are in a trade war as they compete against each other to lower their fees. Their pain is your gain. Schwab, Fidelity, Vanguard, and T.D. Ameritrade each have waived their trading commissions. Dimensional Fund Advisors is lowering fees on 77 of their funds. The cost of their U.S. Large Company Portfolio is dropping 40%![2]
  • A balanced portfolio will remove your investment bias and tendencies. I prefer buying large companies with growing dividends, but I also need to own small international growth companies that don’t pay any dividends. A global portfolio allows me to hold a variety of stocks, especially ones I would never buy on my own.

I own a globally diversified portfolio of low-cost mutual funds because it allows me to enjoy my life and focus on things I want to do, like eat ice cream.

I scream, you scream, we all scream for ice cream! ~ Howard Johnson

January 7, 2020

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

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

 

 

 

 

 

[1] https://www.zagat.com/b/crazy-ice-cream-flavors-around-the-world, by Linnea Covington, June 1, 2016.

[2] https://www.barrons.com/articles/dimensional-fund-advisors-enters-the-asset-management-fee-war-51577137749, by Evie Liu, December 23, 2019

If, Then

In college, I learned the if, then command while studying the BASIC computer language. BASIC is a conditional language that relied on the if command. If X is true, then Y is false, and so.

Financial planners rely on if, then statements regularly. It’s common for planners to include a statement like, “If you invested X amount in stock Y, then you’d have Z dollars today.” The examples show investors the advantage of long-term investing, despite the stock market’s gyrations. Some of the examples are outrageous, but we still use them anyway. For example, if you invested $100,000 in the stock market in 1926, you’d be worth more than $700 million today. This example is ridiculous on many levels. First, $100,000 in 1926 is equivalent to $1.5 million today. Second, would you have held on to your investment through the Great Depression? Doubtful. Third, it assumes you didn’t pay any taxes on your investment or spend any money for 93 years.

Despite the crazy claims, advisors use these examples religiously, including me.

Here are a few if, then statements.

If you invested $100,000 in Amazon in 1997, you’d have $92 million today.[1]

If you invested $92 million in Enron, you’d have zero dollars today.

If you sold stocks last December because the market was down 15%, you missed a 36% return in the S&P 500 this year.

If you sold bonds last year because you expected the Federal Reserve to raise interest rates this year, you missed a 13.7% return in long-term bonds through the iShares 20+ Year Treasury Bond ETF (TLT).

If you create a budget, it will help you with your spending.

If you spend less than you earn, you’ll save money.

If you save money, your assets will grow.

If you try to keep up with the Joneses, you’ll end up in the poor house.

If you make a Will or a Trust, you’ll protect your family.

If you own life insurance, you’ll also protect your family.

If you own long-term care insurance, you’ll protect your assets if you move into an assisted living facility.

If you participate in a high deductible health insurance program, consider opening a Health Savings Account to offset the cost of healthcare.

If you’re going to live in your city for five years or more, buy a home.

If you have a mortgage, add a few dollars to your monthly payment so you can pay it off early.

If you move often, rent a home.

If you have children, invest early and often so you can pay for some, if not all, of their college education.

If you work for a company that offers a retirement plan, contribute as much as possible so you can eventually enjoy your retirement.

If you have financial assets to meet your spending needs, defer your Social Security benefits until age 70 so you can qualify for the maximum benefit allowed.

If you have any assets, consider donating to a charity or causes you and your family support.

If you own an IRA or workplace retirement plan, check your beneficiaries to make sure they’re current.

If you complete a financial plan, you’ll have three times more assets than those people who do little or no planning.[2]

If you work with a Certified Financial Planner®, they will put your interest first.

If you finished reading this blog, thank you and Merry Christmas!

“First, solve the problem. Then, write the code.” – John Johnson

December 17, 2019

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

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

 

 

 

 

 

 

[1] Morningstar Office Hypothetical

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