Year End Strategies

Investors are limping into the fourth quarter battered and bruised from a bumpy market as stocks and bonds continue to trade lower on inflation fears and rising interest rates. Regardless of the chaos, there is still time to make smart year-end moves to shore up your finances.

Buy Stocks. Buy stocks if your time horizon is three to five years or more. The price drop allows you to purchase individual stocks and funds at lower valuations. History shows it pays to buy stocks during bear markets while others sell. If you need proof, review the previous bear markets of 1956, 1961, 1966, 1968, 1973 -1974, 2000 – 2003, 2007-2009, 2018, and 2020.

Buy Bonds. Buy bonds if your time horizon is one to three years. The one-year US T-Bill yields 4%, the highest level in fifteen years, and the rate is guaranteed!

Sell Stocks. If you own a few losers in your taxable account, sell them to realize a loss. You can offset your gains with losses, and if you don’t have any gains, you can write off $3,000 from your tax returns and roll over the loss forever until it’s gone. You can buy back stocks you sell in thirty-one days to avoid the wash sale rule. For example, if you sell Apple today, you can repurchase it on October 23.

Sell Bonds. If you purchased bonds during the COVID crisis, you have losses because the yields were considerably lower than they are now, and when interest rates rise, bond prices fall. Selling your bonds will trigger a tax loss and allow you to buy new ones with higher yields.

Required Minimum Distribution. If you’re 72 or older, it’s time for your IRA required minimum distribution. The calculation is a function of your 2021 year-end valuation and your age. If you fail to take your RMD, the IRS will assess a 50% penalty on the projected distribution amount. For example, if your RMD amount is $20,000, the IRS will penalize you $10,000, so don’t forget!

Rebalance. It’s been a volatile market this year, and your asset allocation might need an adjustment. Your asset allocation is probably too conservative as stocks have fallen. Rebalance your account to return your portfolio to your intended target.

Qualified Charitable Distribution. If you’re 70 or older, consider a qualified charitable distribution. The IRS allows you to donate up to $100,000 from your IRA to charities. Why use a QCD? The distribution qualifies as a required minimum distribution, avoids taxes, and benefits groups or organizations you support.

401(k) Contribution. The maximum contribution for 401(k) plans is $20,500 if you’re under 50 and $27,000 if you’re 50 or older.

Roth 401(k). Take advantage of your Roth 401(k). Plan participants can contribute to the Roth 401(k) regardless of income; at retirement, it can roll over to a Roth IRA.

Roth Conversion. If your IRA is down in value, consider a Roth conversion, especially if you’re still working and have significant assets in a taxable account. You can take advantage of lower stock valuations in your new Roth IRA by converting today. As stocks recover, you needn’t worry about paying taxes or the required minimum distribution again.

IRA Contribution. The maximum contribution for an IRA is $6,000 if you’re under 50 and $7,000 if you’re 50 or older. The amounts apply to both traditional and Roth IRAs. However, you can’t contribute the maximum amount to both IRAs.

Donate. The giving season is here, and non-profit organizations raise most of their funds during the fourth quarter. Donating to charities benefits you and the groups you support because they get your money, and you receive a tax write-off. Consider donating stocks or funds with significant capital gains because you can write off the security’s fair market value and avoid paying the capital gains tax.

Give. You can give away $16,000 per year under the annual exclusion, which is not a taxable event to you or your beneficiary. For example, if you’re married and have ten kids, you can give away $320,000.

Get outside. The fall is an excellent time to visit a national or state park as temperatures cool and leaves change color. Hiking in the mountains or walking on the beach is a reminder that all is well in the world.  

Look deep into nature, and then you’ll understand everything better. ~ Albert Einstein

September 22, 2022

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.

A Walk In The Park

My wife and I recently returned from our vacation, where we visited several national parks, including Arches, Canyonlands, Zion, and the Grand Canyon. It was a fantastic trip where we hiked trails, gazed at stars, and waded in rivers. The vistas and canyons were breathtaking.

Most trailheads posted ominous warning signs about running out of water or food, encountering rattlesnakes, or falling into a canyon. The Bright Angel Trail in the Grand Canyon was our most challenging hike. It has rest stops about every 1.5 miles, and most publications recommend hiking to the three-mile rest stop before returning to the canyon’s rim, and that’s what we did. We started our hike at 6:00 in the morning to beat the heat and throng of hikers. When we reached the three-mile point at 8:00, there were two gentlemen in the rest house, one sleeping. His hiking partner said they had been hiking for two days when his friend had stopped eating, and now they were waiting for the rescue helicopter and park rangers. It was only 8:00 in the morning, and it was the third rescue of the day! As my wife and I climbed out of the canyon, we saw the helicopter land on a tiny sliver of rock to rescue the hiker. It was a frightening reminder of how quickly things could change while hiking.

Before our trip, we spent several days and hours planning our hikes to ensure we had enough water, food, and maps. We mapped our routes and picked our trails, and our goal was to hit the trailheads before 6:00 to witness beautiful sunrises, especially at the Windows Arch. Our pre-planning paid dividends and allowed us to enjoy the parks confidently and safely.

There are numerous analogies to hiking and investing; below are a few that may help you with your investment strategies.

  • Planning. A financial plan is like a trail map, guiding you to various points, alerting you to trouble, and giving you hope for the future. You ask for problems if you hike in a national park without a trail map, and if you invest without a financial plan, you can suffer a similar fate, though you might not notice your errors until several years later.
  • Patience. As we hiked the Bright Angel Trail, we stopped every half mile to drink water and catch our breath. We weren’t in a hurry. Successful investing could take years before you see significant results, especially when the stock market is not cooperating, like this year. It takes patience and wisdom to buy and hold stocks and bonds through challenging markets, but those that do will eventually reap the rewards.
  • Goals. Our hikes had specific goals and targets. We knew how many miles to hike on a given day and trail, and when we reached our destination, we turned around and returned to the trailhead. We did not venture off trail or go beyond our stopping point. When you invest, it’s paramount to have goals to know when to stop and enjoy the fruits of your labor. Do you want to retire early or buy a beach house? Do you want to travel the world or read books all day? Whatever your dreams are, write them down and commit them to your plan.
  • Risk. As I mentioned, each trail we hiked listed dire warnings. We also knew which routes to avoid, like Angel’s Landing in Zions. Risk and reward are related, and we were compensated with thrilling hikes and beautiful vistas while walking on the sides of cliffs. Stocks are risky investments and can fall without warning. Stocks are posting horrible numbers this year, and most investors are losing money, but you must occasionally endure a few bad years to generate long-term wealth. If you can’t stomach significant losses, reduce or eliminate your equity allocation. Also, if you need your money in one year or less, do not buy stocks; keep your money invested in US T-Bills. Knowing your limits is essential if you want to be a successful investor.
  • Review. After each hike, we reviewed our itinerary and made changes based on what we saw. We added new hikes and eliminated others. We decided to visit Dead Horse Point in Utah after looking at our maps and talking to other hikers, and I’m glad we did because it was stunning. Reviewing your accounts and trading history can help you identify opportunities or eliminate risks.

Our national parks are treasures, open to everyone, and offer beauty not found in other parts of the world. To truly enjoy a park visit, you must hike where others don’t, and according to some, 90% of visitors never leave the road.[1] To be a successful investor, you must do what others won’t, like buy stocks as they fall.

“The story is, a man came up to Yosemite, and the ranger was sitting at the front gate, and the man said, “I’ve only got one hour to see Yosemite. If you only had one hour to see Yosemite, what would you do?” And the ranger said, “Well, I’d go right over there, and I’d sit on that rock, and I’d cry.” ~ Dayton Duncan

September 14, 2022

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 you 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. We have waived our financial planning fee for the remainder of the year, so your cost is $0.00.

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. Thelma & Louise was filmed at Dead Horse Point, and the park is used as a stand-in for the Grand Canyon.


[1] https://talesfromthebackroad.com/90-percent-of-national-park-visitors-never-leave-road/, Mary Horne, 10/1/2017

College Football

Next week starts another college football season, the best time of the year. The usual suspects like Alabama, Georgia, and The Ohio State University are projected to finish near the top. The offseason was entertaining as USC and UCLA said they would leave the Pac-12 and join the Big-10, causing a domino effect amongst the other power conferences. Regardless of who ends up where I know the season will be exciting and enjoyable.

Before the season starts, analysts and industry experts opine about the best teams in college football. There is no shortage of lists projecting conference winners, bowl games, and Heisman Trophy finalists. However, these projections are futile because teams still must play the games, and as Mike Tyson said, “Everyone has a plan until they get punched in the mouth.” For example, last year, the Baylor Bears were picked to finish in eighth place in the Big-12 Conference. The experts said they would win two games and finish conference play with a mediocre record of two wins and seven losses. What happened? Baylor finished the season with twelve wins and beat Oklahoma State for the Big-12 Championship. And they did not stop there as Baylor dismantled Ole Miss in the Sugar Bowl. So much for predictions.

The best coaches and teams in college football focus on plays and execution. They’re only concerned about things they can control and do not worry about predictions or projections. They know that if they do not turn over the football or make mental mistakes, the odds of winning rise dramatically.  

As an investor, consider following the lead of great college football coaches and programs by focusing on your goals, spending, savings, and asset allocation. They are the only things you can control; everything else is beyond your reach. If you decide to time the market, trade excessively, or attempt to predict the future, you could end up in the poor house. It’s impossible to control interest rates, market volatility, or the inflation rate, so don’t try. Also, ignore those who think they know what will happen tomorrow. Though they may look the part while pontificating on TV, they don’t know more than the viewing audience.

Focus on your financial plan and goals as markets continue to bounce around. Think long-term, buy stocks, and enjoy the college football season.

Though I don’t make predictions, I believe Baylor beats Alabama for the National Championship.

Win one for the Gipper. ~ George Gipp

August 20, 2022

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 you 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. We have waived our financial planning fee for the remainder of the year, so your cost is $0.00.

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 did not attend Baylor, but I did play college football for the University of San Diego.

Pikes Peak

Pikes Peak looms large at 14,115 feet above sea level, known as America’s Mountain, and is also the inspiration for America the Beautiful. Pikes Peak Highway allows people of all abilities to enjoy the spectacular views from the summit. In addition to driving to the top, visitors can enjoy a comfortable ride on the Pikes Peak Cog Railway, and more adventurous types can hike to the summit.

The trip to the summit by train takes about an hour and a half. If you drive, allow for three to four hours, and if you hike the 13.5-mile trail, allocate eight hours or more. The fastest recorded time to summit Pikes Peak was 7 minutes 57 seconds in 2018 as driver Romain Dumas of France raced up the hill during the annual Pikes Peak Hill Climb. I recently reached the summit via the Cog Railway. It was a beautiful ride through the Pikes National Forest, and the views were stunning.

As I mentioned, there are several ways to reach the peak, and if you invest, there are numerous routes to reach your financial goal, and you must decide which one to take. You may obtain your goal sooner or later, depending on your chosen path.

Let’s explore a few investment tools to help you reach your financial goals.

  • You will need a financial plan regardless of the path you choose. All the visitors that reached the summit of Pikes Peak followed a route, or path, to the top, and they had a plan. A financial plan is your trail map, train schedule, or road map, and it will help guide you on your financial journey and lead you to your final destination.
  • Establishing goals is paramount for financial success. Each visitor to Pikes Peak had a goal to summit the mountain. If you set financial goals, you will increase your odds of investment success. According to a Harvard study, 3% of their graduating 1979 MBA class had written goals, and their net worth was ten times that of the remaining 97% of their classmates who did not have any written goals.[1]
  • A timeline can help you succeed as an investor. After committing your dreams to paper, prioritize them, so you know which ones to pursue first. In addition, consider your timeframe. For example, buying a new car may have a shorter timeframe than retiring to a tropical island.
  • The proper investment can enhance your investment success as well. If you need your money in less than one year, invest in CDs or US Treasury Bills. If you don’t need the money for decades, buy stocks.
  • Regardless of your path, stop to enjoy the view, check your bearings, and take stock of your inventory. A regular check-up can ensure that you’re still on the right path.

There are many roads to financial success; select the one that best suits your needs and utilize all the tools and resources available to reach your financial summit!

Oh beautiful, for spacious skies
For amber waves of grain
For purple mountain majesties
Above the fruited plain

~ America the Beautiful

August 12, 2022

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 you 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. We have waived our financial planning fee for the remainder of the year, so your cost is $0.00.

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 enjoyed the train trip to the summit, but my goal is to hike the trail to the top of Pikes Peak.


[1] https://www.wanderlustworker.com/the-harvard-mba-business-school-study-on-goal-setting/

You May Live Forever!

Estate planning is complex. To complicate matters, few people like to talk about their mortality, but it’s necessary. Creating a will or trust is paramount to ensuring your family honors your wishes, and a well-structured plan can potentially avoid conflicts between heirs. Most people account for physical items like furniture, art, homes, cars, etc., but what about digital assets or social media accounts? If your beneficiaries can’t access your Instagram account, your persona may live forever. If they don’t know your Bitcoin wallet password, it may be gone for good, so it’s imperative to include these items in your estate plan.

Keeping track of assets is challenging, especially when stored in the cloud. One way to ensure your social media accounts and digital assets are accessible to your heirs after you’re gone is to give them the passwords. If they can access your accounts, they can close them out or transfer the assets into their names. Of course, managing passwords is an art, so a program like 1password (https://1password.com/) can eliminate or reduce the frustration of trying to figure out how to access your information. It also beats sorting through a box of sticky notes or trying to read your handwriting on a legal pad. Is it a letter or a number?

What if your heirs aren’t familiar with your social media accounts? Can they close them, or will you live forever? Thankfully, your heirs have options. They can contact the media platform and give them your name, a link to your profile, identification documents, death certificate, and proof of relationship. Once done, they can close your accounts. Another option through Instagram and Facebook is to memorialize your account. If memorialized, it will include a remembrance badge and be frozen, so no more updates are allowed. Snapchat and Twitter will only deactivate the account.

If you think ahead, you can assign a legacy contact to your media sites so they can assume your account once you’re gone.

What if you’re an influencer, or your site generates money through YouTube or TikTok? In this case, you can assign someone to take over your account, so the revenue stream continues.

Bitcoin and cryptocurrency are different because it’s decentralized and not issued by banks or custodians, and there is no help desk to call after you die. If your heirs can’t access your wallet, your assets are gone forever. Poof. To avoid this problem, let your beneficiaries know your passwords or store them on an exchange like Coinbase, Crypto.com, or FTX. Cryptocurrencies can transfer by will or trust.

PayPal and Venmo are excellent services, but if you don’t let others know about these accounts, the money will be lost forever, similar to Bitcoin. To avoid this issue, log in to your phone to access the app, and reset the password if you know it. After accessing the app, you can transfer the funds.

If you’re like most people, your life is on your iPhone – apps, wallets, passwords, contacts, etc. Your heirs can avoid several issues if they can access your iPhone. However, if they can’t access your phone, they need to contact Apple and request access. Apple will need a certified death certificate, proof of executorship, identification, and a court order.

In addition to Aunt Mary’s doll collection, Uncle Joe’s books, and your brother’s baseball cards, don’t forget to include digital assets and social media sites in their estate plan.

Estate planning is an important and everlasting gift you can give your family. And setting up a smooth inheritance isn’t as hard as you might think. ~ Suze Orman

June 6, 2022

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.

Research Assistant = Ryan Arnold

What Is Your Fee?

A prospect recently visited a financial planner’s website and had the following conversation.

Welcome to my office. How can I help you today?

I viewed your website and am impressed with your credentials and firm status, but I have several questions regarding your fees.

Sounds good; fire away.

Okay. I noticed you have several fee options, but I don’t understand the difference. Can you explain why you have so many choices?

Absolutely. We offer multiple fee schedules because clients like to choose the best structure that fits their needs. We offer four distinct plans: an asset management fee, a flat fee, an hourly rate, and a financial planning fee.

I Got it. What’s the difference?

It’s simple, really. We charge a 1% asset management fee for managing your money and completing a financial plan. For example, if you invest $1 million, the cost is $10,000, and if your account increases to $2 million, your new rate is $20,000.

I see. The 1% fee seems high. Is it not?

No way. It’s the industry standard, and we profit when you profit.

What’s next?

We offer a flat fee for asset management and financial planning of $10,000 per year.

If my account is $1 million, I pay $10,000. Is that not a 1% fee?

It is, but it’s a flat fee. Do you see the difference?

No, not at all.

If your account rises or falls, you only pay $10,000.

What if my account drops to $500,000?

It’s still $10,000.

Now my fee is 2% per year – correct?

Technically, yes, but it’s a flat fee of $10,000, and we don’t use percentages or refer to it as a fee-based account if we charge you a flat fee. Does this help?

No. Let’s move on to your hourly rate.

You bet. Our hourly rate is $500 per hour.

Wow. How many hours does it take to finish a plan?

About twenty hours, give or take.

Really? Your hourly rate is $500, which takes twenty hours, so your fee is $10,000? It Is the same rate as your two other options.

I guess it is, but different because it’s an hourly rate.

Let’s move on to the last one, financial planning only. Let me guess. Is it $10,000?

How did you know?

It’s just a hunch.

Our financial plan only module is $10,000. We set up your plan with instructions on how to implement it yourself.

My self? What do you mean?

We give you the finished document, and then you select your investments, manage your assets, and rebalance your accounts. Also, you’ll need to implement our recommendations for creating trusts, buying life insurance, changing beneficiaries, etc. It’s a simple process.

Simple?

Absolutely. You can open a Vanguard account, select two or three mutual funds, and you’re up and running! After opening your accounts, you can Google estate planning attorneys, life insurance agents, CPAs, etc. They will assist you with the remaining areas of your financial plan.

It sounds like I’m doing most of the work. Is your plan worth $10,000?

Yes, on both accounts.

What if I need to update my plan?

Your fee is good for one year; we charge $500 per hour to update your plan.

All your fees are almost identical.

I guess they are. I’ve never noticed that before. Odd.

I’m going to check with a few more firms to compare notes. I’ll get back to you soon if I want to proceed.

Thank you. When you check out other firms, please ensure you only work with an advisor with an “O” and not an “E.” There is a big difference.

Really?

You bet. Good luck with your due diligence, and thank you for coming to my office today.

May 30, 2022

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.

5 Things Worse Than A Stock Market Crash

Stocks are tumbling, led by the Nasdaq. The tech-heavy index is down more than 25 percent this year. Numerous stocks have fallen more than 50 percent as investors sell speculative growth stocks, including Peleton, Teledoc, Palantir, Roblox, Redfin, Shopify, and Coinbase. Giant companies like Amazon, Disney, and Facebook have dropped more than 30 percent. It’s an ugly market.

However, I’m not worried because the market has always recovered. The Nasdaq crashed in 2000, 2008, and 2020, and despite the corrections, it bounced back to all-time highs. I’m optimistic the Nasdaq will return to its winning ways.

Stock market corrections are terrifying, but here are five items that can permanently destroy your family’s financial future.

  1. No savings. Saving money is the ultimate way to create generational wealth. After you get paid, allocate money to your retirement account, savings account, and emergency fund. How much should you save? As much as you can! A recommended savings percentage is 10% of your income. Timing is also essential, and the sooner you start, the better. If you habitually save money, then market corrections become less of an issue because you built a margin of safety, allowing your stocks to rebound and recover. I’ve noticed individuals who do not save money panic and sell when their investments fall because they don’t have a margin of safety or financial cushion. I don’t know how much your account balance will be worth if you regularly save money, but I do know if you don’t save any, it will be worth zero.
  2. No emergency fund. An emergency fund is essential during uncertain times and extreme market volatility. Investors prefer not to allocate funds to cash when stocks are soaring because it’s an earnings drag, but when stocks crash, cash is king. An emergency fund allows you to meet your obligations as stocks fall. What is the recommended amount? An emergency fund covering nine to twelve months of expenses is suitable if you’re working. For example, if your monthly expenses are $10,000, an emergency fund of $90,000 to $120,000 is appropriate. If you’re considering retirement, plan to cover three years of expenses. If your annual expenses are $120,000, then prepare for a balance of $360,000. A three-year cash cushion will help if you retire during a stock market collapse.
  3. No will. Dying without a will or estate plan is unacceptable, especially if you’re married or have children. Don’t leave your estate distribution plan to a probate court or state-appointed attorney. If you have substantial assets, hire an estate planning attorney. A good estate planning attorney is expensive but cheaper than trying to settle your estate without the proper documentation.
  4. No life insurance. Providing for your loved ones is paramount. If you owe money to your bank, have young children, or a spouse, then providing for their needs after you’re gone is a must. A lack of insurance planning can leave your family desperate to make ends meet. Spending a few dollars on insurance premiums can eliminate a lifetime of worry for your heirs.
  5. No financial plan. A financial plan quantifies your hopes and dreams and addresses the first four issues in this blog. During challenging markets, a financial plan brings financial peace. One of the first things we check when conducting financial reviews for our clients is the financial plan, and it gives us the confidence to make sound recommendations void of emotions or opinions. Most financial planning software accounts for wide market swings, so a significant market correction will not derail the majority of plans, which is the case for our clients.

Market corrections are painful, disruptive, and untimely but temporary. If you don’t save money, have a will, or own life insurance, you can permanently damage your family’s financial future.

The time to repair the roof is when the sun is shining. ~ John F. Kennedy

May 16, 2022

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.

Invest Like a Stoic

Stoics would have made great investors because they focused on issues they could control. Marcus Aurelius, Epictetus, and Seneca would probably have much to say about today’s markets or, more importantly, investor’s reactions to the performance of stocks and bonds.

Stocks and bonds face strong headwinds from inflation, rising interest rates, COVID, the supply chain, and the war in Ukraine. These areas are causing heartache among investors as global markets crumble. Yet, we can’t control the outcome of these worldly events.

What can you control? As an investor, you can control your spending and savings; that’s about it. If you reduce your spending, you can increase your savings, and the more you save, the better. Of course, if your spending rises, you may have to reduce your savings.

Here are a few tips to help you manage your assets and emotions.

  1. Automate your expenses by depositing your paycheck and paying your bills. Automation simplifies your life and helps you avoid late fees and penalties.
  2. Automate your savings. Automate your investment accounts after setting up your 401(k) plan. Link your checking and savings account to build up your emergency fund. Transferring dollars monthly from checking to savings gives you access to the funds while increasing your emergency reserves.
  3. Buy the dip. If you automate your savings, you can buy the dip without emotion. It’s hard to buy stocks when they fall, but you can eliminate this fear through automation.
  4. Do not check your accounts. If you review your accounts daily, try doing it weekly. If you review them weekly, try doing it monthly. If you review them monthly, try doing it annually. The less you look at your investments, the better, especially if you own a diversified portfolio of low-cost funds.
  5. Manage your time horizon. If you need access to your funds in one year or less, deposit your money in money market funds, CDs, or T-Bills! If your horizon is three to five years or more, buy stocks.
  6. Build a financial plan. A financial plan guides your financial future and quantifies your hopes, dreams, and fears.

You can control your savings, spending, and outlook, but you can’t control inflation, interest rates, or world war. Despite these recurring issues, stocks rise more than they fall.

From 1926 to 2021, the stock market has risen 75% of the time.[1]

Best five years:

  • 1933 = up 56.7%
  • 1954 = up 50%
  • 1958 = up 45%
  • 1935 = up 44.4%
  • 1975 = up 38.8%

Worst five years:

  • 1931 = down 43.5%
  • 2008 = down 36.7%
  • 1937 = down 34.7%
  • 1930 = down 28.8%
  • 1974 = down 27%

A key takeaway is that the best years follow the worst years; sharp down days precede strong up days, and risk and return are linked.

I don’t know when stocks will recover, so follow your plan and focus on what you can control.

We control our reasoned choice and all acts that depend on that moral will. ~ Epictetus

April 26, 2022

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                                     


[1] The Rewarding Distribution of US Stock Market Returns – Dimensional, 1926 to 2021

Do You Offer Insurance?

Insurance is one thing few people love to buy, and it is something we hope we never use. Thankfully I’ve never used my homeowner’s insurance to rebuild my home from a fire though I’ve been paying premiums for a quarter of a century. I would have been better off investing my dollars in the stock market rather than paying my premiums, but that’s not the point. Insurance is a must-own product to protect several parts of your life.

Since I launched my investment firm, I’ve not offered insurance products until now because I’ve been frustrated with the process of referring clients to insurance brokers. Also, during our financial planning process, we have witnessed horror stories where people were under-insured or did not own any coverage. As a result, we now offer insurance services to help our clients better.

Insurance should cover high-risk, high-cost items like your life, home, car, business, etc. You do not need insurance to pay for low-risk, low-cost things like repairing your windshield after a rock hits it.

Who should own insurance? Let’s take a look.

If you are responsible for children or other people in your life, you need life insurance. Life insurance is not about you but your loved ones. It’s irresponsible and selfish not to own a policy that will protect your family if you die young or without assets. Your life insurance amount should replace your salary until your children are grown, pay for their college, eliminate your debt obligations, and provide an income stream for your spouse. And, yes, you should purchase insurance for your non-working spouse. As your assets grow, your children age, and you reduce your debt, then the need for life insurance dwindles.

If you’re self-employed, disability insurance is a must. You can only die once, but you can become disabled several times, so it’s imperative to generate income while you’re incapacitated. Disability insurance meets this need.

As people age, longevity risk is a genuine concern. An annuity will ensure you do not outlive your money, and it will provide a guaranteed income stream for life, a promise few other investments offer.

Long-term care insurance offsets the high cost of a nursing home or assisted living facility, and it can also offer home healthcare. Adding a long-term care insurance rider to your life insurance policy may offset the cost of a standalone policy. According to smartasset™, the estimated annual cost for a private nursing home is $108,408, and it’s rising faster than inflation.[1] A policy covering three to five years in an assisted living facility is good to start.

No one likes to talk about their mortality or contemplate bad things happening to their family. Still, it is imperative to review your obligations and commitments so you can protect those you love. You can transfer your risk to the insurance company for a few dollars, and paying for insurance premiums is less costly than dying without life insurance.

Does everybody need insurance? No. You can self-insure if you own substantial assets like stocks, bonds, or cash. How much money is required to self insure? It depends on your situation, but a financial plan can answer the question of how much is enough.

A policy of life insurance is the cheapest and safest mode of making a certain provision for one’s family. ~ Benjamin Franklin

April 4, 2022

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://smartasset.com/insurance/how-much-does-long-term-care-insurance-cost, Javier Simon, 4/1/2022

What Can Happen?

We recently stress-tested our client’s financial plans to determine how they would withstand a 50% stock market correction and a perpetual inflation rate of 5.25%. Thankfully, most plans withstood the test. Since 1971, there have been several corrections of 40% or more – 1974, 2002, and 2008; the S&P 500 fell 32% during the COVID correction. Inflation has averaged 3.24% since 1914, so we are confident that our plans can perform well in various market conditions.

What about the plans that failed our test? After screening all our plans, we focused on those that did not pass, and, after tweaking a few inputs like asset allocations, spending limits, or retirement dates, they improved noticeably.

We are in tumultuous times and face astronomical headwinds from inflation, rising interest rates, and war. Markets react fiercely to news headlines, and volatility is the new normal, and it’s challenging to hold stocks when they gyrate wildly. Despite all the recessions, corrections, drops, and pullbacks, the S&P 500 has risen 4,750% since 1971. The market rewards the patient buy-and-hold investor.

How would your life change if your investments fell 50 percent? Could you still provide for your family? Will your basic needs be met? If so, stay the course. If not, consider reducing your equity exposure by adding bonds and cash.

Who knows what will happen tomorrow – no one knows. I’m not aware of any analyst or expert who accurately predicted COVID or the Ukraine War – two significant events impacting everyone. We can die a thousand deaths worrying about every possible outcome, but it’s not worth it. Instead, follow your financial plan, diversify your assets, and think long-term.

The road to success is dotted with many tempting parking spaces. ~ Will Rogers

March 23, 2022

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.