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.

 

 

 

 

Baylor Bears Football

The Baylor Bears are enjoying an excellent football season. They currently rank 9th in the polls after trouncing The University of Texas. With a record of 10-1, they’re headed to the Big 12 Championship Game for the first time in school history for a rematch against Oklahoma. Hopefully, they’ll be able to avenge their gut-wrenching loss. If they win the rest of their games and get a little help from other teams, they may find themselves in the college football playoffs.

The turnaround is astonishing, considering the team only won one game in 2017. The 2017 season was Matt Rhule’s first at Baylor. His first job was to convince the young men on his team that they were winners despite the media saying otherwise. His goal is to develop young men and recruit new players to buy into his system.  At his introductory presser, he said, “If you come to Baylor and you come to play for me, that you’re going to get loved and you’re going to get developed each and every day because that’s hard. That’s not easy. Coaches say that but they don’t always want to do that. But that’s all that we did at Temple. That’s all we’re going to do at Baylor because that’s our purpose, to spend all of our time developing our players.”[1]

The Bears were on the brink of receiving the death penalty from the NCAA before Coach Rhule arrived. In addition to replacing their former coach, Baylor also hired a new university president and an athletic director.

When Coach Rhule took over the football program, he only had 45 scholarship players on his roster out of a possible 85, so he had some work to do to convince high school players to attend Baylor.[2] Coach Rhule had seen this picture before as the head coach for the Temple Owls. In 2013 his team won 2 games and lost 10. In 2015 the Owls won 10 games for the first time since 1979. The Owls aren’t known for football, but they ranked in the top 25 during Coach Rhule’s final two seasons with the team.

Coach Rhule has a vision, plan, and a process for turning around football programs in need. He trusts his process and so do the players.  “That’s what my whole message to our players is,” Matt Rhule said. “You’ve done this because of your process, this didn’t happen tonight, it happened every morning over the last two years.”[3]

Webster’s dictionary defines the process as “a natural phenomenon marked by gradual changes that lead toward a particular result.” Gradual changes. Success at any level takes time.

What can you learn from Coach Rhule’s turnaround?

You need a plan that captures your vision and gives you a process for investment success. If your investment process works, stay with it regardless of your short-term results.  When returns are lackluster, it’s easy to ditch your plan and start over. Investors who don’t have an investment plan usually chase returns and make irrational decisions. This strategy is not a good long-term solution for creating wealth. In December 2018, investors withdrew $183 billion in mutual fund assets as the S&P 500 fell 15.7%. In January 2019, they added $23 billion as the stock market rose by 15%. Investors were reacting, not investing. When adversity strikes, your plan and process will keep you in the game.

You need goals. A financial plan will help guide you towards your investment destination. It will be your playbook for financial success. Coach Rhule and other successful coaches have a plan for everything – practices, games, travel, meals, etc. He leaves nothing to chance, and he focuses on what he can control. He can’t control the outcome of the game, nor can you control the direction of the stock market. Focus on your plan and the things you can control, like savings and spending.

Coach Rhule is not alone. He has a team of coaches, assistants, and other personnel helping his team achieve their goals. Surrounding yourself with a group of advisors will pay dividends. Relying on a financial planner, investment professional, attorney, and CPA will help you fortify your foundation.

Last, celebrate your success. The Baylor Bears are having fun and enjoying their season. It’s been a long-time coming for the players and their fans; both are enjoying the ride. You must enjoy your success, as well. It’s okay to sell a few of your winners and spend the money on yourself or loved ones.

There is still much work for Coach Rhule and Baylor Bears to do, but so far, so good!

Sic ‘em Bears!

November 27, 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] https://sicem365.com/s/560/top-10-quotes-from-matt-rhules-introductory-presser, by Baylor Football, 12/2/2106

[2] https://www.espn.com/college-football/story/_/id/27969408/how-matt-rhule-charlie-brewer-rebuilt-baylor-back-big-12-contender, by Sam Khan, Jr., 10/31/2019

[3] https://www.fox44news.com/sports/matt-rhules-motto-trust-the-process-comes-to-fruition-for-baylor-football/, by Matt Roberts, 11/24/2019

Expectations

At the beginning of each football season every NFL team has high hopes of winning the Super Bowl, even the Cleveland Browns. Enthusiasm and expectations are high.

During the 1970s the Minnesota Vikings were one of the most dominant football franchises in the NFL, winning 78% of their games from 1969 to 1977. Because of their stellar play they had the opportunity to participate in four Super Bowls. Despite their regular season success, they failed to win one title. They were the first team to lose four Super Bowls.

Not to be out done, the Buffalo Bills conquered their opponents in the early 90s. They won 76% of their games and appeared in four consecutive Super Bowl’s, the first team to do so. They lost all four.

These two teams had four chances to win a Super Bowl but failed to do so. Despite losing every title game, were their seasons successful? I’m sure there was disappointment, but they did win several games and play in multiple Super Bowls, an opportunity lost on most teams.

In January, investor hopes were high as the Dow Jones soared more than 5%, crossing 26,000 for the first time. In hindsight, we should’ve sold all our stocks in January and moved to cash. After it peaked, it promptly fell 10.3%.

As we approach the end of the year, most asset classes are trading in negative territory. U.S Stocks remain in positive territory, but bonds, international investments, emerging markets, real estate, and commodities have negative returns. A challenging year for diversified portfolios.

Dimensional Fund Advisors Global 60/40 (60% stocks, 40% bonds) Fund has generated an average annual return of 8.1% since 1984. This fund is diversified across multiple countries, several sectors, and thousands of securities. It has made money 78% of the time, a similar winning percentage to the Vikings and Bills during their Super Bowl runs.

The S&P 500 Index has posted positive annual returns 73% of the time and since the end of World War II it has averaged 11.3%.

Despite stellar winning percentages and generous annual returns, sometimes investments, all investments, fail to live up to expectations.

What should you do if your investment hopes and dreams have been dashed this year? Here are a few suggestions.

Be Patient. No trend lasts forever. Circumstances change. After the Dow Jones fell 10% in January, it rose 15% for the next eight months. In 1994, the S&P 500 gained a paltry 1.4% before rising 144% from 1995 to 1999. Long-term government bonds fell 14.9% in 2009. They appreciated 41% over the next three years.

Plan. During the volatile months of February and October, I was able to stress test client portfolios and no one’s goals were impacted due to the market’s downturn. The financial plan allowed me to review client goals and portfolios in real time. The analysis gave us comfort despite the lack of cooperation from the markets. A financial plan may help you with your long-term goals and give you peace of mind when markets fall.

Rebalance. As markets move around the world, it’s likely your asset allocation has changed. If your portfolio is off kilter, rebalance it back to its original state. The best time to reset your portfolio is in January after your year-end capital gains and dividend distributions have been credited to your account.

Nothing. If your goals have not changed and your asset allocation is normal, stay the course. Don’t trade. Let your portfolio find its footing. For example, if you purchased the Dimensional Global Portfolio in 2008, you lost 22.7%. However, if you did nothing and held it through the end of 2017, you made 6.1% per year.

Pursue. During market disruptions there’s always opportunities to find good investments. If you have cash to invest, look for investments you can add to your portfolio for future growth.

As we close out 2018, spend some time honing your goals and reviewing your portfolio. In a few weeks it will be a new year, a new season and hope springs eternal.

“Winning means being unafraid to lose” ~ Fran Tarkenton

November 19, 2018

Bill Parrott is the President and CEO of Parrott Wealth Management firm 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.

Note: Investments are not guaranteed and do involve risk. Your returns may differ than those posted in this blog.

 

 

 

 

Draft Picks

With the first pick in the NFL draft…

The kick off for the NFL draft is tonight and the lives of 253 young men will be forever changed. Fame and fortune awaits these newly minted professional athletes.

What are the odds for a college football player to make an NFL roster? According to the NCAA about 1.6% of eligible college athletes will make it to the next level.  During the 2016/2017 college football season there were 73,063 players, of which 16,236 were draft eligible.[1]

Does it matter what round a player is drafted? According to the data, the answer is yes. 60% of all starters were drafted in the first three rounds while players drafted in rounds six or seven accounted for 9%. 71% of players who made the all-pro team were drafted in the first three rounds; the last two rounds accounted for 4.7%.[2]

From 1994 to 2016 quarterbacks drafted in the first three rounds won 49% of their games. QB’s drafted in rounds 4, 5 & 7 won 40%. What about round 6? The data for this round is skewed because of Tom Brady, a 6th round pick in the 2000 draft – #199.  Because of Mr. Brady, he and his 6th round cohorts have won 55% of their games.[3]

In 1998 Ryan Leaf was considered a can’t miss pick and was drafted second behind Eli Manning. Leaf’s size, statistics, and potential were unparalleled.  He played for four seasons and is considered by many to be the biggest draft bust in NFL history.

How can you find the next Brady while avoiding the next Leaf? It’s not easy. Despite reams of data, hours of film, and several interviews the experts, at the end of the day, are making educated guesses.

Picking individual stocks is like drafting NFL players. Investors have access to company financials, research reports, and analyst opinions to help them select the best stocks. They must pick the right stock in the right industry at the right time to make significant money.  Amazon, Apple, Berkshire Hathaway, and Intel have rewarded shareholders for decades. However, purchasing stocks like Enron, Global Crossing, or Worldcom can wipe out years of savings.

To be diversified an investor should own more than 100 stocks.[4]  During my career I’ve noticed most individual investors own between 10 and 20. Morningstar tracks over 110,000 companies in their global data base so how is it possible to consistently pick the top 10 or 20?

A better alternative for most investors is to own a diversified portfolio of low-cost mutual funds. A portfolio of seven mutual funds managed by Dimensional Fund Advisors include 16,704 securities scattered around the globe. This all-world portfolio consists of the following funds:

  • Core Equity I – DFEOX
  • Small Cap – DFSTX
  • Micro Cap – DFSCX
  • International Core – DFIEX
  • Emerging Markets Core – DFCEX
  • Real Estate – DFREX
  • Intermediate Government Fixed Income – DFIGX

An equal weighted investment into each of these funds generated returns of 10.22%, 6.84%, 8.52% and 7.48% over 1, 3, 5 and 10 years, respectively.

As an investor you can avoid single stock risk by purchasing the entire market with low-cost mutual funds. Roger Goodell, the commissioner of the NFL, benefits from every player on every team. He wins regardless of when they’re drafted, how they play, or how many years they stay in the NFL because he knows that the collective power of the league is more powerful than a single player. Be like Roger and buy the whole market so you can harness the collective power of its long-term trend.

“Set your goals high, and don’t stop till you get there.” –Bo Jackson

April 26, 2018

Bill Parrott is the President and CEO of Parrott Wealth Management an independent, fee-only, fiduciary financial planning and investment management firm in Austin, TX.  Our mission is to remove confusion, complexity, and worry from the financial planning and investment management process. For more information please visit www.parrottwealth.com.

Note:  Past performance is not a guarantee of future returns.  Your returns may differ than those posted in this blog and investments aren’t guaranteed.  The returns don’t include taxes.

 

 

[1] http://www.ncaa.org/about/resources/research/football

[2] https://www.forbes.com/sites/prishe/2015/05/22/tracking-nfl-draft-efficiency-how-contingent-is-success-to-draft-position/#6a1b0f787495, Patrick Rishe, 5/22/2015

[3] https://www.footballoutsiders.com/stat-analysis/2017/nfl-draft-round-round-qb-study-1994-2016, by Scott Kacsmar, 3/21/2017

[4] http://www.aaii.com/journal/article/how-many-stocks-do-you-need-to-be-diversified-.touch, Daniel J. Burnside, July 2004

The Process.

Nick Saban will lead the Alabama Crimson Tide in pursuit of the school’s 17th National Championship; his sixth.   Alabama wins a lot of football games and so does Nick Saban, however, he doesn’t focus on results or wins.  His key ingredient for success is the process.  He wants his team to win the day and improve daily.

His process strategy started at Michigan State while working with one of the school’s psychology professors.  The professor pointed out to Saban and the players that the average football play lasted just seven seconds.  He taught the players to focus on those seven seconds and not the score.[1]

Investors would be wise to take some coaching tips from Nick Saban and follow a process.  It will allow them to shift their focus from “winning” the investment game to a daily routine that will help them create long-term wealth.

Here a few ideas to help you develop your own process.

  • Invest on a regular basis. An automatic monthly investment into your company 401(k), IRA or investment account will allow you to save money without emotion.  This process is known as dollar-cost averaging and you’ll buy when the market is up, down or sideways.  For example, a $1,000 monthly investment in Dimensional Fund Advisors Small Cap Fund (DFSTX) for the past years ending on 12/31/2017 is now worth over $274,000, an average annual gain of 13.39%.   It did well despite a 40% drop in 2008.[2]
  • Rebalance your accounts annually. A $10,000 investment into both the Dimensional Fund Advisors Small Cap Fund and their Intermediate Government Fund ten years ago started with a 50%/50% portfolio.  If you did nothing, the small cap fund now accounts for 64% of your portfolio, too much risk based on your original allocation.  Rebalancing your accounts annually will allow you to maintain a 50%/50% asset allocation.[3]
  • Implement a buy and hold strategy. Trying to time the market is a loser’s bet and it will under perform a buy and hold strategy over time.  A diversified basket of stocks has never lost money over a twenty-year period.[4]  The long-trend of the market is up and one way to profit from the rise is to buy and hold quality companies.
  • Buy the dip. The market fluctuates daily so when it drops use it as an opportunity to buy quality companies at lower prices.
  • Ignore the scoreboard. Quotes for stock prices are constantly available allowing you to track your portfolio’s value in real time.   Short term market moves might force you to act emotionally or irrationally causing harm to your long-term financial goals.
  • Review your accounts. An annual review of your financial goals and investment accounts will allow you to perfect your process.  What worked?  What didn’t?
  • Hire a Certified Financial Planner ® who can help you formulate a game plan based on your financial goals. A planner, like a coach, can help you improve your results.

Investing isn’t a game and not having a plan or process can have negative consequences.  To increase your odds of success, spend some time this month defining or refining your financial goals.  It will take more than seven seconds, but it will be worth it once you’re done!

What happened yesterday is history. What happens tomorrow is a mystery. What we do today makes a difference. ~ Nick Saban

Bill Parrott is the President and CEO of Parrott Wealth Management an independent, fee-only, fiduciary financial planning and investment management firm in Austin, TX.  For more information please visit www.parrottwealth.com.

January 3, 2018

Note:  Past performance is not a guarantee of future returns.  Your returns may differ than those posted in this blog.  Investments are not guaranteed.

 

 

 

[1] http://www.businessinsider.com/alabama-coach-nick-saban-process-2015-8, By Richard Feloni, August 12, 2015.

[2] Morningstar Office Hypothetical Tool, 12/31/2007 – 12/31/2017.

[3] Ibid.

[4] Morningstar Ibbotson® SBBI ® 2015 Classic Yearbook, 1926-2014.

Say What?

I spent most of my youth playing football.  I played football in junior high, high school and college.  Our playbooks included diagrams and words not legible to the lay person. Some of the plays were “I right 30 trap”, “trips right 382”, or “Alabama 99.”  Each play had a different meaning.  After the play was called we all knew our specific assignment.    The language became second nature to everyone on the team because we practiced them constantly.

My friends and I would play pickup games at the park when we weren’t playing organized football.   The play calling for these games was simple and clear.   I might tell Steve to run towards the hippo water fountain and Randy to run at the rocket.   Dave might run to the dead grass spot and then towards the swing set.

Watching CNBC this past week I was amused and horrified with the language used to describe various investments and investment strategies.   Here is a sample.

  1. “We are tactically allocating our risk assets to deliver alpha to our high net worth clients by purchasing high beta cyclical names.” What?   Here is my interpretation of what was said, “We are buying profitable stocks so we can make money for our clients.”
  2. “We are removing risk assets from our satellite portfolio by purchasing low volatility, negatively correlated assets.” Huh?  I would have said we’re buying bonds.
  3. “We’re going to deleverage our non-liquid, alternative assets and transition the proceeds to our short-term liquid account.” Come again?  I think they meant to say they’re selling assets and then depositing the money into their cash account.

Wall Street lingo is designed to confuse the masses.  The wolves use big words and fancy wrappers to sell high commission products to the sheep.  At the end of the day folks there are only three things you can do with your money.  You can invest for growth, income or safety.    If you’re investing for growth, buy stocks.   If you need income, buy bonds.  If you crave safety, keep your money in cash.

As you construct your portfolio ask yourself what investments are needed to achieve your goals.  Focus on simple investment strategies with clear language and hold them for the long haul.  Capisce?

If as one people speaking the same language they have begun to do this, then nothing they plan to do will be impossible for them.  Come, let us go down and confuse their language so they will not understand each other. Genesis 11:6-7

Bill Parrott is the President and CEO of Parrott Wealth Management and is a fan of the simple.  If you want more information on financial planning or investment management please visit www.parrottwealth.com.

April 13, 2017