Can You Do Nothing?

It’s hard to do nothing. It’s hard to disconnect from a connected world. If you have children, you’ve probably heard them say: “I’m bored; there’s nothing to do!” If you want to see how hard it is to do nothing, turn off everything around you, and close your eyes for ten minutes. Welcome back. How’d you do?

The most challenging investment strategy is the buy and hold model, a strategy that relies on making a few changes to your portfolio over time. You do nothing but sit and wait for your investments to perform. It’s easy to do nothing when stocks rise as they did in 2019, but how about now? It takes courage and conviction to hold your shares during a market rout like we’re currently experiencing.

A buy and hold strategy is boring, and it’s not sexy. Tell people you own a diversified portfolio of index funds that you plan to keep forever, and they’ll roll their eyes. Warren Buffett said that people don’t like to grow rich slowly. If you read the tortoise and the hare, you know slow and steady wins the race.

Several years ago, I worked with a broker who told me he periodically bought and sold stocks to give the appearance he was monitoring his client’s accounts. His activity “strategy” benefited him more than his clients because he generated a commission with each trade.  Activity for activity’s sake is not a strategy.

Pursuing get quick rich trading schemes often end poorly. However, people are attracted to the possibility of day trading their way to riches, especially when market volatility is high like it is now. It appears easy to buy when the market falls 10% and sell when it rebounds 10%, but this is only in hindsight.

Investors get antsy when their portfolio isn’t rising. When turbulence hits, they run for the exits. During the fourth quarter of 2018, investors pulled $133 billion out of the stock market just before it started rising again.[1]

During the previous bull market (2009 to 2020), the S&P 500 rose more than 160%, including yesterday’s 12% drop. The one-month U.S. Treasury Bill considered the safest investment in the world, lost money every year since 2009 when adjusted for inflation.

Of course, there are times when you need to sell your investments or make portfolio changes. Using your funds to generate monthly income or pay off a mortgage is undoubtedly warranted. Rebalancing your account to keep your asset allocation intact is recommended.

A financial plan can help you improve your investment results and give you the necessary tools to stay invested during falling markets. It will provide you with a roadmap on how best to spend your hard-earned dollars by aligning your goals and risk tolerance to your portfolio. Your plan will be your antidote against making poor investment decisions.

Give it a try – do nothing!

The trick is, when there is nothing to do, do nothing. ~ Warren Buffett

March 17, 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.yardeni.com/pub/ecoindiciwk.pdf, Dr. Edward Yardeni, May 9, 2018

Too Late to Sell?

The Dow Jones is down 18.8% for the year, so is it too late to sell? Investors have sold $34 billion in equity mutual funds and $17 billion in bond funds as they seek safety from the rout in global assets.[1] The news is ominous, and the headlines are bleak. Investors are voting with their dollars, and it’s clear they don’t want to own stocks.

In December of 2018, investors sold $133 billion in funds before stocks rose significantly in 2019. In October of 2008, investors liquidated $128 billion in mutual funds, a few months before one of the great bull markets in history.

It’s never too late to sell because stocks can always fall further. William O’Neil, the founder of Investor’s Business Daily, recommends selling your shares if they fall 7% to 8% because a small loss can turn into a big one if you don’t cut your losses. He said, “You don’t want to take a loss, so you wait, and you hope, until your loss gets so large it costs you dearly. This is by far the number one mistake most investors make.” Enron shareholders had the opportunity to sell their shares at $90, or $80, or $70, or $60, or $50, or $40, and so on before it traded to zero. I’m sure investors in Enron would have loved to sell at any price above zero, regardless of their cost basis.

An investor who sold their holdings in August of 1987, avoided the stock market crash on October 19, 1987. If you knew the Oil Embargo of 1973 was coming, you could have sold your stocks in 1972 and avoided a 41% drop in the S&P 500 from 1973 to 1974. If you sold your shares in 2007 before the Great Recession, you missed a 50% drop in the market. Of course, selling before a correction when stocks are at an all-time high is difficult, and predicting the future is impossible.

When stocks are falling, emotions transcend facts. Not many people care that stocks produce superior long-term results when their accounts have lost 20% in a few weeks.

It’s easy to look in the review mirror and say what you would have done, but what should you do today? Should you sell? Here are a few suggestions to help you decide.

  1. If your stocks are keeping you up at night, then sell your shares. If you’re losing sleep, you own too many stocks.
  2. If you need your money in one year or less, do not invest in stocks. My nieces and daughter must use their money to pay for tuition, room, board, and books, so they invested in a money market fund. I don’t need my retirement money for 10 to 15 years, so I’m 75% invested in stocks.
  3. If you’re retiring in the next two or three years, invest in U.S. Treasury Bills to cover three years’ worth of household expenses.
  4. If you don’t have a safety net, sell stocks. A recommended safety net is three to six months of expenses. If your monthly expenses are $10,000, keep $30,000 to $60,000 in cash.
  5. If you have high levels of debt, sell your stock to reduce your obligations – returns are fleeting, expenses are forever.
  6. If you need money to purchase a home, car, boat, plane, or any expensive item, sell your stocks and move the proceeds to cash.
  7. If you’re 100% allocated to stocks, reduce your equity exposure, and sell some of your holdings.
  8. If you know stocks are going to drop 20% tomorrow, sell today.

With the drop in stock prices and interest rates, bonds may be a riskier investment than stocks. The current yield on the 30-Year U.S. Treasury is 1.5%. The ten-year average Is 3.1%, and if rates rise back to the average, bonds will fall by 20%. In 1980, the 30-Year U.S Treasury yield peaked at 15.08%. If rates returned to their all-time highs, bonds would fall 75%![2] The iShares 20+ Year Treasury Bond ETF (TLT) is up 26.3% for the past year, but it fell 10.5% this week as interest rates rebounded from their remarkable lows.

Money market funds and savings accounts offer low rates. The one-month U.S. T-Bill is yielding .33%.  The current inflation rate is 2.33%, so you’re losing 2%, before taxes, to park your money in a safe account. Cash accounts and short-term bonds are not sustainable solutions for creating wealth over time.

The Dow is down 18.7% year-to-date and off 9.8% for the past year. It’s up 30.6% over the past five years, 118% for the past ten years, and 9,390% since 1930.[3] It’s impossible to know what stocks will do tomorrow, but over time they will rise.

My first full year in the investment business was in 1990, and the Dow Jones Industrial Average fell 4.25% that year; from June to December, it dropped 21%. I was devastated because every stock I bought plunged in price. However, 30 years later, the Dow is up more than 740%.

Is it too late to sell? If selling your stocks will bring you peace, then sell. However, stocks have always recovered, so make sure you’re selling for the right reasons and not from a position of fear.

Be strong, keep the faith, follow your plan, think long-term and good things will happen.

We have nothing to fear but fear itself. ~ Franklin Delano Roosevelt

March 15, 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://ici.org/research/stats/flows/combined/combined_flows_03_11_20, Website accessed 3/14/2020.

[2] https://www.macrotrends.net/2521/30-year-treasury-bond-rate-yield-chart

[3] YCharts

My Friend Jackson

I received a text from a young man who wanted help with his investments. Jackson is in his early twenties, married, and a business owner. New to investing, he asked several great questions. He is excited to start generating his wealth, despite the current economic environment.

Jackson is a man of action, and he’s taking control of his financial future. He’s self-employed, hard-working and he’s not leaving anything to chance. After a few conversations, we opened a brokerage account at one of the large online investment firms. He made his initial investment, and in a few days, we’ll start a monthly investment program. In a couple of months, we’ll open a Roth IRA. Once these accounts are up and running, we will discuss creating a retirement plan for his business.

The account we setup is aggressive; more than 90% allocated to stocks. Jackson is young, so he might not need his money for 40 or 50 years! He has a long-term view, and he can care less about the Cornavirus or short-term moves in the stock market. His primary goal is to create wealth for his family. Of course, he doesn’t care about the short-term because he is so young, but neither does Warren Buffett, who is 89 years old.

I told Jackson stocks would trade up, down, and sideways for decades, so don’t get excited when they rise or depressed when they fall. In fact, he should be joyful when prices fall because he can buy great companies at lower prices.

Jackson is self-employed, and he knows it’s better to be an owner rather than a borrower. The best way to create wealth is to own things like stocks, real estate, and a business. You can’t borrow your way to wealth or invest in low yielding investments; you need to take risks and not play it safe.

Our firm does not require an asset or fee minimum, so we’ll work with anybody who wants or needs help – like Jackson. As a result, we receive inquiries from every type of investor – young, old, rich, poor, seasoned, rookies, etc. If we can’t meet their needs directly, we make sure they receive financial guidance from another source. We act like financial missionaries

To create wealth, we should all follow Jackson’s lead – think long-term, invest often, take risks, and focus on our goals.

Let no one despise you for your youth, but set the believers an example in speech, in conduct, in love, in faith, in purity. ~ 1 Timothy 4:12

March 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 aren’t suitable for every investor.

 

 

The Crow and the Pitcher

The Crow and the Pitcher is a famous Aesop fable. The crow is thirsty and stumbles across a pitcher of water, but he can’t reach the water because the neck of the pitcher is too narrow. The crow picks up small rocks and pebbles to drop them into the pitcher and raise the water level. His plan works, and he’s able to get his drink.

As investors, we can learn much from the action of the crow. If we invest a little money systematically, it will eventually grow.

Investing $100 per month into Vanguard’s S&P 500 index fund grew substantially over time. Here’s how much the account balance was worth after each decade.[1]

  • 10 years = $23,812.
  • 20 years = $64,815.
  • 30 years = $180,228.
  • 40 years = $673,745.

Ignore the market turbulence, invest always, focus on your long-term goals, and good things will happen.

A bird is three things: feathers, flight and song, and feathers are the least of these. ~ Marjorie Allen Seiffert

August 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.

Note: Investments are not guaranteed and do involve risk. Your returns may differ than 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.

 

Illustration credit = Campwillowlake

 

[1] Morningstar Office Hypothetical. VFINX, month end July 31, 2019.

Berkshire Hathaway 2017 Annual Report.

The 2017 annual report for Berkshire Hathaway is available and, as usual, it’s chock-full of wisdom.  The information written in the first few pages is priceless.  Investors of all backgrounds and ages can benefit from the words of Warren Buffett. As the world’s greatest investor, there are 85.3 billion reasons to believe Mr. Buffett knows what he’s talking about; his guidance is timeless.

Here are a few nuggets I mined from the pages of this year’s annual report.

He and his partner, Mr. Charlie Munger, don’t use leverage to enhance returns. They shun debt because they don’t want to put their current assets at risk.  If you need proof of how leverage can destroy a company look no further than Toys R. Us.  After 70 years in business this storied franchise is shutting its doors forever due to a mountain of debt.  Using margin to try and increase your returns is just as foolish.  Leverage looks good when the market is rising but it will become a nightmare during a declining one.

Mr. Buffett doesn’t “depend on the kindness of strangers” to help him grow his business.   Meaning he doesn’t rely on bankers or money lenders to fuel his growth.  Berkshire invests in Treasury Bills for safety, liquidity and opportunities.  Their T-Bills helped them during the financial crisis of 2008-2009 and it gives them a cushion to “withstand economic discontinuities, including such extremes as extended market closures.”  T-Bills aren’t sexy, and bonds are boring.  Owning boring bonds while stocks are falling is comforting.  If you’re concerned about the recent stock market volatility, add T-Bills and bonds to your portfolio.

Investors want to know what tomorrow will bring, they want a crystal ball, so they can position their portfolio accordingly.   No one knows what will happen in the future, including Mr. Buffett.  When discussing the probability of a mega-catastrophe in the U.S.  he says, “No one, of course, knows the correct probability.”  When talking about market declines he adds: “No one can tell you when these (declines) will happen. The light can at any time go from green to red without pausing at yellow.”

He views stocks as a “businesses, not as ticker symbols.”   He doesn’t buy stocks “based on their ‘chart’ patterns, the ‘target’ prices of analysts or the opinions of media pundits.”   He adds: “In America, equity investors have the wind at their back.”  He also expects to own companies “indefinitely.”

Berkshire likes to acquire entire companies with a market cap in the “$5-$20 billion range” that are easy and simple to understand with “consistent earning power.”  If a company meets the criteria set forth by Mr. Buffett and Mr. Munger they can give “a very fast answer – customarily within five minutes – as to whether we’re interested.”

During the last 53 years the share price of Berkshire Hathaway has appreciated significantly but they “have suffered four truly major dips.”  The drops in the price of the stock are listed below.  If you panicked and sold your shares during one of these drops, you would’ve missed extraordinary long-term returns from Berkshire.

March 1973 – January 1975 the price of Berkshire stock fell 59.1%.

October 2, 1987 – October 27, 1987 the stock fell 37.1%.

June 19, 1998 – March 10, 2000 it fell 48.9%.

September 19, 2008 – March 5, 2009 it fell 50.7%.

The best part of this year’s annual report is when Mr. Buffett recaps his bet with Protégé Partners.  In December of 2007, he bet Protégé that an unmanaged S&P 500 index fund would outperform five funds-of-funds.  These five funds “owned interests in more than 200 hedge funds.”  The funds-of-funds could trade their hedge funds and add “new ‘stars’ while exiting their positions in ones whose managers had lost their touch.”  The active fund managers could trade as often as they wished while the index fund was left alone, a pure buy and hold strategy.  He recommends to “stick with big, ‘easy’ decisions and eschew activity.”

The hedge fund managers in the bet were receiving “fixed fees averaging a staggering 2.5% of assets.”  As he says, “Performance comes, performance goes.  Fees never falter.”

How did this bet turnout?  Mr. Buffett’s index bet trounced Protégé Partners, their funds-of-funds and the 200 hedge funds.  In fact, one of the funds was liquidated before the ten-year bet was over.  The average annual return for the Protégé team was 2.9% while the S&P 500 index returned 8.5%!  He said the returns these “helpers” generated was “really dismal.”  All the king’s horses, and all the king’s men…

He does mention that the risks of owning stocks is higher than owning short term bonds but over time they “become progressively less risky than bonds.”  He adds, “As has been the case since 1776 – whatever its problems of the minute, the American economy was going to move forward.”

As the market swoons, Mr. Buffett likes a “depressed market” because it gives him the opportunity to buy companies at reduced prices.   When the market falls, he and his team go shopping: “So when the market plummets – as it will from time to time – neither panic nor mourn.”

The infinite wisdom of Mr. Buffett carries on and we’d be wise to follow his counsel.  Here is a recap of his guidance:

  • Avoid leverage and debt.
  • Buy bonds and T-Bills for safety, liquidity, emergencies and opportunities.
  • It’s impossible to know the future so invest your assets based on your financial goals.
  • Buy businesses and not ticker symbols. Valuation and earnings matter.
  • Focus on simple investments that are easy to understand.
  • When, not if, stocks fall use it as an opportunity to add quality companies to your investment portfolio. Buying the dips has worked well for the past few hundred years and it will probably continue to do so going forward.
  • Buy low-cost index funds and hold them forever. A buy and hold strategy is a great way to create generational wealth.
  • Fees matter, so make sure they’re low. A fee audit can help you identify the fees you’re paying.
  • Indefinitely is a long time so don’t worry about the short-term moves in the stock market. Your financial goals are more important than short-term volatility.

Last, Mr. Buffett references Rudyard Kipling’s, If, in this year’s annual report so here’s a link to the poem:

http://www.kiplingsociety.co.uk/poems_if.htm

IF you can keep your head when all about you are losing theirs… ~ Rudyard Kipling

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.

4/8/18

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.

 

 

 

 

 

Fishing from my Driveway.

A boat resting on a driveway is safe from the wrath of Neptune and Poseidon.  It can sit peacefully on concrete protected from waves, tides and rocks.  However, a boat isn’t made to sit idle on a driveway; it’s made for the high seas.  Similarly, fishing from a driveway doesn’t work either.   The boat and the fisherman need to be on the water.

A boat on the water is exposed to more risk, as is the fisherman.   The risks increase the further the boat travels from shore.   The waves get bigger, the wind howls harder but the payoff is greater.  The reward of catching an enormous fish is worth the effort.

Investing carries many levels of risk and safety.  It’s possible to never leave shore and invest for safety and guarantees.  If you’re concerned about losing money, you can invest your money in a certificate of deposit or U.S. Treasury Bill.  These two investments will guarantee a rate of return if held to maturity.  They’ll also guarantee a low rate of return as both yield about 1%.   These two items may work in the short term but won’t hold water as long-term investments.

To create wealth an investor needs to have exposure to risk assets like stocks.  Stocks fluctuate like a boat on the water but if held for the long term they will treat you well.  In the short term, stocks rise and fall with much fanfare.  When stocks fall, the media will want to know if this is the beginning of the end.  It may feel like the end of times if you’ve lived through the corrections of 1987, 2000 or 2008.  Despite the previous storms, the stock market recovered and sailed to all-time highs.  Historically stocks have averaged a 10% annual return despite the drops.

Set a course for adventure and invest to achieve your goals.  Diversify your assets across stocks, bonds and cash so you can keep your portfolio afloat!

A ship in harbor is safe — but that is not what ships are built for.” ~ John A. Shedd.

And when he got into the boat, his disciples followed him. ~ Matthew 8:23.

Bill Parrott is the President and CEO of Parrott Wealth Management.  For information on financial planning and investment management, please visit www.parrottwealth.com

June 10, 2017

 

 

 

Nothing but Net.

One of the best sounds in sports is the swish of basketball as it passes through the net.   The ball flies over the rim and touches nothing but net.  I love watching long range shooters drain effortless, smooth three pointers.   Some of the greatest shooters in the game have been Larry Bird, Kobe Bryant and Steph Curry.  My favorite long range shooter was Meodowlark Lemon of the Harlem Globetrotters.  He would meander to the half court line, say a few jokes, launch a sky hook and it would swish though the net.

My friends and I used to play H-O-R-S-E at the local park.  Our shots were creative and crazy.  The stakes went up when one of us would call a shot with a swish.   The basket would only count if it was a swish. If the shot hit the backboard or the rim, it didn’t count.   The swish shot put added pressure on the players.

Investing has its own version of nothing but net.   It’d be nice to bank gross returns but this isn’t possible.   Gross returns are impressive but you can only spend net returns.  To calculate your net return, you must subtract inflation, taxes and fees.  The net return is what you can spend to buy food, gas and other household items.

Let’s review some net returns.

Stocks.  The gross return on stocks from 1926 has been 10%.  A 10% return is impressive especially when it’s compounded over 90 years.   Inflation during this time frame averaged 2.9%.   Subtracting inflation, the gross return for stocks falls to 7.1%.   Minus a 28% tax rate lowers your return to 5.1%.  If you work with an advisor who charges 1%, your net return is now 4.1%.   Netting out inflation, taxes and fees your 10% gross return cascades 59% to 4.1%.  A $10,000 investment in stocks will grow to $372,000 over 90 years with a net return of 4.1%.

Bonds.  Long term government bonds averaged 5.6% for 90 years.   Inflation reduced this return by 2.9%.  Subtracting taxes and fees your net return is now .94%.   A $10,000 in bonds is now worth $23,200.

Cash.  The cash return will leave a hole in your wallet.  The one-month U.S. Treasury Bill averaged 3.4% since 1926.   Subtracting inflation, taxes and fees your net return drops to a negative .64%.  A $10,000 “investment” in cash is now worth $5,611.

You need to own stocks to create generational wealth.   A heavy dose of bonds and cash in your portfolio is an air ball.   It’s recommended to keep a large portion of your portfolio in stocks so you can stay ahead of inflation, taxes and fees.

I hate to lose more than I like to win.  ~ Larry Bird

Bill Parrott is President and CEO of Parrott Wealth Management.  For more information on investment management and financial planning, please visit www.parrottwealth.com.

May 7, 2017

Note:  Your returns may be more or less than those posted in this blog.

Time to Play It Safe?

In 1926 Mrs. Moats invested three dollars in separate investments.  She placed a dollar coin in three distinct boxes with strict instructions to not open them until December 31, 2015.  She invested one dollar in large company stocks for her “risky” box.   Her next dollar was invested in a “safe” portfolio of U.S. Treasury Bills.  In the third box, she kept her dollar in cash just in case box 1 and box 2 ended up worthless.

After the coins were placed in the respective boxes, she buried them in her backyard.

On December 31, 2015, her grandchildren dug up the boxes to see how well her investments performed.   With all the trouble and turmoil during the past 89 years her grandchildren were convinced the safe investments had performed best.   Here is how each dollar fared.

Box 1 – Large Company Stocks.  Her $1 investment is now worth $5,386.  Her large company portfolio returned 10% per year.  Her “risky” portfolio endured years of negative returns and extreme volatility to dramatically outperform her “safe” investments.[1]

Box 2 – U.S. Treasury Bills.  Her $1 investment is now worth $21.[2]   Her “safe” portfolio averaged an annual return of 3.4%.  Her “safe” portfolio made money every year and never had a negative return.

Box 3 – Cash.  The value of her 1926 dollar is now worth about 8 cents.   The purchasing power of her original dollar has been eroded by inflation.   Inflation averaged 2.9% per year during this 89 year stretch.[3]

The U.S. stock market is near an all-time high.  By some measures the stock market is fairly valued if not overvalued.   The public outcry for a stock market correction is increasing as the market climbs higher.  Is it time to play it safe?   Should you sell your stocks and move the money to cash?  In the short term, this strategy may appear prudent.  It would be nice to avoid another stock market correction.

Here are a few things to consider before you sell your growth oriented investments.

  1. When should you sell your stocks? Today?  Tomorrow?  Next week?  How will you know when it’s the right time to sell?   If you sold your stocks before last year’s presidential election, you missed a 16% return.
  2. If you sell your stocks, when should you buy them back? How will you know when it’s safe to get back into the market?  If you were fortunate enough to sell your stocks prior to the 2008 Great Recession, but failed to get back into the market you missed out on a 192% gain.
  3. If you decide to keep your money in cash, you’ll lose money after applying taxes and inflation. At the end of five years, the purchasing power of your dollar will lose about 15%.  In 1988, I could purchase four U.S. postage stamps with my dollar, today I can only buy two. [4]

Long term a safe investment is not so safe.  A buy and hold strategy based on your financial plan is one to employ.  Owning stocks for the long haul will give you the best opportunity to achieve generational wealth.

For whoever has will be given more, and they will have an abundance… ~ Matthew 25:29.

Bill Parrott is the President and CEO of Parrott Wealth Management.  For more information on financial planning and investment management, please visit www.parrottwealth.com.

April 17, 2017

[1] Dimensional Fund Advisors 2016 Matrix Book.

[2] Ibid.

[3] Ibid.

[4] https://about.usps.com/who-we-are/postal-history/domestic-letter-rates-since-1863.pdf, Historian U.S. Postal Service, website accessed 4/21/2017.

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

 

Spring Cleaning.

Snow is melting.  Flowers are blooming.  Grass is growing.   Robins are singing.  Spring has arrived.   With the arrival of spring it’s now time for a little spring cleaning.   After months of dark days and cold nights, open some windows and let the fresh air into your home.

When my family and I lived in Connecticut we loved the arrival of spring.  Once the snow melted we’d put our yard back together.   We’d walk around our yard picking up branches and tree limbs.  We’d clear flower beds and add layers of mulch.   On the inside, we’d open several windows and let the fresh spring air whip through our house and force the stale winter air out of our home.

Your investment portfolio may need some spring cleaning as well.   The arrival of spring also marks the end of the first quarter and hopefully you’re closer to achieving your financial goals.

Here a few spring cleaning tips for your investment portfolio review.

  • If you’re holding a losing investment, it may be time to sell it and move the money into a new idea.  Prune your portfolio as you prune your garden.
  • Do you need to trim some gains? If you have an investment worth more than 10%, 20% or 30% or more of your account, it’s time to take some gains.   It’s been said trees don’t grow to the sky.
  • Is it time to rebalance your portfolio? Rebalancing your account will help reduce your risk and keep your original asset allocation intact.   For example, in 2009 you started with a portfolio of 50% stocks and 50% bonds, today your mix is 70% stock and 30% bonds.   The stock market has soared since 2009 and, as a result, your stock and bond allocation is not aligned with your original goal.    A rebalance will fix this issue.
  • The spring is a great time to finish an outdoor project. Adding a deck, pool or barbeque to your home you may enhance the value.  Adding small, international or real estate companies to your account may give it a boost.
  • Do you need to update your will? Has your family grown?  Have you added new asset classes?  With the arrival of spring and the departure of tax season spend some time updating your will.
  • Create a financial plan. A well-constructed financial plan will help you with your annual spring cleaning.  Your financial plan will allow you to focus on your long-term goals with an occasional trim here and there.

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

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

Bill Parrott is the President and CEO of Parrott Wealth Management, LLC.   For more information on financial planning and investment management please visit www.parrottwealth.com.

April 10, 2017