What’s Under The Hood?

The gear heads at my high school loved to pop the hoods of their muscle cars and gawk over the engines. Most were pristine on the outside but lousy on the inside; it was impossible to tell until the hood was agape. Likewise, it’s similar to investment models – on the outside, they all look the same, but when you look under the hood, they’re radically different.

The standard asset allocation model is 60 percent stocks and 40 percent bonds, but what does it mean? What constitutes the sixty percent, and how is the remaining 40 percent invested? Investment models vary from firm to firm and are not equal.

Our sixty – forty models hold funds managed by Dimensional, Vanguard, and Blackrock, and sixty percent of the portfolio invests in stocks diversified by size, type, sector, category, and country. The funds own thousands of companies, including Exxon, Pfizer, Amazon, Apple, Amgen, Dollar Tree, and Matador Resources. Technology is our largest allocation, followed by financial services and industrials. The United States accounts for most of the assets, followed by Europe, then Asia.

Our forty percent bond allocation is split evenly between corporate and government bonds with an average maturity of eleven years. We recently extended the bond maturities because of rising interest rates, which is counterintuitive. The last time we adjusted our bond holdings was March 2020, during COVID, when we sold most of our long-term bonds and bought short-term bonds with an average maturity of two to three years. It was a profitable trade because interest rates were falling, and we preserved capital with our short-term bonds as rates started climbing. Hopefully, we’re correct again – time will tell.

We use TD Ameritrade’s iRebal platform and screen our portfolios weekly, looking for changes to our allocations because we don’t want to get too aggressive or too conservative at the wrong time. We aim to maintain a close relationship with our benchmarks to keep our client’s risk tolerance in check. If we find portfolios that deviated from our pre-set tolerance bands, we rebalance them back to their original allocation.

As you invest and build your portfolio, check your fund holdings, allocation, and fees to ensure they align with your financial plan and goals.

The cars we drive say a lot about us. ~ Alexandra Paul

June 3, 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.

What If I’m Wrong?

During my final semester of college, I discovered the stock market through an investment class. The professor opened my eyes to the possibility of creating wealth by owning great American companies. In the Fall of 1987, I experienced Black Monday in my college classroom; I didn’t lose money because I didn’t own stocks. Despite the crash, or because of it, I became enthralled with equities.

Since 1987, I’ve been a student of the stock market reading thousands of books and articles, studying legendary investors like Graham, Buffett, Lynch, Templeton, Miller, Bogle, Marks, etc. – each one a raging capitalist who believed in America’s economic engine. These notable investors bought stocks during troubled times, which is why they’re worth multi-millions and billions. Warren Buffett, at 91, continues to purchase companies and could care less about market drops or corrections. In fact, he has been on a buying spree this year, despite the decline in the market.

Since 1926, stocks have averaged 10% per year despite wars, recessions, corrections, and inflation spikes. The market has always rebounded from previous pullbacks, but what if this time is different? What if stocks don’t recover? Is this the beginning of the end for equities? What if the sun does not rise tomorrow? Is it time to bury your money in the backyard or under your mattress? Maybe it is. Perhaps now is the time to abandon equities and embrace cash.

It feels like the end of times because stocks are off to their third-worst start ever while bonds posted their worst returns. The S&P 500 is down 19%, and Bloomberg’s US Aggregate Bond index is off nearly 10%! It’s unusual for stocks and bonds to perform poorly simultaneously. Historically, when stocks fall, bonds rise. During the previous five S&P 500 Index corrections, where stocks fell 20%, bonds rose 2.2%.[1] According to the Capital Group, the average annual return for the ten years ending December 2021 was 16.5%, and the average annual return for 10-year rolling periods dating back to 1974 was 15.74%. From 2012 to 2021, a $10,000 investment grew to $37,900, but if you missed the 40 best days, your valuation dropped to $10,050.[2] According to Bloomberg, bonds have made money 100% of the time during every rolling 5-year period dating back to 1926.[3] Time in the market is more important than timing the market.

Inflation spikes have occurred about fifteen times over the past 108 years or every seven years. We last experienced a severe increase more than forty years ago, from 1977 to 1980. Once inflation started to wane, the stock market soared to all-time highs from 1982 to 1999, rising by 1,211%. The market declined slightly in 1990, closing down 6%, but the bull run did not end until 2000, when stocks crashed during the Tech Wreck.[4] What about 1987? On October 19, 1987, stocks fell more than 22% or 508 points. Despite the drop, the market finished the year in positive territory.

Is it possible that McDonald’s stops selling hamburgers or Apple no longer offers earbuds? Will people stop shopping at Amazon, Target, or Walmart? Will Budweiser halt selling beer at baseball games? Will Norfolk Southern and Union Pacific quit shipping materials across the country? Will Tesla stop building electric cars? Will Southwest Airlines leave the airline industry, or gasp, Starbucks exits the coffee business? It’s possible but not probable.

I spent considerable time a McDonald’s while attending college, and when I ordered food, I didn’t care if its stock was up or down. I started my investment career in 1990, and my first recommendation was McDonald’s because people must eat. It fell 15% in 1990, and clients were worried it would fall further. I told them to visit any McDonald’s in the world at noon, and if it was empty, we would sell the stock. I never received a call. Since 1990, McDonald’s stock has risen 5,210%. A $100,000 investment is now worth $5.35 million.

The Dow Jones has weathered many storms and achieved several milestones, but investors were nervous when the index was 30, 300, 3,000, and 30,000. When it reaches 300,000, investors will be anxious —human nature. Do not let your short-term fears derail your long-term goals, and don’t bet against great American companies.

Rather than worry about the market, invite a friend to McDonald’s and enjoy the day.

It’s the end of the world as we know it, and I feel fine. ~ REM

May 19, 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://www.capitalgroup.com/ria/insights/articles/how-to-handle-market-declines.html

[2] IBID

[3] chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://www.blackrock.com/us/financial-professionals/literature/investor-education/student-of-the-market.pdf

[4] DFA 2022 Matrix Book

What Is Safe?

What Is Safe?

When I started my investment career more than thirty years ago, a Wall Street veteran said investing in stocks is not for the faint of heart. He added it takes courage, stamina, and faith to remain invested during the difficult years. He knew what he was talking about because he started his career during the bear market of 1973 and 1974, when the S&P 500 fell 41%. I was young and didn’t appreciate the power of his words then, but I do now. Investing is a game of survival, and if you can hold on, stocks usually win in the end.

During times of a market rout, it would be nice to sell stocks, buy T-Bills and ride out the storm, but it’s impossible to time a market correction or its duration. Investors panic when stocks fall and buy US Treasuries because they’re safe, but what is safety? In the near term, investing in T-Bills appears prudent, especially when stocks fall, because you can protect your assets. In October 1987, the S&P 500 fell 21.5%, while 1-Month T-Bills rose 0.60%. Last month, stocks tumbled 8.7%; T-Bills were flat. In fact, since 1972, T-Bills have outperformed stocks forty percent of the time! In other words, over the past fifty years, T-Bills beat stocks for a combined twenty years.

If T-Bills beat stocks 40% of the time, why not invest in this safe asset class? Well, the long-term returns for T-Bills are anemic. Fifty years ago, a dollar invested in T-Bills is worth $8.66 today for an average annual return of 4.4%. It’s true that T-Bills are safe and have never lost money, but their returns have trailed inflation before taxes. A T-Bill is an excellent choice if you need money in the near term, but it’s a poor investment for creating generational wealth.

On the other hand, stocks are volatile, and they often crash, including this year. Since 1972, the S&P 500 has finished a calendar year in negative territory ten times or twenty percent of the time. From July 1982 to July 1983, the index fell 43%, and during the Tech Wreck from 2000 to 2002, it dropped by the same amount. In 2008, it declined 37%, and this year the index is already down 16%. And, from 2000 to 2010, stocks averaged a paltry 0.6% per year!

Despite violent moves, stocks produced an average annual return of 10.7% since 1972, and $1 turned into $162, or more than nineteen times that of the “safe” T-Bill. If your goal is to create wealth, buy stocks.

Tennessee Williams said, “You can be young without money, but you can’t be old without it.” Don’t let your short-term fears derail your long-term goals. Your older self will thank you!

May 11, 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.

My Investment Shopping Cart

Peter Lynch, the legendary portfolio manager of the Fidelity Magellan Fund,  said, “Buy what you know.” As a result, I created my shopping cart investment portfolio consisting of twenty companies my family and I use often. And, like a regular shopping experience, I substituted some products because others weren’t available. My local grocery store is privately held HEB, so I added Kroger as a replacement.

Here are the companies in my shopping cart:

  • Alphabet
  • Amazon
  • Anheuser-Busch
  • Apple
  • AT&T
  • Clorox
  • Coca-Cola
  • Costco
  • General Mills
  • Home Depot
  • Honda Motor
  • Johnson & Johnson
  • Kroger
  • Netflix
  • P&G
  • Starbuck’s
  • Target
  • Twitter
  • UPS
  • Walgreen’s

The portfolio is down 4.62% year-to-date, while the S&P 500 has lost 6.04%. Last year, it was up 19.79%, and the S&P climbed 28.71%. Over the past 3-, 5-, and 10-year periods, the shopping cart portfolio has averaged 17%, slightly ahead of the S&P 500, which returned 16%. The current yield for the portfolio is 2.18%.

The shopping cart portfolio has captured 96% of the upside and 74% of the downside for the past decade, relative to the S&P 500. The capture ratio is 1.29, outperforming the market.

Shopping cart full of food isolated on white. Grocery and food store concept. 3d illustration

If you’re looking to cook up a sizzling portfolio, throw some household names in your shopping cart.

April 21, 2022

www.parrottwealth.com

Note: Past performance is no guarantee of future performance.

Gambling and Investing

Will Rogers said, “Don’t gamble; take all your savings and buy some good stock and hold it till it goes up, then sell it. If it don’t go up, don’t buy it.” Sound advice.

Over the past decade, the Nasdaq composite index has risen 347%, averaging 16.15% per year. A $100,000 investment is now worth $446,900. The Nasdaq returns have been phenomenal and well above the long-term trend of 10%.

However, the returns have not been without pain. This year the Nasdaq was down 22% before rebounding, and now it’s only down 16.8% from its high. The index fell 30% in 2020, dropped 24% in 2018, and had a few 15% corrections and several pullbacks of at least 10%. The average decline has been 3.5%.

The average annual return for a 3-month US T-Bill has been 0.59% over the same time frame. A $1.00 investment is now worth $1.06. If you don’t want to lose money, invest in T-Bills.

Risk and reward are related. If you can’t withstand the downturns, you’ll never enjoy the up days. To create generational wealth, you need to own stocks.

Happy investing and buy the dip!

April 17, 2022

www.parrottwealth.com

Note: Past performance is no guarantee of future performance.

Bad Market

2022 is off to a vicious start as every major asset class is underwater, even Bitcoin. Stocks, bonds, and real estate are down over concerns about Russia, rising interest rates, inflation, and the Federal Reserve. In fact, the S&P 500 and NASDAQ are off to their worst start ever! Ever!

Markets fluctuate. Since 2000, the average monthly fluctuation has been .73%. In October 2008, the index fell 16.79%, and in April 2020, it soared 12.8%. Year-to-date it’s down 7%. The market has been up 78% for the past three years, so giving back 7% seems fair and reasonable. And over the past decade, the S&P 500 has risen 236.7%, including the recent drop.

Investing in stocks is risky. If you enjoyed the returns for the past three, five, ten years, you must be willing to suffer a few painful drops because risk and reward are related. To achieve higher returns, you will forego safety. If you worry when stocks fall, your allocation to stocks is too high. US T-Bills have never lost money, and since 1926 they averaged 3% per year, but so has inflation, so your net return is zero. Over the same period, stocks averaged 10.1% per year, but they suffered significant losses along the way, including a couple of decades where the return was near zero, or worse. For example, from 2000 to 2010, the S&P 500 lost 24%! You can’t have your cake and eat it too.

Flying from Los Angeles to New York takes about five hours, but there are risks. Walking is much safer, and you could make the journey in about 76 days if you walked for 12 hours each day. Of course, no sane person would choose walking over flying.

Here are a few tips to help you manage your assets in a volatile market.

  • Follow your plan. You’re less likely to make foolish investments mistakes if you have a financial plan. It is your financial GPS, and it should keep you focused on your goals.
  • Think generationally. Don’t let short-term moves derail your long-term plans. If you plant a tree today, it could be hundreds of years before it matures.
  • Diversify your assets. Spread your risk across several asset classes to reduce your risk. So far, bonds and international investments are outperforming the S&P 500 and other domestic securities.
  • Don’t look. Investing is not a sporting event, so turn off CNBC, disconnect from Twitter, and ignore the noise. Media channels do not have your best interest at heart, and they know nothing about your financial situation. Most media pundits are wolves in sheep’s clothing looking to pounce on innocent investors. Beware!
  • Give. You probably have significant gains if you’ve owned stocks for the past few years. Consider using your resources to help those in need. It’s hard to worry about your situation when you’re helping others.

What will happen tomorrow, next week, next year? I don’t have a clue. Trying to time the market is impossible. Will the market crash? Maybe, it’s done it before – several times, but, over time, markets rise. Don’t let tomorrow’s worries steal the joys of today.

Therefore I tell you, do not worry about your life, what you will eat or drink; or about your body, what you will wear. Is not life more than food, and the body more than clothes? Look at the birds of the air; they do not sow or reap or store away in barns, and yet your heavenly Father feeds them. Are you not much more valuable than they? Can any one of you by worrying add a single hour to your life? ~ Matthew 6:25-27

January 28, 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.

Five Investment Ideas for 2022

The S&P 500 is up 21% for the year, but it’s limping to the close. The Omicron variant and rising inflation have forced some investors to the sidelines. US stocks, especially large-cap growth stocks, have been stellar investments for the past few years, but will this trend continue? Below are my five best sector bets for 2022.

Small-Cap Value

Small-cap value stocks have underperformed large-cap growth stocks on a 1-, 3-, 5-, and 10-year basis. Large-cap growth stocks have been up more than 600% for the past decade, while small-cap value stocks returned 176%. The sector is currently trading at a discount to large-cap companies, so hopefully, the tide will turn soon.  Vanguard’s Small-Cap Value ETF (VBR) is an excellent way to invest in this category.

International Companies

International stocks have lagged US companies for the past decade by a wide margin. The S&P 500 is up 279%, while the EAFE Index is up a paltry 59%. The return differential has created a wide discount for international companies. A popular investment fund for this category is the iShares MSCE EAFE ETF (EFA).

Emerging Markets

Emerging market stocks have barely budged relative to US companies, especially if they have significant exposure to Chinese companies. If you anticipate inflation to continue, emerging markets could perform well as most of these counties have substantial natural resources. The iShares MSCI Emerging Markets ex-China ETF (EMXC) is an excellent way to invest in this sector.

Home Builders

Homebuilders performed well in 2021, but the trend should continue as millennials and first-time homebuyers flood the market. In addition, a shortage of housing and low rates will continue to fuel the boom. The iShares US Home Construction ETF (ITB) and SPDR® S&P Homebuilders ETF (XHB) are two good investment options for this sector.

Industrial and Material Stocks

Despite Senator Joe Manchin hammering the Build Back Better Bill, our country needs a more robust backbone, including Wi-Fi, roads, rails, and airports. I don’t know what the eventual bill will look like, but our infrastructure needs fixing. A few funds in this sector include the Vanguard Industrials ETF (VIS), Industrial Select Sector SPDR® ETF (XLI), and iShares US Industrials ETF (IYJ).

Markets are in a constant state of flux, so make sure you follow your plan and diversify your assets. A well-balanced portfolio of low-cost index funds exposes you to all the sectors mentioned above.

Successful contrarian investing requires us to live with a discomfort, for being wrong and alone. But bargains do not exist in the absence of fear. ~ Rob Arnott

December 20, 2021

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.

Do you remember March 24, 1980?

Do you remember March 24, 1980? I don’t. I was 15. I was probably concerned with three things. Was I going to the beach? Were the Dodgers going to win? Where were my friends and I going to eat lunch? I probably went to the beach, the Dodger’s undoubtedly won, and I most likely went to McDonald’s.

On March 24, 1980, the S&P 500 fell more than 3%, and I am sure the morning newspaper headlines were full of doom and gloom. The index would drop 17% in six weeks, but it finished the year up 26%.

If you bought the dip on that day and currently own the S&P 500, you’re up 4,230% – a  $10,000 investment is now worth $433,000.

I mentioned I probably ate lunch at McDonald’s. What if you bought the stock on that same day? If you gobbled up $10,000 worth of McDonald’s stock, your original investment is now worth $2.7 million, producing an average annual return of 14.5%!

I  believe in the buy-and-hold strategy because it’s impossible to time the markets. When markets drop, it allows you to invest in great companies at lower prices. It is similar to flying. The only way to get on an airplane is when it is on the ground. You lose if you are not on that plane when the pilot leaves the gate and roars down the runway.

However, I realize not everybody has the confidence to buy stocks during a market meltdown, so here are a few suggestions to help strengthen your portfolio.

  • If you need your money in one year or less, do not invest in stocks. Instead, keep your money in cash or savings account, US T-Bills, or certificates of deposit.
  • If you’re retiring in three to five years, keep three years’ worth of expenses in cash, US T-Bills, or certificates of deposit. For example, if your annual costs are $100,000, allocate $300,000 to cash or cash equivalents.
  • If you are concerned about the international turmoil, invest in small or mid-cap companies headquartered in the United States. Small companies typically do not have much international exposure.
  • Add dividend-paying stocks to your portfolio. According to YCharts, over 1,500 companies are yielding 2% or more. The current yield on the 30-Year US Treasury is 2.04%.
  • Asset allocation and diversification still work. A balanced portfolio of stocks, bonds, and cash will perform well over time. Since 1980, a balanced portfolio of 60% stocks, 40% bonds generated an average annual return of 11.4%.[1]
  • If your holding period is three to five years or more, let your stocks run.

Current markets are volatile and not fun, but this can be an opportunity for you to reexamine your investment and financial goals to make sure they align with your long-term financial plan.

Be on your guard, stand firm in the faith; be courageous; be strong. 1 Corinthians 16:13.

October 4, 2021

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.


[1] DFA Returns Web Tool – 1/1/1980 to 09/30/2021

The Best Investment Strategy Ever!

Investors want an edge, a shortcut to wealth. What strategy works best? Who has the hot hand? How can I make money? Today, there is no shortage of podcasts, videos, blogs, vlogs, newsletters, posts, or tweets offering investment guidance. A Google search for investment advice yielded about a billion results.  CNBC dedicates most of its programming to the stock market. Reddit and WallStreetBets are introducing a new generation of investors to the wonderful world of stock trading. Bitcoin speculators with laser beam eyes trumpet their financial success by buying and selling digital currencies. There are many ways to make money in the stock market, so how can you find the best one?

I’ve read hundreds of investment books about investing learning from the legends like Warren Buffett, Peter Lynch, William O’Neil, Bill Miller, John Rogers, and so on. They have different investment strategies, and all of them are successful. Regardless of their style, they’re profitable because they follow a disciplined process and think long-term.

However, the best investment strategy that yields the most fruit is saving money. If you can save your money, you can prosper financially. It’s not hard to save 5%, 10%, or 20% of your salary, but few people do it. Building your nest egg takes time and discipline.  By saving a few hundred dollars every month, your nest egg may be worth a few million dollars by the time you’re ready to retire. For example, saving $500 per month and investing it in the stock market could be worth more than $1 million in thirty years. In forty years, it climbs to more than $3 million![1]

What if you don’t want to wait thirty or forty years? Let’s say you want to buy a new car in five years or a home in ten? Well, saving money is still the best way for you to reach these goals. For example, if you save $500 monthly for five years, it will be worth close to $39,000, enough to buy a new car. After ten years, it will be worth $102,000, enough for a downpayment on a $500,000 home.

I work with a young couple who save regularly and are now able to buy a new home. They started looking for their dream home about a month ago. Another client has contributed the maximum to his 401(k) plan for his entire career, and he can retire early.

Saving money takes effort. It’s not easy, especially when life gets in the way, but you need to find a way to save as much as you can. Money in the bank gives you the freedom to choose your path and lessen your dependence on others.

I’ve talked to numerous individuals about investing, and some people are spendthrifts, and money burns a hole in their wallet -money in, money out. People who live for today are like the grasshopper in The Ants & the Grasshopper from Aesop’s Fables[2]. Here is the story:

One bright day in late autumn a family of Ants were bustling about in the warm sunshine, drying out the grain they had stored up during the summer, when a starving Grasshopper, his fiddle under his arm, came up and humbly begged for a bite to eat.

“What!” cried the Ants in surprise, “haven’t you stored anything away for the winter? What in the world were you doing all last summer?”

“I didn’t have time to store up any food,” whined the Grasshopper; “I was so busy making music that before I knew it the summer was gone.”

The Ants shrugged their shoulders in disgust.

“Making music, were you?” they cried. “Very well; now dance!” And they turned their backs on the Grasshopper and went on with their work.

Moral: There’s a time for work and a time for play.

The Bible also comments on the ant in Proverbs 6:6-11: Go to the ant, you sluggard; consider its ways and be wise! It has no commander, no overseer or ruler, yet it stores its provisions in summer and gathers its food at harvest. How long will you lie there, you sluggard? When will you get up from your sleep? A little sleep, a little slumber, a little folding of the hands to rest— and poverty will come on you like a thief and scarcity like an armed man.

Did you notice the last verse? It read: poverty will come on you like a thief. Saving money provides provision and a financial future. On the other hand, if you don’t save your money, there can be dire consequences. Also, if you don’t save money, you can’t buy stocks, bonds, Bitcoin, or any other investment.

To increase your odds of investment success, automate your savings. Set up a monthly draft to your savings account, brokerage account, and company retirement plan. If you get a raise, increase your savings by the same percentage: a 2% raise, a 2% increase in savings.

Money compounds over time, so the sooner you start, the better. If you’re not sure how much to save, start small and increase it over time. Don’t delay; start today! I know you can do it!

Do not save what is left after spending, but spend what is left after savings. ~ Warren Buffett

May 22, 2021

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.


[1] $500 monthly investment at 10% before taxes and fees.

[2] http://read.gov/aesop/052.html

A Day At The Races

I spent last Sunday at the races with my mom and daughter. We had a great time despite the cold and drizzly weather. We arrived early, stayed late, and bet often.

I grew up near the Santa Anita racetrack. My high school was across the street, so I was a frequent visitor. In addition, my daughter has been riding horses since she was five, so it’s a sport we bond over.  

After downloading the daily racing forum, we examined each horse’s sires and dams and spent the evening handicapping the horses. We reviewed their previous workouts, race performances, owners, and trainers. At the racetrack, we got the official daily racing program that includes some data on the horses and riders. We were ready.

On race day, we bet on our selected horses. Our strategy and system worked well as we finished in the money for seven of the nine races. We hit an exacta in the eighth race and missed another by a nose in the sixth.

We bet conservatively for most races, but when we felt convicted, we upped the ante and pressed our bets. We felt confident in our system because we spent time doing our homework. If we only relied on the official program, we would have performed poorly. It would have been a guessing game, picking horses based on the jockey’s colors or some other random item.

At times it appears people pick investments based on random facts or data points that won’t move a stock’s price. Rather than doing their research, they choose investments from a tweet, text, or tik-tok video. If you hear about a stock on CNBC, it must be a good investment. Right?

Don’t leave your financial future to chance. Instead, take time to learn something about your investments. Here are a few tips you can use to increase your odds of success.

  • If you’re buying a stock, review the company’s mission statement, financials, price charts, and competition. Yahoo! Finance is an excellent data source. Digging into a company’s financial history can give you an idea of its future.
  • If you’re buying a mutual fund or ETF, review the fund’s objectives, managers, expense ratios, holdings, and the other funds in the category.
  • How much can you invest? Do you want to own several stocks, or do you want to place your bets on a few long-shots? If you have buckets of money, you can own many companies. However, if your resources are limited, owning a mutual fund is more prudent.
  • What is your risk management strategy? Will you let your winners run? Will you sell your losers? Will you buy the dip? Create a plan and follow it. Don’t let your emotions ruin your portfolio.
  • Review your trades, especially if you lost money. Why did your investment fail? What happened? How can you improve your trading based on your experiences? For example, in the sixth race, we lost an exacta because our horse came in third, not second. After the race was over, I reviewed our process to see if we missed anything. We didn’t. Our horse was solid; it just got beat.
  • Celebrate your success. If you made money on a trade, take a few chips off the table and celebrate your win. It’s okay to spend your winnings on things you enjoy.

If you’re inclined to work harder than the next person, you can win at the races, in the markets, and life. Unfortunately, few people are willing to go the extra mile, but I know you can do it. I’m betting on you to win!

And away they go!

A good rider can hear her horse speak to her. A great rider can hear her horse whisper. ~ Anonymous.

“Do you give the horse its strength or clothe its neck with a flowing mane?Do you make it leap like a locust, striking terror with its proud snorting?It paws fiercely, rejoicing in its strength, and charges into the fray.It laughs at fear, afraid of nothing; it does not shy away from the sword. The quiver rattles against its side, along with the flashing spear and lance. In frenzied excitement it eats up the ground; it cannot stand still when the trumpet sounds. At the blast of the trumpet it snorts, ‘Aha!’ It catches the scent of battle from afar, the shout of commanders and the battle cry.” ~ Job 39:19-25

May 19, 2021

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.