Investment Management – Parrott Wealth Management, LLC.

Timing

September 22, 2023September 22, 2023Posted in InvestmentsTagged Investment Management, Stock Market, Stock Market Crash, Stock TradingLeave a comment

Timing is everything.

Arcangelo won the 155^th running of the Belmont Stakes with a winning time of two minutes and 29 seconds. If he raced Secretariat in the 1973 Belmont, he would’ve lost by 5 seconds, a wide margin.

Carl Lewis set the world record for the 100-meter dash in 1991 with a time of 9.86 seconds. In 2009, Usain Bolt lowered it to 9.58 seconds, .28 seconds faster than Lewis.

Jules Verne wrote Around the World in Eighty Days in 1873. An 80-day trip in 1873 was a record. Today, the Space Shuttle can orbit the Earth in 90 minutes.

If you purchased the Vanguard 500 Index fund on March 9, 2009, the market low, you generated an average annual return of 15.86%, turning $10,000 into $85,150. If you bought the same fund on October 1, 2007, the market top, your return fell to 8.81% per year, and $10,000 is now worth $38,570. You more than tripled your money by investing at the top, but it’s not as impressive as if you caught the low.

You won’t invest at the top or bottom of a market cycle. A more realistic scenario is that you’ll invest between the two. For example, if you invested $10,000 in January 1990, you made 9.96% annually, now worth $246,260.[1] Since 1990, four recessions and five major stock market corrections have occurred, including the Tech Wreck, the Great Recession, the 2018 pullback, the COVID correction, and last year’s decline. In addition, the Federal Reserve raised interest rates to the highest level in more than two decades.

Time is more important than timing.

Time is on my side; yes, it is. ~ The Rolling Stones

September 22, 2023

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.

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. Prices and yields are for today only and are subject to change without notice. Past performance is not a guarantee of future performance.

[1] Source: YCHARTS January 1, 1990 to September 22, 2023.

The Race To Zero

September 19, 2023Posted in InvestmentsTagged Financial Planning, Investment Management, Wealth ManagementLeave a comment

Zero sugar. Zero emissions. Zero fees. The number zero is popular these days as people pursue more with less, and investment giants like Vanguard, Fidelity, and Schwab continually shave basis points from their expense ratios to remain uber-competitive.

The Wall Street Journal recently published an article about index funds and fees, mentioning that several companies offer expense ratios of 0.05% or lower, compared to the standard expense ratio twenty years ago, which was nearly 1%. Eric Balchunas, senior ETF analyst at Bloomberg Intelligence, said, “It is hell for issuers, but heaven for investors.”[1] The average ETF fee is 0.55%.

There are more than 15,000 registered investment advisor (RIA) firms in the United States, and most provide similar services, like financial planning, investment management, and portfolio rebalancing. It’s challenging to differentiate one firm from the other because they’re grafted from the same tree of Modern Portfolio Theory (MPT) and observe the teachings of Harry Markowitz, Burton Malkiel, John Bogle, Eugene Fama, Ken French, and others who preach asset allocation, diversification, and low fees. They often quote Warren Buffett, Peter Lynch, and Daniel Kahneman, and their websites show pictures of giant compasses, sailboats, happy couples, giant buildings, or exotic animals, further blurring the distinction.

During my career, I’ve reviewed thousands of financial plans and investment accounts, and the portfolios are comparable unless managed by enormous brokerage firms or insurance companies. RIAs typically invest client assets in a globally diversified portfolio of low-cost funds, which include large, small, and international equity funds sprinkled with a few bond or alternative holdings.

I follow several firms on social media and realized our firm is a low-cost provider. We charge a half percent (0.50%) to manage client assets, about half the industry average of 1% to 1.50%. High fees and higher asset minimums hinder people seeking financial assistance and planning, so we removed these barriers. Firms charge a fee of 1% or more because they can; it’s the industry standard, so they can get away with it – if everyone else is doing it, so can we, a line of thinking with which we disagree.

In addition to our asset management fee, our financial planning fee costs $800, which we waive for our asset management clients. Many firms charge thousands of dollars or require a monthly subscription for financial planning. Still, you don’t need to pay exorbitant fees for this service, especially if your situation is not complicated.

Michael Kitces states the median asset management fee for a $1 million account is $10,000. In this same study, he references many ways to pay your advisor, including a retainer at $4,000, a standalone financial plan at $2,500, or an hourly rate of $250.[2]

Our low fee does not mean no service, and we frequently say, “We’re half the price but twice the service of our industry peers.” We respond quickly to emails and phone calls. We don’t walk dogs, offer dry cleaning, or own an airplane, but we pride ourselves on excellent service and pass on our savings to our clients.

We have low fees because we manage our bottom line well and rely heavily on technology, allowing us to provide multiple services. For example, we can rebalance hundreds of accounts in minutes, assess a client’s risk tolerance, and review tax returns with the click of a mouse. We are data-driven and, when needed, outsource functions to other firms, like insurance and estate planning. We also say no to private placements, private equity, real estate syndicates, or expensive insurance products that charge high commission rates. Our competitive model and lean structure are suited for cost-conscious investors who want to invest wisely and save money. It’s not rocket science.

We don’t have a niche because when I started my investment career at age 24, I wasn’t connected to an affinity group or had access to money, so I worked with anybody willing to give me a chance. It’s in my DNA, and as a result, our firm helps anyone needing financial guidance, regardless of age, assets, or income, because it’s the right thing to do.

Others have criticized our business model, but it’s working. Since 2015, we’ve grown at an average annual clip of 32% and have been profitable yearly. And we work with clients in fifteen different states. We can scale and continue to grow because of our streamlined process.

We have already reduced our asset management and financial planning costs once and expect to lower them further as our firm grows. I believe the investment management process is becoming a commodity if it’s not already. Also, AI and computer-driven trading may also eliminate the need for money managers or active fund management, forcing lower fees.

Moral: If your advisor charges you 1% or more to buy a basket of index funds, it’s time to find a new firm.

When trillions of dollars are managed by Wall Streeters charging high fees, it will usually be the managers who reap outsized profits, not the clients. Both large and small investors should stick with low-cost index funds.” ~ Warren Buffett

September 19, 2023

[1] https://www.wsj.com/finance/investing/you-might-be-paying-too-much-for-that-index-fund-a2458f24, Jack Pitcher, September 18, 2023

[2] https://www.kitces.com/blog/financial-advisor-average-fee-2020-aum-hourly-comprehensive-financial-plan-cost/, Michael Kitces and Derek Tharp, February 8, 2021

Bonds, Baby!

September 15, 2023Posted in UncategorizedTagged Bonds, Federal Reserve, Interest Rates, Investment ManagementLeave a comment

Is it time to buy bonds? The Federal Reserve interest rate hikes decimated bonds, wiping out years of gains, and if you own bonds, you feel the pain. Long-term government bonds lost money for five years, while stocks produced stellar profits. Over the past decade, the S&P 500 is up 221%, and bonds have risen a paltry 15%, with dividends. If we removed the income, bonds lost more than 11%. Long-term bonds crashed 26% last year, the worst performance in over one hundred years – hardly a ringing endorsement to buy bonds.

Why buy bonds if they performed poorly? Good question. The Wall Street consensus believes the Federal Reserve will stop raising interest rates soon, and Jeffrey Gundlach, CEO of Doubleline Capital, thinks they won’t raise rates again this year. If true, interest rates could stabilize or even fall, a bond benefit.

The Federal Reserve hiked rates by 100% from February 1994 to February 1995, and bond prices dropped by 7.8%. In July 1995, they lowered rates, and bonds soared 31.7%. The Fed raised rates again in 1999 and 2000, and bonds fell 9%, but they lowered them in 2001 and 2002, launching a massive bond rally that lasted several years. From 2000 to 2009, long-term bonds jumped 118%, while the S&P 500 fell 34%.[1]

Bond yields are substantially higher because prices have declined and are approaching a level not seen in over a decade. The current yield on Vanguard’s Long-Term Bond ETF (BLV) is 4.27%, an increase of 64% from last year’s low. US T-Bills did not produce any income during COVID-19 now yield more than 5.5%, and corporate bonds routinely pay more than 5% and 6%. The higher income gives the patient investor a reason to buy bonds; you’re getting paid to wait.

Has the Federal Reserve finished raising interest rates? I don’t know, but I doubt rates will climb more than 3,000% from current levels as they did during COVID-19. It’s possible rates can rise more, but I believe the risk-reward ratio now favors the bond buyer since prices are depressed and yields are higher, especially if the Fed has completed its mission. It could be a classic buy low, sell high strategy.

1994 was my first experience with rate hikes, and it was not fun as I watched bond portfolios fall, but it allowed me to buy them at substantial discounts. Investors who purchased bonds as they fell saw their portfolios increase when prices recovered. The combination of higher income and rising bond prices generated significant capital gains. I hope history repeats itself.

Bye-bye, and buy bonds!

Nobody likes high interest rates. ~ Chanda Kochhar

September 15, 2023

[1] Dimensional Funds Returns Web Tool

Chaos Theory

September 9, 2023Posted in InvestmentsTagged Investment Management, Stock Market, Wealth ManagementLeave a comment

I don’t like chaos. My anxiety, stress, and blood pressure all rise as it increases. Yet, I work in an industry that thrives on it as thousands of experts analyze millions of data points to try and answer a single question, like, will stocks rise today? Finding one answer is impossible because any input can alter the equation.

According to Google AI, Chaos Theory studies math and physics, examining complex patterns to understand and predict behavior. It states that there are underlying patterns within the randomness of chaotic systems. Wall Street analysts constantly search for patterns in the randomness, but they’re hard to find.

Stocks are chaotic, chock-full of turmoil, continuously rising and falling, whereas US Treasury Bills are peaceful and tranquil. My personality trait and risk profile lean toward safety, and I should own T-Bills, but I own stocks. I allocate more than 75% of my assets to stocks, though it’s outside my comfort zone because I must own stocks to achieve my financial goals.

NVIDIA is the stock to own this year, rising more than 210%, but last year it fell 50%. In 2020, it plunged by 35%; in 2018, it dropped by 56%. It’s a volatile stock, full of turmoil, but over the last decade, it has risen by more than 12,000%, averaging 61% annually – a staggering return.

Apple is the world’s largest company, with a market cap of $2.78 trillion; if you own a mutual fund or participate in a 401(k) plan, you probably own it. The stock is up 37% this year but dropped by 26.8% last year. During the Tech Wreck in 2000, it crashed by more than 80%, falling by 58% in the Great Financial Crisis. Apple is up 900% this decade.

Microsoft software is everywhere, and its stock is a perennial favorite. It’s up 39% this year after falling 28% last year. During the Great Recession, it sank 74%; from 2000 to 2016, it lost 4.9%, but over the past ten years, it’s up 973%.

To generate outside returns and create long-term wealth, you must own stocks despite the chaos, turmoil, volatility, and uncertainty. If you invest too conservatively in safe and predictable investments, you risk not having enough money in retirement.

Embrace the chaos!

Anything worth doing good takes a little chaos. ~ Flea

September 9, 2023

Only You

September 4, 2023Posted in InvestmentsTagged Financial Planning, Investment Management, Stock Market, Wealth ManagementLeave a comment

Smokey the Bear is a firefighting hero. The US Forest Service and Ad Council created the campaign in 1944, and 96% of adults recognize Smokey Bear and his catchphrase, “Only YOU can prevent wildfires!”[1] According to the National Park Service, humans cause nearly 85% of wildfires in the United States.[2] Smokey Bear was right: Only you can prevent wildfires.

What does Smokey the Bear have to do with investing? Well, only you can provide for your financial future. It’s your responsibility and no one else’s, and it’s up to you to save money and invest wisely. Of course, you can obtain help from financial planners, but you must implement your plan because you are the spark for creating financial abundance. A financial planner provides suggestions and recommendations, but you must act on them to succeed financially. If you ignore them, you risk missing out on achieving your financial goals.

Several years ago, my family and I went camping in rural Texas, and we brought all the necessary items – a tent, firewood, marshmallows, etc. We built a raging fire that lasted well into the evening, and before we called it a night, we doused it with several gallons of water to ensure it was out. We did not want any embers landing on the parched Texas prairie.

How can you control your financial future? Here are a few suggestions.

Spending. Spending is in your control. The more money you spend, the more assets you need to retire. It’s simple math.
Savings. The more money you can save today, the more you can spend tomorrow.
Growth. To grow your wealth and maintain your lifestyle, you must own stocks. If you invest too conservatively during your working years, you risk not having enough resources in retirement.
Start. The sooner you start investing, the better. For example, a twenty-five-year-old can save $158 monthly to become a millionaire at age 65. If you’re fifty, you must save $2,412 monthly, or fifteen times someone half your age.
Emotions. Self-control is paramount for successful investors. Peter Lynch said, “The key organ in your body is your stomach; it’s not your brain.” Warren Buffett added, “Emotional stability will always beat intelligence in investing.” Investing during a stock market correction is devastating and painful, like a forest fire, but you must not panic and sell your stocks. Stocks, like forests, eventually recover. If you panicked in 2008, 2018, 2020, and 2022, you’ve missed significant gains as the market rebounded.

You’re it. It’s up to you to succeed financially, and you must take control of your financial future to prosper. You need to strike the match and start the fire, but make sure you have a plan before you do.

What matters is hard work and emotional intelligence. ~ Mickey Drexler

September 4, 2023

[1] https://www.stateforesters.org/2022/08/03/smokey-bears-birthday-is-fast-approaching-whos-up-for-a-history-lesson/#:~:text=America’s%20favorite%20black%20bear%20turns,old%20on%20Tuesday%2C%20August%209th.&text=Smokey%20Bear%20and%20his%20signature,impressive%2096%25%20of%20adults%20nationwide., Grant Peterson, August 3, 2022

[2] https://www.nps.gov/articles/wildfire-causes-and-evaluation.htm#:~:text=Nearly%2085%20percent*%20of%20wildland,and%20intentional%20acts%20of%20arson.&text=Lightning%20is%20one%20of%20the%20two%20natural%20causes%20of%20fires.

One Bad Mistake

August 17, 2023Posted in InvestmentsTagged Investment Management, Stock Market, Stock Market CrashLeave a comment

Bill Buckner committed one of the worst errors in baseball history. During game six of the 1986 World Series, the Boston Red Sox led the New York Mets three games to two. In extra innings, a ground ball went through his legs, allowing the winning run to score. The Mets would go on to win the game and the World Series. People don’t remember that Mr. Buckner had 2,715 career hits, was the National League batting champion in 1980, and played for twenty-one seasons. He was a good player, but people only remember his one bad mistake.

The stock market has risen 75% of the time, averaging 10% annually since 1926. Yet, investors primarily focus on corrections like the Great Financial Crisis (GFC) from 2007 to 2009 or the Tech Wreck from 2000 to 2003. When I started my career, investors worried about another October 19, 1987, when the Dow Jones fell 22%. Few people want to talk about the strength of the market, like the period from 2009 to 2017, where the S&P 500 averaged 15.3% per year, or 1990 to 1999, which returned 20.9% annually – another winning streak occurred from 1982 to 1989, where it gained 18.9% yearly. People remember corrections and crashes but ignore the market’s long-term trend.

Investors can create generational wealth if they own stocks, invest regularly, and avoid big mistakes. What’s a big mistake? It occurs when investors panic during corrections and scary times like 1987, 2000, 2008, 2018, 2020, or 2022. The October 19, 1987 crash was the worst since the Great Depression, yet the Dow Jones finished the year in positive territory. After the Tech Wreck, the S&P 500 climbed 66% from 2003 to 2007. It soared 141% after the Great Financial Crisis (GFC). The stock market crashed 31% in thirty days during the initial days of COVID, but from March 2020 to December 2021, it jumped 113%. If you stayed in the game, your assets recovered quickly.

After the GFC, I talked with investors who said they sold their investments in 2007, before the correction. I congratulated them on their market timing skills and asked, “When did you get back in the market?” Several years later, most did not because they feared stocks would fall further or crash again. Though they allegedly timed the market correctly, they failed to return to the market to ride the rebound.

Since 1972, the S&P 500 has risen 78% of the time. The index finished in negative territory eleven times, falling on average 14.4%, while the average gain during the positive forty years has been 19%. Rebounds and recoveries last a long time, and the index has averaged 10.27% annually for the past fifty-one years.

How can you avoid big mistakes? Here are a few recommendations.

Diversify. Diversify your assets across size, sector, and country. Own a basket of small, medium, and large companies across the globe in different industries.
Plan. A well-constructed financial plan can keep you informed and invested during the dark days, allowing you to benefit from the long-term trend of stocks after they recover.
Patience. Buy stocks if your time horizon is three to five years or more. If you need money in the short term, buy US T-Bills. Time in the market is your friend.

I played Senior Babe Ruth baseball in high school, and in one game, I was playing left field. It was the last inning, and we were winning when I missed a fly ball. The runner on second base started running, and I took my eye off the ball; it rolled to the fence, and we lost the game. We would have won the game if I caught it. I occasionally think about that game and ignore the ones where I played well. It’s human nature.

Play ball.

“If one picture is worth a thousand words, you have seen about a million words, but more than that, you have seen an absolutely bizarre finish to Game 6 of the 1986 World Series. The Mets are not only alive, they are well; and they will play the Red Sox in Game 7 tomorrow!” ~ Vin Scully

August 17, 2023

How do you compare?

August 12, 2023August 13, 2023Posted in UncategorizedTagged Financial Planning, Investment Management, Retirement Planning, Wealth ManagementLeave a comment

Comparison is a killer. Occasionally, someone will ask me how they financially compare to others in their field or demographic. They want to know if they’re wealthier than their peers, and it’s usually an attorney. At our firm, we say there are no good plans or bad plans, just your plan. Theodore Roosevelt said, “Comparison is the thief of joy.” You’ll never be happy if you regularly compare yourself to friends, family, or neighbors.

Trying to keep up with the Joneses is the fastest way to the poor house. In my neighborhood, there has been a recent outbreak of Range Rovers. They’re everywhere, and it’s the car to own, and prices can range from $100,000 to more than $300,000. A few years ago, it was Tesla, and before that, BMW. Buying a luxury car every few years can drain your bank account quickly.

Financial magazines write articles about how much money you should have by a certain age. For example, Ally suggests you should have three times your household income by age 40.[1] If you earn $100,000, your retirement assets should be $300,000, but what if you only have $200,000? What do you do? What if your account balance is $400,000? Can you retire? Rules of thumb or suggested amounts are meaningless because they do not apply to your situation.

Another trap is to follow financial influencers because they present their best image. In most cases, they probably don’t own the home, car, boat, or plane where they’re filming because they are trying to sell a lifestyle or product. You are funding their lifestyle and making them rich.

Comparison can force you to make poor investment decisions, increase debt, or spend wildly. Did you buy pet rocks, lava lamps, beanie babies, or NFTs? It was short term gain, long term pain. Spending money on fads or trends can distract you from investing wisely.

A college acquaintance sold a business for several million dollars, which greatly bothered one of my friends, who was obsessed with money. My friend’s obsession with our classmate’s windfall was stealing his joy.

Don’t let comparison ruin your golden years. I read a story about two retirees discussing investments when one asked the other, “Did your investments outperform the market during your working years?” The other retiree replied, “I don’t know, nor do I care because I’m retired, living at the beach.”

Rather than worrying about your neighbor’s wealth, focus on your own. Here are a few tips to help you avoid comparison.

Budget. Your budget can help create a successful saving and spending plan based on your numbers.
Plan. A financial plan can guide you toward your most important goals, like paying for college or retirement.
Invest. Investing today can help you tomorrow. Invest in 401(k) plans, IRAs, and brokerage accounts.
Save. Contribute regularly to money market funds or savings accounts. An emergency fund can prevent some financial disasters.
Give. Charitable giving and helping others is a common cure for comparison.

Comparison reminds me of the classic scene from Caddyshack between Judge Smails and Ty Webb.

Judge Smails:
Ty, what did you shoot today?

Ty Webb:
Oh, Judge, I don’t keep score.

Judge Smails:
Then how do you measure yourself with other golfers?

Ty Webb:
By height.

August 12, 2023

Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog; past performance does not guarantee future performance. 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. Prices and yields are for today only and are subject to change without notice.

[1] https://www.ally.com/stories/retirement/savings-by-age-40/

It’s Complicated

August 3, 2023Posted in InvestmentsTagged Investing, Investment ManagementLeave a comment

Complicated investment strategies attract attention because investors want to get rich quickly or impress their friends. Complexity is another word for job security on Wall Street. Options and hedge fund strategies are intricate and convoluted products requiring multiple disclosures and hours of explanation to innocent investors.

My two mentors wrote covered calls and sold options for their clients, so that’s what I did as well. Why not? They were successful. We sold options because option buyers lose all their money 90% to 95% of the time. When you sell option contracts, you take the other side of the trade from the buyer or speculator. If buyers lose money, then sellers make it. An option contract is complicated to understand because you must be correct on the security, direction, timing, price, and maturity all at once, and if you’re not, you’ll lose money. In addition, you must understand the Greeks: Delta, Gamma, Theta, Vega, and Rho. Implied volatility is another vital component of option pricing. Regardless, investors will continue to buy options, especially in a bull market.

In 2008, Warren Buffett bet Protégé Partners that a simple S&P 500 index fund would outperform five separately managed hedge funds over ten years, and the winner would receive $1 million. How did it turn out? Protégé threw in the towel before the end of the contest date because the hedge funds were getting trounced. At the time, the index fund was up 85.4%, while the average return for the hedge funds was 22%.[1] Simple wins.

Several Nobel prize winners and Wall Street Legends founded Long Term Capital Management in 1994, and in 1998, they brought the global financial markets to their knees with their complex trading strategies. The firm relied on complicated bond arbitrage strategies, and when Russia defaulted on its debt in 1998, it destroyed the fund and required a $3.6 billion bailout from several banks.[2] Roger Lowenstein wrote an excellent book about this ordeal, When Genious Failed. In this case, the long-term time horizon was about four years. Long-term US Government bonds averaged 9.52% annually during this same period.[3] Safe and simple.

Complicated investment strategies look good on paper because they promise huge profits and outsized gains, but it’s probably too good to be true. Most investors would benefit from a simple strategy of owning low-cost index funds in a diversified portfolio rather than focusing on byzantine investment strategies.

Vanguard’s Balanced Index fund is simple and has performed well over time. The fund’s allocation is 60% stocks and 40% bonds and has returned more than 900% for the past three decades, or about 8% annually. A $100,000 investment is now worth $1 million – not too shabby.

To succeed as an investor, focus on simple solutions and avoid complex strategies.

Everything should be made as simple as possible, but not simpler. ~ Albert Einstein

August 3, 2023

[1] https://www.investopedia.com/articles/investing/030916/buffetts-bet-hedge-funds-year-eight-brka-brkb.asp, David Floyd, June 25, 2019.

[2] https://en.wikipedia.org/wiki/Long-Term_Capital_Management

[3] Source: Dimensional Fund Advisors Returns Web, 1/1/1994 to 12/31/1998.

Investment Lessons From Thirty Years of Marriage

July 27, 2023Posted in Estate PlanningTagged Financial Planning, Investment Management, Retirement Planning, Wealth ManagementLeave a comment

My wife and I recently celebrated our 30^th wedding anniversary, thirty years of marital bliss. We were young and naïve at first, but we’ve navigated our journey well, and so far, so good. We started in California, traveled through Connecticut, and landed in Texas. We’ve touched three coasts; who knows where our travels will take us next.

Like a strong marriage, investing requires a firm commitment and covenant. Entering a marriage without committing to your spouse is doomed to failure. The same is true with investing. It requires a strong commitment. We built our marriage on a solid foundation of faith. It hasn’t been easy, but we always reach the peak after walking through the valley. A successful marriage is not linear but full of twists and turns, ups and downs. As Jimmy Dugan said, “It’s supposed to be hard. If it wasn’t hard, everyone would do it. The hard is what makes it great.” As for us, the good times far outweigh the bad ones.

What can thirty years of marriage teach us about investing? Let’s walk down the aisle and take a look.

Patience. A successful investment plan requires patience. You won’t get rich overnight, and few shotgun marriages last long.
Planning. My wife and I plan for major expenses, vacations, serving opportunities, and life events that might impact our future. Our planning gives us a range of outcomes, allowing us to proceed confidently. A financial plan is necessary if you want to flourish as an investor. Do not rely on luck as a planning tool to reach your financial goals.
Flexibility. I was born and raised in Southern California and thought I’d live there forever. However, my wife accepted a faculty position at Quinnipiac University in Connecticut not long after we were married, and it is about the farthest place you can get from the shores of California. We loved living in New England and its proximity to New York. Also, our daughter was born in the Nutmeg State. Flexibility is essential for successful investors. Markets are often in flux, never constant, continually moving. Last year, stocks fell 18%; this year, they’re up 20%. The one-month US T-Bill yielded 0.00% during COVID; today, it pays 5.46%, an increase of 18,100%! To be a profitable investor, you must adapt to changing conditions.
Fearless. Marriage is not for the faint of heart. A few trips to the ER, calls at midnight, unexpected expenses, crazy pets, etc., are unsettling. Being fearless during frightening moments or scary times makes a marriage stronger. Owning stocks is challenging, especially when they crash, like last year. Holding stocks through the Great Financial Crisis, Tech Wreck, or the Crash of 1987 requires nerves of steel. The Dow Jones Industrial Average fell 508 points, or 22%, on October 19, 1987 – Black Monday, one of the worst days ever on Wall Street, but if you did not sell or panic, you’d be up 3,238% today, averaging 10.3% per year. A $1 investment is now worth $33.38. Despite the crash, the Dow finished 1987 up 5.43%. Do not let fear drive your investment decisions.
Celebrate. Marriage is pure joy and worthy of celebration. We love being together, enjoy our time, and celebrate often. No victory is too small. If you made money trading or your accounts are doing well, take some profits and celebrate with your loved ones.
Time. We don’t let many things trouble us today because we’re older and wiser. Significant issues in 1993 do not bother us now because we can look backward and learn from our experiences. An investor in 1929 had little information about the history of stocks, but today, we have access to millions of data points to make better decisions. We have the luxury of time and history.
Save. We save and invest regularly, sometimes sacrificing a night out or an extended trip. During our lean years, we’d walk to a local Mexican restaurant, split a taco plate, and gorge on chips. But we can now retire on our terms because we saved and sacrificed. If you want to retire tomorrow, you must save money today.
Spend. We are diligent savers and planners. After saving our money and investing in our retirement accounts, we’d spend freely (sort of). We never went crazy with our spending, but we didn’t worry much because of our commitment to our financial plan and investment strategy. If you save, invest, and plan, spending a few dollars now and then is okay, especially on experiences.
Diversification. Over the past three decades, we’ve owned dogs, cats, horses, hamsters, goldfish, beta fish, and hermit crabs. Each animal has brought us joy and angst, but I can’t imagine a home without pets. A diversified investment portfolio can grow and survive in most market conditions. Large, medium, and small-cap stocks mixed with bonds and international holdings will expose you to several global asset classes.
Giving. We were reluctant and stingy givers during our youth, but we now tithe and give to those in need. In addition to our personal giving, we tithe from our business income. I was worried we’d run out of money if we donated to charities or gave money to our church, but the opposite has happened. We’ve been blessed beyond measure and have enjoyed great joy from our giving. Incorporating giving into your investment strategy can yield much fruit and tax benefits. If you are waiting to give your money away after you die, you’re missing the point because the person who benefits the most from giving is the giver.

My wife and I look forward to our next chapter, a life full of serving, volunteering, traveling, hiking, fishing, reading, and spending time with family and friends.

Our journey continues.

The days are long, but the years are short. ~ Gretchen Rubin

July 27, 2023

Financial Storms

July 24, 2023Posted in InvestmentsTagged Investment Management, Stock Market, Stock Market Crash, Stock TradingLeave a comment

Mountain storms are extraordinary, powerful, and frightening. Last week, my wife and I experienced an incredible lightning show in Vail, Colorado. The lightning lit up the sky, and the thunder reverberated through the valley. It was quite the display of nature. However, the sun shone the next day, and the sky was blue, a bluebird day.

The stock market experienced a financial storm last year as the S&P 500 dropped by 19.8%, the steepest decline since 2008. It was a challenging year for large, medium, and small stocks, and there was no place to hide. And investors fled the markets, withdrawing more than $126 billion from mutual funds and ETFs. Investors were searching for shelters to protect themselves from the financial storm. Storms are temporary and eventually pass.

The markets are recovering from last year’s correction, as the three major stock indices are trading in positive territory. Stocks are trading higher this year, but you must endure the storm to benefit from the gains because it’s impossible to time the market. Markets started rebounding last June during the height of the storm, and that’s when investors began withdrawing money from their mutual funds and ETFs. Investors panicked during the darkest hour. By the end of May, investors removed more than $100 billion from funds, and since then, the Nasdaq is up 13.9%, the S&P is up 10.2%, and the Dow Jones is up 7.4%. The market is forward-looking and knew the storm was passing long before investors did. It pays to be patient. Do not panic.

Preparation and planning are the best ways to prepare for a storm. Climbers and hikers carry backpacks with water bottles, headlamps, compasses, jackets, GPS, first aid kits, etc., because they know mountain storms can arrive anytime. The same applies to financial storms; they can come anytime, without warning. Diversify your assets and follow your financial plan. A well-diversified investment portfolio based on your financial plan should survive financial storms and stock market corrections. Storms pass. Markets recover. Time moves on.

Follow your plan, think long-term, invest often, and good things will happen.

After every storm, the sun will smile; for every problem, there is a solution, and the soul’s indefeasible duty is to be of good cheer. ~ William R. Alger

July 24, 2023

Tag: Investment Management

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