Brady v. Brees

Tom Brady and Drew Brees are meeting in the NFC divisional playoff game today. Tom Brady is 43; Drew Brees is 42 – the oldest match up for quarterbacks in a playoff game. Messrs. Brady and Brees will be first-ballot Hall of Famers when their careers end. Mr. Brees is the NFL leader in passing yards with 80,358. Mr. Brady is second with 79,204. Mr. Brady is the all-time leader for touchdowns with 581, Mr. Brees is second with 571. Mr. Brady ranks eleventh for games played at 301, and Mr. Brees ranks sixteenth. Mr. Brees and the New Orleans Saints won Super Bowl 45, and he was named the games MVP. Mr. Brady is the all-time leader in Super Bowl wins with six, and he was named the Super Bowl MVP four times.

A quarterback aged 40 or more is rare, and these two are defying the odds. Despite their success, they have faced criticism and doubts. The San Diego Chargers traded Mr. Brees in 2005 after successful shoulder surgery. I bet the Charges wished they had kept him on the roster. He continually faces criticism about his height and arm strength. Phil Simms said, “Listen, his arm strength was never great.”

Tom Brady was the 199th pick, drafted in the 6th round, a snub he has not forgotten. In 2016, Max Kellerman “decided to declare that Brady’s career was about to be over sooner rather than later.”[1] He also called him “a bum.” After four years, Mr. Kellerman admits he was wrong about Tom Brady’s late-term playing career.

I’ve never met Tom Brady or Drew Brees, but I suppose they ignore the criticisms, and they probably aren’t aware of most things said about their potential “demise.” Rather than listen to the experts, they work out regularly, practice often, eat well, and repeatedly perfect their craft – they follow their plan and focus on what they can control.

The average NFL career lasts 3.3 years.[2] Mr. Brady is playing in his twenty-first season, Mr. Brees is in his twentieth. To survive and excel in the NFL for two decades requires perseverance, dedication, and tenacity – traits these two NFL greats have in abundance.  

As an investor, you may face criticism and doubt about your investing style or portfolio. TV personalities, experts, analysts, relatives, neighbors, friends, or social media trolls may give you pause to think about your financial future. You may hear others say: “How come you own that company?” or “Why don’t you own this company?” or “The stock market is going to crash, you should sell your stocks!” Tune out the noise and chatter.

To create generational wealth, focus on those things you can control and ignore the rest. Here is a shortlist of things you can manage.

  1. Savings. How much money do you save per month or year? The amount you save will have the most significant impact on your future wealth. Contribute the max to your 401(k) and IRA. Automate your savings. If you save $10,000 per year for thirty years, you could have more than $1.5 million in assets when you’re ready to retire.
  2. Expenses. You have complete control over your spending. The less you spend, the more you save. January is an excellent time to review your spending habits. If you spend some time pouring over your bank and credit card statements, you may find a few expenses to reduce or eliminate.
  3. Investments. You can purchase any investment in the world – stocks, bonds, real estate, gold, Bitcoin, art, jewelry, etc. However, if you want to retire in style, it’s best to own investments that grow, like stocks. The 100-year average for stocks has been 10%. If you keep most of your money in cash, it will lose value every year because of inflation and taxes.
  4. Diversification. Diversify your assets across stocks, bonds, and cash and rebalance your portfolio annually. Diversification is considered a free lunch on Wall Street.
  5. Plan. Your financial plan is unique to your situation. To succeed as an investor, buy investments you’re comfortable owning and follow your plan; it is your financial playbook, guiding you to long-term success.

Investing is not a sporting event, but it does require a game plan with long-term strategic thinking to succeed.

If you’re wondering, Brees holds an edge over Brady in games won – 5 to 2.

“Don’t ever underestimate the heart of a champion.” ~ Rudy Tomvanovich

January 16, 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] https://www.sportscasting.com/max-kellerman-finally-admits-he-was-wrong-about-tom-brady-becoming-a-bum/

[2] https://www.espn.com/blog/nflnation/post/_/id/207780/current-and-former-nfl-players-in-the-drivers-seat-after-completing-mba-program

Follow the Bouncing Ball

To make money in stocks, buy winners. To make money betting on horses, pick the fastest one. To make money betting on football, pick the best team. It’s obvious! As Will Rogers once 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. Of course, it’s impossible only to pick the winners.

In 2016, the energy sector rose 29.2%, and it was the best performing sector. If you invested in energy in 2016, you lost 2.5% in 2017, 20% in 2018, 9.3% in 2019, and 33.1% in 2020. The energy sector was the worst-performing sector for four years in a row. This year, it’s one of the best.

Utility stocks were the worst-performing sector in 2013 but the best in 2014. Financials finished 2019 as the second-best sector, and last year it was the second-worst.

Healthcare stocks underperformed energy stocks by 32% in 2016 and outperformed them by 26% a year later.

Trying to pick the best sectors or stocks can result in a feast or famine. If you’re correct, you’ll make money. If you’re wrong, you’ll lose money. Simple.

From 2011 to 2020, the S&P 500 index was never the best nor worst-performing asset class, nor did it finish any year in negative territory. It was consistent and stable relative to the individual sector components.

An S&P 500 index fund, or total market index fund, gives you exposure to every sector without trying to pick the best and avoid the worst. A broad-based index fund is an excellent choice for any portfolio.

January 14, 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.

Data Sources: YCharts

Are You Rigid?

The Oak and the Reeds is an Aesop Fable about flexibility. The mighty oak stands proud against the wind while the reeds bow low. They bow, but they do not break. The mighty oak stands rigid; it is stubborn and fights the storm. During a northern hurricane, the mighty oak was uprooted and fell among the reeds. The reeds were flexible; the mighty oak was not.  Bruce Lee knew this philosophy well when he said, “Notice that the stiffest tree is most easily cracked, while the bamboo or willow survives by bending with the wind.”

Investors can learn much from this Aesop Fable. Investing is not binary or rigid. It is not black or white. To be a successful investor, you must be flexible, willing to bow down to the market. If you’re not sure about your investing strategy, the market is an expensive place to figure it out. Many investment programs are rules-driven – low PE, small-cap, momentum, etc. But, if you’re not willing to break the rules in the short term, it may cost you in the long run. For example, if you focus solely on low PE stocks, you missed Amazon’s epic run. Amazon’s average PE is 234. Its low PE over the past 17 years was 93, and the high was 3,735. During Amazon’s elevated PE phase, the stock soared 7,310%. A $10,000 investment in 2004 is worth $741,000 today.

Be flexible.

January 5, 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.

The Tallest Tree in the Land

A young ruler wanted a majestic garden with towering trees. He met with his gardener to share his vision. His gardener recommended planting 100 giant Sequoia trees to surround his land. The Sequoia is the most massive tree in the world, fitting for a young ruler. The ruler was pleased with the suggestion, and he authorized the project.

The young ruler checked his garden often. He was not satisfied with his freshly planted trees, especially compared to his friends. He became more frustrated when he saw the beautiful trees they posted on social media. He was jealous and angry.

He approached his gardener, demanding he remove the Sequoias and plant a faster-growing tree. His gardener pleaded with the young ruler to leave the trees alone. Majestic trees take years to mature. If he let them grow, his patience would be rewarded. The young ruler did not care. He wanted faster results.  The gardener reluctantly succumbed to his ruler’s request and planted Weeping Willows.

The gardener removed the Sequoias, except for one. He let it stand because the young ruler could not see it from his estate, it would be hidden for years.

After several years, the young ruler left his estate to attend college. When he left, the Weeping Willows matured and looked beautiful. Standing about 35 feet tall, they sprinkled his garden, and he was pleased. He finally had a garden worthy of respect.

The gardener tended the property while the ruler was away, trimming trees, watering plants, and planting seasonal flowers. And, he paid particular attention to the lone Sequoia.

When the ruler finished his studies, he pursued a career as a doctor in another country. While away from his estate, his garden flourished.

While working his rounds, he met a young lady, also a doctor. They married and had several children. He missed his estate and his Weeping Willows, but he loved his life, growing family, and new country.

The children continued to grow and eventually left home to attend college, find jobs, and start their own families.

The ruler was now old and wise. It was time for him to return to his homeland and his beloved estate with his extended family – children, in-laws, grandchildren, and great-grandchildren. He was excited to showcase his lush garden and majestic Weeping Willows.

As the ruler and his family arrived at the estate, they were in awe of the massive tree looming in the distance. Standing more than 200 feet tall, it towered over his estate and his tiny Weeping Willows. It was visible for miles and commanded admiration and reverence. It was the tallest tree in the land.

The wise ruler approached his gardener, wanting to know when he planted the beautiful tree. The gardener said he planted it when the ruler told him to do so many years ago. He informed the ruler that he let it stand, reminding the ruler it would take years and patience for majestic trees to grow.

The ruler was disappointed in his Weeping Willows. If he had listened to his gardener, he would have hundreds of giant Sequoias and the most fantastic garden in all the land.

Diversified investment portfolios, like majestic Sequoias and beautiful gardens, take time to mature. Be patient.

Someone is sitting in the shade today because someone planted a tree a long time ago. ~ Warren Buffett

October 24, 2020

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets.

Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor.

A Correction Is Coming!

Warning, a stock market correction is coming. The political environment, lack of a financial stimulus package, the pandemic, corporate bankruptcies, civil unrest, and so on will be too much for the market to bear. To prove my point, let’s examine a few previous market cycles.

March 9, 2009, to October 16, 2020

The S&P 500 soared 415% from March 9, 2009, to October 16, 2020. The historic climb started after the market plunged more than 50% during the Great Recession. If you invested $100,000 at the beginning of this bull market, your account would be worth $515,000.

Despite the bull market’s stellar performance, the S&P 500 fell 34% in March 2020. It lost more than 10% nine times and dropped more than 5% on thirteen separate occasions. The average decline during this bull market was 2.71%.

January 1, 1991, to April 1, 2000

The S&P 500 climbed 353% during this bull market, including the late nineties’ melt-up in internet stocks from 1995 to 1999. This market was the first time where investors could trade online, and firms like Schwab, T.D. Ameritrade and E*Trade rose to prominence. A $100,000 investment at the beginning of this bull market grew to $453,800 on April 1, 2000.

However, the late nineties bull market experienced many significant drops, including a 20% drop in 1998 and more than a dozen declines of 5% or more. The average decline during this bull market was 1.89%.

January 1, 1982, to September 1, 1987

The S&P 500 rose 163% during the great ’80s bull market. After a dormant 1970s, the market increased significantly, fueled by declining interest rates. A $100,000 investment grew to $263,900.

Like previous bull markets, this one experienced several severe corrections. In 1982, the market fell more than 16%, and in 1984 it dropped 14%. The average decline for this five-year run was 3.97%.

October 16, 1987 – October 16, 2020

The crash of 1987 occurred 33 years ago today. If you invested $100,000 on the Friday before Black Monday, your account would be worth $1.23 million today, producing an average annual return of 7.9%. In addition to Black Monday, where the index fell 23%, your portfolio also endured the Tech Wreck of 2000, where stocks sank 43%, the Great Recession when stocks dropped 56%, and the recent pandemic where the index tumbled more than 30%.

A correction is coming, but I don’t know when. It could happen tomorrow, next week, next year, or next decade. I don’t know, nor does anyone else. And, people who claim they can predict market moves are full of rubbish.  During every bull market, there are sizeable corrections. If you liquidate your holdings during a crisis, you will miss exceptional gains when stocks recover. If you panic, you lose.

Investors can also lose money while waiting for a stock market correction. If you sold your investments in May expecting a summer pullback, you missed a 16.5% return. Since the market low on March 23, 2020, the S&P 500 is up 56%, and year-to-date it’s up 7.41%.

To be a successful investor, think long term, invest often, buy the dips, and follow your plan.

“Far more money has been lost by investors preparing for corrections or trying to anticipate corrections than has been lost in corrections themselves.” ~ Peter Lynch

October 19, 2020

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.

Data Source = YCharts

A Mosquito In Your Tent

I love the great outdoors. Hiking, fishing, camping are the hobbies I enjoy most. My wife and I spent a few days hiking in the Rocky Mountain National Park this summer, and it was beautiful. Our best vacations tend to be outside enjoying nature. We have visited several national parks over the years, including Yellowstone, Yosemite, and Grand Teton.

Camping in the mountains, on a beach, or near a river is peaceful and serene. The views. The sounds of nature. The clean, crisp air. A robust fire. Sleeping under the stars in a tent is lovely until you hear the buzzing sound of a mosquito, a single mosquito. It’s hard to imagine how much sound a small insect can produce, but it’s enough to keep you awake and annoyed for hours. Trying to locate and kill the mosquito is even more challenging than struggling to fall asleep. Though a mosquito is tiny, it can quickly ruin the joy of spending time outside.

A mosquito is like a bad investment in a diversified portfolio; it’s hard to ignore. If an investor owns ten mutual funds – nine up, one down, they’ll focus on the loser. It’s human nature. An investment down in value can distract you from the positive returns from the rest of your holdings. Several years ago, I was reviewing my parent’s account. It was a good year for returns, and most of their stocks were up except Qualcomm.  My mom wanted to know what was wrong with it, why was it down? There was nothing structurally wrong with Qualcomm; it was just out of favor – a temporary pause in a long-term uptrend. It has since recovered.

The mosquito in the tent this year is small-cap value. Small-cap value stocks are down 11.5%, and investors are losing patience. These stocks are distorting the view of better-performing asset classes like large-cap growth stocks, up 31%.

During my quarterly reviews with clients, all eyes turn to their small-cap holdings. Why do we own these stocks again? Is there anything better? Can we sell these losers? I don’t like losses either, but there will always be an investment out of favor in a diversified portfolio. If all your assets went up or down at the same time, you’re not diversified. Over time, your investment holdings will fluctuate between leading or lagging. Sectors trade in and out of favor often.

It’s hard to imagine today, but small-cap value stocks have outperformed large-cap growth stocks for the past twenty years. A $10,000 investment in the small-cap value index is worth $58,380, whereas the same investment in the large-cap growth index grew to $39,050, a difference of $19,330.[1]

During the early 2000s, investors wanted to ditch large-cap growth stocks. From January 2000 to January 2010, they lost 24%. A $10,000 investment fell to $7,635 during the decade – a huge loser. If you sold them in 2010, you missed a 411% return for the past ten years.

It takes patience to be a successful long-term investor. Peter Lynch, the legendary investor of the Fidelity Magellan Mutual Fund, would typically own a stock for three to five years or more before it showed significant gains.

Here are a few suggestions to help you better manage your investments.

  • Buy and hold a diversified portfolio of stocks, bonds, and cash because you never know when, where, or why investments will decide to take off.
  • Invest early and often.
  • Be a net buyer of stocks. Ignore the market.
  • Rebalance your accounts annually.
  • Be patient; today’s losers can be tomorrow’s winners.
  • Think long-term to create generational wealth.
  • Develop a plan, set goals.
  • Follow your plan.

Happy Camping!

“In the stock market, the most important organ is the stomach. It’s not the brain.” ~ Peter Lynch

October 16, 2020

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] YCharts

7 Things To Do Before the Election

The presidential election is less than forty days away, and investors are getting nervous.

Forty days before the 2016 election, the markets remained relatively quiet, and the S&P 500 barely budged – falling .54% from the end of September to election day. Volatility spiked fifteen days before the election, but it did not have any impact on the market.

Forty days after the 2016 election was over, the S&P 500 rose 5.54%, and volatility dropped significantly. If you remained invested through the election cycle, you probably made money. The market finished 2016 in positive territory, rising 9.54%.

Here are seven steps to take as we get closer to election day.

  1. Do nothing. Historically, elections have had little impact on the long-term direction of the market.
  2. Raise cash.  A cash reserve gives you flexibility if you want to buy stocks if they should fall.
  3. Identify stocks. Create a shopping list of five to ten companies you want to own. If they drop in price, add them to your account.
  4. Sell everything. If you’re worried about a market crash, sell your holdings and move your assets to cash. If you sell your stocks in a taxable account, you may incur a significant capital gains tax.
  5. Sell calls. Selling calls on stocks you own is an excellent strategy for generating income. It can also provide some downside protection.
  6. Buy puts. A put option provides downside protection for your portfolio. You can purchase a put option on a single stock like Apple or Tesla, or you can protect your entire portfolio. Buying put contracts is expensive, but it allows you to remain invested without selling your stocks.  
  7. Vote. Several states are open for early voting. Here is a link to a voter registration site: https://vote.gov/

Happy voting!

After forty days, Noah opened a window he had made in the ark and sent out a raven, and it kept flying back and forth until the water had dried up from the earth. ~ Genesis 6:6-7

September 28, 2020

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.

And Down The Stretch They Come!

Dave Johnson is known for this call, “And down the stretch they come!” Mr. Johnson has been calling horse races since the early 1970s, including the Kentucky Derby, Preakness, and Belmont Stakes. There are few things more exciting in sports than watching horses make the final turn towards the finish line – the stretch run.

We’re entering the fourth quarter, and 2021 is less than 100 days away – thankfully. We are in the stretch run. When horses enter the starting gate, the optimism is high; each horse has a chance to win. As the race progresses, the fastest horse separates itself from the field, and jockeys need to adjust their strategy to catch the leader. This year started with much hope, especially after a stellar 2019. The Dow Jones was up  3% through February before the world imploded with the Coronavirus. As the pandemic spread, the market fell 37%. For the past six months, we had to adapt to a new normal – masks, social distancing, self-quarantines, Zoom Calls, hand sanitizer, and a shortage of toilet paper. Hopefully, we finish the year on a positive note with strong momentum for 2021.

As we approach the end of the year, what can you do to enhance your investment portfolio for 2021 and beyond? Here are a few suggestions.

  • Let your winners run. A jockey who is riding a winning horse needs to hold on to finish the race as Ronney Turcotte did when he rode Secretariat during the home stretch of the Belmont Stakes in 1973. If you’re sitting on winning stocks, hold them until next year before realizing your gains.
  • Sell your losers. If you own a stable of losing stocks, sell them to realize your losses for this year. You can offset your gains dollar for dollar, and if you don’t have any profits, you can carry your losses forward forever. Hall of Fame pitcher Don Drysdale sold his racehorses because he said the slow ones eat as much as the fast ones.
  • Diversify your holdings.  Owners and trainers race several horses during a season – some win, some lose. A globally diversified portfolio of stocks, bonds, and cash will allow you to finish in the money more often than not. Spread your bets across several sectors.
  • Review your accounts. What worked and what didn’t? Analyzing your results is vital for investment success. Are you still on pace to achieve your financial goals? If you’re not sure, give us a call. We can help.
  • Adjust. What changes do you need to make for 2021? Is your portfolio sturdy enough to weather all types of market conditions? What changes can you make today to better position your investments for a profitable run next year?
  • Look for long shots. The technology sector will likely lead wire to wire this year, but sectors like energy and financials were left stuck in the mud. Look for investments that may rebound next year.
  • Celebrate your success. Are your investments on pace to finish the year in positive territory? Will you be in the winner’s circle at the end of the year? If you were financially successful, consider sharing your winnings with those in need. Donating money to a non-profit will benefit others and help you reduce your taxes – a win, win.

This year has been brutal, and it can’t end fast enough. We are in the stretch run, so use these next few months to get your house (barn) in order. I know you can do it. I’m betting on you to win big next year.

Riders up.

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

September 23, 2020

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.

The Pendulum

The passing of Justice Ruth Bader Ginsburg is a tragic loss. I learned about her life from the movie On The Basis of Sex, and I’ve enjoyed reading the recent articles about her accomplishments. She opined on many issues, and one quote from a 2017 interview with the BBC particularly stood out to me.  Justice Ginsburg said, “I am optimistic in the long run. A great man once said that the true symbol of the United States is not the bald eagle. It is the pendulum. And when the pendulum swings too far in one direction, it will go back.”

As an investor, the pendulum analogy resonated with me because markets, all markets, have wide gyrating swings and rarely remain stagnant. Since 1926, the S&P 500 has generated an average annual return of 10%, but it has never closed a calendar year with a 10% gain. The range of returns has been far and wide. In 1931 the S&P 500 fell by 43%; in 1933, it rose 54%. Extreme market moves are not limited to stocks. US long-term interest rates rose from 6% to 15% from 1972 to 1982. They fell back to 6% in 1992. The spot price for West Texas Intermediate Crude climbed to $133 from $47 in three years. It would collapse back to $47 one year after reaching its peak price. Gold hit a high of $637 per ounce in 1980, and it did not breach this price again until 2007. Recently, gold climbed above $2,000 per ounce, passing the previous high set in 2011. It dropped 42% from 2011 to 2015. Markets are continuously moving, which is emotionally challenging for investors.

When a trend is in place, investors assume it will last forever, and forever is a long time. From January 1995 to March 2000, the NASDAQ rose 542%. Convinced it would continue, individuals were buyers of stocks. It peaked in March 2000 and then fell 75%. It would not eclipse its previous high for another fifteen years.

Growth stocks have outperformed value stocks for the past two decades, and investors are confident value is dead. A Google search for “Is value dead?” will produce thousands of articles. At some point, value will beat growth, but no one knows when this will occur.

A shifting market can be beneficial to investors. When the pendulum swings too far to the left and stocks become cheap, use it as an opportunity to buy great companies at lower prices. When it swings too far to the right and stocks become overvalued, sell some shares to lock in your profits. A market in motion is favorable to the enterprising investor.

What if you don’t want to own fluctuating investments? Can you altogether avoid risk? Yes, in the short term. The one-month US T-Bill has never lost money if held to maturity. It’s considered the safest investment in the world. Of course, you won’t make money either after taxes and inflation. The 94-year average annual return for the one-month T-Bill has been 3.3%, and inflation averaged 2.9%, so your net return, before taxes, was .4%. A $1 investment in 1926 was worth $22 in 2019. The same $1 invested in the S&P 500 increased to $9,237, or 41,886% more than the safe investment.[1]

Of course, no trend lasts forever. The Boston Red Sox and Chicago Cubs were cursed never to win another World Series until they did in 2004 and 2007, respectively. In 2016, the Cleveland Cavaliers won the NBA championship, the cities first major sports title since 1964.

If trends don’t last forever, how can you take advantage of an ever-changing market?

  • Plan. Set goals. A financial plan can help you prioritize and quantify your goals. It can also keep your emotions in check as you oscillate between greed and fear.
  • Diversify your assets. Diversification allows you to own several asset classes like stocks, bonds, and cash.  A diversified portfolio exposes you to a wide variety of investments, some of which should perform well.
  • Cash. Allocating a portion of your portfolio to cash gives you a chance to purchase stocks when they fall.
  • Take Profits. When stocks or bonds rise above your price target, sell some shares, and lock in your profits.
  • Rebalance. Rebalancing your portfolio once or twice per year will help you maintain your risk level and asset allocation. Automating this process will help you to buy low and sell high without emotion.

Markets fluctuate, it’s what they do, so don’t worry when the pendulum swings too far to the left or right. Rather than worrying about extreme cycles, focus on your plan and goals – and the facts of the case.

“So often in life, things that you regard as an impediment turn out to be great, good fortune.” ~ Justice Ruth Bader Ginsburg

September 23, 2020

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] Dimensional Matrix Book 2020

Do You Need To Beat The Market?

Investors want to crush the stock market, and rightfully so, but is it necessary? Must you beat the stock market to reach your goals? Since 1926, the S&P 500 has generated an average annual return of 10.1%. If you earn 10% per year, your money will double every seven years. Allocating all your assets to stocks may allow you to better the market’s returns, but it isn’t likely, especially over time. And, once you start to diversify your portfolio by adding bonds or real estate or international stocks or cash, you probably will only better the market in down years, and who wants to be the best loser? As Ricky Bobby said, “If you’re not first, your last.”

According to a recent Wall Street Journal article: “Members of the American Association of Individual Investors found that they overestimated their own investment returns by an average of 3.4 percentage points a year relative to their actual returns, and they overestimated their own returns relative to those of an appropriate benchmark by 5.1 percentage points.”[1]

However, all is not lost if you don’t outperform the S&P 500. In fact, you can do quite well by not posting above-average returns. What matters most to your financial future is saving and longevity. The more money you can save, and the longer you can do it,  the better your financial foundation will be. For example, my daughter opened a Roth IRA a few years ago. If she invests $6,000 per year for fifty years in a generic balanced fund, her account balance could be worth more than $6.5 million.

To dig into balanced funds deeper, let’s look at a few managed by Putnam, American Funds, Fidelity, Schwab, and Vanguard. The average allocation for these funds is 61% stocks, 34% bonds, and 5% cash – an allocation some financial experts consider a relic.

George Putnam Balanced Fund (PGEOX). Launched in 1937, this balanced fund has generated an average annual return of 8.91%. Investing $10,000 per year from inception is now worth $144 million! However, if you invested all your money in the S&P 500, it would be worth about $310 million today. You trailed the market by $166 million. By not investing in the market, you “lost” more than you made. If this fund was in your account today, would you be disappointed with a balance of $144 million? I doubt it.

American Funds American Balanced Fund (ABALX). Since 1975, this balanced fund produced an average annual return of 9.99%. Investing $10,000 per year from July 1975 to August 2020 is now worth $8.03 million. If you invested in the S&P 500 instead, you’d be worth $10.5 million. Would you be upset with $8 million in your bank account? Unlikely.

Fidelity Balanced Fund (FBALX). Since 1986, the Fidelity Balanced Fund has averaged 9.26%. A $10,000 annual investment, for 34 years, is now worth $2.25 million. It also underperformed the S&P 500. If you allocated 100% of your assets to the S&P 500, your balance would be $2.7 million. Are you offended with an investment account balance of “only” $2.25 million? Probably not.

Schwab Balanced Fund (SWOBX). Schwab’s balanced fund started in 1996, and it has generated an average annual return of 7.15%. Investing $10,000 per year for 24 years produced a gain of $629,000. A similar investment in the S&P 500 would be worth about $850,000. You underperformed the market by more than $200,000, but you still have $629,000.

Vanguard Balanced Fund (VBAIX). Vanguard’s fund is twenty years old. It opened for investing in 2000 at the top of the Tech Wreck and the start of the lost decade. Despite starting a fund at one of the worst times in history, the Vanguard Balance fund still produced an average annual gain of 8.29%. Investing $10,000 per year, for twenty years, is now worth $502,000. Like the other funds, it underperformed the market, but you still have a half-million dollars in your account, not too shabby.

Despite these five stellar funds underperforming the market, they produced phenomenal gains for shareholders. The average annual return for these funds has been 8.72%. Year-to-date, they’re up 7%, and for the past year, they’ve increased 13%.

If the S&P 500 offers such stellar returns, why not allocate 100% of your assets to stocks? You can, of course, if you have the temperament, but I’ve found most investors don’t have the fortitude to invest all their money in the market, especially when stocks fall by 30%, 40%, or 50% as they did in 2000, 2008, and 2020. Investors prefer a balanced portfolio of stocks, bonds, and cash based on their long-term goals. Rather than focusing on the market, pay attention to your goals, save your money, follow your plan, and pursue a balanced life.

“Be moderate in order to taste the joys of life in abundance.” Epicurus

September 10, 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.

Fund data provided by YCharts and Morningstar.

Picture Credit: Orla, IStock Photos


[1] https://www.wsj.com/articles/investors-still-believe-they-can-beat-the-stock-market-11599491572?mod=searchresults&page=1&pos=1, By Meir Statman, September 7, 2020