Why Worry?

As the market climbs higher, investors are worried about a correction. Just because stocks go up, does it mean they must come down? Of course, stocks fluctuate daily. They rise and fall as they react to reports or headlines or opinions.  Since 1970, the S&P 500 has finished a calendar year in positive territory 82% of the time. Over the past 50 years, the index has been up 41 years and fallen nine.  The average gain was 18.5%; the average loss was 15%. And, year-to-date, it’s up 9.90%.[1]

During the same time frame, there have been seven bull markets with an average gain of 294% and an average duration of 77 months.  There have also been nine bear markets with an average drop of 32% and an average length of nine months.[2]

If you are worried about a stock market correction, then consider adding bonds to your portfolio. In the chart below, the S&P 500 fell 31% last March. Let’s compare the all-stock index to three different globally diversified portfolios.[3]

  • The seventy portfolio is 70% stocks and 30% bonds and cash. During the COVID correction, it fell 26.5%, or 14.5% less than the market.
  • The sixty portfolio is 60% stocks and 40% bonds and cash. During the COVID correction, it fell 23.5%, or 24% less than the market.
  • The fifty portfolio is 50% stocks and 50% bonds and cash. During the COVID correction, it fell 19.5%, or 37% less than the market.

By November, the market and all three portfolios recovered their losses and were profitable for the year. The index is 100% stocks, so it makes sense it fell further and recovered faster than the globally balanced portfolios.

Regardless of your risk tolerance, a hefty allocation to stocks can give your wealth a boost. Do not let short-term pain get in the way of long-term gains.

April 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.


[1] Dimensional Fund Advisors 2020 Matrix and YCharts

[2] Ibid

[3] Ibid

My NCAA Basketball Bracket

What a tournament! March Madness did not disappoint. I was rooting for Baylor to win, and they did! I entered ESPN’s Tournament Challenge and finished in the 94th percentile, ranking 843,000 out of 14 million. My final game prediction was Baylor beating Gonzaga 74 – 72. The final score was 86 – 70. As always, there were several surprises and exciting moments like UCLA’s march to the final four and Jared Suggs game-winning shot.

Scott Drew inherited a struggling Baylor Basketball program in 2003 with the goal of winning a national championship. His assistant head coach, Jerome Tang, joined Coach Drew’s staff the same year. It took them eighteen years of blood, sweat, and tears to realize their dream. At the time, Baylor Basketball was involved in a scandal when one player murdered another, and their former coach was making financial payments to players.[1] It was a dark time to take over the program, but their perseverance, faith, and vision paid off.

Investors can learn much from the Baylor Bears and their run to the national championship. To succeed as an investor, you need a plan, patience, vision, and luck. Long-term thinking is a must. And, buying stocks when they’re down is an excellent way to acquire great companies at discounted prices.

Learning to overcome losses is also essential because when you invest, you will own some losers. There were 68 teams in the tournament – 67 losers and one winner. However, every team that made it to the big dance had a successful season, and most of them will return next year. Gonzaga ended their season with a record of 31-1, the University of North Texas won their first-ever tournament game, and Abilene Christian stunned Texas. Cut your losses, learn from your mistakes, and refine your process. Don’t be distraught with your losers, and let your winners run.

Diversification is also a must. The Baylor team has several elite athletes, role players, and specialists, and every person contributed to the team’s success. Your portfolio needs several components to perform well. A globally diversified portfolio of low-cost funds gives you exposure to numerous markets and thousands of securities, each playing a vital role.

To produce generational wealth, build your team, diversify your assets, invest often, and think long-term.

I’ve missed more than 9000 shots in my career. I’ve lost almost 300 games. 26 times, I’ve been trusted to take the game-winning shot and missed. I’ve failed over and over and over again in my life. And that is why I succeed. ~ Michael Jordan

April 6, 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://en.wikipedia.org/wiki/Baylor_Bears_basketball

Supermarket Investing

When I walk into my local supermarket, magnificent smells of freshly cut flowers and a sea of fruits and vegetables welcome me. Further on, I encounter the aroma of baked bread, cookies, and cakes. My senses are overloaded, and I have yet to start shopping.

A supermarket layout is science-based, but pomp and circumstance also play a significant role in our shopping experience. It’s full of vibrant colors, smells, and sounds designed to keep us moving as we fill our shopping carts. The items we need are located in the back; the things we want are near the front. End caps display new or seasonal products designed to catch our attention. Between the front door and the milk section, we encounter presenters offering us free food and drink samples while introducing us to a new recipe or cooking trend. If we make it through the aisles unscathed, we must pass one final test – the checkout stand. While checking out, we stare at soft drinks, chips, candies, and tabloids, all impulse buys. I always shop with a list, and I never enter a grocery store while hungry to avoid the subtle traps.

Investing is similar to grocery shopping – a lot is going on, so a plan is recommended. Investing without one is like entering a grocery store without a list; if you’re not careful, you can get into trouble. A financial plan keeps you focused on your goals and helps you avoid distractions that may derail your future. It can also limit impulse purchases of investments that don’t belong in your financial basket.

We need staples to survive, like fruits, vegetables, meats, eggs, milk, etc. We don’t need peanut M&M’s, but they’re fun to eat on occasion. A portfolio designed to last generations needs a strong core of globally diversified high-quality stocks and bonds. An appropriate allocation for your core holdings is 85% to 95% of your total balance. Invest the remainder of your account in high-flyers, seasonal trades, or alternative investments if you want to give your portfolio a boost.  

The center aisles are a mix of, well, mixes, packaged foods, and canned foods; ingredients developed to enhance your meals. Portfolios require supporting investments as well. Small-cap stocks paired with large-cap companies mixed with a few bonds is a recipe for success.

My wife can make the rounds in our grocery store with her eyes closed, which is good and bad. She is an efficient shopper, but it’s possible to become complacent and ignore new items or products – investors who are pococurante risk missing new ideas or opportunities. If you let your portfolio get stale, you may fall behind your stated goals. I recommend reviewing your holdings and your plan two to three times per year to stay up to date with new trends. Avoid putting them on auto-pilot.

Should you always avoid end cap displays or check out items? No. These sections of a supermarket can introduce you to bargains, new products, or reflex purchases. They can also bring some fun to your shopping experience. Investing in seasonal trades, speculative stocks, or alternative investments may bring you joy if they work. Limiting your purchases to 3% to 5% of your portfolio value will avoid pain or destruction if you’re wrong.

When I was fifteen, I worked in a small grocery store with some friends. I earned $2 per hour and learned much about stocking shelves, bagging groceries, and watering produce. I was continually moving from one aisle to the next. It was our job to ensure the store looked good at all hours. It was a good primer for my chosen career.

As you build your shopping investment list, include a basket of large, small, and international companies. Add a mix of bonds, real estate holdings, and alternative investments. Rebalance your accounts annually and review your plan often. Think generationally, but pay attention to short term opportunities. A balanced portfolio based on your financial goals will treat you well over time.

Happy shopping!

Anyone who believes the competitive spirit in America is dead has never been in a supermarket when the cashier opens another checkout line. ~ Ann Landers

January 25, 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.

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.