There Will be Blood!

There Will be Blood is a 2007 movie starring Daniel Day-Lewis, based on Upton Sinclair’s book Oil! Mr. Sinclair published his book in 1927, and it dealt with the struggles of greed and fear in the early days of the oil industry in Southern California. I am sure that if Mr. Sinclair were writing his book today, 94 years later, the storyline would be similar.

The recent price increase in oil is one reason for the stock market’s volatility. Investors are concerned that rising oil prices will hurt stocks. Below is a comparison of a few significant increases in the price of oil and the S&P 500 since 1946.[1]  

  • From May 1973 to April 1980, the price of oil increased by 501%. The S&P fell 4.5%.
  • From May 1986 to September 1990, the price of oil increased by 211%. The S&P climbed 37%.
  • From June 1998 to May 2008, the price of oil increased by 576%. The S&P rose 29%.
  • From February 2016 to February 2019, the price of oil increased by 87%. The S&P jumped 45%.
  • From April 2020 to September 2021, the price of oil increased by 273%. The S&P soared 83%.

In these examples, the average increase for oil was 329%, while the S&P 500 rose 38%. Since 1973, oil has increased 241% or 2.5% per year. Inflation over the same period averaged 3.8% per year. The S&P 500, however, is up more than 4,000% – averaging 8.2% per year.

What to do today?  I recommend focusing on a long-term time horizon and investing in a balanced portfolio of low-cost index funds based on your financial goals.

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

As a reminder, the stock market has always recovered. It might take one week, one month, or one year but it has always bounced back. If you need evidence, please look at the following years: 1907, 1915, 1929, 1930, 1931, 1932, 1934, 1937, 1939, 1940, 1941, 1946, 1953, 1957, 1962, 1966, 1969, 1973, 1974, 1977, 1981, 1990, 2000, 2001, 2002, 2008, 2018, and 2020.

Therefore, do not worry about tomorrow, for tomorrow will worry about itself. Each day has enough trouble of its own. ~ Matthew 6:34.

October 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://www.macrotrends.net/1369/crude-oil-price-history-chart

We Can’t Win!

When my daughter was in the first grade, I had the honor of coaching her soccer team.  These little Mustangs consisted of a band of young ladies, most of whom were playing an organized sport for the first time in their lives. Our league did not keep score because the primary goal was to introduce the girls to soccer. Before our first game, one of the girls said to me, “if we don’t keep score, we can’t win.” She was right.  

Most investors don’t keep score, so they don’t know if they’re winning or losing the investment game. In addition, they don’t know what game they’re playing or the road they’re traveling. As the Cheshire cat said to Alice in Alice in Wonderland, if you don’t know where you’re going, it doesn’t matter which road you take. 

How do you know if you are winning the investment game or on track to reach your goals? Here are a few ideas that can help you keep score and increase your odds of winning.

  • Financial Plan. A financial plan will help you keep score and guide you towards your goals and assist you in quantifying your hopes, dreams, and fears. It will become your financial GPS, your investment cornerstone.
  • Investment Policy Statement. An IPS will address your investment selection, asset allocation, time horizon, and risk tolerance.
  • Quarterly Review. A quarterly review is a quick check-in to assess your account performance, investment income, and market conditions. 
  • Annual Review. The annual review is a deep dive into your financial plan and investment policy statement. Are you still on track to reach your goals? Do you need to amend your plan? The annual meeting is an excellent time to review every aspect of your financial life.

As a note, the girls kept the score at each game.

I’ve worked too hard and too long to let anything stand in the way of my goals. I will not let my teammates down, and I will not let myself down. ~ Mia Hamm

October 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.

Do you remember March 24, 1980?

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

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

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

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

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

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

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

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

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

October 4, 2021

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

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


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

Stocks, Bonds, and Cash

Stocks

One of the best ways to create generational wealth is to own stocks. Since 1926, stocks have averaged 10% per year and rise three-quarters of the time.  Despite their stellar performance, stocks occasionally fall. As I mentioned, the S&P 500 has increased more than 20% this year, but it has dropped 3% or more about six times. During the COVID Correction in March 2020, the index fell 34%. In December 2018, it fell 17.5%. The popular index also suffered during the Great Recession, the Tech Wreck, and Black Monday, where it had several drops of 40% or more. Despite pullbacks and corrections, if you want to grow your wealth, you must own stocks.

Bonds

Bonds are, mostly, consistent and boring – they don’t do much. Bonds generate income and provide safety. They’re predictable, but they don’t grow. Vanguard’s Total Bond Fund has earned 3% for the past ten years. A $10,000 investment in 2011, is now worth $10,300. Yawn. However, when stocks fall, bonds perform well. When stocks crashed in March 2020, bonds climbed 10.7%. During the Great Recession, bonds rose 1.23%, while the S&P 500 fell 53%. Bonds reduce risk and act as a hedge to stocks. If you want safety, a hedge, and income, then add bonds to your portfolio.

Cash

Cash is an investment class. The one-month T-Bill is a proxy for cash, and it’s considered one of the safest investments in the world.  The current yield is .04%. Since 1926, the one-month T-Bill has averaged an annual return of 3%, but so has inflation generating a net return of zero. The primary reason to own cash is for liquidity. If you need money, cash is king. Another reason to allocate assets to cash is to allow your stocks and bonds to perform over time. A strong cash position can give you the confidence to hold stocks when they’re falling.

Stocks, bonds, and cash are essential ingredients for a diversified portfolio. Each asset class is designed for a specific purpose: stocks for growth, bonds for income, cash for safety. In fluid markets where the only constant is volatility, it’s crucial to balance your investments across several asset classes.

Happy Investing!

But divide your investments among many places, for you do not know what risks might lie ahead. ~ Ecclesiastes 11:2

September 4, 2021

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

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

My College Experience

I attended the University of San Diego, a gorgeous campus with sweeping views of the Pacific Ocean, Mission Bay, San Diego Bay, downtown San Diego, Coronado, and so on. US Navy jets routinely flew over our school from Miramar or Fighter Town, USA. The weather on campus was pegged at 75 degrees – year-round.

During my tenure at USD, I played football, joined a fraternity, and lived on the beach, so you can imagine how I spent most of my time. Hint: It was not in the library. I majored in Business Administration, an ideal degree for those pining for a middle management job, not that there’s anything wrong with that. My classes did not light a fire in my soul or arouse academic curiosity. I wasn’t a motivated student, and nor were several of my roommates.

In the last semester of my senior year, I enrolled in an investment course. I was hooked. My professor was Dr. Dennis Zocco, and I was mesmerized by his teaching and knowledge. He dressed well, wore a big gold watch, and introduced me to the world of finance. He developed a software program called INVESTOR that allowed us to invest in a portfolio of stocks, bonds, and alternative assets. I took his course during the fall of 1987, so we had the opportunity to experience Black Monday from the safety of a classroom – thankfully.

After graduation, I devoured investment books learning what I could about Buffett, Lynch, Graham, and other Wall Street legends. I couldn’t get enough.

My first adult investment was the Franklin Utility Fund in 1987, after the crash. My initial investment was $150 and $25 per month. I stayed invested in the fund for a while before I sold it to buy individual stocks. In hindsight, I’m not sure that was a wise decision. The utility fund has averaged 9.3% per year since November 1987, and If I remained in the fund, my investment would be worth $73,580 today. The broker who opened my account earned a $6 commission before taxes. I don’t have an investment minimum at my firm because of his actions. He set an excellent example, answered my questions, and followed up with me often.  

John Wooden said, “It’s what you learn after you know it all that counts.” My real education started once I graduated from college. I had found my passion and calling, and I wanted to learn more. A former roommate’s father managed an investment office, and he told me if I passed the series 7 exam, he would offer me a job. I sequestered myself in a cubicle in the library of my Alma Mater and tore through the study material. I passed the exam, he offered me a job, and thirty-two years later, all is well.

It doesn’t take much to spark a wildfire. A small match can burn hundreds of thousands of acres, and I’m thankful my fire was lit in my final semester.

Learning never exhausts the mind. ~ Leonardo da Vinci

August 23, 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.

Friday the 13th

The Friday the 13th movie series has, so far, produced twelve scary movies. In 1984 it was Friday the 13th: The Final Chapter, followed by Friday the 13th: A New Beginning one year later. The Final Friday movie appeared in 1993, but three more films followed it, so I don’t believe Jason will ever die.

The movie franchise has been highly profitable. The budget for the series cost $80.9 million, and the films generated more than $468 million worldwide —a value play.[1]

In honor of this frightening movie series, here are thirteen terrifying thoughts that can derail your financial success.

  1. You don’t have a plan. If you don’t know where you’re going, how will you know when you’ve arrived? The plots for the Friday the 13th movies are simple, but the directors and actors still followed a script.
  2. You don’t have a budget. Do you know how you’re spending your money? Do you track your expenses? It’s difficult to create wealth if you spend more than you earn. A budget can help you avoid unpleasant surprises.
  3. You’re not contributing to your company 401(k) plan. A company retirement plan is an efficient way to create wealth because your contributions are automated. Every pay period allows you to invest in a diversified portfolio of stocks regardless if the market is up, down, or flat.
  4. You’re not matching the match. If your company offers to match your contribution up to 3%, you should at least contribute 3% to your retirement plan.
  5. You don’t own stocks. Stocks create wealth. Since 1926, they have generated an average annual return of 10% per year. It is startling when stocks fall, but they typically recover quickly. In fact, the three major indices are trading at all-time highs despite decades of volatility and corrections.
  6. You’re cash-rich. A significant cash position can be an anchor for the growth of your portfolio. After establishing an emergency fund, invest the remainder of your cash into stocks. The US T-Bill is a proxy for cash, and since 1926 it has averaged 3% per year, but so has inflation, so your net return is zero.
  7. You’re an active trader. Trading aggressively is a fast way to get killed in the market. In addition to rapidly moving from one stock to another, you might incur significant fees or taxes.
  8. You try to time the market. Somebody, somewhere, is saying the market will crash. I started my career in 1989, and a senior broker at a prestigious investment firm told me to buy silver because stocks would crash. The Dow Jones was 2,500 at the time, and it has since soared 1,333%, while silver increased 387%.[2] Trying to time the market is pointless.
  9. You procrastinate. The best time to start investing was yesterday, and the second-best time is today. Don’t wait! For example, if you start investing $500 per month at age twenty-five, it may be worth $3.16 million at age sixty-five. If you waited ten years, it would be worth $1.13 million, a difference of $2 million!
  10. You worry about politics. Since 1789, the stock market has returned 9.1% per year. When a Democrat controls the White House, the market has returned 8.8% per year. When a Republican occupies the White House, the return has been 8.6% – a difference of 0.20%.[3]
  11. You take advice from talking heads.  Commentators and financial experts do an excellent job of reporting the news, analyzing stocks, updating economic conditions, but they’re not talking to you directly. They aren’t familiar with your financial situation, nor do they know your hopes, dreams, or fears. Do your homework before reacting to a news story.
  12. You try to keep up with the Joneses. If you try to spend like your neighbors, you could end up in a poor house. Your neighbor will not support you in retirement, so don’t worry about the size of his boat.
  13. You die with millions of dollars in the bank. Of course, no one wants to run out of money, but if you pass away with millions of dollars in your bank account, then you’ve short-changed yourself and others. If your wealth exceeds your wildest dreams, consider helping others like your church, favorite charity, or loved ones. You can’t take your wealth with you, so if you donate it to others while you’re alive, you’ll have the opportunity to experience the joy of giving.

As I mentioned earlier, stocks are trading at all-time highs. The long-term trend for stocks is up, so don’t fear a correction. If you follow your plan, invest often, start early, buy stocks, then good things could happen.

Happy Friday, the 13th!

“Do not store up for yourselves treasures on earth, where moths and vermin destroy, and where thieves break in and steal. But store up for yourselves treasures in heaven, where moths and vermin do not destroy, and where thieves do not break in and steal. For where your treasure is, there your heart will be also. ~ Matthew 6:19-21

August 13, 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/Friday_the_13th_(franchise), website accessed August 13, 2021

[2] Ycharts – June 1, 1989 to August 13, 2021

[3] Fidelity Investments Stock Returns and Elections by Jurrien Timmer, Director of Global Macro, Fidelity Management & Research Company. Report accessed, July 24, 2020

I Am the Greatest!

Muhammad Ali repeatedly let everyone know he was the greatest. And he was. Who is the greatest Olympian of all time? Allyson Felix. Other GOATs include Michael Jordan, Tom Brady, Cal Ripken, and Steffi Graff.

My friends and I played sports every day – football, baseball, basketball, golf, volleyball, tennis, Wiffle ball, etc. We were a competitive bunch, each one claiming to be the greatest at whatever sport we were playing. Our aggressive style of play was a combination of the king of the hill and survival of the fittest. We weren’t humble.

My firm receives several inquiries a week from people seeking help with currency conversions, Social Security benefits, investments, or financial planning. Most times, they want a quick answer to a unique situation. If they’re looking for a long-term relationship, they often ask why they should hire me as their financial planner. It’s a valid question, of course, but I don’t know how to answer it. I don’t want to brag or toot my own horn, and I don’t feel comfortable telling someone I am better than any other planner in Austin or elsewhere.  

Last year, I was the president of the Financial Planning Association of Austin, and I spent significant time with several planners and advisors. I was fortunate to get to know them as friends, not competitors, and I was amazed at their knowledge about our industry and the level of service they provided their clients. Our association is a collection of two hundred individuals working together to advance our profession. We collaborate on several projects, and if someone is not a good fit for me, I will refer them to another firm and vice versa.

However, I understand that prospective clients want answers; they want the truth, so here are a few questions you can ask a financial planner or investment advisor.

  1. How long have you been in the business? Experience matters, but don’t discount youth. I’ve been in the investment business for thirty-two years, and I have learned much on my journey. However, I’m thankful I started my career in my early twenties, and I was blessed to work with exceptional mentors and colleagues.
  2. How do you get paid? A planner’s fees should be fair and reasonable, and they should disclose all their charges. The industry average is about 1% of the assets they manage. For example, if you invest $1,000,000, your fee will be $10,000. Our fees start at 0.50% and go down as your assets grow. As a reminder, the fees you pay your advisor do not include mutual fund expenses or commissions.
  3. Are you a fiduciary? Registered investment advisors, including us, are fiduciaries. We are legally bound to act in your best interest. We must put your interest first and disclose any conflicts of interest.
  4. What designations do you hold? Most registered investment advisors are Certified Financial Planners (CFP)™ or Chartered Financial Analysts (CFA). We earn these designations after studying for years and passing rigorous exams. Individuals who hold the CFP designation must complete thirty hours of continuing education every two years.
  5. How do you invest your own money? Advisors and planners should eat their own cooking. What do they own? How do they allocate their assets? How they invest their money will tell you much about how they will handle yours.
  6. Who is your custodian? Most advisors use third-party custodians like Schwab or Fidelity to manage your money. Your advisor should not act as your trustee and custodian.
  7. Have you been fired, suspended, or sanctioned because of any legal activity? Advisors and planners are required to disclose any disciplinary actions.
  8. How often will we meet to review my account and goals? Your advisor should meet with you as often as you want or need. We offer quarterly meetings, and we’re available at any time.

As I mentioned, there are many excellent advisors, so you need to find one you’re comfortable working with and who puts your interest first.

Here are two resources to help you find an advisor, and if you can’t find one, give me a call.

Happy Searching!

“I am the greatest; I said that even before I knew I was.” ~ Muhammad Ali

August 8, 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.

Variants

The Delta Variant is throwing a wrench into the economic recovery as COVID cases spike. Companies like Microsoft, Wells Fargo, Blackrock, and Amazon are delaying returning to the office for their workers. Labor Day was a return date for some employers, but it won’t occur until January 2022. Officials canceled the New York Auto Show scheduled for August 20, and Comic-Con postponed its in-person event until 2022.  Austin raised its COVID risk level to stage 5 – the highest level.

Global COVID cases now exceed 200 million, and they do not appear to be slowing down. COVID incidents in California, Texas, Florida, and New York continue to climb.

When COVID arrived and global economies shut down, the S&P 500 fell more than 35% as investors sold stocks. The market quickly recovered, but people were left scarred over the speed and severity of the drop.

The market continues to perform well despite fears over the Delta Variant. It has been volatile lately, and the S&P 500 dipped about 3% in July – not a significant pullback, but enough to cause concern with investors. I believe our elected leaders will not shut down the economy again, but people may be cautious about venturing out. And if consumers are nervous, they won’t spend money which may cause stocks to stall or sell-off. What can you do if you’re concerned about another market sell-off due to COVID? Let’s explore a few ideas.

  1. Buy bonds. Bonds are not an attractive investment from an income perspective, but they will provide safety if stocks fall. Bonds and stocks are negatively correlated, so when one rises, the other falls. When stocks dropped in July, long-term treasury bonds climbed 4.4%. When the S&P 500 crashed in March 2020, bonds rose 36%. Many advisors, including me, have panned bonds because of low yields, but you won’t find a better investment than bonds to hedge your stock holdings.
  2. Sell stocks. Since the market bottom on March 20, 2020, the S&P 500 is up 92%, so you probably have significant gains. If you’re worried about a pullback, sell stocks and park your proceeds in cash. Reducing your stock exposure lowers your risk level.
  3. Buy the dip. If you’re sitting on cash waiting for a correction, you can buy quality companies at lower prices when the market falls. I recommend creating a list of companies you want to buy, so when stocks fall, you’re ready to pounce.
  4. Rebalance. Rebalancing your accounts will keep your risk tolerance intact. If you have not rebalanced, your equity exposure is probably higher than usual. For example, if your allocation was 60% stocks, 40% bonds five years ago, then it’s 75% stocks, 25% bonds today – too much risk! Rebalancing your accounts once or twice per year is recommended.
  5. Stay put. The market rises more than it drops. For the past 100 years, stocks have risen three-quarters of the time, and it has averaged more than 10% since 1926. Trying to time the market because of what might happen is not a wise investment strategy. Investors who liquidated their holdings in March 2020 missed significant gains. A buy and hold strategy is still an excellent way to grow, or maintain, your wealth.
  6. Follow your plan. A financial plan can calm your nerves. During the COVID correction, we regularly monitored our client’s financial plans and investment portfolios. Though the market fell sharply, it did not impact our client’s financial goals. We recommended they stay invested.

I’m frustrated with the spike in COVID, and I don’t want to work from home or wear a mask. My heart aches for those infected with the horrible disease, but I’m hopeful it will pass shortly. In the meantime, be safe, and be patient!

To lose patience is to lose the battle. ~ Mahatma Gandhi

August 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.

Do You Make These Investment Mistakes?

The market is volatile, interest rates are falling, inflation is rising, and the Delta Variant is surging.  The Dow Jones fell 725 points on Monday, but it rebounded 549 points on Tuesday. The US 10-Year Treasury yield dipped to a recent low of 1.13%, despite the inflation rate touching 5.39%. And in Florida, COVID cases are climbing again. As headline risks multiply, you may be prone to make some forced errors that could impact your financial future.

Do you make these investment mistakes?

  • Do you panic when stocks fall 1% to 2%? It isn’t easy to create wealth if you sell every time stocks fall. Panicking is a wealth killer. Rather than selling stocks when they’re down, use it as an opportunity to buy great companies at lower prices.
  • Do you participate in your company’s retirement plan? If your company offers a retirement plan and you don’t participate, you’re leaving tens of thousands, if not millions of dollars, on the table. You’re allowed to contribute $19,500 to your 401(k), and if you’re fifty or older, you can add another $6,500. Investing $19,500 for forty years can grow to more than $4 million by the time you’re ready to retire. If you can’t afford to max out your retirement plan, then contribute whatever you can – every bit counts.
  • Do you match the match? If your company offers a 5% match to your 401(k), but you only contribute 2%, you’re missing an extra 3%. If your salary is $100,000, then 3% is $3,000 per year, which can add up to more than $600,000 during your working career.
  • You are not contributing after-tax dollars to your 401(k) plan. If you max out your 401(k) contributions, you can contribute to an after-tax account if your employer allows it, substantially increasing the amount of money in your retirement plan; in some cases, you can add an extra $38,500 per year. Some call this strategy the mega back door Roth.[1]
  • Are you too conservative? If your time horizon is ten years or more, own stocks. According to Dimensional Fund Advisors, stocks made money 95% of the time over continuous ten-year rolling periods from 1926 to 2018 and produced an average annual return of 10.4%.[2]
  • Are you too aggressive? Investing in stocks when you need money in one year or less is a mistake. In the short term, stocks are violent, volatile, and unpredictable. If you want to buy a home, pay for a wedding, or take a trip in one year or less, park your money in cash or bonds.
  • Are you impatient? Creating wealth requires patience. It can take years or decades for your wealth to grow, so don’t get impatient if you don’t experience early success.
  • You aren’t diversified. Diversification is considered the only free lunch on Wall Street. If one investment zigs, another will zag. Asset allocation accounts for 93.6% of your investment return. The remaining 6.4% comes from market timing and investment selection.[3]
  • Ignore small-caps. Small-company stocks outperform large-company stocks. The Dimensional U.S. Small Cap Value Index averaged 13.1% from 1928 to 2020. A $1 investment is now worth $92,668.  The Dimensional Large-Cap Value Index averaged 11%. A $1 investment in this large-cap index is now worth $17,022.[4]
  • You attempt to time the market. Timing the market is impossible. If you invested $1,000 in the S&P 500 in 1970, it grew to $139,000 at the end of August 2019. However, if you missed the 25 best days from 1970 to 2019, or 18,139 days, your investment only grew to $32,763.[5]
  • You are investing with active fund managers. Passive index investing is better than active stock picking. The Standard & Poor’s study of passive vs. active reveals that over 15 years, 95% of active fund managers fail to outperform their benchmark, also the case for 1, 3, 5, and 10 years.[6]
  • You are only investing in US stocks. International stocks account for 43% of the world’s equity market capitalization, and if you only invest locally, you’re missing half of the world’s best investment ideas.[7]
  • You are not rebalancing your accounts. If you rebalance your portfolio, you’ll keep your risk level and asset allocation intact.
  • You are not automating your investments or payments. Automate everything like investing, paying your bills, and rebalancing your accounts. Reducing human error can improve your odds of financial success.
  • No Financial Plan. According to one study, individuals who complete a financial plan have three times the assets of those who do little or no planning.[8] Investing without a financial plan is like building a home without a blueprint. Good luck.
  • You are not working with a financial advisor. A study by Vanguard quantified an advisor relationship can add 3% in net returns.[9] An advisor can help with financial planning, estate planning, investment planning, charitable planning, and much more. 

We are our own worst enemies when it comes to investing and creating wealth. If you create a financial plan, diversify your assets, rebalance your accounts, invest often, good things can happen.

Happy Investing!

It’s good to learn from your mistakes. It’s better to learn from other people’s mistakes. ~ Warren Buffett

July 21, 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. Happy anniversary to my parents – 58 years today!


[1] https://www.wsj.com/articles/a-little-known-back-door-trick-for-boosting-your-roth-contributions-11625848733, Anne Tergesen, July 9, 2021

[2] Dimensional Fund Advisors 1926 to 2020

[3] Determinants of Portfolio Performance, Financial Analyst Journal, July/August 1986, Vol 42, No. 4, 6 pages; Gary P. Brinson, L. Randolph Hood, Gilbert L. Beebower.

[4] Ibid.

[5] https://my.dimensional.com/what-happens-when-you-fail-at-market-timing

[6] https://us.spindices.com/documents/spiva/spiva-us-year-end-2016.pdf

[7] DFA 2021 Matrix Book

[8] http://www.nber.org/papers/w17078

[9] https://www.vanguard.com/pdf/ISGQVAA.pdf

My Investment Tool Kit

A friend once told me you could fix anything with the right tool. Tom was a chain-smoking retired Air Force pilot frustrated with people who tried to fix everything with a screwdriver or a hammer. He often ranted that your project will turn out looking horrible if you don’t have the proper tools.

It’s true, the right tools help, and no one tool is better than the next. Each one has a unique purpose: a screwdriver or a hammer are each designed for something specific. My tool kit collection has grown over the years, adding to it as I worked on more construction projects. I now own several tools allowing me to tackle various projects.

Investors often look for the best single investment. They want to know what is working now. If stocks are good, bonds must be bad. However, it doesn’t work that way. Like tools, investments are designed for a specific purpose. Each one has pros and cons, but when used together, the pros outweigh the cons.

Stocks are best suited for long-term growth. If you buy stocks, you expect them to grow, and, hopefully, they’ll be worth more tomorrow than they are today. If you’re patient, they can increase your wealth over time and generate dividend income. They’re one of the best investments to own, but there is a dark side – stocks often fall significantly. Each year it’s not uncommon for stocks to lose 10% or more, and occasionally they can drop 40% to 50% as they did from 2000 to 2003, 2008, and 2020.

Bonds are safe, designed to generate income and preserve wealth, especially US Treasury bonds. Interest rates on bonds are currently low, so they’re not generating much income, but they still provide a level of protection not found in other investments. Also, treasury bonds are guaranteed. Bonds and stocks pair well together because they’re inversely related. Risks to bonds include inflation and rising interest rates. If rates rise, bonds fall. A 1% rise in interest rates will cause a 30-year bond to drop about 16%.

Cash is an investment, and it plays a vital part in portfolio construction. If you’re purchasing something today, you will likely use cash, not stocks or bonds. Cash is liquid. In addition to buying goods and services, it can be used as an opportunity fund, allowing your other assets to grow or generate income. If stocks fall, you can dip into your cash reserve to add to your holdings. Cash is an excellent short-term investment, but it will not keep pace with inflation.

Gold, silver, and other alternative investments on their own don’t do much. They don’t pay dividends, and historically their returns have been sub-par when compared to stocks, but if you fear a steep spike in inflation, then allocating a few dollars to this sector might work.

Investing in one asset class is speculation; investing in several is diversification and prudent. A portfolio of numerous asset classes will give you the best opportunity to make money. Rebalancing your portfolio at least once per year between stocks, bonds, and cash keeps your asset allocation and risk tolerance in check.

In addition to traditional assets like stocks, bonds, gold, and cash, you can add supporting tools like real estate, options, or crypto-currencies, depending on your risk tolerance.

Investments, like tools, are designed for a purpose, and they are unique to the owner. When you build your investment portfolio, make sure it fits your time horizon, goals, and personality.

Hammer away!

Work whatever tools you may have at your command, and better tools will be found as you go along. ~ Napoleon Hill

July 7, 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.