A New Year

2018 was less than kind to investors as all major asset classes finished in negative territory. Cash was the best performing asset for the first time since 1994 and only the 10th time since 1926.

Diversification is still vital for investors to obtain and maintain wealth. A mix of stocks, bonds and cash based on your goals and risk tolerance is recommended. In a “normal” market stocks outperform bonds and cash. Stocks have risen about 75% of the time over the past 100 years, but, on occasion, they drop in value like they did last year.

Investors question the wisdom of owning bonds and cash during a rising market. From March 9, 2009 to October 1, 2018, the market rose 307% or 15.7% per year! It was a great bull run. When stocks are rising 15% per year who wants to own bonds paying 2%? But when stocks fall, bonds don’t look so bad. During the 4th quarter the Dow Jones fell 12.4% while long-term bonds rose 4.6%.

Rather than trying to time the market and move in and out of stocks with precision, focus on your goals and asset allocation. Here are a few suggestions to get you started.

  • Write down your goals. What do you want to achieve in 2019 – financially, personally, professionally? If you write down your dreams, they become goals.
  • Do you have any immediate financial needs? If so, attack these items first. Don’t let them fester. It’s not possible to pursue your financial dreams if something is holding you back. A boat can’t leave the harbor if it’s tied to a dock.
  • Create a financial plan. Your plan will help you quantify and prioritize your goals. It will also determine your asset allocation and risk tolerance.
  • Develop a spending plan. Do you know where your money is going? A budget will help you create wealth over time by redirecting your spending to savings.
  • Diversify your assets. As I mentioned, stocks, bonds and cash are essential to your long-term investment success. Adding international and alternative investments to your portfolio will also help your results.
  • Rebalance your accounts. January is a great time to rebalance your accounts and return them to your original asset allocation. If you didn’t make any changes to your accounts last year, it’s possible your equity exposure is below your target allocation because of the market drop.
  • Payoff debt. Do you have car loans, credit card debt, student loans or a mortgage? If you have assets to pay off these debts, do it today! Reducing your debt level is freeing financially and emotionally. In addition, you’ll save thousands of dollars in interest payments over the life of your loan. Let’s say you owe $30,000 on a car loan with a 4% interest rate. If you paid it off, you’d eliminate your $552 monthly payment and save over $3,100 in interest payments. Can you find a better way to spend $552 per month?
  • Establish an emergency fund. The goal is to reach three to six months of expenses in short-term savings like CD’s or T-Bills. For example, if your monthly expenses are $10,000, then try to save $30,000 to $60,000. I’ve run several marathons and the hardest part has always been the first day of training. Once I started, however, the training became easier.
  • Give money to groups or organizations you support. Giving will loosen your grip on your money, help others, and make you happier.
  • Health is wealth. January is a great time to start working out. Invest some time in walking, hiking, biking, running, climbing, skiing, swimming, lifting, or anything that gets you moving.

Focus on the future. Don’t let last year’s lousy market hold you back. The Baylor Bears won 1 football game in 2017 finishing with a dismal record of 1-11. However, they didn’t let the disappointment of their horrible season ruin their plans for 2018. Rather, they trained with a process and a purpose, concentrating on those items they could control. How did they do in 2018? They won 7 games and beat Vanderbilt in the Texas Bowl – quite a turnaround.

A new year gives you 365 new opportunities – so get going!

Let your eyes look straight ahead; fix your gaze directly before you. ~ Proverbs 4:25

January 2, 2019

Bill Parrott is the President and CEO of Parrott Wealth Management firm 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 to help our clients pursue a life of purpose.

Note: Investments are not guaranteed and do involve risk. Your returns may differ than those posted in this blog.

I’m Proud of You!

Well done!  Bravo!  I’m proud of you for staying invested in the stock market for the entire year.  Despite political unrest, nuclear threats, fires, floods, and hurricanes you didn’t waiver.  Your resilience has paid off handsomely and you’ve been rewarded with outsized gains.

It was a stellar year for investors.  The Dow Jones Industrial Average returned 25.5% and the S&P 500, 19.8%.   A balanced portfolio consisting of 60% stocks and 40% bonds produced a one-year gain of 14.8%.

Here are some highs (and lows) that made 2017 special:

  • Donald J. Trump was inaugurated as the 45th President of the United States.
  • North Korea tested multiple missiles.
  • 1 Million women marched on Washington D.C. for women’s rights.
  • Star Wars: The Last Jedi, Beauty and the Beast, and Wonder Woman dominated the box office.
  • The U.K. filed Article 50 to leave the European Union.
  • SpaceX launched over a dozen rockets.
  • The total solar eclipse mesmerized viewers.
  • Hurricane Harvey destroyed a large swath of Houston, Texas.
  • Hurricane Irma terrorized the Caribbean doing the most harm to Puerto Rico.
  • The Houston Astros won their first ever World Series, beating the Dodgers in 7 games.
  • The New England Patriots won the Super Bowl – again.
  • The California Wildfires torched over 1 million acres.
  • The horrific, senseless tragedy in Las Vegas.
  • Leonardo da Vinci’s painting, Salvator Mundi, sold for $450 million.
  • The International Olympic Committee banned Russia from the 2018 Winter Olympics.
  • The Federal Reserve raised its benchmark interest rate.
  • Congress passed the Tax Cuts and Jobs Act.
  • Bitcoin is at the center of the crypto currency craze.
  • Prince Harry is engaged.
  • Always Dreaming won the Kentucky Derby.

As we move towards 2018 I’d encourage you to follow your financial plan and stay invested.   One of the best ways to create long-term wealth is to own quality stocks from around the world.  A balanced portfolio of low cost mutual funds will give you the exposure you need to participate in the upward trend of the stock market.  Furthermore, a buy and hold strategy will allow you to enjoy the market’s historical returns.

Give yourself a pat on the back and celebrate your good year!  Well done! Bravo! Encore!

The more you praise and celebrate your life, the more there is in life to celebrate. ~ Oprah Winfrey

Bill Parrott is the President and CEO of Parrott Wealth Management an independent, fee-only, fiduciary financial planning and investment management firm in Austin, TX.  For more information please visit www.parrottwealth.com.

December 29, 2017

Note:  Past performance is not a guarantee of future returns.  Your returns may differ than those posted in this blog.  Investments are not guaranteed and may lose value.