Dow 36,000

The Dow Jones Industrial Average will top 36,000 at some point. It’s not much of a forecast because the Dow is currently trading at 35,645, and it surpassed 36,000 only a few weeks ago. However, in 1999, authors James K. Glassman and Kevin A. Hassett projected the Dow would soar above 36,000, which they outlined in their book Dow 36,000: The New Strategy for Profiting From the Coming Rise in the Stock Market. It was a bold prediction because the Dow was trading at 10,700 at that time. They argued that stocks were undervalued, and the index would triple in value over the next few years. When they made their prediction, the Dow had soared 168% from 1995 to 1999, averaging 24% per year. How did their prediction turn out?

The Dow peaked about a month after their book was published, and by 2003, the index dropped 23%. It did rebound before crashing again in 2008 to a low of 6,875. Twenty-two years later, their prophecy rang true as the Dow breached 36,000.

Dow 36,000 doesn’t have any shock value today, but how about Dow 250,000? What is your reaction to the index soaring 600%? If the market were to jump seven-fold, how would you allocate your portfolio today? Would you buy stocks or bonds? Would you worry about market corrections?

Why Dow 250,000? Dow 250,000 is a twenty-year goal if the index rises 10% per year. Since 1915, stocks averaged 6.3% per year without dividends.[1] If we included dividends, the average annual return would have been 10%, so my target is not far-fetched. Will the Dow best 250,000? Who knows? It might. If I’m half right, the index will triple from today’s value.

The Dow has tripled since Messrs. Glassman and Hassett published their book despite several recessions, numerous market corrections, rising interest rates, falling interest rates, high inflation, low inflation, and four different presidents – two Democrats, two Republicans.

The stock market rises about three-quarters of the time, so don’t worry about short-term moves. Instead, follow your plan, invest often, and let the long-term trend of stocks grow your wealth.

Prediction is difficult – particularly when it involves the future. ~ Mark Twain

November 24, 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/1319/dow-jones-100-year-historical-chart

21 Predictions for 2021

It’s the season of Wall Street predictions, so I’m throwing my hat into the ring to offer 21 projections (guesses) for 2021. If I predict all 21 correctly, I’m sure to garner immense fame and fortune. I may even be herald as the next great futurist with book deals, movie offers, and television appearances to follow. If I’m wrong and all my ideas fail, there’s no downside because most forecasters are wrong about the future. If you need proof, look no further than 2020. How many experts, gurus, wizards, pundits, and pontificators correctly predicted a global pandemic, a stock market crash, working from home, or the rise of Peleton? I will tell you – none.

Here are my 21 predictions for 2021.

  1. The 100-year average annual return for the S&P 500 has been 10%, so the stock market will earn 10% next year.
  2. The current inflation rate is 1.18%, well below the 106-year average of 3.22%. Inflation will stay below 2% for the first half of the year before rising above 2.5% during the second half as we emerge from our COVID quarantines.
  3. Pfizer, Moderna, and other pharmaceutical companies will distribute the COVID vaccine globally, and global economic activity will escalate in the second half of 2021.
  4. The yield on the 10-year US Treasury note is .95%, far below the 58-year average of 6.02%. The rate will rise above 3% as inflation returns.
  5. Small-cap stocks will outperform large-cap stocks. For the past six months, the small-cap index has outperformed the NASDAQ and S&P 500; this trend will continue.
  6. International stocks will outperform US stocks. Since June, they have bettered the NASDAQ and S&P 500.
  7. Long-term bonds (20+ years) will deliver negative returns next year as inflation returns and interest rates rise. The iShares 20+ Year Treasury Bond ETF (TLT) is down 2.5% since June. If interest rates 1%, the price of a 20-year bond will fall approximately 15%.
  8. Working from home stocks (DOCU, PTON, ZM, etc.) will fall in price as we return to our offices and leave our homes, and investors focus on valuation metrics like earnings and cash flow.
  9. The US Gross Domestic Product growth rate will rise above 5%, well above the 73-year average of 3.16%.
  10. Prices for vacation homes will continue to surge as families escape big cities like Los Angeles, San Francisco, Chicago, and New York. Ranches, beach homes, and mountain cabins will remain popular investments. My home town of Austin, Texas, will be a significant beneficiary of this trend.
  11. Companies will allow their employees to work from home or anywhere, further depressing corporate real estate valuations like office properties.
  12. Bitcoin will replace the US Dollar, the Euro, the British Pound, and the Yen as the global currency. Not really, but it will remain a volatile alternative asset class similar to gold, oil, or timber.  PayPal and Square will expand their Bitcoin offerings, so Bitcoin’s price should continue to rise.
  13. The unemployment rate will fall below 5%. It currently stands at 6.7%, and the 72-year average has been 5.77%.
  14. US public debt will climb above $30 trillion as Washington pumps more stimulus money into the economy. The current balance is $26.48 trillion. The increase in debt will have little impact on interest rates or the stock market.
  15. Merger and acquisitions will be robust next year as corporations look to expand their offerings. Low-interest rates and large cash balances will fuel the M&A boom. Apple will lead the way as they sit on $193 billion in cash and short-term investments.[1] If Apple wanted to, they could even buy a few countries like Hungary, Morocco, or Costa Rica.
  16. A new Roaring Twenties will start during the second half of 2021.
  17. Formal dress wear, high-end clothing, and custom outfits will make a comeback as people will tire of wearing yoga pants, sweats, and slippers. No one will be happier than my dad when this happens.
  18. Charitable donations and volunteerism will rise as people reach out to those economically stranded due to the pandemic.
  19. National park attendance will mushroom next year as people explore our great nation.
  20. The Baylor Bears men’s basketball team will win their first-ever NCAA championship under the leadership of Scott Drew – the Wizard of Waco.
  21. 2021 will be a good year because my mom says good things happen in odd years, and I never bet against her or her wisdom. My prayer is that 2021 will be less odd than 2020.

I was a peripheral visionary. I could see the future, but only way off to the side. ~ Steven Wright.

December 4, 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 are predications and guesses only, and actual events may vary.

Data provided by YCharts as of 12/4/2020,


[1] https://www.cnbc.com/2020/07/30/apple-q3-cash-hoard-heres-how-much-apple-has-on-hand.html, Jessica bursztynsky, July 30, 2020

Same As It Ever Was

Election day has come and gone, and pollsters once again missed their mark. In 2016, they forecasted a Clinton landslide, and she lost. This year, Biden was projected to win by double digits, and a blue-wave would overtake the House and Senate. The election is not officially over, but it won’t be a double-digit victory, and we did not experience a blue-wave. Same as it ever was.

In 1948, Thomas Dewey was declared a winner over Harry Truman by the Chicago Tribune. They were wrong. Harry Truman famously held up their newspaper with the headline: “DEWEY DEFEATS TRUMAN.”[1]

In 1946, Darryl Zanuck, movie producer at 20th Century Fox, said, “Television won’t last because people will soon get tired of staring at a plywood box every night.”[2] Have you binged on Netflixed lately?

Decca Recording Company refused to sign the Beatles in 1962 because “We don’t like their sound, and guitar music is on the way out.”[3] They probably had a hard day’s night by not signing the Beatles.

Ken Olson, president, chairman, and founder of Digital Equipment Corporation, said, “There is no reason for any individual to have a computer in his home.”[4] Can you imagine working from home without a computer during the pandemic?

The San Francisco 49ers were a pre-season favorite to win Super Bowl 55, but since they started playing actual games, they will finish in the middle of the pack, at best.

Forecasting anything is challenging, especially in the short-term.

It will snow in Colorado this year, but who knows when it will start, how much will accumulate, and when it will end. No one knows if it will snow on December 7 in Estes Park, but it may.

Trying to predict the direction of the stock market may be the most challenging to forecast. Fortune Magazine told readers last week to “Buckle up, investors: it might be a rough few days.” One Wall Street veteran said, “The S&P 500 ‘could easily dip into correction territory on Monday; it wouldn’t be surprising if that happened.'”[5]  What happened? The Dow Jones rose 5.08% or 1,346 points.[6]

The stock market has averaged 10% per year for the past 100 years regardless of who wins the Super Bowl, snows in Colorado, or occupies the White House.

The bottom line is that no one knows what will happen today, tomorrow, next week, or next year.

As an investor, what can you do if no one can predict the future? Here are my suggestions.

  1. Invest according to your goals. A financial plan can help you quantify and prioritize your goals. Are you saving for college or retirement? Do you want to buy a new car or a vacation home? Your goals will determine your asset allocation. If you need your money in one year or less, invest in cash. If your time horizon is five years or more, invest in stocks.
  2. Invest for growth. For the past twenty-five years, my asset allocation has been 75% stocks, 25% bonds regardless of market conditions. When stocks rise, I rebalance my portfolio to buy more bonds. When they fall, I sell bonds to buy stocks. I don’t care what the stock market does today because I don’t need my money for another fifteen years or so. And, on some days, I can’t remember if the market was up or down.
  3. Don’t time the market. After the market correction in March, several investors sold stocks and parked their money in cash, missing a 50% rebound in stocks. Last week, I fielded a few calls to see if we should sell stocks before the election and repurchase them after it was over. I told them to stay invested, thankfully. Investing is not a binary event. Moving from stock to cash and back is a loser’s game.
  4. Save early and invest often. The amount of money you save will significantly impact your wealth more than trying to time the market. Investing $1,000 per month at 7% will be worth $1.2 million in thirty years. The more money you save today, the larger your account balance will be tomorrow; it’s simple math.
  5. Invest in a globally diversified portfolio of low-cost funds. Global exposure will give you access to large, small, and international companies. A diversified portfolio works well over time because you never know when, where, or why which markets will move.

Trying to predict the future is a waste of time and energy, so don’t do it. Rather than worrying about what will happen tomorrow, live for today, enjoy your life, love your neighbor, and count your blessings.

Therefore do not worry about tomorrow, for tomorrow will worry about itself. Each day has enough trouble of its own. ~ Matthew 6:36

November 5, 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] https://www.history.com/news/7-failed-predictions-from-history

[2] https://www.boredpanda.com/bad-future-predictions-timeline-history/?utm_source=google&utm_medium=organic&utm_campaign=organic

[3] http://www.atchuup.com/famous-predictions-proven-wrong/

[4] Ibid

[5] https://fortune.com/2020/10/30/the-sp-500-could-easily-dip-into-a-correction-before-the-election-on-tuesday/, Anne Sraders, October 30, 2020

[6] YCharts – DJIA, 10/30/2020 – 11/4/2020

How to Survive a Stock Market Correction.

The Dow Jones Industrial Average continues to ascend to new heights.  The higher the market climbs, the more noise you’ll hear about a stock market correction.  At some point those calling for a market correction will be right.  Stock market corrections are typical and occur about every three to five years.   A bear (down) market will last about 18 months while a bull (up) market will run for about 8 years.[1]

How can you protect yourself against a bear market attack?

  1. Don’t panic! A market drop is normal, painful, but normal.
  2. Don’t make any changes to your portfolio during the initial phases of the market correction. Let the market find its footing before you make any major adjustments to your account.
  3. Cash is king. If you have a cash cushion, you’re less likely to make rash decisions regarding your stock holdings.   How much money should you keep in cash?  My recommendation is for you to hold two to three years’ worth of expenses in cash.  If your annual expenses are $50,000, then your cash amount should be in the range of $100,000 to $150,000.
  4. Diversify your assets. A balanced portfolio of stocks, bonds, cash and alternative investments will help cushion the blow from a market drop. During a market drop it’s likely your bonds will perform well.  During the 2008 market mauling long term U.S. government bonds rose 25.9%.[2]
  5. Rebalance your portfolio. By rebalancing your portfolio, you’ll take advantage of lower stock prices.  Rebalancing will allow you to keep your risk level and asset allocation in check.
  6. Eliminate your margin balance. A sure way to lose more than you intended is to use leverage.  If you’ve tapped the margin in your account to buy securities, I would encourage you to eliminate it entirely.   The best way to make a bad situation worse is to employ margin in a down market.
  7. Stay invested.  The two days following the stock market crash of October 19, 1987 the Dow Jones Industrial Average rose 16%.  Despite the dramatic drop of Black Monday, the Dow ended 1987 with a gain and has since risen 1,100%.
  8. Look for bargains. Is it possible your favorite stock is now 25% or 50% cheaper?  If you’re not sure what to purchase, focus on a broad-based index fund.   An index fund will allow you to gain market exposure with the click of your mouse.
  9. Think long term. A bear market lasts about 18 months.  It’s likely you’ll own your investments for years, maybe decades, before you need the money.   Thinking generationally will help get you through the dark days of a market downturn.
  10. Markets recover. The stock market has always recovered – always!  The Dow is currently trading near its all-time high.
  11. Have fun. The market will go up, down and sideways long after we’re gone.  Instead of marinating in a stew of worry get outside and enjoy your friends, family and hobbies.

Stock market corrections come and go.  The market is a long-term wealth creation machine that is occasionally interrupted with a pullback.  If you stick to these tips, you’ll have an opportunity to benefit from the stock markets long term performance.

Even though I walk through the darkest valley, I will fear no evil, for you are with me; your rod and your staff, they comfort me.  ~ Psalm 23:4.

Bill Parrott is the President and CEO of Parrott Wealth Management, LLC.   For more information on financial planning and investment management, please visit www.parrottwealth.com.

March 10, 2017

[1] https://www.forbes.com/sites/robertlenzner/2015/01/02/bull-markets-last-five-times-longer-than-bear-markets/#12745f772dd5, Robert Lenzer, January 2, 2015, site accessed 3/10/17.

[2] Dimensional Fund Advisors 2016 Matrix Book.

Dump the Trump Bump?      

The stock markets (all of them) continue to soar to new heights.   Since the presidential election, the Dow Jones Industrial Average is up 14.5%.   Several experts are a calling for the market to give back these gains and then some.   One advisor has called for the stock market to fall as far as 11,500 a drop of 44% from the current level.[1]  Another has called for a “$68 trillion biblical collapse.”[2]  Finally, one economist has said the stock market is currently 80% overvalued.[3]  Scary.

Is it wise to sell your investments and ride out the coming stock market decline?

Let’s look at some history.

The Standard & Poor’s 500 Index is up 20% on a year over year basis.  For the past five years, it’s up 93.3%.  During the last fifteen years, it has gained 173.2%.  Over the past twenty years it has risen 321%.  For the record, the stock market has never fallen 321%!

Looking back to 1987, a portfolio owning the Vanguard S&P 500 Index Fund and the Vanguard Total Bond Fund generated a total return of 977%.   A $100,000 investment is now worth $1,075,000.  During the past thirty years, this portfolio’s best year was in 1995 gaining 27.80%.  2008 was the worst year as it dropped 16.57%.  In this simple portfolio, you own some of the markets best performers including Apple, Microsoft, Amazon, Berkshire Hathaway and Facebook.

What should you do as the market continues to climb to new heights?   Here are few suggestions.

  1. Nothing. You don’t have to do anything.  History tells us that time in the stock market is the best way to create a mountain of money and produce generational wealth.
  2. Diversify. If 100% of your money is invested in the Dow Jones or S&P 500, move some of it to other investments like small companies, international companies or bonds.
  3. Plan. What does your financial plan say?  Have you arrived at your financial destination because of the markets rise?  If so, sell some of your equity holdings to reduce your risk exposure.
  4. Buy. If the market does drop 20% or 30%, then buy the dip.  Adding to your equity holdings when the market drops has proven to be a prudent financial strategy.
  5. Give.  If you have benefited from the rise in the market, take some gains and donate the money to your favorite cause.

Of course, no one knows what the stock market will do or when.   The best strategy is to focus on your goals, save your money and think long term.

Predicting rain doesn’t count. Building arks does. ~ Warren Buffett.

Bill Parrott is the President and CEO of Parrott Wealth Management, LLC.  www.parrottwealth.com.

February 14, 2017

 

Note:  Your investment returns may be more or less than those posted in this blog.  Past performance is no guarantee of future results.  The financial data has been generated from the Morningstar Office Hypothetical Tool as of 2/14/17.
 

[1] http://www.cnbc.com/2016/06/22/dow-11500-is-a-matter-of-when-not-if-advisor.html, Michelle Fox, June 22, 2016,.

[2] http://thesovereigninvestor.com/exclusives/80-stock-market-crash-to-strike-in-2016/, JL Yastine, January 30, 2017.

[3] Ibid.

It Will Rain on May 23rd, 2025. At Noon.

Will it rain on May 23rd, 2025?  I have no idea.  It may.  Who knows.  If it does rain, I’ll look smart.  I have a 50/50 chance.  It will either rain or it won’t.   A major-league baseball player who hits safely 50% of the time and ends up with a batting average of .500 would be considered the greatest athlete of all time.   An NFL place kicker who makes 50% of his field goal attempts will be fired.

Investors and media folk put their faith in stock analyst and treat their picks and price targets as Gospel even though they’re right only about 50% of the time.  In a 2012 report from Nerd Wallet they found analyst who followed the thirty stocks in the Dow Jones Industrial Average were right in their stock picks 51% of their time.[1]  In a deeper study from researchers at the University of Waterloo and Boston College they found analyst missed their price targets about 70% of the time.[2]  Regardless, analyst continue to make bold stock predictions and investors continue to hang their hat on these guesses.

One way to beat the analyst and Wall Street at their own game is to own a basket of index funds.  With an all index portfolio, you don’t have to worry about stock picks or price targets.  With an index portfolio, you’ll have the opportunity to own companies all over the world with access to all the investment sectors.

There may be a conflict of interest for an analyst to recommend a stock they own but it has always surprised me when they don’t own one share of the company they’re flaunting.  If an analyst was so sure a stock was going to climb 20% or more why not own a few shares themselves?

In a recent Wall Street Journal article about market predictions, analyst have prophesied about positive market returns every year since 2000 even though the stock market has fallen about a third of the time.  The 2008 forecast from Wall Street strategists were pointing towards a positive year.  In 2009, their outlook was dire.[3]

Can you succeed as an investor without analysts or Wall Street?  I believe you can. A simple strategy is to own a diversified basket of low cost index funds.

The following portfolio generated an average annual return of 8.25% over the past twelve years.  This year, through November, the portfolio is up 9.95%.   Here is the all-equity portfolio[4].

  • IVV – iShares S&P 500 Index.
  • VO – Vanguard Mid-Cap Index.
  • IJR – iShares S&P 600 Index.
  • VNQ – Vanguard Real Estate Index.
  • EFA – iShares MSCI EAFE International Index.
  • EEM – iShares MSCE Emerging Markets Index.

However, this portfolio did miss the mark on occasion.   During the twelve-year run, it had three losing years with a drop of 40.8% in 2008.   It did rebound a year later with a return of 38.8% followed by a 19.4% jump in 2010.

As we move towards 2017 it may be time for you to adjust your New Year’s resolutions to focus on a low cost, diversified index portfolio.  My prediction is that you’ll find it beneficial towards your long term financial health.

Never make predictions, especially about the future. Casey Stengel

[1] https://www.nerdwallet.com/blog/investing/investing-data/investment-stock-analyst-ratings-stockpicking-research-wrong/; Nerd Wallet, April 16, 2013.

[2] http://business.financialpost.com/investing/analysts-target-prices-rarely-accurate-global-study-finds?__lsa=4ddd-c96b; David Pett, March 7, 2013.

[3] Wall Street Journal, December 9, 2016; James Mackintosh

[4] Morningstar Hypothetical Tool.  November 2011 to November 2016.