Social Security Facts and Data

The Social Security Administration is chockfull of data, and its website is a valuable planning tool. Below is some useful information.

  • Sixty-six million Americans are receiving a Social Security benefit totaling one trillion dollars. As a comparison, the US GDP is $25.7 Trillion.
  • Sources for Social Security revenues (2020): 89.6% = payroll tax; 6.8% = interest; 3.6% = Taxation of benefits.
  • There are 2.8 covered workers for each Social Security beneficiary, which could drop to 2.3 in 2035.
  • The median benefit for all beneficiaries is $1,590.
  • The median benefit for men is $1,814.
  • The median benefit for women is $1,403.
  • About 90% of people age 65 and older are receiving Social Security benefits.
  • 37% of men and 42% of women receive 50% or more of their income from Social Security benefits.
  • About 1 in 4 individuals may become disabled before age 67.
  • The number of Americans age 65 or older may increase to 76 million from 58 million by 2035.
  • 32% of workers do not have access to a pension plan.
  • 63% of workers save for retirement through their company plan.
  • The 2023 cost of living adjustment for the Social Security benefit is 8.7%.
  • By 2050, 80% of divorced spousal beneficiaries may be women.
  • The full retirement age for individuals born before 1954 is 66.
  • The full retirement age for individuals born after 1960 is 67.
  • If you’re divorced, your ex-spouse qualifies for benefits based on your earnings, but it will not impact your Social Security payout. To qualify for benefits, they must be 62 or older and unmarried.
  • The eligibility range for benefits is age 62 to 70, and your benefit increases by approximately 8% annually until age 70. For example, if your monthly payout at age 62 is $1,700, it could rise to $3,146 at age 70.
  • Your lifetime earnings determine your benefits, and the administration uses 35 years of wages in which you earned the most money.
  • The life expectancy for a male aged 67 is 17.6 years.
  • The life expectancy for a female aged 67 is 20.1 years.
  • On your personal Social Security site, you can check your benefits, estimates for your spouse, and employment history.
  • Create your Social Security page here: https://www.ssa.gov/myaccount/
  • The Social Security website has several calculators to help you optimize your benefits. https://www.ssa.gov/benefits/calculators/

I encourage you to establish your online account with the administration to track your benefits and income history to ensure you’re maximizing your benefits.

The data from the Social Security Administration is helpful but frightening. For example, the median benefit for all recipients is $1,590. A significant percentage of individuals rely on their payout for half their income, meaning many live on approximately $38,000 annually before taxes. Also, women may account for 80% of divorced spousal benefits by 2050, and 63% of workers are saving for retirement through their company plan, suggesting 37% are not.

Moral of the story: You must save money when you start working, and the more you save, the better. If you don’t invest regularly, you’re putting your faith in Social Security to cover all your retirement expenses, and the data says it is not a good idea.

The trouble with retirement is that you never get a day off. ~ Abe Lemons

December 1, 2022

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: www.ssa.gov

Are You Ready To Retire?

Are you ready to enjoy your golden years? Retirement is a goal for most investors, especially those who have faithfully contributed to their 401(k) plan for three or four decades. Is it time to cash in your chips and go all in on retirement?

A successful retirement requires years of planning and covers three main topics: Where will you live? What will you do? How will you pay for it? Let’s explore each subject.

Where to live?

A key component of retirement is where to live. Do you want to retire in your hometown or move to an exotic location? I love the beach, and living in Laguna Beach, La Jolla, or Maui ranks high on my list, but I also love the mountains, so Estes Park and Colorado Springs are strong contenders. I love sunshine, which removes the Pacific Northwest and the United Kingdom. I want access to restaurants, entertainment, sporting events, hospitals, and airports, eliminating most rural areas. After you decide on your retirement destination, will you supersize your home or downsize it so it’s economically affordable? Of course, if you invest well, you can own multiple homes. According to the Department of Labor, housing accounts for approximately 32 percent of expenditures for those aged 65 and over.[1]

List your top three retirement destinations.

  1. _________________________________________________________________________
  2. _________________________________________________________________________
  3. _________________________________________________________________________

What will you do?

What will you do in retirement? Do you want an active retirement or one of leisure? I plan to hike, bike, ski, fish, dive into a good book, and watch movies. I also plan to volunteer and serve others. Having hobbies is paramount in retirement and will keep you active and focused. Another possibility is to turn your hobby into a revenue-generating machine by selling your goods through Shopify or Etsy. Hobbies can improve your health, and according to WebMD, they reduce stress, promote mental health, and improve relationships.[2]

List your top three hobbies.

  1. _________________________________________________________________________
  2. _________________________________________________________________________
  3. _________________________________________________________________________

How will you pay for it?

After you decide where to live and what to do, how will you pay for it? If you plan well, then your resources should be able to support your lifestyle. Before you send the retirement email to your boss and colleagues, take an inventory of your assets. What do you own – stocks, bonds, mutual funds? In addition to your investments, will you receive a pension? And don’t forget Social Security because it will be a primary ingredient of your retirement income. How much income can you expect in retirement? If your investment portfolio is $1,000,000, expect an annual income stream of $40,000; if your Social Security is $30,000 per year, your projected retirement income is $70,000 before taxes. Keeping tabs on your expenses is a must in retirement, and controlling your spending can prolong your retirement assets. Of course, the opposite is also true. If you spend with reckless abandon, you could run out of money.

What are your top three sources of retirement income?

  1. _________________________________________________________________________
  2. _________________________________________________________________________
  3. _________________________________________________________________________

Retirement is an exciting time, but do you need to wait until your sixty-five? No. If your assets support your lifestyle, you can retire anytime; no need to wait until your employer offers you a gold watch, but how do you know you won’t run out of money? A financial plan can tell you if you’re on track to leave the workforce. It quantifies your hopes, dreams, and fears and will project your future spending based on your current assets, spending limits, and financial goals.

A person retiring at age 40 needs more growth assets than one retiring at 75 – age matters. Owning stocks allows your money to combat inflation, and inflation will destroy your purchasing power if you leave your money parked in cash or T-Bills. Do not retire your assets when you retire because stocks can help you enjoy a fruitful retirement, despite their recent performance.

If you’re not ready to fully retire, consider taking a few months off as a trial run. Rent a home in a different city, cruise the seven seas or volunteer in a national park. Give it a try; you can always return to your nine-to-five job.

Beware the hobby that eats. ~ Benjamin Franklin

August 22, 2022

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management, located in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so you 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. We have waived our financial planning fee for the remainder of the year, so your cost is $0.00.

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. Ideally, I will own homes in Colorado and California to enjoy surf, sand, and snow.


[1] https://www.bls.gov/opub/btn/archive/housing-expenditures.pdf

[2] https://www.webmd.com/balance/health-benefits-of-hobbies, Venkat S.R. and reviewed by Poonam Sachdev, 5/23/2022

What Is Your Fee?

A prospect recently visited a financial planner’s website and had the following conversation.

Welcome to my office. How can I help you today?

I viewed your website and am impressed with your credentials and firm status, but I have several questions regarding your fees.

Sounds good; fire away.

Okay. I noticed you have several fee options, but I don’t understand the difference. Can you explain why you have so many choices?

Absolutely. We offer multiple fee schedules because clients like to choose the best structure that fits their needs. We offer four distinct plans: an asset management fee, a flat fee, an hourly rate, and a financial planning fee.

I Got it. What’s the difference?

It’s simple, really. We charge a 1% asset management fee for managing your money and completing a financial plan. For example, if you invest $1 million, the cost is $10,000, and if your account increases to $2 million, your new rate is $20,000.

I see. The 1% fee seems high. Is it not?

No way. It’s the industry standard, and we profit when you profit.

What’s next?

We offer a flat fee for asset management and financial planning of $10,000 per year.

If my account is $1 million, I pay $10,000. Is that not a 1% fee?

It is, but it’s a flat fee. Do you see the difference?

No, not at all.

If your account rises or falls, you only pay $10,000.

What if my account drops to $500,000?

It’s still $10,000.

Now my fee is 2% per year – correct?

Technically, yes, but it’s a flat fee of $10,000, and we don’t use percentages or refer to it as a fee-based account if we charge you a flat fee. Does this help?

No. Let’s move on to your hourly rate.

You bet. Our hourly rate is $500 per hour.

Wow. How many hours does it take to finish a plan?

About twenty hours, give or take.

Really? Your hourly rate is $500, which takes twenty hours, so your fee is $10,000? It Is the same rate as your two other options.

I guess it is, but different because it’s an hourly rate.

Let’s move on to the last one, financial planning only. Let me guess. Is it $10,000?

How did you know?

It’s just a hunch.

Our financial plan only module is $10,000. We set up your plan with instructions on how to implement it yourself.

My self? What do you mean?

We give you the finished document, and then you select your investments, manage your assets, and rebalance your accounts. Also, you’ll need to implement our recommendations for creating trusts, buying life insurance, changing beneficiaries, etc. It’s a simple process.

Simple?

Absolutely. You can open a Vanguard account, select two or three mutual funds, and you’re up and running! After opening your accounts, you can Google estate planning attorneys, life insurance agents, CPAs, etc. They will assist you with the remaining areas of your financial plan.

It sounds like I’m doing most of the work. Is your plan worth $10,000?

Yes, on both accounts.

What if I need to update my plan?

Your fee is good for one year; we charge $500 per hour to update your plan.

All your fees are almost identical.

I guess they are. I’ve never noticed that before. Odd.

I’m going to check with a few more firms to compare notes. I’ll get back to you soon if I want to proceed.

Thank you. When you check out other firms, please ensure you only work with an advisor with an “O” and not an “E.” There is a big difference.

Really?

You bet. Good luck with your due diligence, and thank you for coming to my office today.

May 30, 2022

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

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

5 Things Worse Than A Stock Market Crash

Stocks are tumbling, led by the Nasdaq. The tech-heavy index is down more than 25 percent this year. Numerous stocks have fallen more than 50 percent as investors sell speculative growth stocks, including Peleton, Teledoc, Palantir, Roblox, Redfin, Shopify, and Coinbase. Giant companies like Amazon, Disney, and Facebook have dropped more than 30 percent. It’s an ugly market.

However, I’m not worried because the market has always recovered. The Nasdaq crashed in 2000, 2008, and 2020, and despite the corrections, it bounced back to all-time highs. I’m optimistic the Nasdaq will return to its winning ways.

Stock market corrections are terrifying, but here are five items that can permanently destroy your family’s financial future.

  1. No savings. Saving money is the ultimate way to create generational wealth. After you get paid, allocate money to your retirement account, savings account, and emergency fund. How much should you save? As much as you can! A recommended savings percentage is 10% of your income. Timing is also essential, and the sooner you start, the better. If you habitually save money, then market corrections become less of an issue because you built a margin of safety, allowing your stocks to rebound and recover. I’ve noticed individuals who do not save money panic and sell when their investments fall because they don’t have a margin of safety or financial cushion. I don’t know how much your account balance will be worth if you regularly save money, but I do know if you don’t save any, it will be worth zero.
  2. No emergency fund. An emergency fund is essential during uncertain times and extreme market volatility. Investors prefer not to allocate funds to cash when stocks are soaring because it’s an earnings drag, but when stocks crash, cash is king. An emergency fund allows you to meet your obligations as stocks fall. What is the recommended amount? An emergency fund covering nine to twelve months of expenses is suitable if you’re working. For example, if your monthly expenses are $10,000, an emergency fund of $90,000 to $120,000 is appropriate. If you’re considering retirement, plan to cover three years of expenses. If your annual expenses are $120,000, then prepare for a balance of $360,000. A three-year cash cushion will help if you retire during a stock market collapse.
  3. No will. Dying without a will or estate plan is unacceptable, especially if you’re married or have children. Don’t leave your estate distribution plan to a probate court or state-appointed attorney. If you have substantial assets, hire an estate planning attorney. A good estate planning attorney is expensive but cheaper than trying to settle your estate without the proper documentation.
  4. No life insurance. Providing for your loved ones is paramount. If you owe money to your bank, have young children, or a spouse, then providing for their needs after you’re gone is a must. A lack of insurance planning can leave your family desperate to make ends meet. Spending a few dollars on insurance premiums can eliminate a lifetime of worry for your heirs.
  5. No financial plan. A financial plan quantifies your hopes and dreams and addresses the first four issues in this blog. During challenging markets, a financial plan brings financial peace. One of the first things we check when conducting financial reviews for our clients is the financial plan, and it gives us the confidence to make sound recommendations void of emotions or opinions. Most financial planning software accounts for wide market swings, so a significant market correction will not derail the majority of plans, which is the case for our clients.

Market corrections are painful, disruptive, and untimely but temporary. If you don’t save money, have a will, or own life insurance, you can permanently damage your family’s financial future.

The time to repair the roof is when the sun is shining. ~ John F. Kennedy

May 16, 2022

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

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

Ready To Retire Early?

Early retirement sounds lovely. Sitting on the beach, hiking in the mountains, or traveling the world without care is tantalizing. When I was 25 and single, I created a rudimentary financial plan. Since I wasn’t married, didn’t own a home, or have any children or pets, I could retire early.

Dr. Laurence J. Kotlikoff, Professor of Economics at Boston University, said, “early retirement is one of the worst money mistakes.” He added, “We are, as a group, lousy savers, making early retirement unaffordable. Financially speaking, it’s generally far safer and far smarter to retire later.”[1]

To retire early requires significant resources or a spartan lifestyle. If you retire at 45, you could live for another 55 years, so you need to support yourself from savings and Social Security. How do you replace 55 years of income? Retiring at 45 requires about $2.5 million in assets if you spend $100,000 per year. Can you rely on Social Security to fund your retirement? According to Dr. Kotlikoff, the average Social Security benefit is $18,000 per year.[2]

Are you ready to retire early? Here are a few suggestions.

  • Save early and often. The more money you save, the better your chances of retiring early. Determine the amount you need to achieve your goal. If you’re 25 and want to retire at 50 with $2 million in the bank, you need to save about $2,000 per month.
  • Working. Working is not retiring, but you could travel the world and pick up odd jobs or part-time work. It is easier than ever to generate income in the new gig economy. If you have a laptop, you can work from anywhere.
  • Taxable accounts. Investing in a taxable account gives you access to your funds at any time. If you contribute all your money to a retirement account, you’re penalized 10% if you withdraw your money before age 59.5.
  • Healthcare. Medicare starts at age 65, so finding affordable healthcare is vital. Regardless of your retirement age, healthcare will be a significant expense.
  • Expenses. If your annual spending is $100,000 per year, you need about $2.5 million in assets to retire. If you reduce your costs to $75,000, your asset level drops to $1.875 million. To find your number multiply your expenses by 25. The lower your expenses are, the fewer assets you need to retire.
  • Hobbies. What will you do in retirement? Do you have any hobbies? Reading? Hiking? Golfing? Fishing? An active lifestyle is a crucial component of longevity. Sitting on your couch all day is not healthy and doesn’t sound too exciting.
  • Social Security. Forty quarters of credit or ten years’ worth of work is needed to receive full benefits. You can start receiving Social Security benefits at age 62, and the maximum age is 70. Your payment rises about 8% per year between ages 62 and 70. If your income is $18,000 at age 62, it could increase to $33,316 at age 70. You may need Social Security at age 62 if you lack savings.
  • Financial Plan. A financial plan can answer several questions about your pending retirement. Can you afford to retire early? Will your money last forty to fifty years? How much money do you need to save monthly to reach your goal? A plan is paramount.

Are you ready to retire? Give it a go if you have the assets, a plan, a compass, and good hiking shoes. You can always return to the workforce if needed. Happy retirement!

What’s Enough? What’s the answer? ~ Leon Cooperman

February 2, 2022

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

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


[1] https://www.cnbc.com/2022/02/01/why-early-retirement-is-one-of-the-worst-money-mistakes-youll-regret-says-harvard-economist.html, Laurence J. Kotlikoff, Contributor, CNBC February 1, 2022

[2] Ibid

Do You Need A New Company Retirement Plan?

According to one study, nearly half the American population worry they won’t have enough money to retire.[1] People dream of their golden years strolling the beach, hiking a mountain trail, or visiting loved ones. Few people want to work forever.

New year, new plan? Is it time to upgrade your company’s 401(k) plan? As an owner, you wear many hats, including fiduciary. As a fiduciary, you need a written summary plan description, record-keeping system, and documents to provide your employees.[2] You must also act in your employees’ best interests, follow your plan documents, diversify the plan assets, and pay reasonable expenses.[3] You can help your employees retire in style by offering a competitive 401(k).

Moving a 401(k) plan from one provider to the next requires effort, so you don’t want to do it often. Let’s review a few reasons why it makes sense to improve your plan.

  1. High Fees. Fees are like termites, and if you don’t eradicate them, they will eventually eat your home. It’s imperative to review your service provider fees, fund expenses, and administrative costs. A benchmarking study can help you determine if they are in line with the industry or not.
  2. Poor Performance. Do you have a subpar fund lineup? If your plan includes expensive mutual funds, variable annuities, or stable value funds, a new low-cost investment lineup could pay dividends and benefit your employees.
  3. No Service. If your service provider is slow to return your phone calls or emails, a change is warranted. Life is too short, so don’t waste your time on others who treat you poorly.
  4. Lack of Education. Does your current advisor provide educational workshops? Do they help your employees with financial or retirement planning? Will they meet with your employees in person or Zoom? If your broker, advisor, or agent is not helping your employees grow their wealth, it’s time to work with someone who will.
  5. Lack of Technology. Was your plan established years ago? Does it include auto-enrollment, financial wellness programs, or web access? Do you have a cool app? A dated plan may lack benefits common to newer ones.

Here are a few resources to assist you in your journey to find the best plan for you and your employees.

  1. US Department of Labor: https://www.dol.gov/agencies/ebsa/key-topics/retirement/401k-plans
  2. Understanding Fees: https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/our-activities/resource-center/publications/understanding-retirement-plan-fees-and-expenses.pdf
  3. 401(k) Plans: https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/our-activities/resource-center/publications/401k-plans-for-small-businesses.pdf
  4. Fee Disclosure Form: https://www.dol.gov/sites/dolgov/files/EBSA/employers-and-advisers/plan-administration-and-compliance/fiduciary-responsibilities/401k-plan-fee-disclosure-tool.pdf
  5. Selecting a Service Provider: https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/our-activities/resource-center/fact-sheets/tips-for-selecting-and-monitoring-service-providers.pdf

For most people, a 401(k) plan will be their most significant asset, possibly larger than their home, so offering one that helps them create wealth is prudent.  

For many people, being asked to solve their own retirement savings problems is like being asked to build their own cars. ~ Richard Thaler

January 20, 2022

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

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


[1] https://www.forbes.com/advisor/retirement/top-retirement-worries/

[2] https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/our-activities/resource-center/publications/meeting-your-fiduciary-responsibilities.pdf

[3] Ibid

Parrott Wealth Management Annual Letter

Parrott Wealth Management Annual Letter

Despite political turmoil, Delta, Omicron, rising interest rates, increasing inflation, supply chain issues, and several corrections of 4% or more, the three major US indices produced significant gains last year, led by the S&P 500 as it climbed 27%. Stocks were resilient to the surprise of many astute market observers. Large companies like Microsoft, Alphabet, and Pfizer outperformed small-caps and international stocks by a wide margin. Bonds were negative as interest rates climbed, and most emerging markets fell because of exposure to Chinese securities. Here is a look at how various asset classes performed in 2021.

  • Real Estate = 36.59%
  • Small-Cap Stocks = 24.60%
  • International Stocks = 7.84%
  • Emerging Markets = -1.30%
  • Bonds = -3.90%
  • Gold = -4.15%
  • Oil = 49.65%

Though US Stock market valuation metrics are rich and extended, the market can still trade higher. Relative to US companies, international stocks offer tremendous value.

Philosophy

The root of what we do is financial planning. A financial plan helps us manage your account better because it focuses on your hopes, dreams, and fears. It gives us the confidence to make recommendations that benefit you and your family.

We believe in the buy-and-hold strategy of investing. Meaning, we don’t make a lot of trades or changes to the portfolios, and we hold our investments through all types of market conditions – good, bad, and ugly because we have not found a better approach for investors to create generational wealth. Timing the market does not work, and it’s like teaching a pig to sing. It’s a waste of time, and it annoys the pig.

PWM Models

Our managed models performed well last year, producing gains except for our most conservative model, which is 100% bonds, and it dropped 1.29%. Our all-stock model climbed 24.26%. The models are diversified and built with funds managed primarily by Vanguard, Dimensional, and BlackRock and designed to take less risk than the market. For example, our all-stock model is approximately 20% less risky than the S&P 500.

China

We reduced our Chinese stock allocation significantly because of the actions of the Chinese government towards their publicly traded companies. At this point, we consider China uninvestable. We sold Vanguard’s Emerging Markets Fund ETF (VWO) and transferred the money to the iShares MSCI Emerging Markets ex-China ETF (EMXC). The ex-China fund closed the year up 6.6%, while Vanguard’s fund fell 1.3%. We will make a similar change with Dimensional’s Emerging Markets Fund.

Bonds

Bonds finished in negative territory as they reacted to rising interest rates and escalating inflation. When interest rates rise, bond prices fall. Our bond exposure remains short-term, with maturities ranging from a few months to a few years, and we will stay short-term until rates rise further. If rates do rise, the impact on our bond portfolios should be minor. We continue to buy bonds for safety and diversification because stocks will fall eventually, and bonds will perform well when they do. Bonds are negatively correlated to stocks and still provide one of the best hedges for tumbling stock prices. We also are buying bonds for accounts with large cash balances since money market rates are near zero; they are the lesser of two evils.

Bitcoin

I continue to swing and miss when it comes to Bitcoin. The popular cryptocurrency soared 57% last year despite a year-end sell-off. I’ve been wrong on cryptocurrencies forever, and this trend likely continues for the foreseeable future because I don’t understand it or have a clue about how it works. I don’t consider it a currency because it’s too volatile, so, by default, it’s an asset class like gold or silver. Crypto experts love Bitcoin because it’s not correlated to stocks, and it’s an inflation hedge. However, lately, it rises when stocks rise and falls when stocks fall, meaning it’s correlated to stocks. And since inflation has surged, Bitcoin has dropped. Also, Bitcoin and other cryptocurrencies are only fourteen years old, and the last time we experienced significant inflation was more than forty years ago. Hence, it’s too early to tell how it performs in an inflationary environment. According to crypto.com there are 10,586 coins, including Polkadot, Tron, and SafeMoon. As a comparison, there are currently 10,342 US publicly traded securities. And there’s nothing to stop you, me, or my dog Cricket from launching a new crypto coin, so how do you pick the best one? I’m not sure it’s possible. Historically, wealth created from nothing does not last.

Working From Home Stocks

Last year was a boon for working from home (WFH) stocks, but not this year. As the economy reopened, companies like Peleton, Zoom, Docusign, Stitch Fix, and others fell back to earth. I wrote in last year’s letter that “at some point, valuations will matter, and investors will focus on earnings, revenue, cash flow, and profits; until then, tread lightly and be careful with these high-flying investments.” This year, DocuSign dropped 31%, Zoom fell 45%, Stitch Fix declined 67%, and Peloton crashed 76%. I’m sure a few WFH stocks recover, but they’re still expensive, so my advice from last year still stands.

Deficits and Debt

I must balance my budget because I will eventually lose my business and home if I don’t. The federal government, however, does not. Our government can print money and run a deficit forever, and it mostly has. Public, searchable records date to 1901, and the first deficit occurred in 1904 at $43 million, equivalent to $1.4 trillion today.[1] And since 1904, our government has run a deficit 76% of the time. In 1943, the budget deficit accounted for 27% of GDP; today, it’s 15%.[2] The budget deficit fell below $100 billion for the first time in 1982.

Our government’s last surplus was in 2000, before the Tech Wreck, where stocks fell 43%, and our country entered a deep recession. Before 2000, the previous surplus year was 1960.

Our current deficit is $3.12 trillion as our government sent stimulus checks to people in need and offered airlines resources to keep flying. During the Great Recession from 2007 to 2009, the budget deficit touched a low of $1.5 trillion when the government bailed out auto manufacturers, banks, and insurance companies; as the economy recovered, the deficit improved to a negative balance of $469 billion by 2015.

During times of economic pressure like wars, recessions, or pandemics, our country comes to the rescue and, as a result, runs a deficit. When the economy thrives, the government reduces or eliminates its debts. For example, in 1943, the budget deficit was a negative $55.5 billion as it financed WWII. By 1949, after the war and the troops returned home, the government produced a surplus of $10.5 billion.

What does this mean for the stock market? Not much. Since 1915, the Dow Jones has risen more than 48,000 percent. Deficits look scary, but they don’t have much of an impact on stocks.

PWM Growth Indicators

Our “Starbucks card indicator” continues to percolate, showing signs of significant growth. This year we mailed 145 cards to our clients, up 20% from last year and more than 150% since we started doing it in 2017. If we examine traditional growth metrics like assets and revenues, PWM grew 36% last year, and our average annual growth rate for the past six years has been 41%.

Janet

Janet, our Director of Client Services, is celebrating her fifth anniversary with Parrott Wealth. She joined the firm on January 2, 2017. Janet is a tremendous asset to the firm and continues to make our back-office hum without issues. I’m encouraged because most of you bypass me altogether and contact Janet directly for assistance with your accounts. She was valuable last year as we transitioned from state to federal regulation.

Spencer

Our headcount grew by one last year as Spencer Engelke joined PWM. Spencer has been an outstanding hire, and he is currently working on obtaining the Certified Financial Planners designation and has already passed module one. Spencer’s primary focus is on financial planning but occasionally assists me with trading.

SOAR Wealth Management

We launched SOAR Wealth Management in 2021 to help new, first-time, or emerging investors. Betterment manages the investment portfolios while we assist them with budgeting, debt management, and financial planning. The website is http://www.soarwm.com.

2022 Predictions

Last year, most of my predictions came true, so the pressure is on to replicate my success. If you want to review the previous year’s results, email me at bill@parrottwealth, and I will forward you a copy. Here are my thoughts for 2022.

  1. The S&P 500 will rise 10%. It’s not much of a prediction since the popular index has averaged 10.1% for the past 95 years.
  2. If the Federal Reserve raises interest rates, they will do so only once or twice.
  3. The rate of inflation will fall. It’s currently 6.81%, and I believe it drops below 4%.
  4. Housing remains robust as apartment dwellers and millennials continue to buy new homes. The prices of vacation homes remain elevated as cash-rich investors diversify their assets beyond stocks and bonds.
  5. President Biden passes a watered-downed version of the infrastructure bill.
  6. China continues to crack down on publicly traded companies, billionaires, and Taiwan, further depressing its stock prices.
  7. The House and Senate flip to the GOP in the November elections.
  8. COVID is here to stay, requiring an annual booster similar to a flu shot.
  9. The Great Resignation continues as workers retire early because of COVID and stressful work environments. Individuals will leave the workforce to pursue their hobbies.
  10. Travel surges next year as people leave their COVID caves. Attendance at National Parks soars as people prefer to drive rather than fly.

Thank You

We appreciate you and your business. We know you have numerous firms to help you reach your goals, and we’re thankful for the trust you placed in Parrott Wealth Management. We are blessed beyond measure.

As our firm grows, we’re honored to work with second and third-generation clients. Last year, we opened several accounts for college students and recent graduates referred to us by their parents or grandparents. We are excited to help these youthful investors build solid investment foundations.

2022

May the new year bring you peace, prosperity, health, happiness, and rest. My prayer is that this year will be your best!

Now may the Lord of peace himself give you his peace at all times and in every situation. The Lord be with you all. ~ 2 Thessalonians 3:16

Sincerely,

Bill Parrott

President and CEO

Austin, TX

January 3, 2022


[1] YCHARTS US Government on-budget surplus or deficit – 1901 to 2020.

[2] FRED Economic Data – Federal surplus or deficit as a percent of GDP – 1930 – 2021.

Crank Up Your 401(k)!

January is an excellent time to crank up your 401(k) plan, and it probably needs a refresh after a year of gains, dividends, interest payments, and contributions. Here are a few suggestions to help you get started.

  1. Increase your annual contribution amount if you’re not adding the maximum amount to your plan. If you’re contributing 10% of your pay, consider increasing it to 12%. For example, if your annual salary is $50,000, an extra 2% is $1,000 per year, which could grow to more than $57,000 in twenty years. Also, the additional $1,000 annual contribution equates to about $40 per pay period.
  2. Max out your contributions. The maximum amount is $20,500. If you turn fifty in 2022 (at any time), you can add another $6,500.
  3. Increase your allocation to stocks. If your current stock allocation is 60%, consider raising it to 70% or 80%. The extra stock exposure can give your investments a boost to the tune of about 1% to 2% per year. Also, you’ll have the opportunity to buy in all types of market conditions since you’re contributing to your plan every pay period.
  4. Rebalance your account. The market performed well last year, and your asset allocation is probably out of whack if you did nothing. For example, if you started last year with 60% stocks and 40% bonds, it could now be 70% stocks and 30% bonds. January is an excellent time to rebalance and adjust your investments.
  5. Consider a target-date fund if you don’t want to hassle with specific investments or rebalancing your accounts. Target-date funds are all-in-one funds, so all you have to do is pick the year you’re retiring and move your assets to that one holding. For example, if you’re retiring in 2030, then choose the 2030 target-date fund. Simple.
  6. Update your beneficiary designations. Did you incur a life event last year? Did you get married or have a child? Did you lose a loved one or get divorced? If so, then change your beneficiary designation to reflect your current status.

Retirement comes at you fast, so make sure you’re doing all you can today to ensure your golden years are truly golden.

Retirement is not the end of the road. It is the beginning of the open highway. ~ Anonymous

January 12, 2022

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

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

Can You Do Nothing?

It’s hard to do nothing and harder to disconnect in a connected world. If you have children, you’ve probably heard them say: “I’m bored; there’s nothing to do!” If you want to see how hard it is to do nothing, turn off everything around you and close your eyes for ten minutes. Welcome back. How’d you do? Seinfeld was a show about nothing, and it was one of the most popular sitcoms of all time.

A challenging investment strategy is the buy and hold model, an approach that relies on making few changes to your portfolio over time. You do nothing but sit and wait for your investments to perform. It’s easy to do nothing when stocks rise, but how about when they fall as they did in March 2020 or December 2018? It takes courage and conviction to hold your investments during a market rout, but those that do will enjoy gains when markets recover.

A buy-and-hold strategy is boring and not sexy. Tell people you own a diversified portfolio of index funds that you plan to hold forever, and they’ll roll their eyes. If you read the tortoise and the hare, you know slow and steady wins the race. A balanced portfolio of low-cost index funds with 60% stocks and 40% produced an average annual return of 10.5% for the past years.

Several years ago, I worked with a broker who periodically bought and sold stocks to show his clients he monitored their accounts. His activity “strategy” benefited him more than his clients because he generated a commission with each trade.  Activity for activity’s sake is not wise. A common saying on Wall Street is, “Investing is like a bar of soap; the more you touch it, the smaller it gets.”

Since 1950, the S&P 500 Index has returned 10.7% per year; staying invested allows you to get market returns. Dimensional Fund Advisors found that investors earned an average annual return of 10.5% from 1990 to 2020. A $1,000 investment grew to $20,451. However, if you missed the 25 best days during this period, returns dropped to 5% per year. A $1,000 investment grew to $4,376, or $16,075 less than those that did nothing.[1]

Of course, there are times when you must sell or update your portfolio. Using your funds to generate income, pay tuition, or reduce debt is warranted. We recommend rebalancing your accounts as needed to maintain your asset allocation and risk level.

A financial plan can help you improve your investment results and give you the necessary tools to stay invested during all market conditions. It’s a financial roadmap on how best to invest your assets by aligning your goals and risk tolerance to your portfolio. Your plan is an antidote against making poor investment decisions.

 Give it a try – do nothing!

I think I can sum up the show for you in one word. Nothing. ~ George Costanza

November 19, 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://my.dimensional.com/dfsmedia/f27f1cc5b9674653938eb84ff8006d8c/27544-source/the-cost-of-trying-to-time-the-market.pdf

Marathons and Retirement Planning

My first marathon was a total disaster. I finished the race exhausted, dehydrated, and sunburned. After years of running shorter races, I was ready to conquer the 1991 Los Angeles Marathon, and on race day, I thought I was prepared for the 26.2-mile journey. I was young, naïve, and in shape, and my strategy was to run as fast as possible for as long as possible. In short, I had no plan.  

I avoided all water stations until late in the race – too late because I was already parched and sunburned. At mile twenty, a young boy gave me a giant bottle of Gatorade, and his gift gave me enough fuel to get to the next aid station. However, it was useless because I couldn’t drink enough water to quench my thirst. I finished the race, made it home, licked my wounds, and reflected on the events of the day. 

If I was going to run marathons, I needed a better strategy. As the years went on, I read books on running and applied what I learned. As a result, my race experiences went up, and my race times went down.  I ran the 2011 Boston Marathon, and in 2015 I set a personal best in San Diego. My plan worked.

What do running marathons and planning for retirement have in common? Let’s find out.

  1. Plan. Your retirement plan will guide your steps and help you quantify your hopes, dreams, and fears. It will align your investment holdings to your goals, so they’re both working for your benefit, and it will give you a baseline of your current financial situation.
  2. Think long-term. A marathon is 26.2 miles, so don’t worry about what’s happening during the first few miles. Likewise, don’t worry about short-term market moves if you’re going to retire in 10, 20, or 30 years.
  3. Be consistent. Establish a monthly investment program and save as much money as possible. Over time, your monthly contributions will add up. For example, if you save $500 per month, it could be worth more than $1.1 million after thirty years. When I ran marathons, my goal was to run the race one mile at a time at an 8-minute pace. I never focused on the entire 26 miles on race day.
  4. Buy quality. A pair of high-quality, lightweight running shoes makes all the difference in the world. Similarly, your assets should be high-quality with low fees – control your costs and diversify your investments.
  5. Set your pace. A large marathon may have more than thirty thousand runners, so don’t worry when you get passed because each runner has their own goal. Instead, focus on your goals and pace. Your retirement plan will help you establish your retirement pace.
  6. Refuel and check-in. Smart runners take advantage of aid stations to hydrate and refuel. Once your retirement plan is up and running, check it often to ensure you’re still on pace to achieve your goals and adjust it as needed.
  7. Hire a coach. Your running results will improve if you run with a coach. A financial coach or trusted advisor can help support and guide you during your retirement journey.  
  8. Go fast. Stocks purchased for the long haul will allow your assets to grow faster than safe investments like bonds or cash.
  9. Celebrate. Finishing a marathon is a significant accomplishment, so celebrate your success. Equally, when you have saved your money and invested successfully for decades, and you can retire on your terms, take a victory lap – you have won the retirement race!

A plan for running and retirement will keep you moving for years, so get out there and start planning!

“Don’t dream of winning; train for it!” ~ Mo Farah

November 2, 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.