The Shutdown

As you watch the Super Bowl you may hear the term “shutdown corner.” A shutdown corner is the best defensive back on the team and they’re usually left on their own to cover the other team’s best receiver.  Some of the best shutdown corners have been Deion Sanders, Lester Hayes and Charles Woodson. A shutdown corner is a good thing, a government shutdown is not.

The shutdown lasted 35 days, removed $11 billion from the Gross Domestic Product, and impacted 800,000 federal workers.[1] The government reopened to a temporary deal, but it could grind to a halt again on February 15th. At the end of the day, it appears not much has changed.

Since 1980 there have been 10 government shutdowns, most lasting 1 to 5 days, so the financial impact on federal employees was minimal. However, this shutdown lasted 35 days forcing some employees to rely on food stamps, handouts, and other stopgap measures to keep their households afloat.

It was heartbreaking to read stories about workers struggling to make ends meet. The circus in Washington exposed a dark side to our economy in that numerous families live paycheck to paycheck with little, to no savings, in the bank.  When the tide goes out, rocks are exposed, or as Warren Buffett once said, “Only when the tide goes out do you discover who’s been swimming naked.”

What can you do to fortify your resources so you’re not dependent on the government to bail you out of an unfortunate situation?

Stop spending. If you’re spending money on nonessential items – stop. Rather than spending money on items you don’t need, redirect your money to your savings account.  “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

Reduce your debt. Paying down your debt will pay big dividends in the future. Credit cards, auto loans, and student loans will divert good assets to pay for bad ones.  Start with your lowest balance and work your way to the largest. Dave Ramsey refers to this as the debt snowball. As you payoff one debt, apply the previous payment to your next obligation.  The rich rule over the poor, and the borrower is slave to the lender. ~ Proverbs 22:7

Sell your stuff. Do you have items in the attic or stuff in a storage unit? If so, sell them on EBay, Etsy, or Craig’s List.  If you have things in your house that you haven’t touched in years, sell them so you can raise cash or payoff debt.

Raise cash. During hard economic times cash is king.  According to a Forbes article “63% of Americans don’t have enough savings to cover a $500 emergency.”[2] One way to increase your savings is to set up an automatic draft between your checking account and savings account. Eating out less often or drinking coffee at home will also help you save a few dollars.

Create a spending plan. A budget will keep your spending inline. There are several online services to help you get a handle on your money. Services like Mint, NerdWallet or Every Dollar can help you track your income and expenses. Knowing where your money is going is half the battle.

Give. Giving money away seems counterintuitive to saving money but it will help you free your dependence on hoarding assets. Also, there’s never a bad time to do some good. “Love your neighbor as yourself” ~ Mark 12:31

You can control your spending and your savings. If you reduce spending and increase savings, then you can free yourself from financial stress and worry. Keep your lives free from the love of money and be content with what you have, because God has said, “Never will I leave you; never will I forsake you.” ~ Hebrews 13:5

Life is hard and things happen, so while things are good, store up savings so you can survive the next storm. Little actions today will have big consequences tomorrow – good and bad.

“Too many people spend money they haven’t earned to buy things they don’t want to impress people they don’t like.” ~ Will Rogers

January 30, 2019

Bill Parrott 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.

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

 

 

[1] https://www.nolabels.org/blog/five-facts-on-the-economic-consequences-of-the-government-shutdown/, 1/29/2019

[2] https://www.forbes.com/sites/maggiemcgrath/2016/01/06/63-of-americans-dont-have-enough-savings-to-cover-a-500-emergency/#340aeead4e0d, Maggie McGrath 1/6/2016

Riptides

Growing up in Southern California I spent a considerable amount of time at the beach – Huntington, Newport, Laguna and Mission – boogie boarding, body surfing, snorkeling, or scuba diving. On occasion I’d get stuck in a riptide.

Riptides are dangerous and can be life threatening. The most important thing to do if you’re caught in one is to relax. Don’t try to swim directly back to shore because the riptide is pulling you out to sea. It’s exhausting to swim against the tide and this is when you’ll get in trouble. To escape, swim horizontally to the riptide, parallel to the shore. Once you start swimming across the tide, identify a lifeguard tower to help you keep your bearings. After a while, you’ll be out of the riptide and you can swim safely back to shore.

Investors probably feel like they’re stuck in a financial riptide because the markets, all markets, are struggling this year.

Mutual funds are having a lackluster year. In fact, 82.5% of all mutual funds are in negative territory.  There are a few funds up more than 10% for the year, very few. The percentage of funds in double digit territory is .74%. Ned Davis Research recently reported that no asset class has generated a return of more than 5% – a first since 1972.[1]

Individual stocks aren’t faring much better as 70% of U.S. stocks are trading in negative territory.

What should you do if your portfolio is stuck in a financial riptide?

  • Don’t panic or make rash decisions.
  • Review your plan and your investments. Are you still on track to reach your goals? If you are, do not make any changes.
  • Look for bargains. In a down year, locate good investments that are oversold to add to your portfolio for future growth.
  • Rebalance your portfolio. As markets fluctuate, it’s possible your asset allocation is out of sync. For example, if your original allocation was 50% stocks, 50% bonds, it may now be 40% stocks, 60% bonds. When you rebalance, it will return your portfolio’s asset allocation to your original stance of 50%/50%.

Sometimes you must go sideways to reach your goals. It would be nice to generate a 10% return every year, with no downside, but this isn’t possible. Like tides, markets rise and fall. They fluctuate. The market will eventually recover. In the meantime, keep your eyes fixed on the horizon and focus on your long-term goals.

Life is a little like a message in a bottle, to be carried by the winds and the tides. ~ Gene Tierney

December 11, 2018

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.

 

 

 

[1] MSCI Bloomberg Barclays Indices, Ned Davis Research, Inc. Russell, Source: S&P GSCI, Ed Clissold, Chief U.S. Strategist for Ned Davis Research Group, 11/26/2018,