Tag: Stock Market Crash

Timing

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Timing is everything.

Arcangelo won the 155th running of the Belmont Stakes with a winning time of two minutes and 29 seconds. If he raced Secretariat in the 1973 Belmont, he would’ve lost by 5 seconds, a wide margin.

Carl Lewis set the world record for the 100-meter dash in 1991 with a time of 9.86 seconds. In 2009, Usain Bolt lowered it to 9.58 seconds, .28 seconds faster than Lewis.

Jules Verne wrote Around the World in Eighty Days in 1873. An 80-day trip in 1873 was a record. Today, the Space Shuttle can orbit the Earth in 90 minutes. 

If you purchased the Vanguard 500 Index fund on March 9, 2009, the market low, you generated an average annual return of 15.86%, turning $10,000 into $85,150. If you bought the same fund on October 1, 2007, the market top, your return fell to 8.81% per year, and $10,000 is now worth $38,570. You more than tripled your money by investing at the top, but it’s not as impressive as if you caught the low.

You won’t invest at the top or bottom of a market cycle. A more realistic scenario is that you’ll invest between the two. For example, if you invested $10,000 in January 1990, you made 9.96% annually, now worth $246,260.[1] Since 1990, four recessions and five major stock market corrections have occurred, including the Tech Wreck, the Great Recession, the 2018 pullback, the COVID correction, and last year’s decline. In addition, the Federal Reserve raised interest rates to the highest level in more than two decades.

Time is more important than timing.

Time is on my side; yes, it is. ~ The Rolling Stones

September 22, 2023

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.

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. Prices and yields are for today only and are subject to change without notice. Past performance is not a guarantee of future performance.

[1] Source: YCHARTS January 1, 1990 to September 22, 2023.

Are Bonds Safe?

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I like bonds, but I’m struggling with their long-term performance. Bonds are inversely related to the direction of interest rates; when rates rise, prices fall like a see-saw in a park, and since the Federal Reserve started raising interest rates in 2022, the one-month US Treasury Bill rate has soared by more than 2,600%. As a result, the prices of bonds have fallen since 2022, wiping out decades of gains.

The one-month US Treasury Bill is considered the safest investment in the world and has never lost money if held to maturity, and since 1926, it has produced an average annual return of 3.25%. A $1 investment is now worth $22.63. If you want a safe investment, look no further than the T-Bill. However, inflation averaged 2.95% during the same period, so your net gain was 0.30% before taxes.

Over the past decade, stocks have been on a wild ride, dealing with four significant corrections, including the COVID crash in 2020 and last year’s down draft, where the S&P 500 fell by more than 18%. Despite the headwinds of COVID, war, inflation, rising interest rates, and multiple corrections, the index soared 171%, averaging 10.50% per year and outperforming bonds by 182%.

The outperformance of stocks this past decade is not an anomaly. As I mentioned, a $1 investment in T-Bills in 1926 grew to $22. Investing that same dollar in the S&P 500 would be worth $13,474, or 612 times more than the safe investment. Stocks appear risky, but I believe they are safer than bonds over time.

Our clients with significant stock exposure have outperformed our conservative clients by a wide margin and recovered losses quickly. It has not been easy for our stock-oriented clients to remain invested, especially after last year’s market performance, but they have stayed the course and are reaping the benefits of a rising stock market.

To maintain your lifestyle and protect your wealth, you must own stocks. There is no alternative.

What would life be if we had no courage to attempt anything? ~ Vincent Van Gogh

August 29, 2023

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.

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. Prices and yields are for today only and are subject to change without notice.

One Bad Mistake

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Bill Buckner committed one of the worst errors in baseball history. During game six of the 1986 World Series, the Boston Red Sox led the New York Mets three games to two. In extra innings, a ground ball went through his legs, allowing the winning run to score. The Mets would go on to win the game and the World Series. People don’t remember that Mr. Buckner had 2,715 career hits, was the National League batting champion in 1980, and played for twenty-one seasons. He was a good player, but people only remember his one bad mistake.

The stock market has risen 75% of the time, averaging 10% annually since 1926. Yet, investors primarily focus on corrections like the Great Financial Crisis (GFC)  from 2007 to 2009 or the Tech Wreck from 2000 to 2003. When I started my career, investors worried about another October 19, 1987, when the Dow Jones fell 22%. Few people want to talk about the strength of the market, like the period from 2009 to 2017, where the S&P 500 averaged 15.3% per year, or 1990 to 1999, which returned 20.9% annually – another winning streak occurred from 1982 to 1989, where it gained 18.9% yearly. People remember corrections and crashes but ignore the market’s long-term trend.

Investors can create generational wealth if they own stocks, invest regularly, and avoid big mistakes. What’s a big mistake? It occurs when investors panic during corrections and scary times like 1987, 2000, 2008, 2018, 2020, or 2022. The October 19, 1987 crash was the worst since the Great Depression, yet the Dow Jones finished the year in positive territory. After the Tech Wreck, the S&P 500 climbed 66% from 2003 to 2007. It soared 141% after the Great Financial Crisis (GFC). The stock market crashed 31% in thirty days during the initial days of COVID, but from March 2020 to December 2021, it jumped 113%. If you stayed in the game, your assets recovered quickly.

After the GFC, I talked with investors who said they sold their investments in 2007, before the correction. I congratulated them on their market timing skills and asked, “When did you get back in the market?” Several years later, most did not because they feared stocks would fall further or crash again. Though they allegedly timed the market correctly, they failed to return to the market to ride the rebound.

Since 1972, the S&P 500 has risen 78% of the time. The index finished in negative territory eleven times, falling on average 14.4%, while the average gain during the positive forty years has been 19%. Rebounds and recoveries last a long time, and the index has averaged 10.27% annually for the past fifty-one years.

How can you avoid big mistakes? Here are a few recommendations.

  • Diversify. Diversify your assets across size, sector, and country. Own a basket of small, medium, and large companies across the globe in different industries.
  • Plan. A well-constructed financial plan can keep you informed and invested during the dark days, allowing you to benefit from the long-term trend of stocks after they recover.
  • Patience. Buy stocks if your time horizon is three to five years or more. If you need money in the short term, buy US T-Bills. Time in the market is your friend.

I played Senior Babe Ruth baseball in high school, and in one game, I was playing left field. It was the last inning, and we were winning when I missed a fly ball. The runner on second base started running, and I took my eye off the ball; it rolled to the fence, and we lost the game. We would have won the game if I caught it. I occasionally think about that game and ignore the ones where I played well. It’s human nature.

Play ball.

“If one picture is worth a thousand words, you have seen about a million words, but more than that, you have seen an absolutely bizarre finish to Game 6 of the 1986 World Series. The Mets are not only alive, they are well; and they will play the Red Sox in  Game 7 tomorrow!” ~ Vin Scully

August 17, 2023

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.

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. Prices and yields are for today only and are subject to change without notice.

Financial Storms              

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Mountain storms are extraordinary, powerful, and frightening. Last week, my wife and I experienced an incredible lightning show in Vail, Colorado. The lightning lit up the sky, and the thunder reverberated through the valley. It was quite the display of nature. However, the sun shone the next day, and the sky was blue, a bluebird day.

The stock market experienced a financial storm last year as the S&P 500 dropped by 19.8%, the steepest decline since 2008. It was a challenging year for large, medium, and small stocks, and there was no place to hide. And investors fled the markets, withdrawing more than $126 billion from mutual funds and ETFs. Investors were searching for shelters to protect themselves from the financial storm. Storms are temporary and eventually pass.

The markets are recovering from last year’s correction, as the three major stock indices are trading in positive territory. Stocks are trading higher this year, but you must endure the storm to benefit from the gains because it’s impossible to time the market. Markets started rebounding last June during the height of the storm, and that’s when investors began withdrawing money from their mutual funds and ETFs. Investors panicked during the darkest hour. By the end of May, investors removed more than $100 billion from funds, and since then, the Nasdaq is up 13.9%, the S&P is up 10.2%, and the Dow Jones is up 7.4%. The market is forward-looking and knew the storm was passing long before investors did. It pays to be patient. Do not panic.

Preparation and planning are the best ways to prepare for a storm. Climbers and hikers carry backpacks with water bottles, headlamps, compasses, jackets, GPS, first aid kits, etc., because they know mountain storms can arrive anytime. The same applies to financial storms; they can come anytime, without warning. Diversify your assets and follow your financial plan. A well-diversified investment portfolio based on your financial plan should survive financial storms and stock market corrections. Storms pass. Markets recover. Time moves on.

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

After every storm, the sun will smile; for every problem, there is a solution, and the soul’s indefeasible duty is to be of good cheer. ~ William R. Alger

July 24, 2023

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 your asset level.

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. Prices and yields are for today only and are subject to change without notice.

Vail’s Legendary Back Bowls

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Vail is massive. The skiable terrain is 5,317 acres, 195 runs, 32 ski lifts, and a vertical rise of 3,450 feet! From Vail Village, the mountain looks immense, and it is, but it only tells part of the story because more than fifty percent of the ski resort is in the back bowls, which you can only see after riding a gondola to mid-Vail and then riding a ski lift to its peak. The back bowls of Vail are stunning, with fabulous ski runs and hiking trails like Seldom, Never, Cow’s Face, Dragon’s Teeth, Red Zinger, Chicken Yard, and the Ptarmigan Loop. It’s paradise.

First-time visitors are awed by the front side of Vail, but if they’re willing to explore the mountain, they will realize there is more to it than meets the eye – much more.

Investors spend too much time focusing on the here and now, looking at the recent headlines to try and make long-term investment decisions. If you only focus on current headlines, you’re missing out on long-term investment opportunities because when a story reaches the front page of the Wall Street Journal or the lead story on CNBC, the market has already moved on; it’s yesterday’s news.

During the market correction, financial experts and economic gurus were predicting a stock market crash with runaway inflation. One world-renowned financial author encouraged investors to buy tuna and baked beans because you can’t eat gold, silver, or bitcoin.[1] The founder of Twitter warned of hyperinflation, saying, “It’s happening.”[2] What happened? The S&P 500 jumped 14.51% and inflation fell 65%. If you only focused on what you can see, you missed a double-digit return in the stock market. Sorry Charlie!

Fear sells, and news headlines are scary. A popular money manager predicting a stock market correction generates more publicity than one who says everything is fine and nothing to worry about. A vociferous investor with a megaphone can move markets in the near term, but the long-term fundamentals of stocks win in the end. Since 1926, the S&P 500 has risen three-quarters of the time and generated an average annual return of 10% despite endless predictions for vicious corrections and economic disasters.

Do not let today’s headlines interrupt your long-term financial goals. It’s already old news. Instead, focus on your goals, invest often, and enjoy life.

My family and I hiked Vail’s legendary back bowls last week, which was incredible. The views were endless, and the wildflowers were spectacular. If we only stayed in Vail Village, we would have missed the most significant part of Vail. Investing, like hiking, is best when you take the road less traveled and don’t follow the crowd.

There’s a big, wonderful world out there for you. It belongs to you. It’s exciting and stimulating and rewarding. Don’t cheat yourselves out of this promise. ~ Nancy Reagan

July 24, 2023

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 your asset level.

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. Prices and yields are for today only and are subject to change without notice.

[1] https://markets.businessinsider.com/news/stocks/robert-kiyosaki-rich-poor-dad-tuna-gold-silver-bitcoin-inflation-2022-6 June 13, 2022

[2] https://www.cnbc.com/2021/10/23/twitter-and-square-ceo-jack-dorsey-says-hyperinflation-will-happen-soon-in-the-us-and-the-world.html, Jeff Cox, October 22, 2021

Same Fund, Different Day

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Vanguard’s Balanced Index fund is a solid performer, averaging 8% annually for three decades. The fund is a mixture of stocks and bonds, a standard 60/40 asset allocation. However, your individual returns will vary greatly depending on your market timing skills.

February 18, 2020

Concerns over COVID crashed the market the day you purchased the fund; one month later, you’re down 21.5%, but it eventually recovered, returning 13.27%, or 3.91% annually. A $100,000 investment is worth $113,270 – not a great return, but it’s better than losing money!

March 20, 2020

If you waited one month to buy the fund, your account was up 44.5% by the end of the year. Your timing was perfect, and your friends and family think you’re a financial genius. The fund has averaged 12.30% per year, and your $100,000 is now worth $144,350.

December 30, 2021

You sat on the sidelines during the COVID correction, and after watching the Vanguard Balance Fund rise, you finally invested. Trouble! You’ve lost 11.8%, turning $100,000 into $88,190, and you’re probably upset and kicking yourself for not waiting until market conditions improve.

October 12, 2022

You deferred your purchase to October 12, 2022 – a smart move. The fund is up 11.75%, and your $100,000 investment is worth $111,750.

February 2, 2023

It’s Groundhog Day, and, so far, the market peak, and after three months, you’re down 1.13%. Your $100,000 is worth $98,870.

March 10, 2023

You picked the near-term bottom, and your account is up 4.88%. If the trend continues, you could earn more than 28% on your investment. Your $100,000 investment is worth $104,880.

November 9, 1992

Vanguard launches the Balanced Index Fund, and you invest $100,000, and you don’t make any changes to your holding, and it is now worth $1.04 million. You’ve done well!

Time eclipses timing. Do not worry about the daily gyrations in the market because you will never buy at the low or sell at the top. Instead, focus on your financial goals and let the long-term trend of the market work for you and your family.

You make most of your money in a bear market; you just don’t realize it at the time. ~ Shelby Cullom Davis

May 20, 2023

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 your asset level.

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. Prices and yields are for today only and are subject to change without notice.

Timing Matters  

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Timing the market can improve your odds of investment success, but it is impossible to do. Since 1998, the S&P 500 has produced an average annual return of 7.6%, but if you missed the best thirty days in the market, your yearly return dropped to 0.28%![1] The best days in the market usually follow the worst, so riding out market storms to generate positive returns is necessary.

We are conducting first-quarter reviews for our clients, and the returns are mixed. If a client joined us during COVID, the returns would have been spectacular because we invested near market lows. If we started investing after April 2021 or before June 2022, the account values would have been down. Timing matters.

April 2021 to June 2022 is a short window and will eventually be a blip on a long-term investment chart. Investors who stay invested can ultimately experience gains, but patience is required.

Dollar-cost averaging is another victim of timing. When markets rise, investors buy stocks at higher prices, and if they initiated a monthly investment program in 2020 or 2021, the account values are down. The key to successful long-term dollar cost averaging programs is volatility and falling markets because you can purchase stocks at lower prices. In time, markets recover, benefiting the patient investor.

If you began your investment program two years ago, have faith and keep investing.

The two most powerful warriors are patience and time. ~ Leo Tolstoy, War and Peace

April 19, 2023

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 your asset level.

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. Prices and yields are for today only and are subject to change without notice.

[1] YCHARTS, Time in the market, March 20, 2023

A Recession Is Coming

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Is a recession imminent because of the collapse of Silicon Valley Bank? First Republic Bank, Signature Bank, and Silvergate Bank are also on the ropes, and I’m sure there are more to come as individuals withdraw their money to buy US Treasuries or bury it in the backyard. If bankers are nervous, they will stop lending funds to businesses and homeowners, which is not a good recipe for economic growth.

Because of the recent bank failures, loans to domestic banks touched an all-time high. The government has insured all deposits, causing the assets in the discount window to soar. According to PBS Newshour, the Fed loaned $300 billion to banks, allowing depositors to retrieve their funds.[1] As a comparison, the Feds loaned $50 billion to banks during COVID and $538 billion during the Great Financial Crisis.

In addition to bank failures, several technology companies have laid off tens of thousands of employees. Morningstar said more than 139,000 employees had lost their jobs this year.[2] The unemployment rate is hovering near historic lows at 3.60%, but it can climb quickly if the pace of layoffs intensifies.

Another headwind for the economy is the yield curve. Though rates have declined this past week significantly, the yield curve is still inverted. The yield on the US 2-Year Treasury is 4.14%, and the 10-Year yield is 3.56%. The yield curve is inverted when short-term rates are higher than long-term rates, which could signal a recession.

Gross Domestic Product (GDP) growth, or lack thereof, is a crucial recession indicator. The true definition of a recession is two consecutive negative GDP quarters, and so far, this metric is not flashing a warning. In fact, it continues to rise. GDP has increased by 5.68% over the past year, up 21.38% since COVID.

There have been thirteen recessions since the end of World War II, or about once every six years, lasting about ten months in length. Despite the recessions, the S&P 500 is up more than 23,000% since 1945, averaging 11.02% annually. The best three-year stretch for the S&P 500 occurred from 1984 to 1987, following the 1982 recession, averaging 33.4% annually, and the index never lost money during any 15-year rolling period. A one-dollar investment grew to $3,274. The one-month US T-Bill, the safest investment in the world, averaged 3.80% annually during this period, turning a dollar into $17.96.[3]

A recession is coming, but I don’t know when, nor does anyone else. According to historical data, the last one occurred in 2020, so we may experience another between now and 2026. If you’re concerned about a recession, sell stocks, buy bonds, and increase your cash balance. If your time horizon is three to five years or more, and you’re not worried about volatility, buy stocks in a globally diversified portfolio.

The recent bank failures are another thing to worry about, but don’t let them distract you from your financial goals. The stock market is resilient and has survived worse calamities. As I often say, follow your plan, think long-term, diversify your assets, and good things will happen.

As sure as the spring will follow the winter, prosperity, and economic growth will follow a recession. ~ Bo Bennett

March 18, 2023

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 your asset level.

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. Prices and yields are for today only and are subject to change without notice.

[1] https://www.pbs.org/newshour/economy/federal-reserve-lent-300-billion-in-emergency-funds-to-banks-in-the-past-week

[2] https://www.morningstar.com/news/marketwatch/20230317465/more-than-139000-tech-sector-employees-have-lost-their-jobs-since-the-start-of-2023, James Rogers, March 17, 2023.

[3] Dimensional Fund Adviosr Returns Web Tool.

Nothing Is Working

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Another day, another market sell-off. The latest culprit is the failure and seizure of Silicon Valley Bank after a bank run. It’s two steps forward, one step back. Before COVID, the Ukraine War, rising interest rates, and persistent inflation, the S&P 500 was up nearly 200%, averaging 11.4% annually since 2010. However, most asset classes have traded down over the past two years. Frustrating.

The market has performed poorly for extended periods, but that does not make me feel better. Of course, the worst period for stocks was from 1929 to 1944, when the S&P 500 averaged 1.7% per year. It averaged 1.2% from 1965 to 1974, and from 2000 to 2011, it averaged 1.7%. The S&P 500 barely budged for thirty-eight years, or 40% of the time since 1926. Despite doing nothing for decades, the S&P 500 has averaged 10% annually for 93 years.

Each day the market gives us a reason not to invest. If it’s not a bank failure, it’s war or inflation, but if it were not for uncertainty or volatility, it would be impossible to create generational wealth. When stocks fall, they become cheaper, allowing enterprising and courageous investors to buy them at favorable prices. When the storm passes, they can sell them at higher prices – the best times to invest in this millennium occurred during the corrections in 2000, 2008, and 2020.

As the markets continue to suffer, here are a few ideas to fortify your financial future.

  • Keep an emergency fund of three to six months for your household expenses. If you spend $10,000 monthly, your emergency fund should range from $30,000 to $60,000. If your job is at risk or you’re concerned about the markets, extend your savings to nine to twelve months. An emergency fund allows your investments to recover without selling them at lower prices.
  • Buy US Treasuries because they act as a hedge against falling stock prices and are guaranteed. In times of uncertainty, investors flock to Treasuries. The yield on the 2-year US T-Bill dropped from 5% to 3.9% recently, a significant decline, as investors hunted for safety.
  • Allocate a portion of your assets to bonds. Long-term bonds have jumped 4.5% since the collapse of Silicon Valley Bank. As interest rates fall, bond prices rise.
  • Eliminate single-stock exposure. Over the past few days, First Republic Bank (FRC) wiped out a decade of gains. We typically sell stocks when they cut the dividend, lower earnings guidance, terminate thousands of employees, or face significant litigation. In my experience, it’s only a matter of time before companies fall or trade sideways for years after an adverse corporate event.
  • Continue saving and investing because markets eventually recover. After the Great Depression, stocks produced an annual gain of 11.3%; after the Great Recession, they generated a yearly return of 13.24%.[1] Investing during the darkest hours can deliver the best returns.
  • Diversify your assets across borders, sectors, and sizes. A globally diversified portfolio gives you the best opportunity to create long-term wealth. For example, international stocks climbed 36% from 2000 to 2011 as the S&P 500 faltered. Long-term bonds jumped 18% during the Great Recession, while stocks fell 53%.

Patience is a powerful tool for a successful investor. The ability to wait for stocks to recover is challenging but necessary. The Chinese Bamboo tree takes five years to start growing. For the first four years, it does nothing but fortify its roots, and then it can spurt more than ninety feet in weeks.[2] And the Agave Americana blooms once every 100 years.

Be patient, grasshopper.

The days are long, but the years are short. ~ Gretchen Rubin

March 15, 2023

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 your asset level.

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. Prices and yields are for today only and are subject to change without notice.

[1] DFA Returns Web, period ending 2/28/2023.

[2] https://jdmindcoach.com/plant-takes-5-years-start-growing/#:~:text=While%20most%20trees%20grow%20steadily,grow%20at%20an%20astonishing%20rate. JD Mind Coach, January 28, 2018

Scary Times

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Silicon Valley Bank gives us another reason to panic and freak out over our financial future. The FDIC seized the sixteenth-largest bank in the country on Friday, the second-largest bank takeover in US history. At the time of the collapse, twenty-two Wall Street analysts rated the stock a buy or hold, and Jim Cramer urged investors to buy it last month.[1] It was a stellar performer until its collapse, rising more than 80,000 percent since going public, but now it’s gone – risk happens fast!

Silicon Valley Bank is the first bank failure since 2020 when four banks went belly up. The FDIC annexed 510 banks from 2007 to 2014, representing $700 billion in assets, and the current bailout is $209 billion.[2]

Honestly, I’m tired of writing about bank failures, stock market crashes, and financial calamities. Unfortunately, they’re embedded in our history and will continue for the foreseeable future. Despite constant headwinds, the stock market has been resilient. In the last twenty years, the market has recovered from the Tech Wreck, the Great Financial Crisis, and the bankruptcies of Lehman Brothers and Bear Stearns. In fact, since Lehman and Bear Stearns imploded in September 2008, the S&P 500 is up 124%.

In the meantime, here is a list of items you can employ to protect your family’s assets.

  • Buy US Treasuries because they’re insured and guaranteed regardless of how much you invest.
  • Review your cash balances held at your bank. The FDIC limit is $250,000 per person, per institution, and per account. If your balance exceeds the threshold, open a new account or buy US Treasuries. According to the FDIC website, no depositor has lost a penny of FDIC-insured funds since its founding in 1933.[3]
  • Reduce or eliminate your debt, regardless of the current interest rate. If your debt level is low, you can withstand a financial storm.
  • Buy physical real estate. My grandfather loved real estate and hated stocks despite my arguments that stocks can produce significant returns. He owned several homes, commercial properties, and a couple of ranches, and he did not panic when stocks dropped or banks failed. Real estate is a good inflation hedge that can generate substantial rental income and is excellent for transferring assets between generations. And you already know the key to successful real estate investing: Location, Location, Location.
  • Diversify your asset across investment categories, countries, etc. A globally diversified portfolio of stocks and bonds gives you access to thousands of investments designed to grow and protect your wealth over time.
  • Avoid single-stock exposure. Silicon Valley Bank wiped out thousands of shareholders in less than 48 hours, and I can give you a long list of companies that evaporated overnight. Instead, invest in mutual or exchange-traded funds to reduce your risk from individual stocks. The Invesco Small Cap Value fund (VSRAX) held a 1.50% position in the bank stock, and the fund was down less than 1% on Friday because it owns more than 112 securities.

The recent bank failure adds to a list of issues the stock market has dealt with recently, including COVID, the Ukraine War, and political turmoil. Still, it continues to rebound and recover, as it has historically. Today’s events will barely register on a long-term stock chart in a decade or two. For example, the October 19, 1987 stock market crash is but a blip on the chart below.

Markets like to climb a wall of worry, and many successful investors recommend buying when others sell. For now, follow your plan, think long-term, and good things will happen.

If you the bank $100, that’s your problem. If you owe the bank $100 million, that’s their problem. ~ J. Paul Getty

March 11, 2023

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 your asset level.

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. Prices and yields are for today only and are subject to change without notice.

[1] https://www.foxnews.com/media/cnbcs-jim-cramer-eviscerated-touting-silicon-valley-bank-weeks-disastrous-collapse, Alexander Hall, Fox News

[2] https://www.fdic.gov/bank/historical/bank/

[3] https://www.fdic.gov/resources/deposit-insurance/understanding-deposit-insurance/