Take A Flyer?

Mark Cuban invested $20 million into 85 companies on Shark Tank. Mr. Cuban recently tweeted, “On a cash basis, I’m down on my Shark Tank Investments.”[1] He joined the show in 2011, and if he had invested in the Vanguard S&P 500 Index Fund instead, he could have made 214%! However, that’s not the point. Mr. Cuban’s net worth is $4.7 billion. The Shark Tank investments represent about a half percent of his total net worth or $5 per $1,000. Big whoop. If one of the companies turned into the next Amazon, Microsoft, etc., his investment would have increased significantly.

Global markets continue to trade down, looking for a bottom. In the carnage, there are several companies worth buying today, but you won’t know if you got a bargain until many years from now. You will miss excellent opportunities if you wait until the market recovers or the economy improves. So, the ideal time to buy great companies is when everyone else runs for the hills.

Are you ready to take a flyer? Can you invest a half percent of your net worth to buy a few beaten-down companies? Can you spare $5 from your $1,000 nest egg?

Here are a few suggestions to help you find a few diamonds in the rough.

  • Identify companies that are trading well below their 52-week high. The market has decimated many great companies, including Amazon, Disney, Medtronic, MMM, Nike, eBay, Starbucks, and  FedEx. It’s possible to find stocks trading down 20%, 30%, or more from their all-time highs.
  • Look for companies with solid balance sheets, consistent earnings, revenue, free cash flow, and low debt. In addition, locate companies with robust profit margins and return on invested capital. A few stocks in this category are Apple, Microsoft, Coca-Cola, Lululemon, Fastenal, and Tractor Supply.
  • Screen for companies with robust dividends and a history of increasing their payouts. Abbvie, Amgen, Home Depot, Lockheed Martin, and T.Rowe Price are a few stocks to make this list.
  • Try to find new companies destroyed in the downturn. Zoom, Docusign, Pinterest, Doordash, Snowflake, and Yeti are down significantly this past year but could rebound in the future.
  • Do you have any hobbies – hiking, cars, travel? Several stocks like Garmin, Ferrari, Etsy, or Booking Holdings can fuel your pursuits.

A well-balanced portfolio diversified across asset classes and countries is an excellent way to create generational wealth. Saving money regularly while reducing spending is a blueprint for a profitable future. Investing in low-cost mutual funds or ETFs has proven successful. But taking a flyer now and then or speculating with a few dollars could produce significant gains if you choose wisely. If you strike out or miss the mark, your venture won’t destroy your financial foundation.

Are you ready?

Life all comes down to a few moments. This is one of them. ~ Bud Fox

July 26, 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. I like watching Shark Tank, and Wall Street was one of my favorite movies.


[1] https://www.cnbc.com/2022/07/26/mark-cuban-shark-tank-investing-strategy-isnt-always-making-money.html, Tom Huddleston, Jr. July 26, 2022

Invest Overseas?

A few years ago, my family spent three weeks traveling around Europe. We trekked from Edinburgh to Rome, with several stops in between. We saw amazing, and sobering sites, including Edinburgh Castle, the Tower of London, Dachau, the Eifel Tower, The Louvre, the Sistine Chapel, the Last Supper painting, and the Colosseum. It was a trip to remember

It’s an excellent time to visit Europe because the Euro and the Dollar are trading at parity, meaning there is no premium to travel overseas. When I went to Europe, the Euro was trading at a 30% premium to the dollar, so it wasn’t cheap.

Visiting foreign soil is a great way to expand the body, mind, and soul. Mark Twain said, “Travel is fatal to prejudice, bigotry, and narrow-mindedness.” There are numerous benefits to leaving our homeland, but what about investing in international companies?

I recently talked with a fellow financial planner, and we were discussing how the S&P 500 crushed international investments for the past eight years by more than 100%. In fact, the MSCI EAFE (Europe, Australia, Far East Asia) index has lost money since 2014. If you own a diversified portfolio of stocks, bonds, and funds, you probably have international exposure and are likely not happy with the performance. International markets account for 40% of the global market capitalization, so don’t ignore a good chunk of global companies.

However, the S&P 500 has not always dominated international stocks. From 1970 to 2012, the MSCI EAFE  index beat our popular index. Before the Great Recession in 2007, the EAFE outperformed the S&P 500 by more than 710% since 1970. From 2002 to 2021, the S&P 500 was the best performing market once when it jumped 12.7% in 2012. Last year our market was up 26.5%, but Austria soared by 41.5%.[1]

International small-caps also bettered the S&P 500. From 1997 to 2012, Dimensional Funds International Small Company Fund (DFISX) beat the S&P 500. Historically, international small-cap stocks outperform large caps, and from 1970 to 2021, they averaged 14.2% per year, compared to 10.2% for the S&P 500.[2]

And, don’t forget, the S&P 500 lost 9% from 2000 to 2010. The index produced a negative return for ten years!

Like most markets, Europe is trading in negative territory, and they’ll continue to feel the impact of the war in Ukraine. The Eurozone economic statistics are similar to ours. Their GDP grew by 5.4%, and ours jumped 3.5%. Their inflation rate is 8.6%, and ours is 9.06%.[3] On a valuation basis, international markets are cheap relative to our indices.[4]

Diversified portfolios need large, small, domestic, and international holdings to be successful over time, so don’t try to time the market or chase returns because no one knows which market will be better than the next from year to year. A suggested allocation to international investments is 10% to 25%, depending on your risk tolerance and willingness to mind the gap.

What goes down usually goes back up if you’re willing to be patient and don’t hit the panic button. ~ Mark Mobius

July 23, 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. I enjoyed the train ride from Germany to Rome as we traveled through the Swiss Alps – stunning scenery.


[1] Dimensional Funds Matrix 2022 Matrix Book

[2] Ibid

[3] YCHARTS

[4] https://www.putnam.com/newsroom/post/perspectives/6842-just-how-cheap-are-european-equities/

An Investment Black Hole

The James Webb telescope recently sent stunning pictures of our, or someone’s, galaxy. They were the first photos viewable to the public, and according to Al Jazeera, “The dawn of a new era in astronomy.” The telescope opens a new vista for professional and amateur astrologists alike. In addition to brilliant stars and stunning nebulas, James Webb could shed new light on black holes.

Investing now probably feels like you’re throwing money into a black hole as the Dow Jones and other indices descend into the abyss. If you contribute to a 401(k) plan or invest monthly, you’re likely frustrated because you’re throwing good money after bad. The year is half over, and you have nothing to show for your efforts to save money.

The Vanguard Balanced Index Fund (VBAIX) is down 16% for the year, so if you’re contributing to this fund monthly, you’re down too. The fund launched thirty years ago, and if you sold it during the previous down drafts, you missed an 896% return. It generated an average annual return of 8.05%, and a $10,000 investment is now worth $99,630!

Does it make sense to keep investing as stocks plummet? It does. To get the biggest bang for your buck, investing as the market craters will pay huge dividends in the future because you’re buying more shares at lower prices, and when the market rebounds, you will prosper. As a comparison, you’re purchasing fewer shares at higher prices when stocks rise as they did last year. You should welcome lower prices if your time horizon is three to five years or more.

I’ve talked to several people lately who said if they had sold their investments in January, they could have bought a car, boat, plane, house, etc. I get it. However, it’s not healthy to look in the rearview mirror and say shoulda, coulda, woulda. It doesn’t do any good to look over your shoulder and wonder what could have happened if you timed the market perfectly. It might not look, but if you buy stocks when others are selling, you may be able to buy two cars or boats or planes or houses in the future. The volatility in the market is what produces generational wealth.

A friend recently liquidated his holdings inside his 401(k) and moved the assets to cash though he doesn’t need the money for several years. As a result, he runs the risk of running out of money in retirement. A safe investment today can cause more trouble tomorrow.

The James Webb telescope is 1 million miles from Earth, orbiting the sun.[1] Scientists risked much to build, launch, and deploy it, and we could not enjoy the breathtaking pictures if they decided to play it safe. It required more than thirty years to build the telescope.[2] I’m not a rocket scientist, but I bet they experienced frustration, delays, setbacks, and red tape over the past three decades, and, thankfully, they did not give up on their dreams.

Venturing into the unknown is frightening, especially if you’re experiencing doubt and frustration. A down market is an opportunity for the brave investor to buy quality investments when they are out of favor, and it doesn’t take a large telescope for you to see it’s better to buy low and sell high.

Onward and upward.

Black holes are where God divided by zero. ~ Albert Einstein

July 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 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. I mentioned I’m not a rocket scientist, but my uncle is!


[1] https://webb.nasa.gov/content/about/orbit.html

[2] https://www.space.com/james-webb-space-telescope-budget-timeline-scale

Next Week         

Stocks are getting crushed, and investors want to know when they will recover. The S&P 500 is down 20% so far as investors react to rising interest rates, inflation, and war in Ukraine. Since 2000, there have been five bear markets with an average decline of 36% and a duration of 192 days.[1] When will this bear market end?

My Jeep is stuck at the dealership waiting for a new part. I’ve been waiting since May, and when I inquire about my car, they tell me it should be ready next week, and they have said next week for the past six weeks. In addition, I’ve been waiting for a new car, and due to supply chain issues, there is no official delivery date. Frustrating.

River rafting guides love to tell rafters that the next stop will be around the next bend, and if you’ve been rafting, you know rivers constantly bend, twist, and turn. The next bend could arrive in the next few minutes or hours, and no one knows, not even the guide.

When I was growing up, my mom’s standard answer was soon. When is dinner? Soon. When will we arrive? Soon. When can I open my presents? Soon. I was in the dark.

In short, no one knows what will happen in the future. The markets could recover next week, next month, or next year. I wish I had a better answer, but I don’t. I do know, however, that stocks ultimately recover. In the meantime, follow your plan, diversify your assets, invest often, and think long-term.

Rivers know this: there is no hurry. We shall get there someday. ~ A.A. Milne

July 6, 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.


[1] https://my.dimensional.com/dfsmedia/f27f1cc5b9674653938eb84ff8006d8c/39602-source/bulls-bears-and-long-term-benefits-of-stock-investing.pdf

Time To Buy Annuities?

The stock market continues to swing violently. Despite last week’s surge, the S&P 500 is still down 18% for the year, and investors remain nervous. The US Index of Consumer Sentiment recently touched 50, a 72-year low. What should you do?

Investors sell stocks and park their money in a money market fund or T-Bills when anxiety is high. A T-Bill can provide short-term relief, but it’s a poor investment to create wealth. The 1-month US T-Bill currently yields 1.19%, so it will take more than 60 years to double your money!

An annuity may provide relief to nervous investors because it offers guarantees not found in traditional investments like stocks, bonds, or mutual funds. An annuity is similar to riding a bike with training wheels or bowling with bumpers.

There are two types of annuities – fixed and variable. A fixed annuity will pay a specific rate that is guaranteed, similar to a US Treasury bond. A fixed annuity can be immediate or deferred. If you buy an immediate annuity, you will start to receive monthly income soon after your initial investment. A deferred annuity delays your payout to the future. For example, if you contribute today, you can defer your income distributions until you’re ready to retire.  

A variable annuity invests in stocks and bonds. The return is variable because no one knows how stocks or bonds will perform over time. However, an insurance company can guarantee your initial investment. If you invest $100,000, the insurance company will guarantee your principal. It also offers other benefits, like an annual step-up in basis or a minimum return. For example, the insurance company can lock in higher values if it rises, and they can guarantee your investment if it increases from $100,000 to $105,000.

Annuities offer dozens of riders, and some popular ones include a guaranteed minimum withdrawal benefit, cost of living increase, long-term care rider, and a disability rider. These features can enhance your benefits. The best part, in my opinion, is to annuitize your investment to provide income for life. Your income stream will last a lifetime, regardless of how long you live. It can offset longevity risk and eliminate worry if you’re concerned about running out of money later in life.

However, annuities and insurance contracts are not cheap, and you’ll pay dearly to protect your assets. It’s not uncommon to pay more than 3% to buy an annuity, and most have significant deferred sales charges if you withdrawal your money before the contract policy terminates. A deferred sales charge could last several years. For example, if you sell your annuity during the first year, you may incur a 10% fee. A deferred sales charge typically declines by 1% per year before you can liquidate your holdings without fees. By comparison, the Vanguard 500 Index Fund expense ratio is 0.04%, and there is no commission to buy or sell the fund.

Brokers love to sell annuities because they pay sizeable commissions. If you invest $100,000, a broker may receive a commission of $5,000 or more. Have you ever received an invitation to a retirement dinner at a nice steakhouse? Brokers love these events because they know a handful of prospects will buy an annuity, and they will reap a massive payday.

Insurance companies now offer annuities without commissions for Registered Investment Advisors (RIAs) and their clients. These annuities appeal to fiduciaries because the fees are lower, and clients can buy or sell them without high expenses.

An index fund is like a scoop of vanilla ice cream, and an annuity is similar to a sundae with all the toppings. And, if you order a sundae with sprinkles, nuts, gummy bears, chocolate sauce, marshmallows, M&M’s, Oreos, etc., it will cost a lot of money!

I’m not a huge fan of annuities, but they can offer a purpose for investors nervous about the stock market. A variable annuity is a better long-term investment option than a 1-month T-Bill.

If you want extra support for your portfolio, consider an annuity.

I advise you to go on living solely to enrage those who are paying your annuities. It is the only pleasure I have left. ~ Voltaire

June 25, 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.

Buy, Buy or Bye, Bye?

My wife is an extraordinary shopper. She can hunt bargains with the best of them, whether at a grocery or clothing store. If there is a discount to be found, she’ll find it. She is also patient and willing to buy straw hats in the winter.

An ideal time to buy stocks is when they are on sale, trading at a discount, or offered at a lower price, because who doesn’t love a bargain? Apparently, many people don’t because the market is down considerably this year, and there are few signs of buyers. In reality, when stocks fall, most investors sell, and they do not buy. Wall Street is the only place no one shows up when there is a sale.

To buy stocks as they fall requires patience and courage. It’s not easy to buy while others are selling. It’s a contrarian strategy. Also, if you buy stocks when they’re down, they might not recover for several years. If you purchased Microsoft after the Tech Wreck in 2000, it took more than sixteen years for the price to recover, but if you bought it and held on, you’re up more than 300% on your investment!

To acquire great companies in a bear market requires foresight, homework, and a shopping list. Identify a few names you want to own so that you can pounce when they fall into your buy zone.

I recently used Value Line’s search engine to screen for stocks with pristine balance sheets, and I found more than fifty companies. Some names include Pepsi, FedEx, McDonald’s, Walmart, Pfizer, Tractor Supply, and Fastenal. These companies are down this year but still up over the past three, five, and ten years. In addition to buying great companies at lower prices, you may generate above-average income. The average dividend yield is 2.43% if you buy these stocks today. Last year, they rose an average of 29% – same companies, different year. Besides the market falling, not much has changed for these stocks.

Like the tide, stocks rise and fall regularly, so don’t be shocked when they’re down. In fact, stocks drop about once every four years. The Dow Jones fell 10% or more often over the past decade, including a 37% correction in March 2020. If you had the wisdom and fortitude to buy stocks during the initial phases of COVID when stocks traded near their lows, you’d be up 56% today, but if you waited until they rebounded, you only gained 1.3%.[1] Walter Deemer, a retired institutional market analyst, said, “When the time comes to buy, you won’t want to.”

Of course, stocks could fall further as several experts predict, but if your time horizon is three to five years or more, it’s a good time to buy.

A few names on my shopping list include Garmin, Tractor Supply, and Starbucks. What’s on your list?

Happy buying!

Always buy your straw hats in the winter. ~ Benjamin Graham

June 17, 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] YCHARTS

Pay Me Now or Pay Me Later

FRAM oil filter ran a series of commercials in the 1970s and 1980s with the tag line, “Pay me now, or pay me later.” The message was clear. You could spend a few dollars today to change your oil filter or put it off and pay thousands to repair your engine. Small actions today can have significant implications for tomorrow.

As global stock and bond markets fall, investors are making short-term moves that could impact their financial future. Liquidating your holdings may feel good in the near term, but is it a wise move? A client recently capitulated and moved their assets to cash, and, as a result, their long-term success rate for retirement dropped below 30%, meaning there is a 70% chance they could run out of money.

Since 2000, the Dow Jones has averaged 8%, despite trading in negative territory 30% of the time. The index fell 37% in 2008, 22% in 2002, and it’s down 18% this year. It also soared 32% in 2013 and 2019. If you sell during the down years, you could miss the up years. My job would be easier if stocks and bonds always went up, but it’s not how markets and capitalism work. To enjoy significant gains, you must endure a few years of pain. In fact, most investors build generational wealth during bear markets.

The market is unpredictable minute to minute, hour to hour, and day to day, but it has climbed higher over decades. Time wins, and staying put is a superpower. Our superpower is the financial plan because it gives us the confidence to provide advice rooted in facts, not opinion or emotion. During times of duress, we routinely scan our client’s financial plans to ensure they are still on track to meet their short and long-term goals. Despite the recent volatility, their plans are still standing strong.

Emotions run hot when stocks fall, and media outlets stoke the fire of fear. In my office, I have CNBC playing in the background, and despite more than thirty years in the business, I sometimes want to curl up into a little ball and hide under my desk because they make it sound like the end of the world is near.

 The US Index of Consumer Sentiment recently touched 50.2, the lowest print in 70 years! Investors are more worried now than they were during the Great Recession, the Tech Wreck, Desert Storm, Black Monday, the 1970s inflation spike, Watergate, Vietnam, the racial riots in the 1960s, the assassinations of JFK and MLK, the Cuban Missile Crisis, the Korean War, and the Cold War. Are things that bad? I don’t believe they are, and since 1952, the Dow Jones has risen 10,980%![1]

Here are a few suggestions to help you navigate the market.

  • If you need money in one year or less, buy T-Bills.
  • Establish an emergency fund to cover nine to twelve months of expenses.
  • Buy stocks if your time horizon is three to five years or more. And, if you retire at age 65, you may live for another thirty to thirty-five years. One of my mom’s aunts recently passed at age 103!
  • Create a written financial plan outlining your hopes, dreams, and fears. A financial plan will keep you focused on your future.
  • Ignore experts pontificating about the future of stocks, bonds, interest rates, or inflation. No one knows what’s going to happen tomorrow.
  • Get outside, take a trip, volunteer, visit a friend, start a hobby, mentor a child, because this too shall pass.

However, no one knows the day or hour when these things will happen, not even the angels in heaven or the Son himself. Only the Father knows. ~ Matthew 24:36

June 18, 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] YCHARTS

Matt Damon, The Martian, and You!

Matt Damon is stranded on Mars inthe hit movie The Martian. He must use several tactics to survive and regain contact with his crew back on Earth if he wants to live.

After much thought, you join Mr. Damon on his trip to Mars. For this story, your mission trip left Earth on January 1, 1990. Before leaving, you contact your advisor to give her instructions on investing your life savings and tell her to buy three mutual funds and hold them until you return. The trip should be quick, so you’re not worried about losing money. She invested $100,000 in the Vanguard S&P 500 Index Fund, the Vanguard Small-Cap Index Fund, and American Funds EuroPacific Mutual Fund. The portfolio invests in large, small, and international companies. Before leaving, you wrote down the value of the S&P 500 on a 3 x 5 card and put it in your pocket. It was 353.40 on December 31, 1989.

On arrival, you’re caught in the violent storm when you realize you’ll be on Mars for a long time. You can no longer communicate with your advisor or check your investments.  

After 32 years on Mars, you return to Earth, and the first thing you do is read the headlines from the newspapers and realize it has been nothing but doom and gloom. The frightful headlines make you more worried than ever, and you’re positive your $300,000 nest egg is lost. You frantically search for your account statements, and surely, your advisor read the same negative headlines and stories and sold your holdings before it was too late.  

You remember your 3 x 5 card in your pocket where you wrote down the value of the S&P 500 before leaving. You pull it out to compare it to the current value, and you are shocked! How can the S&P 500 be trading at 4,095? The headlines and experts were so negative, which makes no sense. During your time on Mars, the S&P soared 1,060%. Amazing! 

As you rip open your statements to view the account values, you’re floored at the results. How can this be? It’s not possible! Tears of disbelief flow from your eyes. Your $300,000 investment is now worth more than $5.8 million! Your mutual funds increased over nineteen times in value! During your time on Mars, your investments generated an average annual return of 9.5%. 

You also notice your portfolio fell 14% shortly after you left, and from 2000 to 2002, it lost more than 40%. In 2008, it crashed by 52%, followed by 20% corrections in 2011 and 2018. During COVID, it dropped 32%, and this year it’s down 16%. Yet, despite all the drops, dips, corrections, and crashes, you’re a multi-millionaire.

We are in the middle of a financial storm, and the urge to sell is high. At times like this, it is essential to stop and take inventory of your holdings. You can’t go to Mars, but maybe you can go to some small island in the Caribbean for a few years to enjoy life while letting your investments recover and grow.

He replied, “You of little faith, why are you so afraid?” Then he got up and rebuked the winds and the waves, and it was completely calm. Matthew 8:26

June 1, 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.

Buy The Dip

The Nasdaq is getting crushed, and the trend is lower. The tech-heavy index includes Apple, Microsoft, Amazon, Alphabet, Meta, and Tesla. Since 1987, it’s up 3,100%, but it has incurred numerous corrections, including a 75% decline from 2000 to 2002 and the crash on  Black Monday, October 19, 1987, where it dropped 29%. It’s a bleak time to invest, so should you buy the dip?

Buying the dip has historically paid dividends, but is this time different? Should you buy the dip? Successful investors employ a strategy to automate their investment program through dollar-cost averaging. Let’s review four challenging investment times – 1987, 2000, 2008, and 2020 and assume that you started with an initial amount of $10,000 and automatically invested $500 per month.

1987

On October 19, 1987, the market crashed by more than 22%. There were many sellers that day, but what if you established a monthly investment program and bought stocks during the collapse? If you applied the metrics from above, your account grew to $2.1 million by this May. Your net investment was $220,000, generating an average annual return of 10.05%. Despite the rough start, you made 9.5 times your original investment.

2000

The Nasdaq fell 75% from 2000 to 2002 as the tech-wreck crushed stocks and vaporized many dot com companies. If you invested in January 2000, it took more than ten years to breakeven through your monthly investment program. Today, your account is worth $538,257 after investing $144,000 for twenty-two years. Your average annual return was 9.6%, and you made 3.5 times your money.

2008

The Great Recession was vicious as the Nasdaq fell more than 50% from 2007 to 2009. If you invested monthly, you turned a profit in 2009 and averaged close to 13% per year from 2008 to 2022. Your account balance is now worth $297,203 after a net investment of $96,000, or three times your money.

2020

The COVID correction occurred in March 2020, when stocks fell about 30% in thirty days. If you started a monthly investment program in January 2020, you were down more than 13% at the end of the first quarter but recovered quickly. If you established a monthly investment program, you would be up about $375 through this May. At one point, you gained more than 46% before this year’s pullback reduced your profits.

Dollar-Cost Averaging

If history is a guide, buying the dip is a profitable strategy. The tech-heavy index is aggressive, and you likely own a portfolio of stocks and bonds, diversifying your assets by not putting all your eggs in one basket. You can set up a monthly investment program into a single fund, multiple funds, or an entire portfolio – the more, the better, and automating this process will force you to buy stocks when others are panicking

The bottom line is that automation lowers the risk of human error and adds some intelligence to the enterprise system. ~ Stephen Elliot

May 23, 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.

Data Source: Yahoo! Finance!

What If I’m Wrong?

During my final semester of college, I discovered the stock market through an investment class. The professor opened my eyes to the possibility of creating wealth by owning great American companies. In the Fall of 1987, I experienced Black Monday in my college classroom; I didn’t lose money because I didn’t own stocks. Despite the crash, or because of it, I became enthralled with equities.

Since 1987, I’ve been a student of the stock market reading thousands of books and articles, studying legendary investors like Graham, Buffett, Lynch, Templeton, Miller, Bogle, Marks, etc. – each one a raging capitalist who believed in America’s economic engine. These notable investors bought stocks during troubled times, which is why they’re worth multi-millions and billions. Warren Buffett, at 91, continues to purchase companies and could care less about market drops or corrections. In fact, he has been on a buying spree this year, despite the decline in the market.

Since 1926, stocks have averaged 10% per year despite wars, recessions, corrections, and inflation spikes. The market has always rebounded from previous pullbacks, but what if this time is different? What if stocks don’t recover? Is this the beginning of the end for equities? What if the sun does not rise tomorrow? Is it time to bury your money in the backyard or under your mattress? Maybe it is. Perhaps now is the time to abandon equities and embrace cash.

It feels like the end of times because stocks are off to their third-worst start ever while bonds posted their worst returns. The S&P 500 is down 19%, and Bloomberg’s US Aggregate Bond index is off nearly 10%! It’s unusual for stocks and bonds to perform poorly simultaneously. Historically, when stocks fall, bonds rise. During the previous five S&P 500 Index corrections, where stocks fell 20%, bonds rose 2.2%.[1] According to the Capital Group, the average annual return for the ten years ending December 2021 was 16.5%, and the average annual return for 10-year rolling periods dating back to 1974 was 15.74%. From 2012 to 2021, a $10,000 investment grew to $37,900, but if you missed the 40 best days, your valuation dropped to $10,050.[2] According to Bloomberg, bonds have made money 100% of the time during every rolling 5-year period dating back to 1926.[3] Time in the market is more important than timing the market.

Inflation spikes have occurred about fifteen times over the past 108 years or every seven years. We last experienced a severe increase more than forty years ago, from 1977 to 1980. Once inflation started to wane, the stock market soared to all-time highs from 1982 to 1999, rising by 1,211%. The market declined slightly in 1990, closing down 6%, but the bull run did not end until 2000, when stocks crashed during the Tech Wreck.[4] What about 1987? On October 19, 1987, stocks fell more than 22% or 508 points. Despite the drop, the market finished the year in positive territory.

Is it possible that McDonald’s stops selling hamburgers or Apple no longer offers earbuds? Will people stop shopping at Amazon, Target, or Walmart? Will Budweiser halt selling beer at baseball games? Will Norfolk Southern and Union Pacific quit shipping materials across the country? Will Tesla stop building electric cars? Will Southwest Airlines leave the airline industry, or gasp, Starbucks exits the coffee business? It’s possible but not probable.

I spent considerable time a McDonald’s while attending college, and when I ordered food, I didn’t care if its stock was up or down. I started my investment career in 1990, and my first recommendation was McDonald’s because people must eat. It fell 15% in 1990, and clients were worried it would fall further. I told them to visit any McDonald’s in the world at noon, and if it was empty, we would sell the stock. I never received a call. Since 1990, McDonald’s stock has risen 5,210%. A $100,000 investment is now worth $5.35 million.

The Dow Jones has weathered many storms and achieved several milestones, but investors were nervous when the index was 30, 300, 3,000, and 30,000. When it reaches 300,000, investors will be anxious —human nature. Do not let your short-term fears derail your long-term goals, and don’t bet against great American companies.

Rather than worry about the market, invite a friend to McDonald’s and enjoy the day.

It’s the end of the world as we know it, and I feel fine. ~ REM

May 19, 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.capitalgroup.com/ria/insights/articles/how-to-handle-market-declines.html

[2] IBID

[3] chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://www.blackrock.com/us/financial-professionals/literature/investor-education/student-of-the-market.pdf

[4] DFA 2022 Matrix Book