Los Angeles to New York

The sound of a train whistle piercing the night sky conjures up images of distant lands and the rhythmic clickety-clack of the wheels on the track is therapeutic.

Riding a train from Los Angeles to New York is an exciting way for passengers to see our amazing country. If a passenger boards the train at Union Station, they’ll arrive at Grand Central in about three and a half days.

Travelling by train is mostly hassle free, but at times it can be frustrating. For example, when the train is going slow or stopped, passengers can become anxious. Some passengers may disembark from the train to explore alternative forms of travel such as a car or plane. If a passenger discards his plan, he might not reach New York. However, if he stays on the train he’ll arrive at his desired destination.

When the train is travelling fast, don’t get too excited. When it’s travelling slow, don’t get overly depressed. When it’s stopped, don’t abandon your trip.

Investing has a lot of similarities to riding a train. In short, if you stay with your plan, you’ll arrive at your destination. If you make too many changes, your plan may get derailed. Investors in a diversified portfolio may own investments going fast, slow or stopped. The urge to reduce your holdings in non-performing assets and purchase better performing ones may be high, but this strategy is not recommended.

The world markets are giving us a mixed bag of results so far. Large-cap growth stocks have risen 10.75% and micro-cap stocks have climbed 11%. International investments, emerging markets, and bonds are down for the year.

What makes for a successful trip? The first component is to select a destination. Once you’ve identified your location, you can complete the rest of the travel process. When will you leave? What will you pack? What train will you take?

A successful investor, like our traveler, needs a destination. Financial goals are paramount if you want to succeed as an investor. Do you want to retire early? Buy a vacation home? Travel the world? Start a business? Once your goals are identified, your financial plan can help you quantify and prioritize them.

You need to commit to your goals for the duration. Jumping in and out of the market because it fluctuates is not wise. If you reject your plan before your goals are reached, you may derail it forever.

The market constantly goes up, down and sideways so don’t abandon your long-term plan because of short-term market moves. All aboard!

There’s something about the sound of a train that’s very romantic and nostalgic and hopeful. ~ Paul Simon

August 26, 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.

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

Planes, Trains and Indices.

Planes, Trains and Automobiles is a great movie starring Steve Martin and John Candy.   This 1987 comedy was all about Steve Martin’s character trying to get home for Thanksgiving.    He and his new BFF, John Candy, were using all means necessary to get home for the holidays.   Steve Martin’s character did not care how he got home so long as he got home.

As we launch another trading year should you be more concerned with outperforming and index or arriving at your financial destination?  It is common for investors to focus on an index, usually the Standard & Poor’s 500, as their primary benchmark.   An investor will consider their investment year a success if they outperformed this index even if it was down for the year.   A relative outperformance is considered a victory for most.

There are a few issues with trying to outperform a standard benchmark.   Standard & Poor’s website references that they track over 700,000 indices in real time.   700,000!  If you were going to benchmark to an index, which one of the 700,000 indices would you choose?   If you are an investor with a diversified portfolio, you may only have 15% or 20% exposure to the companies in the S&P 500.  The majority of your portfolio will be linked to some other asset class like small companies, international companies, bonds, real estate, commodities or cash.   These asset classes will have little, if any, connection to the S&P 500 index.    It is recommended to broaden your market benchmark to combine all of your asset classes.  A blended benchmark will give you a better picture of your overall portfolio performance.

To follow up on Planes, Trains and Automobiles, if I am scheduled to fly from Los Angeles to New York should I be concerned that there are other planes flying to Bend, Austin or Denver?   Should I be concerned that there is more than one flight to New York and some of the planes will arrive before mine does?  The answer is no!  My only concern should be for me to arrive in New York on my scheduled flight.

As you travel through 2016 it is recommended to focus on your own goals and not worry about which one of the 700,000 indices is up, down or sideways.   Your investment and financial plan should be collaborated to your hopes and dreams and no one else’s.  If you arrive at your financial destination on your terms, then I would consider that a huge success!

Do you not know that in a race all the runners run, but only one gets the prize? Run in such a way as to get the prize. 1 Corinthians 9:24

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

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