What Are You Doing This Summer?

Summer has arrived and its vacation time! Travelers will be crisscrossing the globe in search of the perfect family vacation. Individuals will spend between 10 to 20 hours researching their vacation.[1] Proper planning will make your vacation more enjoyable.

Deciding where to go is only half the battle. Once you pick a location, then everything else will fall into place. How will you get there? What will you do? Etc. For example, if you’re going to Hawaii this rules out driving. A trip to Death Valley means you won’t be scuba diving.

Early planning can enhance your vacation experience. It will give you more options and potentially better rates. Last minute planning is frustrating. If you wait until the last minute to plan your trip your choices may be limited and more expensive.

Vacations aren’t cheap. The average cost is $1,145 per person, so a family of four can expect to spend $4,580.[2] About a quarter of the population will finance their trip with credit cards, personal loans, or a short-term payday loan.[3] Financing your vacation can add an extra 20% to 25% to your cost.

I love planning – all types. A few years ago, my family and I spent three weeks trekking around Europe by planes, trains and automobiles. It took me a year of planning to work on the logistics. Colored spreadsheets helped me with our travel plans, side trips, dining options, entertainment, and budget. It was one of our best family trips.

National Plan for Vacation day is January 30. According to travel research, they recommend a planning window of two to three months. The same study mentions that Americans leave 662 million unused vacation days on the table each year resulting in a “$236 billion missed opportunity for the U.S. economy.”[4]

Missed vacation days and poor travel planning won’t be detrimental to your family’s future but failing to plan for your financial future will be.

Unfortunately, people spend more time planning their vacation than they do their financial future. If you spent 10 to 20 hours per year on your financial plan, it may have life changing results. In fact, Individuals who complete a financial plan have three times the assets of those individuals who do little or no planning.[5]

Financial planning is not as fun as planning for a family vacation, but it’s necessary, especially if you want to maintain your lifestyle in retirement. Financial planning will give you options. It will give you flexibility. Your plan will confirm your current lifestyle or give you suggestions for changes.

Spending one to two hours per month reviewing your financial status can pay lifetime dividends. Your plan will direct your steps, like a trail map. It will give you a financial destination. Once you determine where you need to go financially, everything will fall into place.  Deciding on how much money you’ll need in retirement is paramount. Here are a few planning tips to get you started.

  1. Take an inventory. What is your current financial situation? Where are your assets? How are they performing? What fees are you paying? In addition, track your expenses. Get a handle on how and where your money is being spent.
  2. Set goals. What do you want to do when you retire? Travel? Setting financial goals is just as important, if not more so, than goals like losing weight or getting in shape. According to the Peak Performance Center, “Your goals give you a clear focus on what you believe to be important in life.” If a goal is important to you, you’ll figure out a way to make it happen.
  3. After taking an inventory and setting goals, it’s time to prioritize your list. Your list might be long, so spend some time culling it. Reduce your list to three to five items you can pursue because too many goals may lead to inertia.
  4. After you’ve figured out what you have and what you want to do, put it to work. Activate your plan. Once your plan is up and running, then you can spend a few hours a month reviewing and tweaking it as needed.
  5. Hire a planner. If you’re not comfortable creating and implementing your plan, hire a Certified Financial Planner®. A CFP professional will help you quantify and prioritize your goals. In addition to developing your plan, they’ll act as your accountability partner. Hire a planner with the CFP® designation who works for an independent Registered Investment Advisory firm, is fee-only, and acts in a fiduciary (best-interest) capacity. You can search for an advisor in your area on these websites: feeonlynetwork.com, www.napfa.org, or www.cfp.net.

Your financial plan can give you a lifetime of vacations if you plan accordingly. It will free you to enjoy your trips. Don’t wait. Start planning today.

Enjoy your summer and safe travels!

No matter what happens, travel gives you a story to tell. ~ Jewish Proverb

Bill Parrott, CFP®, CKA® 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. 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.

 

[1] https://www.vacationkids.com/vacations-with-kids/how-much-time-does-it-take-to-research-and-plan-a-family-vacation, Sally Black, June 20, 2017

[2] https://www.creditdonkey.com/average-cost-vacation.html, Kim P, October 8, 2018

[3] https://www.finder.com/vacation-loan-debt, Website accessed June 19, 2019

[4] https://www.travelagentcentral.com/running-your-business/stats-less-than-half-americans-take-time-to-plan-vacation-days, Newsdesk, January 29, 2018. Website accessed June 19, 2019.

[5] http://www.nber.org/papers/w17078

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.

Financial Travel Agents

The travel industry has experienced major changes since the birth of the internet.  According to the Bureau of Labor Statistics the number of travel agents is expected to decline by 12% to 72,000 by 2026.[1]

Companies like Booking.com, Trivago, Expedia and Kayak have filled this void as individuals book and schedule their own trips without leaving their couch.

With an abundance of travel websites now available do you need a travel agent?  It depends on your trip, of course. If you’re booking a flight from Austin to Denver, you probably don’t need to use one. Reserving a hotel room for a night in San Diego probably doesn’t require one either. However, if you’re traveling through several countries by land, sea and air, then working with a travel agent is recommended.  Your agent can navigate you through airports, customs, and hotels.

Travel agents enhance the trip experience by tapping into their resources and knowledge to deliver superior services for their clients. A travel agent can be called on to design a once in a lifetime trip for you and those you love. The goal of the travel agent is to deliver a hassle-free trip within your budget. The plan is for your trip to go off without a hitch or delays.

The investment industry, like the travel industry, has endured major changes because of the internet. The rise of discount firms, robo-advisors, and online calculators have changed the landscape in the investment world. Firms like T.D. Ameritrade, Fidelity, and Vanguard have diverted billions of assets away from old-line Wall Street firms like Merrill Lynch, UBS and Morgan Stanley. Online firms have made it easy for individual investors to point, click, and trade without guidance or input from a professional.

Unlike the travel industry, the number of personal financial advisors is expected to rise 15% per year by 2026, to over 312,000.[2]  According to the CFP board there are currently 81,000 Certified Financial Planners, about 25% of the advisor population.  If you want to improve your investment understanding, work with a financial planner who’s also a registered investment advisor and a fiduciary.

A financial planner can expand their client’s investment horizon by designing, allocating, and managing an investment portfolio based on their financial goals. He can also assist them with retirement, education, and philanthropic planning, to name a few.

A written financial plan is a representation of their client’s hopes, dreams and fears. A good planner will make sure their goals, risk tolerance, and investments are aligned. It’s the alignment that improves the investment outlook for the client.

Does everyone need a financial planner? Like the travel agent, it depends. There are circumstances when the individual investor doesn’t need the expertise of a planner. If she wants to buy an individual stock or a mutual fund, she can do this with the click of a mouse – no guidance required. But if she wants input on how much money she’ll need for retirement, how to pay for her daughter’s education, or create a budget, then a financial planner can be a tremendous resource.

The role of a planner goes beyond financial advice. When stocks gyrate violently, and portfolio values swoon, he can provide emotional support. With a financial plan, he can direct his clients through the market turmoil by having them focus on their goals. He can also stress test their portfolio and review their asset allocation. Often the market turbulence is nothing more than a minor distraction on the road to having the client reach their goals.

As you embark on your monetary journey, look to a Certified Financial Planner to guide you to your financial destination.

“Twenty years from now you will be more disappointed by the things you didn’t do than by the ones you did do. So, throw off the bowlines, sail away from the safe harbor. Catch the trade winds in your sails. Explore. Dream. Discover.” ~ Mark Twain

May 17, 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.

[1] https://www.bls.gov/ooh/sales/travel-agents.htm

[2] https://www.bls.gov/ooh/business-and-financial/personal-financial-advisors.htm

Do You Fly First Class?

Flying first class is an incredible experience and enhances the pleasure of travelling.  I’ve relished the warm towels, fine dining and exceptional service of first class travel.  Unfortunately, I’ve also sat in the last row sipping diet coke from a plastic cup while rationing pretzels.

Does it pay to fly first class?  Regardless of where people sit all passengers will take off and land at the same time.  A Delta One round-trip ticket from Los Angeles to New York costs $4,258 and the economy seat costs $552.  Is the experience of flying first class 7 ½ times better than economy?  It might, especially if you’re receiving value for the price you paid, and your expectations are being met.  When I fly first class my expectations are high; when I sit in economy they’re low.

Like the airline industry, mutual funds have a wide divergence in fees.  Unlike the airline industry, shareholders don’t benefit from higher fees.  Quite the opposite as high fees will lower your investment returns.  Higher fees won’t deliver a better investment experience.

Below are three funds with different fee structures listed from the highest fees to lowest.[1] The Dimensional Fund has the lowest fee and highest return.  Its fees are 90% lower than the Dreyfus fund.

Dreyfus Tax Managed Growth Fund Class C (DPTAX) has a one-year deferred sales charge of 1% and ongoing fees of 2.10%.  It has generated an average annual return of 5.74% for 10 years.

Gabelli Asset Fund Class A (GATAX) has a front-end commission of 5.75% and ongoing fees of 1.36%.  It has generated an average annual return of 7.21%.

Dimensional Fund Advisors U.S. Core Equity 1 Portfolio (DFEOX) doesn’t have a sales charges but it does have an ongoing fee of .19%.  It has generated an average annual return of 8.88% for 10 years.

How do you know if you’re paying high fees?  Here are three ideas.

  1. Fee audit. A review of your investment holdings will highlight the amount of your fees you’re paying.  Your fees can be benchmarked to industry averages.
  2. Fund Comparison. Comparing funds side by side will allow you to make better investment decisions.  In addition to the fee structure, you can compare returns, holdings, asset levels, and management tenure.
  3. Advisor Fees. If you work with a Registered Investment Advisor, the fees are listed in their Form ADV, a public document.  RIA’s are regulated under the Investment Advisors Act of 1940 and they must disclose their fees.  Brokers and insurance agents aren’t required to disclose their fees.  If you work with a broker or insurance agent, you’re going to have to work hard to uncover the fees you’re paying.  An independent advisor can help you decipher their fees.

In a few weeks you’ll receive your 2017 year-end statements giving you the opportunity to analyze the fees you paid.  January is also great time to review your financial plan and investment goals.  Are your fees hindering your plan?

2018 could be the year you upgrade to first class and start working with an independent, fee-only, fiduciary advisor!

Wise men and women are always learning, always listening for fresh insights. ~ Proverbs 18:15.

 

Bill Parrott is the President and CEO of Parrott Wealth Management an independent, fee-only, fiduciary financial planning and investment management firm in Austin, TX.  For more information please visit www.parrottwealth.com.

December 13, 2017

Note:  Past performance is not a guarantee of future returns.  Your returns may differ than those posted in this blog.  Investments are not guaranteed.  Options involve risk and are not suitable for all investors.

 

 

[1] Morningstar Office Snapshot, ten-year return ended 11/30/2017.

Look for Silver Linings.

In fifty years, I will be dead and the stock market will be higher.   Fifty years ago, our country was embroiled in the Civil Rights Movement, the Vietnam War and a space race with Russia.  The late sixties were a difficult time for our county but we survived.

Today, I’m deeply disturbed with the division in our country and I’ve never understood racism, bigotry or hatred.   The acts of white supremacist, neo-Nazi groups or the KKK are deplorable and have no place in our great nation.  Our country is in dark place but let’s try to find the good in our fellow man and look for silver linings.    

Everyone who does evil hates the light, and will not come into the light for fear that their deeds will be exposed. ~ John 3:20.

The stock market has had an average annual return of 10.2% since 1967 despite numerous issues and headwinds including the 1970s and 2000s. In 1973 and 1974 the stock market dropped over 41%.   The S&P 500 averaged .4% from 2000 to 2010, a lost decade for investors.   A $10,000 investment in the S&P 500 fifty years ago is worth $1.2 million today.   If this investment could run for another fifty years, it would be worth $165 million in the year 2067!

I’m confident our country and stock market will thrive over the next fifty years so what can you do today to make our world a better place for our children and grandchildren?  I’ve found it’s hard to hate while serving others.

The point is this: whoever sows sparingly will also reap sparingly, and whoever sows bountifully will also reap bountifully. ~ 2 Corinthians 9:6.

Here are few suggestions to help you help others.

Serve.  Can you be a greeter, reader or youth leader at your Church, Synagogue, or Mosque?

Volunteer.  Can you volunteer at your local school or library?

Give.  Can you use your financial resources to help those in need?

Mentor.  Can you mentor a young high school or college student who will benefit from your wisdom?

Teach.  Colleges, junior colleges, and high schools need educators with real world experience.  Can you use your knowledge to help the next generation succeed?

Join.  Civic organizations like Rotary, Kiwanis or the Lions Club are always looking for new members.  These groups do wonderful and amazing things in the communities they serve.

Travel.  Travel the world to meet new people and learn about their cultures.  Mark Twain said, “Travel is fatal to prejudice, bigotry, and narrow-mindedness.”

Love.  Love and hate can’t exist at the same time.  Introduce yourself to your neighbors and love on them!

…You shall love your neighbor as yourself. ~ Matthew 22:39

In fifty years, the world will be a better place so don’t worry about the current gyrations in the stock market or the political turmoil in Washington.  Instead, get out there and do some good!

Therefore do not worry about tomorrow, for tomorrow will worry about itself. Each day has enough trouble of its own.  ~ Matthew 6:34.

Bill Parrott is the President and CEO of Parrott Wealth Management, LLC.  For more information on financial planning and investment management, please visit www.parrottwealth.com

August 18, 2017

Note: 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.

1/4/16

 

Save It or Spend It?

Money can’t buy happiness and the Bible says the love of money is a root of all kinds of evil.   A 2015 survey by the American Psychological Association found 64% of Americans say money is a source of stress.[1]   When it comes to money we have a couple of choices; we can save it or spend it.

I’m a saver by nature and enjoy investing money.  I remember my first savings account as a kid and was thrilled when my balance soared above $60 because I thought I had it made.  I’ve been told my entire life that money can’t buy happiness but this isn’t entirely true because when it comes to experiences money can buy happiness.  According to a Wall Street Journal article on money and happiness it said, “People think that experiences are only going to provide temporary happiness, but they actually provide both more happiness and more lasting value.”[2]

Peggy has been a client of mine for over twenty-five years.  We’ve enjoyed a great relationship and during our recent quarterly review of her account and investments we mostly talked about her travel experiences.   Peggy has taken amazing trips during her lifetime and they’ve created life long memories.   She told me a story about a trip she made with her young family to Crater Lake in Oregon.  She recounted the beauty of the area, especially the brilliant blue water.   She didn’t recall the cost of the trip but years later still receives joy when thinking about her experience.

Peggy and I have adopted a buy and hold strategy for her investments by owning a mix of high quality mutual funds.   Every year she will withdraw money from her account to fund her trips.  In a way, I feel like I’m on the trip with her as she tells me her travel stories from places like Fiji, Alaska or Europe.   We’ve experienced many market cycles together and, despite several stock market corrections, five U.S. Presidents and annual withdrawals, her account continues to grow and support her lifestyle.  She’s a bold and courageous investor not afraid of market drops and her investment strategy has served her well over time.

Here are a few tips to help you as you grapple with the saving or spending battle.

  1. Take the trip. It’s time to spend some money on your dream trip and cross it off your bucket list.   It may be expensive and cause a dent in your net worth but when you reminisce about your trip years from now you’ll be glad you made the trek.   When our daughter was young my wife and I decided to take amazing trips so we could create incredible memories.  I’m glad we spent the money because I look back on our family trips with fondness and happiness.
  2. Do it today and don’t wait for tomorrow. If you wait for the perfect time in your life or a certain level of assets, you’ll never take your trip.  Also, we don’t know what tomorrow will bring.  A former client of mine was waiting until he retired to travel the country with his wife and a month after he retired she passed away.  Proverbs 27:1 says, “Do not boast about tomorrow, for you do not know what a day may bring.”
  3. Use your vacation days. Most employees don’t take their paid vacation for fear of not getting their work done or having their employer question their dedication.[3]   If your company is giving, you should be taking.  It’s true your work won’t get done but I doubt your company will question your dedication.   I once took a four-week trip across Europe with my family and when I returned to the office the company was still standing.   I did have thousands of emails upon my return and my company still valued my work.  In the end, I’ll remember my family trip more than the pile of paperwork or what my company thought about my work ethic.
  4. Invest for growth and dividends. A portfolio designed for growth and income will help fund your experiences.   It’s also okay to spend your principal on your trips because your investments will replace what you removed from your account.   If you turn on your faucet to fill up a tub with water and then remove the water with a bucket, it will be replenished with the running water from the tap.   For example, you invest $100,000 in the Vanguard S&P 500 Index Fund (VFINX) on August 31, 1976 and start removing 5% of your account balance every year.   As of June 30, 2017, forty-one years later, your original $100,000 investment is worth $855,000 and you’ve taken out over $883,000 from your account.[4]
  5. Post it. Post your amazing trip on Facebook and Instagram so your friends can see what an amazing time you’re having and perhaps be inspired to take a trip of their own!

Take Peggy’s advice and travel the world, you’ll be glad you did!

The world is a book, and those who do not travel read only a page. ~ Saint Augustine

Bill Parrott is the President and CEO of Parrott Wealth Management and is a fan of travelling the world.  For more information on financial planning and investment management, please visit www.parrottwealth.com.

July 16, 2017

Note.  Your returns may be more or less than those posted in this blog.  Peggy gave me permission to tell her story.

[1] http://www.cnbc.com/2015/08/03/most-americans-rich-or-not-stressed-about-money-surveys.html, by Shelly Schwartz, 8/3/2015.

[2] https://www.wsj.com/articles/can-money-buy-happiness-heres-what-science-has-to-say-1415569538, By Andrew Blackman, 11/10/2014.

[3] http://www.marketwatch.com/story/55-of-american-workers-dont-take-all-their-paid-vacation-2016-06-15, Quentin Fottrell, 5/28/2017.

[4] Morningstar Office Hypothetical Tool as of June 30, 2017.