Are You Too Frugal?

The person who dies with the most toys – loses!

John Bogle, the founder of Vanguard, recently passed away with a net worth of $80 million. By Wall Street standards $80 million is pocket change, especially for someone who founded one of the largest investment and asset management firms in the world.  Vanguard has about $5.3 Trillion in assets under management.[1]  By comparison, Stephen A. Schwarzman, the CEO of The Blackstone Group, has a net worth of $12.4 billion. Blackstone’s assets under management are $427 billion, or 8.5% of Vanguard’s total.

Mr. Bogle is known for being frugal, probably to a fault. He once said, “I don’t like going into stores, I don’t like the whole process of buying things.” He didn’t like spending money on himself, but he did donate to charities and schools including The John C. Bogle Center for Financial Literacy, Blair Academy and Princeton.

Mr. Bogle could have sprinkled his assets to individuals or groups he supported, including himself, without risk of running out of money.

It’s good to be frugal and watch your budget, but is it possible to be too frugal? I think it is. For example, if you drop your daily Starbucks habit, you could save $152,000 over the next 30 years, but would you be happy? I’ve seen individuals who look to save a dollar or two on small ticket items but hold 100% of their assets in cash, CDs or T-Bills. Rather than trying to save a few nickels by kicking your coffee habit, move your assets to stocks so you have an opportunity to make more money. Since 1945 stocks have averaged 11.3% per year while T-Bills have returned 3.9%, a difference of 7.4% per year! With the money you make from stocks you can now afford multiple lattes!

Mr. Bogle followed an asset allocation of 60% stocks, 40% bonds in his retirement accounts. His taxable allocation was more aggressive with 80% stocks, 20% bonds.[2]

Here are a few suggestions for you to spend more money and be less frugal.

Spend. The goal is not to die with the most assets but to use your net worth to live and enjoy life. Cash is a use asset, so use it accordingly. If you’re concerned about spending money on things, spend it on experiences. A family trip to a national park is not only a great experience, it’s also economical.

Give. If your assets are burning a hole in your pocket, give them away. Donate your resources to charities or organizations you support. Your gift will bless the organization and you’ll benefit from a tax write off.

Retire. Retiring early will give you an opportunity to travel to distant lands, spend more time with your loved ones, or volunteer your time. If you retire early, you’ll spend your money sooner rather than later. In addition, you can use your resources while you’re young and mobile. A former client saved his money to travel with his wife, but she died one month after his retirement. Don’t wait to enjoy your resources because you don’t know when you’ll leave God’s green earth.

What if you’re not blessed with a net worth of $80 million? How do you know how much money you can spend before you run out of money? A financial plan will help you create a spending plan based on your current assets. It will also recommend an appropriate asset allocation and risk tolerance level in hopes of maximizing your return.

So, go ahead, buy the latte and enjoy your life!

A nickel ain’t worth a dime anymore. –Yogi Berra

February 14, 2019

Bill Parrott is the President and CEO of Parrott Wealth Management located in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose.

Note: Investments are not guaranteed and do involve risk. Your returns may differ than those posted in this blog. Happy Valentine’s Day!

 

 

 

[1] http://fortune.com/2019/01/16/john-bogle-vanguard-founder-created-index-funds-dies-89/, by Kevin Kelleher, 1/17/2019

[2] https://www.investopedia.com/articles/financial-advisors/012716/where-does-john-c-bogle-keep-his-money.asp, Richard Best, 4/26/2018

The Watchman.

$4 trillion is a massive number.  Vanguard recently surpassed $4 trillion in client assets.  By comparison, the market cap of Apple is $710 billion.   Vanguard was founded in 1975 during the oil embargo recession and grew by putting the interest of their clients first, a novel concept on Wall Street in the mid-seventies.

Vanguard is named after the 18th century battleship the HMS Vanguard which means “in the forefront.”  The firm was led by the legendary investor John Bogle who was in the forefront of the index revolution having started one of the industry’s first index fund.  His idea wasn’t well received and the fund got off to a slow start.   Today it’s one of the largest mutual funds in the industry.[1]

A watchman is one who stands guard and is hired to protect others.   A watchman should be faithful, trustworthy and put the interest of others first.  Vanguard is a watchman for the financial services industry.

How can you find your own watchman to help you with your finances?  Here are few suggestions.

  1. Look for an advisor who is a fiduciary. By law a fiduciary must put your interest first.  A fiduciary must act in your best interest and disclose any conflicts of interest.
  2. Find an advisor who holds the Certified Financial Planner designation. An advisor who holds the CFP designation must go through years of study and pass a rigorous two-day exam.  They must also undergo continuing education.
  3. Work with an advisor who has an easy to understand fee schedule. The fee schedule should be easy to comprehend and one that does not break your bank.
  4. Identify an advisor who has a servant’s heart and returns your phone calls and emails in a timely fashion.
  5. Seek an advisor who owns investments he recommends to others.
  6. Discover an advisor who shares similar values to your own.
  7. Hunt for an advisor you can trust.

He heard the sound of the trumpet but did not take warning; his blood will be on himself. But had he taken warning, he would have delivered his life.  But if the watchman sees the sword coming and does not blow the trumpet and the people are not warned, and a sword comes and takes a person from them, he is taken away in his iniquity; but his blood I will require from the watchman’s hand.” ~ Ezekiel 33:5-7.

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

February 15, 2017

 

 

[1] https://about.vanguard.com/who-we-are/a-remarkable-history/, Vanguard Website accessed 2/15/2017.