Time for A Roth Conversion?

Stock and bonds are falling as investors react to rising interest rates and inflation, and most balanced portfolios are down significantly. Vanguard’s Balanced Index Fund is 60% stocks and 40% bonds and has fallen 14%. Is there a silver lining to lower account values? I think so, especially if you convert your traditional IRA to a Roth.

As markets drop, now can be an ideal time to convert your traditional IRA to a Roth. Since your account value is lower, you will pay less tax on your conversion, and your future gains will be tax-free when stocks rebound.

Here is an example. Let’s say your current IRA value is $1 million, and you decide to convert 20% of your account over the next five years. When you transfer $200,000 (20% of $1 million) to your Roth, you will pay ordinary income tax on the distribution. After five years, you moved your entire IRA balance to a Roth, so you will no longer pay taxes on distributions. It’s 100% tax-free!

Let’s explore a few benefits of the conversion.

  1. A lower account balance equates to fewer taxes.
  2. Once your conversion is complete, you will no longer pay taxes on your distributions.
  3. You could pay lower Medicare premiums because of your reduced income. For example, a married couple earning $200,000 may reduce their premiums by 30% or more by moving down to the lowest Medicare tier.
  4. You can contribute to a Roth IRA through back-door contributions.
  5. You will eliminate your Required Minimum Distributions (RMDs). If you keep money in a traditional IRA, you must start withdrawals at age 72, but not so with the Roth IRA.

As a note, the House of Representatives is working on the Build Back Better Act, which will curtail Roth conversions and back-door Roths for high-income earners ($450,000 for couples). The potential phase-out or elimination year is 2031. Stay tuned.

Happy conversions!

The best way to teach your kids about taxes is by eating 30% of their ice cream. ~ Bill Murray

June 10, 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.

You May Live Forever!

Estate planning is complex. To complicate matters, few people like to talk about their mortality, but it’s necessary. Creating a will or trust is paramount to ensuring your family honors your wishes, and a well-structured plan can potentially avoid conflicts between heirs. Most people account for physical items like furniture, art, homes, cars, etc., but what about digital assets or social media accounts? If your beneficiaries can’t access your Instagram account, your persona may live forever. If they don’t know your Bitcoin wallet password, it may be gone for good, so it’s imperative to include these items in your estate plan.

Keeping track of assets is challenging, especially when stored in the cloud. One way to ensure your social media accounts and digital assets are accessible to your heirs after you’re gone is to give them the passwords. If they can access your accounts, they can close them out or transfer the assets into their names. Of course, managing passwords is an art, so a program like 1password (https://1password.com/) can eliminate or reduce the frustration of trying to figure out how to access your information. It also beats sorting through a box of sticky notes or trying to read your handwriting on a legal pad. Is it a letter or a number?

What if your heirs aren’t familiar with your social media accounts? Can they close them, or will you live forever? Thankfully, your heirs have options. They can contact the media platform and give them your name, a link to your profile, identification documents, death certificate, and proof of relationship. Once done, they can close your accounts. Another option through Instagram and Facebook is to memorialize your account. If memorialized, it will include a remembrance badge and be frozen, so no more updates are allowed. Snapchat and Twitter will only deactivate the account.

If you think ahead, you can assign a legacy contact to your media sites so they can assume your account once you’re gone.

What if you’re an influencer, or your site generates money through YouTube or TikTok? In this case, you can assign someone to take over your account, so the revenue stream continues.

Bitcoin and cryptocurrency are different because it’s decentralized and not issued by banks or custodians, and there is no help desk to call after you die. If your heirs can’t access your wallet, your assets are gone forever. Poof. To avoid this problem, let your beneficiaries know your passwords or store them on an exchange like Coinbase, Crypto.com, or FTX. Cryptocurrencies can transfer by will or trust.

PayPal and Venmo are excellent services, but if you don’t let others know about these accounts, the money will be lost forever, similar to Bitcoin. To avoid this issue, log in to your phone to access the app, and reset the password if you know it. After accessing the app, you can transfer the funds.

If you’re like most people, your life is on your iPhone – apps, wallets, passwords, contacts, etc. Your heirs can avoid several issues if they can access your iPhone. However, if they can’t access your phone, they need to contact Apple and request access. Apple will need a certified death certificate, proof of executorship, identification, and a court order.

In addition to Aunt Mary’s doll collection, Uncle Joe’s books, and your brother’s baseball cards, don’t forget to include digital assets and social media sites in their estate plan.

Estate planning is an important and everlasting gift you can give your family. And setting up a smooth inheritance isn’t as hard as you might think. ~ Suze Orman

June 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. 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.

Research Assistant = Ryan Arnold

What Is Your Fee?

A prospect recently visited a financial planner’s website and had the following conversation.

Welcome to my office. How can I help you today?

I viewed your website and am impressed with your credentials and firm status, but I have several questions regarding your fees.

Sounds good; fire away.

Okay. I noticed you have several fee options, but I don’t understand the difference. Can you explain why you have so many choices?

Absolutely. We offer multiple fee schedules because clients like to choose the best structure that fits their needs. We offer four distinct plans: an asset management fee, a flat fee, an hourly rate, and a financial planning fee.

I Got it. What’s the difference?

It’s simple, really. We charge a 1% asset management fee for managing your money and completing a financial plan. For example, if you invest $1 million, the cost is $10,000, and if your account increases to $2 million, your new rate is $20,000.

I see. The 1% fee seems high. Is it not?

No way. It’s the industry standard, and we profit when you profit.

What’s next?

We offer a flat fee for asset management and financial planning of $10,000 per year.

If my account is $1 million, I pay $10,000. Is that not a 1% fee?

It is, but it’s a flat fee. Do you see the difference?

No, not at all.

If your account rises or falls, you only pay $10,000.

What if my account drops to $500,000?

It’s still $10,000.

Now my fee is 2% per year – correct?

Technically, yes, but it’s a flat fee of $10,000, and we don’t use percentages or refer to it as a fee-based account if we charge you a flat fee. Does this help?

No. Let’s move on to your hourly rate.

You bet. Our hourly rate is $500 per hour.

Wow. How many hours does it take to finish a plan?

About twenty hours, give or take.

Really? Your hourly rate is $500, which takes twenty hours, so your fee is $10,000? It Is the same rate as your two other options.

I guess it is, but different because it’s an hourly rate.

Let’s move on to the last one, financial planning only. Let me guess. Is it $10,000?

How did you know?

It’s just a hunch.

Our financial plan only module is $10,000. We set up your plan with instructions on how to implement it yourself.

My self? What do you mean?

We give you the finished document, and then you select your investments, manage your assets, and rebalance your accounts. Also, you’ll need to implement our recommendations for creating trusts, buying life insurance, changing beneficiaries, etc. It’s a simple process.

Simple?

Absolutely. You can open a Vanguard account, select two or three mutual funds, and you’re up and running! After opening your accounts, you can Google estate planning attorneys, life insurance agents, CPAs, etc. They will assist you with the remaining areas of your financial plan.

It sounds like I’m doing most of the work. Is your plan worth $10,000?

Yes, on both accounts.

What if I need to update my plan?

Your fee is good for one year; we charge $500 per hour to update your plan.

All your fees are almost identical.

I guess they are. I’ve never noticed that before. Odd.

I’m going to check with a few more firms to compare notes. I’ll get back to you soon if I want to proceed.

Thank you. When you check out other firms, please ensure you only work with an advisor with an “O” and not an “E.” There is a big difference.

Really?

You bet. Good luck with your due diligence, and thank you for coming to my office today.

May 30, 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.

5 Things Worse Than A Stock Market Crash

Stocks are tumbling, led by the Nasdaq. The tech-heavy index is down more than 25 percent this year. Numerous stocks have fallen more than 50 percent as investors sell speculative growth stocks, including Peleton, Teledoc, Palantir, Roblox, Redfin, Shopify, and Coinbase. Giant companies like Amazon, Disney, and Facebook have dropped more than 30 percent. It’s an ugly market.

However, I’m not worried because the market has always recovered. The Nasdaq crashed in 2000, 2008, and 2020, and despite the corrections, it bounced back to all-time highs. I’m optimistic the Nasdaq will return to its winning ways.

Stock market corrections are terrifying, but here are five items that can permanently destroy your family’s financial future.

  1. No savings. Saving money is the ultimate way to create generational wealth. After you get paid, allocate money to your retirement account, savings account, and emergency fund. How much should you save? As much as you can! A recommended savings percentage is 10% of your income. Timing is also essential, and the sooner you start, the better. If you habitually save money, then market corrections become less of an issue because you built a margin of safety, allowing your stocks to rebound and recover. I’ve noticed individuals who do not save money panic and sell when their investments fall because they don’t have a margin of safety or financial cushion. I don’t know how much your account balance will be worth if you regularly save money, but I do know if you don’t save any, it will be worth zero.
  2. No emergency fund. An emergency fund is essential during uncertain times and extreme market volatility. Investors prefer not to allocate funds to cash when stocks are soaring because it’s an earnings drag, but when stocks crash, cash is king. An emergency fund allows you to meet your obligations as stocks fall. What is the recommended amount? An emergency fund covering nine to twelve months of expenses is suitable if you’re working. For example, if your monthly expenses are $10,000, an emergency fund of $90,000 to $120,000 is appropriate. If you’re considering retirement, plan to cover three years of expenses. If your annual expenses are $120,000, then prepare for a balance of $360,000. A three-year cash cushion will help if you retire during a stock market collapse.
  3. No will. Dying without a will or estate plan is unacceptable, especially if you’re married or have children. Don’t leave your estate distribution plan to a probate court or state-appointed attorney. If you have substantial assets, hire an estate planning attorney. A good estate planning attorney is expensive but cheaper than trying to settle your estate without the proper documentation.
  4. No life insurance. Providing for your loved ones is paramount. If you owe money to your bank, have young children, or a spouse, then providing for their needs after you’re gone is a must. A lack of insurance planning can leave your family desperate to make ends meet. Spending a few dollars on insurance premiums can eliminate a lifetime of worry for your heirs.
  5. No financial plan. A financial plan quantifies your hopes and dreams and addresses the first four issues in this blog. During challenging markets, a financial plan brings financial peace. One of the first things we check when conducting financial reviews for our clients is the financial plan, and it gives us the confidence to make sound recommendations void of emotions or opinions. Most financial planning software accounts for wide market swings, so a significant market correction will not derail the majority of plans, which is the case for our clients.

Market corrections are painful, disruptive, and untimely but temporary. If you don’t save money, have a will, or own life insurance, you can permanently damage your family’s financial future.

The time to repair the roof is when the sun is shining. ~ John F. Kennedy

May 16, 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.

Invest Like a Stoic

Stoics would have made great investors because they focused on issues they could control. Marcus Aurelius, Epictetus, and Seneca would probably have much to say about today’s markets or, more importantly, investor’s reactions to the performance of stocks and bonds.

Stocks and bonds face strong headwinds from inflation, rising interest rates, COVID, the supply chain, and the war in Ukraine. These areas are causing heartache among investors as global markets crumble. Yet, we can’t control the outcome of these worldly events.

What can you control? As an investor, you can control your spending and savings; that’s about it. If you reduce your spending, you can increase your savings, and the more you save, the better. Of course, if your spending rises, you may have to reduce your savings.

Here are a few tips to help you manage your assets and emotions.

  1. Automate your expenses by depositing your paycheck and paying your bills. Automation simplifies your life and helps you avoid late fees and penalties.
  2. Automate your savings. Automate your investment accounts after setting up your 401(k) plan. Link your checking and savings account to build up your emergency fund. Transferring dollars monthly from checking to savings gives you access to the funds while increasing your emergency reserves.
  3. Buy the dip. If you automate your savings, you can buy the dip without emotion. It’s hard to buy stocks when they fall, but you can eliminate this fear through automation.
  4. Do not check your accounts. If you review your accounts daily, try doing it weekly. If you review them weekly, try doing it monthly. If you review them monthly, try doing it annually. The less you look at your investments, the better, especially if you own a diversified portfolio of low-cost funds.
  5. Manage your time horizon. If you need access to your funds in one year or less, deposit your money in money market funds, CDs, or T-Bills! If your horizon is three to five years or more, buy stocks.
  6. Build a financial plan. A financial plan guides your financial future and quantifies your hopes, dreams, and fears.

You can control your savings, spending, and outlook, but you can’t control inflation, interest rates, or world war. Despite these recurring issues, stocks rise more than they fall.

From 1926 to 2021, the stock market has risen 75% of the time.[1]

Best five years:

  • 1933 = up 56.7%
  • 1954 = up 50%
  • 1958 = up 45%
  • 1935 = up 44.4%
  • 1975 = up 38.8%

Worst five years:

  • 1931 = down 43.5%
  • 2008 = down 36.7%
  • 1937 = down 34.7%
  • 1930 = down 28.8%
  • 1974 = down 27%

A key takeaway is that the best years follow the worst years; sharp down days precede strong up days, and risk and return are linked.

I don’t know when stocks will recover, so follow your plan and focus on what you can control.

We control our reasoned choice and all acts that depend on that moral will. ~ Epictetus

April 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 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                                     


[1] The Rewarding Distribution of US Stock Market Returns – Dimensional, 1926 to 2021

Parrott Wealth Management Annual Letter

Parrott Wealth Management Annual Letter

Despite political turmoil, Delta, Omicron, rising interest rates, increasing inflation, supply chain issues, and several corrections of 4% or more, the three major US indices produced significant gains last year, led by the S&P 500 as it climbed 27%. Stocks were resilient to the surprise of many astute market observers. Large companies like Microsoft, Alphabet, and Pfizer outperformed small-caps and international stocks by a wide margin. Bonds were negative as interest rates climbed, and most emerging markets fell because of exposure to Chinese securities. Here is a look at how various asset classes performed in 2021.

  • Real Estate = 36.59%
  • Small-Cap Stocks = 24.60%
  • International Stocks = 7.84%
  • Emerging Markets = -1.30%
  • Bonds = -3.90%
  • Gold = -4.15%
  • Oil = 49.65%

Though US Stock market valuation metrics are rich and extended, the market can still trade higher. Relative to US companies, international stocks offer tremendous value.

Philosophy

The root of what we do is financial planning. A financial plan helps us manage your account better because it focuses on your hopes, dreams, and fears. It gives us the confidence to make recommendations that benefit you and your family.

We believe in the buy-and-hold strategy of investing. Meaning, we don’t make a lot of trades or changes to the portfolios, and we hold our investments through all types of market conditions – good, bad, and ugly because we have not found a better approach for investors to create generational wealth. Timing the market does not work, and it’s like teaching a pig to sing. It’s a waste of time, and it annoys the pig.

PWM Models

Our managed models performed well last year, producing gains except for our most conservative model, which is 100% bonds, and it dropped 1.29%. Our all-stock model climbed 24.26%. The models are diversified and built with funds managed primarily by Vanguard, Dimensional, and BlackRock and designed to take less risk than the market. For example, our all-stock model is approximately 20% less risky than the S&P 500.

China

We reduced our Chinese stock allocation significantly because of the actions of the Chinese government towards their publicly traded companies. At this point, we consider China uninvestable. We sold Vanguard’s Emerging Markets Fund ETF (VWO) and transferred the money to the iShares MSCI Emerging Markets ex-China ETF (EMXC). The ex-China fund closed the year up 6.6%, while Vanguard’s fund fell 1.3%. We will make a similar change with Dimensional’s Emerging Markets Fund.

Bonds

Bonds finished in negative territory as they reacted to rising interest rates and escalating inflation. When interest rates rise, bond prices fall. Our bond exposure remains short-term, with maturities ranging from a few months to a few years, and we will stay short-term until rates rise further. If rates do rise, the impact on our bond portfolios should be minor. We continue to buy bonds for safety and diversification because stocks will fall eventually, and bonds will perform well when they do. Bonds are negatively correlated to stocks and still provide one of the best hedges for tumbling stock prices. We also are buying bonds for accounts with large cash balances since money market rates are near zero; they are the lesser of two evils.

Bitcoin

I continue to swing and miss when it comes to Bitcoin. The popular cryptocurrency soared 57% last year despite a year-end sell-off. I’ve been wrong on cryptocurrencies forever, and this trend likely continues for the foreseeable future because I don’t understand it or have a clue about how it works. I don’t consider it a currency because it’s too volatile, so, by default, it’s an asset class like gold or silver. Crypto experts love Bitcoin because it’s not correlated to stocks, and it’s an inflation hedge. However, lately, it rises when stocks rise and falls when stocks fall, meaning it’s correlated to stocks. And since inflation has surged, Bitcoin has dropped. Also, Bitcoin and other cryptocurrencies are only fourteen years old, and the last time we experienced significant inflation was more than forty years ago. Hence, it’s too early to tell how it performs in an inflationary environment. According to crypto.com there are 10,586 coins, including Polkadot, Tron, and SafeMoon. As a comparison, there are currently 10,342 US publicly traded securities. And there’s nothing to stop you, me, or my dog Cricket from launching a new crypto coin, so how do you pick the best one? I’m not sure it’s possible. Historically, wealth created from nothing does not last.

Working From Home Stocks

Last year was a boon for working from home (WFH) stocks, but not this year. As the economy reopened, companies like Peleton, Zoom, Docusign, Stitch Fix, and others fell back to earth. I wrote in last year’s letter that “at some point, valuations will matter, and investors will focus on earnings, revenue, cash flow, and profits; until then, tread lightly and be careful with these high-flying investments.” This year, DocuSign dropped 31%, Zoom fell 45%, Stitch Fix declined 67%, and Peloton crashed 76%. I’m sure a few WFH stocks recover, but they’re still expensive, so my advice from last year still stands.

Deficits and Debt

I must balance my budget because I will eventually lose my business and home if I don’t. The federal government, however, does not. Our government can print money and run a deficit forever, and it mostly has. Public, searchable records date to 1901, and the first deficit occurred in 1904 at $43 million, equivalent to $1.4 trillion today.[1] And since 1904, our government has run a deficit 76% of the time. In 1943, the budget deficit accounted for 27% of GDP; today, it’s 15%.[2] The budget deficit fell below $100 billion for the first time in 1982.

Our government’s last surplus was in 2000, before the Tech Wreck, where stocks fell 43%, and our country entered a deep recession. Before 2000, the previous surplus year was 1960.

Our current deficit is $3.12 trillion as our government sent stimulus checks to people in need and offered airlines resources to keep flying. During the Great Recession from 2007 to 2009, the budget deficit touched a low of $1.5 trillion when the government bailed out auto manufacturers, banks, and insurance companies; as the economy recovered, the deficit improved to a negative balance of $469 billion by 2015.

During times of economic pressure like wars, recessions, or pandemics, our country comes to the rescue and, as a result, runs a deficit. When the economy thrives, the government reduces or eliminates its debts. For example, in 1943, the budget deficit was a negative $55.5 billion as it financed WWII. By 1949, after the war and the troops returned home, the government produced a surplus of $10.5 billion.

What does this mean for the stock market? Not much. Since 1915, the Dow Jones has risen more than 48,000 percent. Deficits look scary, but they don’t have much of an impact on stocks.

PWM Growth Indicators

Our “Starbucks card indicator” continues to percolate, showing signs of significant growth. This year we mailed 145 cards to our clients, up 20% from last year and more than 150% since we started doing it in 2017. If we examine traditional growth metrics like assets and revenues, PWM grew 36% last year, and our average annual growth rate for the past six years has been 41%.

Janet

Janet, our Director of Client Services, is celebrating her fifth anniversary with Parrott Wealth. She joined the firm on January 2, 2017. Janet is a tremendous asset to the firm and continues to make our back-office hum without issues. I’m encouraged because most of you bypass me altogether and contact Janet directly for assistance with your accounts. She was valuable last year as we transitioned from state to federal regulation.

Spencer

Our headcount grew by one last year as Spencer Engelke joined PWM. Spencer has been an outstanding hire, and he is currently working on obtaining the Certified Financial Planners designation and has already passed module one. Spencer’s primary focus is on financial planning but occasionally assists me with trading.

SOAR Wealth Management

We launched SOAR Wealth Management in 2021 to help new, first-time, or emerging investors. Betterment manages the investment portfolios while we assist them with budgeting, debt management, and financial planning. The website is http://www.soarwm.com.

2022 Predictions

Last year, most of my predictions came true, so the pressure is on to replicate my success. If you want to review the previous year’s results, email me at bill@parrottwealth, and I will forward you a copy. Here are my thoughts for 2022.

  1. The S&P 500 will rise 10%. It’s not much of a prediction since the popular index has averaged 10.1% for the past 95 years.
  2. If the Federal Reserve raises interest rates, they will do so only once or twice.
  3. The rate of inflation will fall. It’s currently 6.81%, and I believe it drops below 4%.
  4. Housing remains robust as apartment dwellers and millennials continue to buy new homes. The prices of vacation homes remain elevated as cash-rich investors diversify their assets beyond stocks and bonds.
  5. President Biden passes a watered-downed version of the infrastructure bill.
  6. China continues to crack down on publicly traded companies, billionaires, and Taiwan, further depressing its stock prices.
  7. The House and Senate flip to the GOP in the November elections.
  8. COVID is here to stay, requiring an annual booster similar to a flu shot.
  9. The Great Resignation continues as workers retire early because of COVID and stressful work environments. Individuals will leave the workforce to pursue their hobbies.
  10. Travel surges next year as people leave their COVID caves. Attendance at National Parks soars as people prefer to drive rather than fly.

Thank You

We appreciate you and your business. We know you have numerous firms to help you reach your goals, and we’re thankful for the trust you placed in Parrott Wealth Management. We are blessed beyond measure.

As our firm grows, we’re honored to work with second and third-generation clients. Last year, we opened several accounts for college students and recent graduates referred to us by their parents or grandparents. We are excited to help these youthful investors build solid investment foundations.

2022

May the new year bring you peace, prosperity, health, happiness, and rest. My prayer is that this year will be your best!

Now may the Lord of peace himself give you his peace at all times and in every situation. The Lord be with you all. ~ 2 Thessalonians 3:16

Sincerely,

Bill Parrott

President and CEO

Austin, TX

January 3, 2022


[1] YCHARTS US Government on-budget surplus or deficit – 1901 to 2020.

[2] FRED Economic Data – Federal surplus or deficit as a percent of GDP – 1930 – 2021.

Do You Need A Corporate Trustee?

Family dynamics are fascinating. After more than thirty years in the investment management and financial planning industry, I’ve noticed most families are similar. There are patriarchs, matriarchs, do-gooders, black sheep, brilliant minds, athletes, know-it-alls, Republicans, Democrats, meat-eaters, vegetarians, rich, poor, entitled children, lost souls, and courageous explorers. If you think yours is different, take a long look at your family tree or discuss a hot topic like politics, Bitcoin, or COVID at your next family gathering.

Because of COVID, several clients asked me about naming a successor trustee for their family trust. In some cases, it’s an easy decision, but at other times it’s not. Should you list a child, and if you have multiple children, which one? If you don’t have children, do you add a cousin, a sibling, or a brother-in-law?

After decades of wealth creation, naming a successor trustee to honor your wishes should not be taken lightly, and it’s a critical decision. Will your child have the capacity to manage your estate? Will a third cousin invest your assets wisely? Who knows. And, once you’re gone, there is nothing you can do about it. Rather than naming a family member, is there a better option?

A corporate trustee could benefit all parties because they’re not emotionally attached to your family, and it’s pure business. In addition, to honoring your wishes, they’ll distribute funds to your loved ones, charities, and others you support. They’ll file trust tax returns, and, more importantly, they are perpetual. Unlike your successor trustee, they won’t die. Your child could benefit from a corporate trustee as well. The burden of managing and distributing an estate is stressful, time-consuming, and complicated. It took my mom years to settle her parent’s estate. A corporation with several attorneys, tax experts, and advisors may have been a better option for my grandparents, though my mom did an excellent job.

Corporate trustees manage several trusts, including living trusts, life insurance trusts, charitable remainder trusts, and generation-skipping trusts. In addition, they can invest your assets professionally to grow them for future generations. Of course, a corporate trustee is not free, and your estate must pay a fee for their services, but it could be money well spent if it brings you peace knowing they are honoring your wishes.

Here is a list of corporate trustees.

Schwab Personal Trust Services:

https://www.schwab.com/personal-trust-services#beacon-deck–86741

Fidelity Personal Trust Services:

https://www.fidelity.com/managed-accounts/portfolio-advisory-service/personal-trust-services

Vanguard Personal Trust Services:

https://investor.vanguard.com/advice/trust-services

The strength of a family, like the strength of an army, is in its loyalty to each other. ~ Mario Puzo

January 8, 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.

The Year in Pictures

I loved reading the Year in Sports by Sports Illustrated as a kid. It was a collection of their best pictures from the previous year and required reading for my cohort of friends. So here is a look at how markets, investments, and economic indicators performed last year.

The S&P 500, Dow Jones, and NASDAQ performed well last year.

Though stocks performed well, they fell several times last year.

The bond market struggled last year as interest rates and inflation climbed.

Working from home stocks got crushed as investors focused on earnings, profits, and cash flows.

Bitcoin had another excellent year but sold off significantly in November and December.

Gold finished in negative territory despite rising inflation.

Inflation jumped last year, finishing the year at 6.81%.

Growth beat value again despite a robust first-half surge from value companies.

GDP posted a solid gain.

Household debt continues to climb.

International investments lagged US stocks.

Large-caps outperformed small caps, which beat mid-caps.

Interest rates rose significantly last year.

Real estate markets turned in another stellar year.

Unemployment rates dropped last year.

I wish you and your family a Happy New Year. Follow your plan, diversify your assets, save your money, invest often, rebalance your accounts, think long term, and good things will happen.

A picture is worth a thousand words. ~ Albert Einstein

January 7, 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.

22 Ideas for 2022

Happy New Year! It’s hard to imagine it’s 2022, but here we are. Below are twenty-two ideas you can incorporate to make next year your best investment year ever!

  1. Create a spending plan so you can spend with confidence. Review last year’s bank and credit card statements to see if there are opportunities to increase spending or reduce expenses.
  2. Develop a financial plan. A well-constructed financial plan prioritizes and quantifies your goals and aligns your investments to your objectives, so your assets are working in concert for your benefit.
  3. Max out your 401(k) contributions. The maximum contribution jumps to $20,500 in 2022. If you’re 50 or older, you can add another $6,500 to your account.
  4. If you’re a high-income earner ($129,000 if single, or $204,000 if married), consider a Roth 401(k).
  5. Fund your IRA. The maximum contribution for an IRA is $6,000, and if you’re 50 or older, you can deposit another $1,000.
  6. Do you own a professional organization like a law practice, CPA firm, medical practice, architectural firm, etc.? If so, consider incorporating a cash balance pension plan. It will benefit older employees looking to contribute significant amounts of money to a retirement plan.
  7. Consider adding a profit-sharing plan to your 401(k) if you own a business. It will give you the flexibility to make additional contributions to your retirement account.
  8. If you’re self-employed, open a SEP-IRA or solo 401(k) plan.
  9. Give money away. The IRS allows you to give $16,000 per person per year without tax consequences to either party. For example, if you’re married and have ten kids, you can give away $320,000 every year. If you decide to give more money, it will apply to your lifetime gift tax exemption of $11.7 million if you’re single or $23.4 million for married couples.
  10. Give more money away. Consider donating assets to groups or charities you support. Currently, you can deduct 100% of cash donations from your adjusted gross income. In addition to donating cash, you can give appreciated assets like stocks or real estate.
  11. Open a Health Savings Account if you participate in a high-deductible medical plan. The maximum contribution for 2022 is $3,650 for individuals or $7,300 for couples. If you’re 55 or older, you can add another $1,000.
  12. Review your risk level. How much risk are you willing to accept to achieve your investment goals? A risk assessment will gauge your risk level and assess your portfolio’s holdings. You may be surprised by your results.
  13. Review your beneficiaries. Did you have any life events in 2021 – birth, marriage, divorce, death? If so, update your beneficiary information for your retirement accounts, life insurance policies, wills, trusts, and so on.
  14. Update your will or trust. Is it time to make changes to your estate plan? Does your will or trust need a refresh?
  15. Create an estate plan. If you don’t have a will or trust, there is no time like the present to create one. An estate plan can protect you and your family from several financial calamities.
  16. Review your insurance policies. If you have a mortgage, children, a non-working spouse, then insurance is a must. A term policy will satisfy most family situations. And, yes, a non-working spouse needs life insurance.
  17. If you’re 55 or older, consider getting a quote for long-term care insurance. A long-term care policy can protect your family assets and offset the cost of an assisted living facility.
  18. Invest for growth. If inflation rises and interest rates remain low, equities will perform well.
  19. Invest for safety. If you are worried about a stock market correction from rising inflation or interest rates, invest in short-term bonds or cash. Your money won’t grow, but it will be available if you need it.
  20. Diversify your assets. Allocating your assets across stocks, bonds, cash, and borders will give your account exposure to thousands of securities spread out across the world.
  21. Rebalance your accounts. January is an excellent time to rebalance your portfolios to your intended asset allocation target. Rebalancing once per year is sufficient for most investors.
  22. Watch, listen and read. Consuming investment information through videos, webinars, podcasts, blogs, or books can improve your investment results. As Charlie Munger said, “In my whole life, I have known no wise people over a broad subject matter area who didn’t read all the time – none, zero.”

I hope this list helps you improve your investment results, and I pray that you and your family receive much peace, love, and joy in 2022.

To the person who does not know where he wants to go there is no favorable wind. ~ Seneca

December 27, 2021

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.

New Year’s Opportunity

Ready. Set. Go. The New Year is approaching fast, and it’s time for investors to map out a course for success. 2021 was another banner year for stocks as the S&P 500 soared more than 25 percent despite political unrest, the Omicron Variant, escalating inflation, and rising interest rates. The market also incurred several declines of 4 percent or more, but your accounts probably performed well if you remained invested.

As we approach 2022, it’s time to review and adjust your financial plan and investment holdings. To help you succeed, here are some ideas you can incorporate.

  • Rebalance. If you entered 2021 with an allocation of 60% stocks and 40% bonds, it is now 67% stocks and 33% bonds – more aggressive than your original profile. Rebalance your portfolio back to its initial allocation to mitigate your risk.
  • Budget. January is an ideal time to review last year’s spending. Are there areas in your budget where you can reduce spending? Can you increase savings? A well-structured budget gives you the freedom to spend with confidence. You can control your spending and savings – two critical components for creating wealth.
  • Plan. Is 2022 the year to build your financial plan? A financial plan will guide your financial future by quantifying your hopes, dreams, and fears. It will also align your goals with your investments to boost your planning.
  • Give. If you own a home and stocks, your wealth likely jumped substantially in 2021. Unfortunately, those who didn’t own assets were left behind. To help those in need, consider a philanthropic strategy. In addition to doing a good deed, It could reduce your taxable income. A donor-advised fund and charitable remainder trust are two popular giving vehicles.
  • Increase. The 401(k) contribution jumps to $20,500 next year. An easy way to invest and build wealth is through your company retirement plan. In addition to the regular contribution, you can deposit another $6,500 to your account if you’re fifty or older. If you can’t maximize your contribution, aim for 10% of your income.
  • Automate. Do you struggle with investing or saving money? If so, automate your investment contributions – set it, and forget it! If you’re unsure how much money you can save, start by automatically moving a certain amount to your savings account each month. If you don’t miss the money, keep it going. However, you can access your savings account without fees or penalties if you need money.

A new year is full of hope, and hope springs eternal. January allows you to build on your momentum or start over. Regardless of your starting point, spend time plotting your financial future. A few hours of planning today will pay huge dividends tomorrow.

Be at war with your vices, at peace with your neighbors, and let every new year find you a better person. ~ Benjamin Franklin

December 16, 2021

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. New Year’s Eve prediction: Baylor 28 – Ole Miss 17.