Since starting my firm, I’ve completed hundreds of financial plans and reviewed thousands more over my career. However, several headwinds exist for individuals to complete a financial plan. A few obstacles include costs, time, and complexity.
Let’s examine a few challenges to starting and finishing a financial plan.
Costs. Many advisors charge thousands of dollars for a financial plan, a considerable amount to pay, especially since most of them use software packages from Money Guide Pro, eMoney, or Right Capital. If you’re an investor with a 401(k) plan, IRA, or brokerage account, you don’t need to pay exorbitant fees, an hourly rate, or a monthly subscription to get a solid financial plan. Our fee is a one-time expense of $800.
Qualification. It’s common for firms and advisors to exclude investors with assets below one million dollars or incomes less than $250,000. We work with any individual who needs financial guidance regardless of assets or income.
Insurance. Life insurance is not a cure-all, and investors do not need multiple whole-life policies, which is a common remedy if you work with an advisor at a brokerage firm or insurance agency. Warren Buffett said, “Don’t ask the barber whether you need a haircut, and be careful from whom you seek advice.” Our firm is independent, and we do not sell insurance or high-commission products and refer our insurance business to another trusted advisor if it suits our clients.
Time. Individuals don’t want to spend weeks or months working on their financial plan, nor do they want to meet dozens of times with their advisor. We have streamlined and refined our process to deliver your plan promptly and efficiently.
Invest. Some advisors incorporate an “invest or else” mandate concerning planning. They will provide a financial plan, but you must invest with their firm. It is a tool for them to sell you more products. Our financial plan is a stand-alone service, and you’re under no obligation to invest with our firm.
Procrastination. Tomorrow is a threat to your financial plan. The best time to start planning was yesterday, and the second best time is today.
Planning is essential for your financial success and is at our firm’s core. We aim to remove confusion and complexity from the planning process so you can pursue a life of purpose.
Happy Planning.
Plans are nothing: planning is everything. ~ Dwight D. Eisenhower
January 18, 2024
Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management 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.
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. Prices and yields are for today only and are subject to change without notice. Past performance is not a guarantee of future performance
The 2023 Bull Market was the most hated in history as experts and investors watched with distrust as stocks soared to all-time highs despite numerous headwinds, like rising interest rates, high-profile bank failures, and wars in Ukraine and the Middle East. The Nasdaq jumped 43.42% last year, the sixth-best year in its history. The Dow Jones Industrial Average traded to all-time highs, and the S&P 500 came close.
After the 2022 stock market decline, many financial strategists had negative outlooks for 2023, from a stock market crash to a colossal recession, and investors waited patiently for these events to occur by parking more than $6 trillion in money market funds. The higher stocks climbed, the more money flowed into money market funds, waiting for the doomsayer’s predictions to come true, which never happened. I would argue that the Federal Reserve engineered a soft landing, and we are now in the midst of a Goldilocks economy with low unemployment, moderate interest rates, rising wages, and a robust economy.
Investors can create generational wealth if they own stocks, invest regularly, and avoid big mistakes. What’s a big mistake? It occurs when investors panic during corrections like 1987, 2000, 2008, 2018, 2020, or 2022. The October 19, 1987 crash was the worst since the Great Depression, yet the Dow Jones finished the year in positive territory. After the Tech Wreck, the S&P 500 climbed 66% from 2003 to 2007. It soared 141% after the Great Financial Crisis (GFC). The stock market crashed 31% in thirty days during the initial days of COVID-19, but from March 2020 to December 2021, it jumped 113%. If you stayed in the game, your assets recovered.
Interest Rates
Interest rates peaked last October as the bellwether US 10-Year Treasury Note traded above 5%. Interest rates spiked because the Federal Reserve aggressively raised them from 0% to 5.5% to fight inflation. Because of the rate hikes, short-term rates for US Treasury Bills jumped substantially, and when the Fed starts to lower rates, the rates on short-term investments will fall quickly. Historically, short-term interest rates hover near the inflation rate or approximately 3%. Despite all the Fed activity last year, intermediate and long-term interest rates were unchanged.
Bonds
During COVID-19, our government flooded the system with money and drove interest rates into the ground, and for several years, the yield on the US T-Bill was zero. Not normal. However, it’s not the first time interest rates have hit rock bottom – from 2009 to 2015, the rate was at or near zero. During the dark days of the Depression, T-Bills paid zero interest from 1938 to 1940. The 97-year average T-Bill rate is 3.7%.
From March 2022 to July 2023, interest jumped from zero to 5.5%, the fastest and steepest increase in history. When interest rates spike, stocks, bonds, and real estate prices fall. In fact, long-term bonds crashed 26% in 2022. It was the worst correction ever as the bond market was returning to normal, but in doing so, it left a lot of damage in its wake. From the COVID low, the yield on the one-month T-Bill soared 55,100%! It’s unlikely rates will climb that sharply again.
What does normal mean for you and your family? You can now enjoy better bond market returns with less volatility than we’ve experienced over the past several years. A stable bond environment benefits stocks and real estate as well. It’s now possible to receive income of 5% or more from several bonds and bond funds.
Models
Our simple but powerful models give us global exposure to stocks and bonds. They performed well last year; 80% of our households generated returns of 10% or more, and 99.47% of them made money.
We prefer holding a diversified portfolio of funds because we never know when, why, where, or how markets will turn. We can’t time the market. It’s similar to trying to predict the movement of a school of fish. It’s impossible.
If necessary, we rebalance our models weekly through Schwab’s iRebal system, which automatically scans our models, looking for changes. If one is detected, we rebalance the model to its original asset allocation to maintain a constant risk level.
We like stock exposure because they rise seventy-five percent of the time and always recover, as they did last year, despite corrections, rising interest rates, world wars, inflation, deflation, or politics.
Complicated investment strategies look good on paper because they promise huge profits and outsized returns, but it’s probably too good to be true. Most investors would benefit from a simple strategy of owning low-cost index funds in a diversified portfolio rather than focusing on challenging investment strategies.
Inflation
The inflation rate continues to decline and is approaching the 98-year average of 3% after peaking at 9% in 2022. Lower inflation benefits stocks and bonds. If inflation remains tame this year, interest rates will hold steady, if not fall.
Financial Planning
During the 2022 market correction, we relied on our financial planning process to encourage clients to remain invested, stay the course, and not panic. It was a difficult ask, as it is in all down markets, but most clients took our advice. A financial plan is central to our client’s portfolios because it gives us the confidence to advise them better about their financial future. Last March, we tested our client portfolios for a 50% market correction and a sustained 5% inflation rate to see how they would perform if conditions worsened. The exercise furthered our confidence that most accounts could survive our grim outlook, but what about the ones that could not? If a plan failed our test, we contacted the client to discuss several scenarios and make the appropriate adjustments. However, we did not expect the market to fall by 50% or inflation to remain above 5%, and they didn’t.
Miscues
In 2022, I sold Meta Platforms, Intel, and Nvidia to recognize losses for clients because the stocks were down 64%, 48%, and 50%, respectively. It was the right decision then; however, Nvidia was up 238%, Meta jumped 194%, and Intel soared 90% – three of the best-performing stocks in 2023. Below is a two-year chart of their performance.
Conversely, I held Pfizer and Walgreens down 43.8% and 30%, respectively. Pfizer’s stock price soared from the 2020 lows to the 2021 highs as it delivered successful COVID-19 vaccinations but failed to capitalize on the windfall as other pharmaceutical companies focused on obesity drugs. On the other hand, Walgreens has been a disappointment for years. The catalyst for buying Walgreens was the potential spinoff of their Boots Alliance division, which COVID-19 disrupted.
I’m sure my 2025 annual letter will include several miscues, misses, or mistakes I made in 2024, but I hope not!
Election Year
According to Blackrock, the market has averaged 11.6% during election years from 1926, and since 1928, the market has risen in 20 of the 24 election years. Since Ronald Reagan’s election, the S&P 500 is up 2,670%, averaging 10.15% annually, in line with the historical returns.
According to Capital Group, there have been twenty 10-year rolling periods from 1936 to 2012 for those who’ve run the White House. Democrats have controlled eleven periods with an average annual return of 11.2%, and Republicans have controlled nine, with an average yearly return of 10.5%. Since 1936, the market has generated an average annual return of 10.28% under Democrats and Republicans.
I recommend remaining invested and not trying to time the market based on headlines or predictions regarding this year’s election, and I hope the election goes your way whether you’re red, blue, or purple.
2024
What can go wrong this year? Plenty. Potential risks to stocks include expanded wars in Ukraine and the Middle East, China invading Taiwan, and the US election in November. If inflation returns, the Fed will continue to raise interest rates.
Thank You
I appreciate your confidence in our firm, especially after 2022, when markets performed terribly. It takes faith to ride out an investment correction, but you did, and last year, your accounts rebounded markedly.
We know you have many investment and planning choices, and we are grateful to work with you and your family.
Janet
Janet is celebrating her seventh year with PWM and led our transition to Schwab, a year-long process, with much success. She has also helped many of you navigate Schwab’s login process, including downloading their app. Janet is at the heart of our service model.
Spencer
Spencer celebrated his second anniversary with PWM by passing the grueling Certified Financial Planners™ exam. He faithfully studied for two years and passed the exam in July – well done! Spencer spearheads our weekly podcast, A View from the Perch, which you can listen to on Spotify, Apple, and other platforms. You can also watch us on YouTube.
Starbucks Indicator
Our firm continues to grow, and so does our Starbucks indicator! Last year, it jumped by 13.75%. We now work with clients in seventeen states primarily because of your referrals, so thank you!
January 10, 2024
Love the Lord your God with all your heart and with all your soul and with all your mind and with all your strength. The second is this: Love your neighbor as yourself. There is no commandment greater than these. ~ Mark 12:30-31
According to Cerulli Associates, Baby Boomers may transfer $53 trillion to the next generation.[1] Are your kids equipped to handle the windfall?
Transferring assets to children or grandchildren is a common concern for our clients, so starting them early on sound money management principles is paramount. Here are a few suggestions to help you transfer wealth and prepare your kids for their inheritance.
Give your kids a weekly allowance. A weekly allowance allows your children to handle money regularly, giving them confidence when they are older. It’s beneficial to let them spend their money without restrictions.
Open a checking and savings account for your kids. Take them to the bank so they can deposit money into their accounts.
Give your kids a credit card when they start driving, and utilizing a credit card with spending limits while young can give them a credit history and the discipline to pay it off monthly.
Introduce your children to the power of giving. Let them select charities that are close to their hearts. A giving mentality will help those in need and allow them to focus on others. If your kids can donate money while they’re young, they will do it when they’re old.
Give your kids the annual exclusion. You can give away $18,000 per person.
If your kids generate earned income, open a Roth or traditional IRA to give them a headstart on fortifying their retirement savings.
Buy them a few shares of stock in their favorite company – Apple, Nike, LuLuLemon, Coke, Pepsi, McDonald’s, etc. Owning stocks will teach them much about the economy, business, and the stock market.
Consider hiring your children if you own a business. My grandparents owned a business, and I worked in the shop occasionally. My grandfather taught me how to use the machinery, while my grandmother introduced me to inventory management and accounting. I should have paid more attention to the latter.
Mastering responsible spending with smaller amounts of money lays a foundation for confidently managing more significant sums in the future. Of course, if they’re spendthrifts and spend with reckless abandonment, consider establishing a trust with a corporate trustee to handle their inheritance. A trust can ensure that their resources will last a long time.
Ultimately, your kids will model your financial behavior and spending habits. If you give to others, save often, and spend wisely, so will your kids. As John Maxwell said, “More is caught than taught.”
The best way to teach your kids about taxes is to eat 30% of their ice cream. ~ Bill Murray
January 3, 2024
Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management 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.
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. Prices and yields are for today only and are subject to change without notice. Past performance is not a guarantee of future performance.
First responders are remarkable, real heroes, charging into danger as others flee. Police officers, firefighters, and military personnel live to protect us so that we can enjoy our freedom.
My family has many friends who were members of the Los Angeles Fire Department, and when I was young, I loved hearing stories of dramatic rescues and magnificent firefights. They appeared larger than life as they detailed their acts of bravery.
One of my roles as a financial planner is to protect clients from greed and fear by managing emotions. I don’t want them to be overly euphoric or severely depressed when it comes to the performance of their portfolios. Instead, I want them to follow their plan to reach their financial goals.
Investors suspend their risk tolerance when the market rises by allocating more money to equities and rejecting bonds and cash because they curtail the portfolio’s rise. When stocks are climbing, I aim to manage our client’s risk levels and curb their enthusiasm to give them realistic expectations based on their financial plan.
When stocks fall, investors get depressed. It feels like the beginning of the end for most, and they want to sell their stocks and abandon their financial plan. When clients are in a poor emotional state, I try to give them hope and encouragement and let them know that bear markets don’t last forever.
The past five years have offered plenty of fear and greed for investors. The S&P 500 fell significantly in 2018, 2020, and 2022, but it has recovered each time, and the index is close to eclipsing its all-time high on a price basis and recently surpassed its peak when you include dividends.
To be fair to first responders, I’m never in harm’s way. I’ve never encountered a burning building or exchanged gunfire with an enemy. I sit at a desk in a climate-controlled office protected from the elements. However, when emotions run hot, I want to protect clients from making catastrophic or disastrous financial decisions.
I receive several investment requests from clients, and if it aligns with their financial plan and moves them closer to their goals, I’ll add it to their account. Of course, if it doesn’t make sense, I’ll say so and give them better options. I make decisions that align with their best interests by gaining a deep understanding of my clients through the financial planning process, regular conversations, and review meetings.
As we approach 2024, it’s an ideal time to revisit your financial plan and investment portfolio to fortify them against potential risks and uncertainties.
Greater love has no one than this, that one lay down his life for his friends. ~ John 15:13
December 13, 2023
Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management 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.
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. Prices and yields are for today only and are subject to change without notice. Past performance is not a guarantee of future performance.
The seventies were unique. It was a period marked by disco, Watergate, an oil embargo, stagflation, and bell-bottom jeans. It was a challenging decade for most Americans.
The Yom Kippur War in 1973 led OAPEC to enforce an oil embargo that brought our country to its knees with long gas lines and high prices at the pump.
We witnessed the horrific terrorist acts of the Munich Olympic Games, as Jim McKay reported on the events as they unfolded and told us, “They’re all gone.” A tragedy.
Politically, it was a brutal decade because of the resignation of Richard Nixon, the Iran Hostage Crisis, and the fall of Saigon.
The 1970s had excellent music like Stairway to Heaven, Joy to the World, and Hotel California. The Sting, Rocky, and The Deerhunter won an Oscar for Best Picture, while Jaws kept most people out of the water. The Sony Walkman and Jogger rollerskates were the hot items to own.
The Oakland A’s, New York Yankees, and Cincinnati Reds dominated baseball. The Miami Dolphins, Dallas Cowboys, and the Pittsburgh Steelers ruled the NFL. Magic and Bird launched their NBA careers with contradictory styles of basketball.
Hank Aaron hit his 715th home run, and Muhammad Ali was the reigning heavyweight champion of the world. Billie Jean King beat Bobby Riggs in the Battle of the Sexes; Secretariat won the Triple Crown by thirty-one lengths in the Belmont Stakes.
Our great country celebrated its 200th anniversary on July 4, 1976, and we welcomed the return of the Apollo 13 astronauts. Saturday Night Live debuted in 1975, and Star Wars took over the universe a year later.
The Sears Tower and Twin Towers reigned supreme over our country’s infrastructure. Margaret Thatcher, The Iron Lady, became Prime Minister in 1979, and Mother Teresa won the Nobel Peace Prize that same year.
For investors, the seventies were complex because of stagflation. The S&P 500 returned 5.86% annually, underperforming T-Bills and inflation. The one-month US T-Bill averaged 6.31% yearly, with inflation returning 7.36%, so investors posted negative returns after taxes and inflation. It was a lost decade, and it was not until 1982 before stocks and bonds started climbing again.
Investors who ignored the headlines and bought stocks and bonds during the dark days experienced decades of superior growth. Since 1970, the S&P 500 has averaged 10.47% annually; T-bills generated an annual return of 4.42%, while inflation averaged 3.98%.[1] A $1 investment in stocks grew to $212.42 compared to $10.25 for T-Bills.
According to some experts, the outlook for stocks and bonds is dire, and they’re predicting low stock returns and rising interest rates. Should you pay attention? If your time horizon is three to five years or more, focus on your financial plan and keep investing. If the stock market falls, use it as an opportunity to buy quality investments because the long-term trend of the stock market will reward you in the future, just like it did for investors in the seventies.
And a new day will dawn for those who stand long, And the forests will echo with laughter. ~ Stairway to Heaven
November 10, 2023
Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management 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.
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. Prices and yields are for today only and are subject to change without notice. Past performance is not a guarantee of future performance.
[1] Dimensional Fund Advisors Returns Web – 1/1/1970 to 10/31/2023
Most people agree that building a home on solid ground is wise. Today, if a home doesn’t have a secure foundation, like rock, a builder can fortify it with cement, rebar, steel, or some other material to ensure it stands for generations.
Building a home on sand or other porous material that can wash away when a storm arrives doesn’t make sense. Why would someone build a home on a weak foundation? They could be looking for shortcuts or cutting costs using cheaper or poor-quality products. In their haste, they ignored the warning signs, which can bring disastrous results.
Investors who build portfolios on feeble foundations look for get-rich-quick solutions by bypassing traditional planning practices, chasing the latest investment fad in hopes of short-term gains.
If you’re a successful investor, you probably have a financial plan, and it’s your foundation. It can guide you and help you identify those items most important to you and your family.
During a storm, your plan can give you peace, hope, and security. It is a fortress against rash decisions that may have long-term consequences on your financial future. When the stock market is swinging violently or performing poorly, refer to your plan often so you don’t get distracted during the dark days.
How can you fortify your financial foundation? Here are a few suggestions.
Plan. I recommend working with a Certified Financial Planner™ who can help you build your plan. Are you planning for retirement or paying for college? When do you apply for Social Security? Do you need life insurance? These questions, and several more, can be answered through your plan.
Invest. Your asset allocation and investment selection must reflect the design and results of your financial plan. If you align your portfolio with your goals, you will likely stay invested during difficult times.
Prepare. An emergency fund is vital for a successful plan. If a storm comes, your emergency fund can bail you out of a challenging situation. Investing your emergency fund in T-Bills is an excellent choice for safety and income.
Insure. Insuring your home, life, and other essential items is paramount for a successful plan. Spending a few dollars on insurance premiums can protect your household from catastrophic situations.
Review. Review your plan annually. Are your goals still important to you and your family? Did you reach any of them, or do you have new ones? Have you identified all your risk exposures and factors? An annual review with your planner can ensure your plan is still on solid footing.
“Anyone who listens to my teaching and follows it is wise, like a person who builds a house on solid rock. Though the rain comes in torrents and the floodwaters rise and the winds beat against that house, it won’t collapse because it is built on bedrock.But anyone who hears my teaching and doesn’t obey it is foolish, like a person who builds a house on sand. 27 When the rains and floods come and the winds beat against that house, it will collapse with a mighty crash.” ~ Matthew 7:24-27
November 4, 2023
Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management 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.
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. Prices and yields are for today only and are subject to change without notice. Past performance is not a guarantee of future performance.
In 1989, I was on the ski patrol staff at Mammoth Mountian, but I only lasted a few weeks because I couldn’t ski well, a vital skill for working on a mountain. I spent most of my days fixing fences or adjusting pads on lift towers. It was not a good career fit.
When I moved to Mammoth, I lived in San Diego on Mission Beach and worked a mindless job at Bank of America. My roommate said he was moving to Mammoth to join their ski patrol, so I went with him on his journey. He knew what he was getting into, but I did not. He grew up ski racing in Tahoe and was about as close to a professional skier as you can get. He taught me to ski and said the only way to learn was to ride the lift to the top of the mountain and ski down – on-the-job training, and was it ever! I love the outdoors, so working with the ski patrol made sense.
I had recently graduated from college and did not have any direction or goals. I was like a ship without a rudder, so every opportunity sounded exciting. My grandfather’s motto was fake it until you make it, and it worked well for him, so I thought I would have the same experience. Not so. I needed a plan and structure. My few weeks on the mountain were fun, but I felt guilty because I was not utilizing my college degree. At the time, I felt the only way to succeed financially was to work in business, so I quit and returned to Los Angeles to start my career as a stock broker.
Here are a few takeaways from my time working with the ski patrol.
Goals are essential, and direction matters. Knowing where you’re going is vital. A ski map is necessary for a fun and safe ski day. The maps are detailed with color-coded ski runs to help you gauge your risk level, and if you get lost, the ski patrol will rescue you and get you home safely.
Planning is paramount. A plan keeps your goals in line, allowing you to focus on what’s important. It also permits you to say no to things that distract you from achieving your goals.
Know your risk level. When I moved to Mammoth, I was over my skis and was taking too much risk. I was outside my comfort zone, and it was a difficult job because I felt insecure in my abilities. It’s crucial to align your risk tolerance to your goals.
Quit. It’s okay to quit and cut your losses. I resigned from the ski patrol after realizing it would not work out. Cutting your losses can pay dividends and free up your time to focus on things where you can succeed.
Review. After cutting your losses, reflect on what worked and what didn’t. Spend time analyzing your move, and try to learn from your mistake. Every loss or mistake is an opportunity to learn and grow.
To succeed as an investor, focus on your goals, follow your plan, know your risk level, cut your losses, and review your strategy.
A pair of skis are the ultimate transportation to freedom. ~ Warren Miller
October 21, 2023
Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management 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.
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. Prices and yields are for today only and are subject to change without notice. Past performance is not a guarantee of future performance.
Are you living paycheck-to-paycheck? If so, you’re not alone. According to a recent study, 65% of adults struggle to make ends meet, and 30% say they run out of money monthly.[1] The data is sobering, considering the unemployment rate is near historic lows, and assets are rising.
Does the name Ronald Read ring a bell? Probably not. He was a gas station attendant and janitor in Vermont who passed away in 2015 with a net worth of $8 million. His friends described him as frugal, driving used cars and chopping firewood. His portfolio consisted of blue chip stocks that he owned for decades. He lived well below his means and bought high-quality stocks, critical ingredients for creating wealth.[2] Must you live a frugal lifestyle like Mr. Read to achieve your financial goals? Maybe not, but spending less money than you earn is necessary if you want financial independence.
I don’t believe there is a spending problem for most people because of the current economic headwinds of rising interest rates, inflation, food and gas prices. Prices at the pump, grocery store, and mortgage payments absorb a majority of paychecks, items all necessary to live. However, some people try to keep up with their neighbors and spend to appear wealthy, which does not end well.
Personal spending has averaged 6.57% annually since 1960; since COVID, it has jumped to 9.43% per year, a significant increase. It recently topped $18.3 trillion, and the consumer does not appear to be slowing down soon.
Credit cards are efficient financial tools, but a tool in the wrong hand is dangerous. Credit card debt recently topped $1 trillion, and with interest rates topping 22%, it’s easy to see how individuals can spiral into uncontrollable debt. According to USA Today, a household’s average credit card balance is $7,951, with annual interest payments of $1,749. In this scenario, it will take you five years to pay off your balance, and your total payments would equal $12,882, according to Experian’s Credit Card Payoff Calculator. Here is a link: https://www.experian.com/blogs/ask-experian/credit-card-payoff-calculator/
Americans love to spend money, and we are a consumer-driven economy. US Retail Sales have averaged 4.61% annually for the past thirty years, but since COVID, they’ve averaged 15.38% annually! The government pumped money into the economy to boost it, and we have difficulty turning off the spigot. And with the holiday season nearing, this number will likely increase.
Here are a few suggestions to help you with your spending and expenses.
Track your spending through sites like Mint or EveryDollar. These sites enable you to find the good, bad, and ugly for your spending patterns.
Create a budget or spending plan. A budget can provide targets or limits for spending and investing.
Differentiate between needs and wants. I don’t need a new fly rod, but I want one.
Avoid impulse purchases and shopping. Shop with a list and stick to it, and don’t let shiny objects distract you at the checkout counter. I’m a sucker for peanut M&M’s.
Shop for the best item or lowest cost. If buying big-ticket items, look for the best deal or price through comparison shopping. Do your homework.
Credit cards are financial staples, but using cash can help reduce your spending. Parting with my benjamins is painful when I use cash to pay for an item. Using cash may make you less inclined to buy the latte or super-size your meal.
Automating your expenses can reduce late charges and penalties.
Downsize your home. Tapping your home equity can free up capital to help you reduce your spending. When my wife and I downsized, we reduced the number of AC units and refrigerators necessary for our new home. My previous home required about four hours of yard work, and my current one only takes about 40 minutes, saving both time and money.
Move to a different state. Do you want to live in Oklahoma, West Virginia, or Mississippi? These states offer tremendous value. You can significantly reduce your taxes and living costs if you move from California to Nevada or New York to Connecticut. I lowered my taxes when I moved from Connecticut to Texas.
Delay your gratification. We live in a microwave world where we want everything quickly, but saving money to buy an item can save you thousands of dollars in interest payments. I struggle with delayed gratification because I’m impatient.
Give money to others. Donating to charities can reduce your taxes and potentially improve your health. Despite your current financial situation, someone else probably needs a helping hand. Here is what God says about giving, “Bring the whole tithe into the storehouse, that there may be food in my house. Test me in this,” says the Lord Almighty, “and see if I will not throw open the floodgates of heaven and pour out so much blessing that there will not be room enough to store it.”~ Malachi 3:10. This is the only Bible verse where God says, “Test me.”
Curtailing spending is difficult but possible, so be patient on your journey to control your expenses. I know you can do it; I’m rooting for you!
If you can count your money, you don’t have a billion dollars. ~ J. Paul Getty
October 18, 2023
Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management 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.
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. Prices and yields are for today only and are subject to change without notice. Past performance is not a guarantee of future performance.
I’m celebrating my twentieth anniversary as a CERTIFIED FINANCIAL PLANNER™ Practitioner, and in honor of this milestone, I’m posting twenty observations.
Successful investors have financial plans. A plan is your financial GPS that helps you achieve your stated goals.
A family will or trust is a must. A properly constructed estate plan saves dollars, headaches, and heartaches. A simple estate planning strategy is to update your beneficiary designations because they override everything.
Insurance is a lifesaver. Insure big-ticket items like your life, home, and auto. Umbrella policies are underrated, and your non-working spouse needs life insurance.
Diversification gives you access to global markets and reduces risk.
A taxable investment account is a secret weapon, especially if you want to retire early. Assets in a brokerage account receive favorable tax treatment, and you don’t need to worry about complicated retirement distribution rules.
Low fees are paramount. Check the fees you pay your advisor, broker, insurance agent, etc. In addition, review your investment holdings to ensure your expenses are reasonable.
A spending plan is better than a budget. A spending plan gives you the freedom to invest and spend with confidence, and it’s less restrictive and punitive than a budget.
Buying a home is central to creating generational wealth. However, if you move every few years, you’re better off renting.
Debt is a financial killer. Limit your total debt payments to 38% of your gross income. If you earn $10,000, cap your debt payments to $3,800.
Emergency funds can help you weather the storm if you lose your job or need to replace a car, roof, refrigerator, etc. An emergency fund allows your stocks and bonds to grow without interruption.
Speculation is appropriate and recommended if you limit your investment to 1% to 3% of your taxable assets.
It’s okay to break the rules now and then. I believe in diversification, but my best investment has been Amazon. Amazon violated all my tenants for buying a stock, but I bought it anyway. It helped pay for my daughter’s six years of college (undergrad and graduate), allowing her to graduate without student loans.
If you want to create long-term wealth, you must own stocks. Full stop.
The one-month US T-Bill is the safest investment in the world, and if you want to preserve wealth, there’s nothing better. However, they’re poor investments for creating wealth because they struggle to outpace inflation.
Intentional giving benefits everyone. A philanthropic strategy will help maximize your efforts.
I’ve not found a use case for commodities, private placements, or whole-life insurance policies.
Focusing on economics and politics is a waste of time.
Emotional intelligence trumps everything. Of course, being wicked smart helps, but staying grounded when investments are crashing is a superpower, and the ability to buy when others are selling takes courage and intestinal fortitude.
Stocks always recover.
Prayer works.
The best way to measure your investing success is not by whether you’re beating the market but by whether you’ve put in place a financial plan and a behavioral discipline that are likely to get you where you want to go. ~ Benjamin Graham
October 5, 2023
Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management 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.
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. Prices and yields are for today only and are subject to change without notice. Past performance is not a guarantee of future performance.
Financial planning is important, but life planning is better. A financial plan is a finite service, a one-time event. Life planning takes financial planning to a higher level. It’s enduring, vibrant, and active. It’s proactive. It’s forever, and forever is a long time!
I’ve run several marathons, and I always envision myself finishing the race before I start training. It motivates me to continue training on cold winter days or hot August nights. My training requires several months to build up my endurance to run 26.2 miles, and on race day, I never focused on the daunting task of running the entire marathon. I take it one step at a time, a mile at a time, and eventually, I finish the race.
Life planning is like running a marathon. However, you’ll have multiple goals, all competing simultaneously for your attention. When my daughter was born, I had conflicting goals: paying for college and saving for retirement. In addition, I had a mortgage and other household expenses, and I didn’t have the luxury to choose one task over the other.
The Harvard MBA Class of 1979 was asked, “Have you set clear, written goals for your future and made plans to accomplish them?” Only 3% of the graduating class had written goals; ten years later, they accumulated ten times the wealth of the remaining 97% – combined![1] Setting goals with timelines is paramount for life planning. Committing them to paper allows you to succeed and prosper.
Financial planning is excellent until life gets in the way, and then you must decide what you can do with your resources. How do you prioritize your most important life goals? Are short-term goals more important than long-term ones?
You’ll pass through several exciting life stages if you’re fortunate to live long enough. I’m sure if you look back over your life, you can identify several memorable moments that have shaped who you are today.
How do you approach life planning? Here are a few suggestions.
Inventory. Take stock of your current situation. What are your resources? How are you spending your money? How are your assets invested?
Goals. Write down your goals. Document your dreams, and journal your thoughts. Don’t worry about your current situation when you start this exercise. President Kennedy didn’t have the resources or knowledge in 1962 to put a man on the moon, but his vision and optimism drove others to make it happen.
Progress. Monitor your progress. Check off items from your list after you’ve reached your target. As you move through your life stages, set new goals and objectives. It’s imperative to continue to grow and pursue new endeavors.
Eliminate. Eliminate goals that are no longer important. I wanted a Porsche when I was young, but now that I’m older, it’s no longer an ambition. My cousin had a Porsche, and he let me drive it often so I could test-drive my dream before I let it go. Eliminating goals is just as important as establishing new ones.
Focus. Keep your eyes on the horizon, and don’t let obstacles get in your way. Of course, you’ll encounter hardships, but if you stay focused on your dreams, you’ll eventually arrive at your destination.
Partner. Don’t fly solo. You and your spouse can work on your goals together. Family projects are just as important as personal ones. If you’re single, share your wishes with a friend or trusted advisor because accountability is a powerful tool.
Think. If you have a family, think in generational terms. Are you in a position to financially help your children, grandchildren, or great-grandchildren? A successful life plan must include your family’s future.
Thankful. Give thanks in all circumstances. You’ll encounter several people on your travels who need extra help; stop and give them a hand. You’ll be glad you did.
Review. Review your past goals. How did they turn out? What can you learn from your successes or failures? Can your past direct you to better opportunities or help you from repeating previous mistakes? Pause, rest, and reflect on where you’ve been and what you’ve done. Climbing a mountain takes time, and after you reach the peak, look around and enjoy the beauty of achieving your goal. Take solace in your journey.
Life planning is perpetual. It’s forever. Let your written goals motivate you to live life on your terms.
Enjoy your journey.
People with goals succeed because they know where they’re going. ~ Earl Nightingale
September 23, 2023
Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management 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.
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. Prices and yields are for today only and are subject to change without notice. Past performance is not a guarantee of future performance.
