Foundations

A home built on rock can withstand many storms.

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.