Twenty Years of Observations
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.