Faith Based Investing

Quick recap
Yesterday I discussed the financial results of the bailout. It may have been eye opening for you to see what little effect the first $350 billion dollars had on the seven largest banking institutions. The federal government has been swift to act, but will it work? Let’s recap some of the moves the fed has made to revive the economy:

1.Acquired Bear Stern’s toxic assets to facilitate JP Morgan takeover
2.Loaned billions to AIG to prevent its collapse
3.Purchased billions in commercial paper
4.Purchased billions of mortgage backed securities
5.Created the term auction facility (TAF) to provide liquidity to banks
6.Created the term asset-backed securities loan facility (TALF) to help promote loans to households and small businesses
7.Created the term securities lending facility to provide liquidity to investment banks
8.Created Primary Dealer Credit Facility to provide liquidity to investment banks
Source: Stewardship Partners

A Few Concerns
The most important item on the table was stabilizing the financial system. Though the TARP legislation had no positive effects on the financial performance of the banks it aided, it has actually succeeded thus far in halting a financial system collapse. Confidence has risen, but the stakes still remain very high. What are some of the current economic concerns?
1) If economic activity continues to fall at its current rapid pace, the recession in progress may become a depression.
2) Because people and businesses are reevaluating credit use, consumers and businesses may continue to seek to pay off old debts and curb spending and incurring new debt, which may further hinder an economy built on consumer debt and spending. In this instance, those looking to get out of debt are cautious about incurring new debt – no matter how low interest rates are.
3) Deficit problems may further plague the U.S. economy: President Obama with the help of the Democrat led Congress have committed to spend at such high levels that the US fiscal deficit will easily exceed 10% of GNP in fiscal 2009 and perhaps beyond.
4) Deflation could set in. This is where consumer prices keep falling. Sounds like a good thing, but it is not as demand falls along with prices creating further financial problems. Low demand is always a problem for the economy.

So where’s the silver lining?
Well, the good news is the stock market traditionally recovers before the economy does. It looks as though the market has priced in much of this negative data as well as some of the concerns. We may someday find out that the financial crisis of 2008 provided a huge window of opportunity to purchase quality assets at compellingly low prices. Great investors often make handsome profits when others are distressed and selling assets at foolishly low prices. I believe we are seeing such a time for a couple of reasons:

Take a look at these two statistics:
Home Building: According to the U.S. Census Bureau, there about 130 million homes in the U.S. Homes are normally built at a pace that would replace the existing stock of houses every 75 years. In December, home builders started houses at a 550,000 annual rate. At that pace, it would take 236 years to replace all the homes in the U.S. The main reason that housing starts are so low is because an enormous excess inventory must be worked off – which is exactly what must happen for the housing market to recover and get back to normal.

Auto Sales: The Federal Highway Administration suggests that there are about 240 million autos in the U.S. owned by individuals and businesses. The normal replacement rate for auto sales is about 13 years. At the bottom of the recession in 1981-82, autos sold at a 16.3 year replacement rate. Last month, they sold at a 10.3 million annual rate and, at that pace, it would take 23.4 years to replace all the autos in the U.S.
Source: First Trust Advisors

Are we close to an economic boom? I don’t think anyone believes that. However, based on these two areas alone, you can make a case we’re getting closer to a bottom which will set the stage for an economic recovery. The road will still be bumpy, but there is great reason to believe better days are yet to come.

The Bailout Bust?
As the Obama administration develops new proposals to help rescue the banking system that could cost taxpayers hundreds of billions of dollars beyond the $700 billion bailout Congress already has approved. Let’s examine what the Troubled Asset Relief Program (TARP) has done for the financial sector. How was the first $350 billion spent and was it successful? Where will the next $350 billion go?

Where’d it Go?
Here is some of the accounting of the first $350 billion: approximately $90 billion has gone to Citigroup and Bank of America. They are just two of the 200+ thrifts who have received $191 billion total from the program.

Horrible results so far!
TARP funds may have saved some of these banks from failing; bank stocks, however, including Citigroup and Bank of America stocks, have weighed down the market this month. The common stock of the major banks tracked by the Dow Jones Wilshire U.S. Banks Index lost about $287 billion in value from January 2-21 – about 43%.

According to fool.com, here is how the top 7 banks have fared since the Sept 19, 2008 announcement of TARP:

1. Bank of America: received $45 Billion in TARP and the stock is down 87%
2. Citigroup: received $45 Billion in TARP and the stock is down 87%
3. JP Morgan Chase: received $25 Billion in TARP and the stock is down 61%
4. Bank of NY: received $3 Billion in TARP and the stock is down 47%
5. Morgan Stanley: received $10 Billion in TARP and the stock is down 52%
6. Wells Fargo received $25 Billion in TARP and the stock is down 68%
7. Goldman Sachs received $10 Billion in TARP and the stock is down 59%

Data as of 1/21/09 for more info: CLICK HERE

What’s next?
President Obama plans on allocating $50 billion to $100 billion in TARP funding toward foreclosure relief for homeowners. It probably won’t stop there as Treasury Secretary appointee Tim Geithner has some controversial new ideas on how to spend TARP money.

The government to create a “bad bank”?
Now there is talk of creating an “aggregator bank” with some of the $350 billion left in the program. The idea is that this “aggregator bank” could buy up billions in toxic assets that keep undermining bank capital. (Memories of the Resolution Trust Corporation come to mind.) The upside to the idea: if it works, banks could lend with less fear and more comfort. The downside to the idea: it sure would be rough on shareholders. It is estimated that it could take $3,5 trillion or more to buy up these troubled assets.

Is this the beginning of socialism?
Should the government even be involved in running banks? The word nationalization comes to my mind. Think about it. It’s happening in Europe. This means our federal government would take over – own and directly control – certain banks. The governments of Ireland and Great Britain have recently nationalized large chunks of their financial systems. Nationalizing banks would be an extraordinary step toward socialism. Many who feared socialism under an Obama administration may be getting exactly what they feared. Tomorrow I will share some additional thoughts on my concerns about where the U.S. is heading.

Financial Forgiveness
The ultimate example of forgiveness is Jesus Christ. Despite our sinful nature and continued disobedience of God, Jesus came onto this earth, and died as a sacrifice for our sins. What better example of a loving God that can forgive us despite our many faults. We often have much that needs forgiveness. The great part is once we ask for forgiveness; God is quick to wipe our slate clean. Each day can be a new clean slate if we confess our sins.

Is there something you may be holding on to: unresolved sin? Are there areas of your financial life that need forgiveness? God is there with open ears waiting for you to come to him. Maybe it was a dishonest business deal, maybe it was being a poor steward with the resources He has provided. Maybe it’s getting in over your head in debt or a poor job or career choice. It can be any number of things. Whatever it is, bring it to the Lord. He can relieve your burdens.  Also don’t forget to forgive yourself.  I see so many people hang on to past mistakes that prevent them from moving on.  Forgive and you will be forgiven.

Mark 11:25 says:
“And when you stand praying, if you hold anything against anyone, forgive him, so that your Father in heaven may forgive you your sins.”

Also look to Luke:
Luke 7:41-42:
“Two men owed money to a certain moneylender. One owed him five hundred denarii,[a] and the other fifty. Neither of them had the money to pay him back, so he canceled the debts of both. Now which of them will love him more?”

The Thrill Seeker
I met Randy in 2001 at an investment seminar. Randy was from inner-city Boston. He grew up in the projects and talked with a thick, heavy Boston accent. He had recently completed seminary school and was back from a mission trip when I met him. He told me he left with his faith and a Bible and came back a changed man. As he describes, “he was gloriously ruined” as he saw a side of humanity that he had never before been exposed to: poor and desperate on the outside and rich and fulfi lled on the inside.

To this very day, Randy takes that picture of his trip with him everywhere he goes as a reminder that God has big plans for every one of His followers. Now in his fifties, Randy is a successful business owner. He owns and operates a real-estate business. He is a multimillionaire with a degree in theology. The key to Randy’s success has nothing to do with his theological background or “playing by the rules” of the world. His success is directly linked to his appetite for risk. Whenever Randy has heard God’s voice, he has dropped his selfish ambitions and run to wherever God sent him.

He has been all over the world on missions trips. He has operated work camps to help repair damaged homes. He has looked death in the eyes on numerous occasions, but nothing can puncture his faith. Randy takes great risks, and he has experienced one amazing story after another. I asked him how he was so fearless and he said, “Many people truly wish to find meaning in life. They look, but most do not listen. God is yelling, ‘Go here; do this; follow Me.’ Yet many do not hear His voice.” Why does God use some people and not others? Why do some Christians seem to experience an abundant or adventurous life while others suffer or seek safety?

The Leaping Difference
The difference that I have found with most in Randy’s shoes is they take a radical leap of faith. They don’t care what the economy is doing; they don’t bat an eye when the stock market is down 40 percent; they don’t worry about job security; they don’t stay up late at night wondering if they will ever retire. They take the leap when others pull back to a place of apparent safety. To those like Randy, a lack of risk translates to a lack of faith.

There are windows of opportunity that come and go before our eyes. It may be a job opportunity, a chance meeting, an investment opportunity, or something else that pulls you out of your comfort zone. Whatever it is, there are opportunities that can bring you to new levels in your relationship with God, your marriage, your career, and your finances. If you want to live a life of purpose and fulfillment in God, you must expect the supernatural from God. Status quo is a life of wasted potential. Sometimes people around you will think you’re crazy. Your family may think you went off the deep end. Your friends may laugh. But remember Noah? No one laughed at him when it started raining.

Taking risks can solidify your faith in God and help you grow.
I’m not saying to take foolish risks, but to step out where God is leading you. Playing it safe rarely leads to places God wants you to go. How do you take on risk when human fear persists? How can you find courage when the world mocks you and sells fear on the daily news? How can you take great risk like investing in volatile stocks or owning uncertain businesses when the world appears to be collapsing around you? Great men become great not because they are fearless, but because they take action despite their fears. Few investors or business owners will say they’ve never felt doubt or fear, but many will say overcoming doubt and fear led to their greatest successes.

Great risk-takers move forward even with fear. This allows them to experience the many blessings God had in store for them. Let’s say you’re running a race and you stop because you’re unsure of what lies around a corner just ahead–only to later discover it was the finish line that lay just around that corner. You could have won, but you stopped because of fear.

You can miss experiencing God’s favor when you sell yourself short and allow fear to overcome you. Those who succeed are often no smarter, no more knowledgeable about the Bible, and don’t have a better education. They succeed because they act despite their fears. It is as simple as that.

People like Randy are thrill seekers. Thrill seekers love growth. They look forward to overcoming difficult, challenging, or seemingly impossible tasks. They enjoy pulling them off. On the other hand, fearmongers hate change. They want the world to remain the same.

Don’t Settle For Less Than What God Intended for Your Life
Mediocrity is not only accepted it is encouraged because it feels safe. Fearmongers hate being challenged and want to be left alone. With these personas in mind, if God is, in fact, bringing into each of our lives windows of opportunity to act in faith, and if our lives really are determined by our response to these windows of opportunity and the level of risk we’re willing to take, how can ordinary people like us become great risk-takers? Some of us simply don’t like risk. I hate to break the bad news, but avoiding risk is not an option in the Christian life.

God understands that faith can be scary and that our sense of security feels threatened, but He didn’t give us any kind of “lite Christianity” with no risks added. There’s only one Jesus to follow, and you can’t follow Him without being willing to take radical steps of faith. So how do you break out of your comfort zone?

1. Refocus your fear. “Faith is being sure of what we hope for and certain of what we do not see” (Hebrews 11:1 NIV).
2. Renew your faith. If people can’t trust God with their fi nances, they can’t step up to the plate in the spiritual things. We can say that we love God, go to church, and worship Him with tears in our eyes and our hands raised high, but if He doesn’t have our treasures, He doesn’t have our hearts.
3. Remember, God is faithful. Through Noah, He saved humanity. Through Abraham, He blessed nations. Through Mary, He delivered a Son who would change the world. Though we do not often deserve His mercy, grace, and forgiveness, we receive it still because of His faithfulness.

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Here a couple of great banking options

Investors wishing for more banking options, as well as deposit and draft accounts and fixed-income investments, may want to investigate the Evangelical Christian Credit Union (www.eccu.com). ECCU offers a full range of banking services and is available online.

Also, you can find great resources for banking, money markets, and CDs at Christian Community Credit Union (http://www.mycccu.com). Their mission is to partner with members and ministries to help them become better stewards and achieve their fi nancial goals. And as part of that, this credit union has always been committed to supporting ministries who spread the gospel around the globe. They believe that the Great Commission in Matthew 28:19– “Go and make disciples of all nations” (NIV)–is just as applicable to their business as it is to each believer’s life. They do everything they can to make banking simple and convenient, so that individuals and their church and ministry members can focus on helping to build God’s kingdom.

Over the years, the money that Christian Community Credit Union members deposit into their accounts helps provide affordable fi nancing to churches for new buildings, expanding worship facilities and classrooms, and purchasing property. These loans make it possible for the churches to better serve their members and communities. The credit union’s checking, savings, and investment plans also help members be better stewards of their finances.

Faith-Based Mutual Funds
Millions of investors have traditionally used mutual funds over the last fifty-plus years. In fact, there are trillions of dollars invested in mutual funds today, and there are literally more than twelve thousand different mutual funds to choose from. Some mutual funds screen for morally or socially responsible issues, but most do not. The reason
mutual funds are so popular is that they accomplish three main goals:
1. Diversification
2. Professional management
3. Pooling money from numerous investors to allow smaller investors to participate

Why Use Mutual Funds?
The biggest reasons most people use mutual funds include the professional management and easy access. The control and management of the mutual fund are in the hands of a professional. This can be a good thing or a bad thing. The good news is that if the manager shares a similar faith and viewpoint, he may screen for hot-button issues important to you. This may enable your faith to be integrated into your portfolio. However, if the manager has opposing views or does no screening, you run the risk of owning investments that violate the principles of your faith.

What About Performance?
Another area of concern with mutual funds is long-term performance. The majority of mutual fund managers will underperform the stock market over the long run. This may or may not be a problem to you. This poses two
questions:
1. Does it really matter what the stock market returns? Underly ing question: Do you care what the index
does if you reach your financial goals?
2. Does it really matter that you underperform the stock market if your moral integrity is in check? Underlying question: If you do underperform the market because of screening, can’t God make up the difference somewhere?

Notice that each question really has an underlying question. Though mutual funds have many benefits, be
careful, as you lose control over where your investments are going.

Sample of Choices
There are many mutual fund choices for the faith-based investor. Here is a sample of the offerings:

Ave Maria Mutual Funds (Catholic faith)
www.avemariafunds.com
1-866-AVE-MARIA

LKCM Aquinas Funds (Catholic faith)
www.aquinasfunds.com
1-800-423-6369

MMA Praxis (Mennonite faith)
www.mmapraxis.com
1-800-348-7468

New Covenant Funds (Presbyterian faith)
www.newcovenantfunds.com
1-877-835-4531

Shepherd Funds (Conservative Christian)
www.shepherdfunds.com
1-800-416-2053

Steward Mutual Funds (Conservative Christian)
www.stewardmutualfunds.com
1-800-262-6631

Timothy Plan Funds (Conservative Christian)
www.timothyplan.com
1-800-846-7526

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1. Research Companies
Determine what activities you do not want to support (e.g., abortion, pornography, anti-family entertainment, non-marriage lifestyles, alcohol, tobacco, gambling). After deciding, identify the companies involved. Simple enough,
right? Wrong. As an example, Playboy (PLA) is an obvious company to avoid by an investor concerned about pornography, but what about Metro Global Media (MGMA)? Metro is also in the porn industry, but its name certainly doesn’t indicate that fact. Now consider Gaylord Entertainment (GET). Gaylord passes a pornography screen.

2. Screen Investments
After you have determined which companies violate your morals, you’ll need to check the funds and stocks that
you hold in your portfolio. To accomplish that task, you will need to perform a portfolio screen by comparing the
“screened companies” to the portfolios of various or specific mutual funds.

3. Find Alternatives
You will then search for companies that meet your financial criteria without sacrifi cing your moral integrity. You
will have many choices. It is estimated that among the eight thousand or so publicly traded companies, less than 10 percent fail most screens.

Which Road Will You Follow?
In dealing with your personal commitment of time and effort, there are two options. You can choose to use faithbased
mutual funds or buy individual stocks.

Path One: Mutual Funds
When selecting a faith-based mutual fund or funds, look beyond the fund’s name or category. The popularity of socially responsible investing has led many mainstream brokerage houses to create their own ethical investing
funds. Such funds often sound good but promote a liberal ethic. The same can be said for religious-based funds
as well.

Check the fund’s screening policy. Select a collection of funds in line with your values, then evaluate them for risk
performance and appropriateness before investing. Even if you are locked into a limited family of funds through your
employer’s retirement plan, you can still weed out those funds with the highest exposure to “sin stocks.”

Path Two: Individual Stocks
If you prefer a more hands-on approach, many tools are available. You can select your own stocks or hire your own
manager to help you. Internet-based brokers allow even small investors to investigate and purchase stocks on their
own. I recommend using Folio Investments, an on-line investment firm. This site offers individual investors the opportunity to build their own basket of hand-picked stocks from scratch for a reasonably low fee. You screen companies to ensure they do not violate the moral and social hot buttons you have chosen and also select companies that meet your financial criteria.

Can the Wealthy go to Heaven?

This question seems to stir up a lot of controversy. From Matthew 19:23 “Then Jesus said to his disciples, “I tell you the truth, it is very hard for a rich person to enter the Kingdom of Heaven.” This often leads to attitudes that you cannot be wealthy and expect to go to heaven. It never says you cannot be wealthy and enter the kingdom of heaven.

A Famous Rich Fool

However if you look at Luke 12:13-21:

The Parable of the Rich Fool

Someone in the crowd said to him, “Teacher, tell my brother to divide the inheritance with me.” Jesus replied, “Man, who appointed me a judge or an arbiter between you?” Then he said to them, “Watch out! Be on your guard against all kinds of greed; a man’s life does not consist in the abundance of his possessions.” And he told them this parable: “The ground of a certain rich man produced a good crop. He thought to himself, ‘What shall I do? I have no place to store my crops.’ “Then he said, ‘This is what I’ll do. I will tear down my barns and build bigger ones, and there I will store all my grain and my goods. And I’ll say to me, “You have plenty of good things laid up for many years. Take life easy; eat, drink and be merry.” ‘But God said to him, ‘You fool! This very night your life will be demanded from you. Then who will get what you have prepared for yourself?’ “This is how it will be with anyone who stores up things for himself but is not rich toward God.”

Jesus never implied that this man was evil, just that he was foolish. It was the way in which he used his wealth that made him foolish. Often we mistake foolishness for evil or condemn something because it makes us more susceptible to abuse it. In our lives, moderation and responsibility make good companions.

Yesterday I talked about the basics of faith-based investing – investing in a way that is consistent with the principles of your faith. With investing comes great moral responsibility. For most faith-based investors – how you profit is more important than how much you profit. This does not mean faith-based investors do not seek competitive returns, they just attempt to do so without compromising their values, morals, and beliefs.

Side Note: I was interviewed by a reporter at www.thestreet.com this morning about faith-based investing and how performance is important and that there is no proof that screening out certain companies will affect your performance negatively over the long-run. They will feature my interview on their site that goes out to millions of investors next week. I will post the link when it’s available.

Investors buying stocks need to know what the stock is really worth, how risky the stock is, and when to buy, sell, or hold. There are many ways investors can analyze stocks to determine this information. There is no single way that works for all investors. In fact, many investors use a combination of methods to analyze stocks. First it starts with know which companies you want to avoid.

Moral & Social Analysis

Here are a few tools for faith-based investors (some are free, others require a monthly or annual fee):

www.moralmoney.com
Moral Money is a site dedicated to expanding the awareness of Biblically Responsible Investing and helping people grow closer to Christ by illuminating the Biblical insights of investment stewardship. Biblically Responsible Investing is the act of building an investment portfolio consisting only of companies that do not participate in or promote lifestyles that are offensive to Christian values. These values include the manufacture or distribution of such products as tobacco, alcohol, abortion services, anti-marriage lifestyles, pornography, and products or media that mock the Christian lifestyle.

www.iwfinancial.com
IW Financial draws on its own proprietary research and leading independent third party services to provide impartial and comprehensive global coverage of environmental, social, and governance issues. Their issue coverage is comprehensive–each company in their universe is covered across all issues, not just those that can be captured by identifying industry involvement. In-house research at IW covers over 3,000 publicly traded U.S. companies across more than 75 issues, allowing faith-based investors to make more informed investment decisions. Among the issue categories tracked by IW Financial research are Environment, Governance, Human Rights, Adult Entertainment, Labor Relations, Alcohol, Gambling, and Tobacco.

www.briinstitute.com
BRII’s mission is to provide Christian investors with the high quality information they need about the activities of public companies so that they can make good stewardship decisions about how to properly invest the money the Lord has entrusted to them. Using biblical standards, BRII has identified over 50 activities that are of concern to Christians and has built an extensive database that catalogues corporate violations of these Biblical principles. It is our desire that BRII will help make it simple for Christian investors to align their investment portfolios with their faith. Additionally, BRII hopes to actively engage corporations in order to not only offset the extensive influence of groups that are seeking to promote sinful behavior but also to actively promote adoption of biblically-based measures that will cause corporations to be a blessing to our communities.

BRII’s database currently has information on over 2,000 public companies including many foreign companies. We currently have data on corporate involvement in Alcohol, Abortion, Anti-Family Issues, Bioethics, Gambling, Homosexuality, Human Rights, Tobacco and Pornography. We also seek to identify activities of companies that a blessing to our communities such as those that produce edifying entertainment programs.

These three tools will help you sort through issues important to you and make sure your values are not violated when you invest. Tomorrow, we will look at the process of faith-based investing and how you can assemble a faith-based investment portfolio