Faith Based Investing

Starting July 31, 2009, you can find Jay’s weekly financial articles at www.crosswalk.com, one of the premier Christian web sites with nearly 1 million visitors each month.  Jay is excited about the new relationship with Crosswalk!  Jay will discuss faith, money, and timely topics on faith-based investing.  Each week we will send a link so you can keep up with his articles.

Morals Improve Stock Market Returns?

When it comes to investing, many question the role of morals in relation to one’s portfolio performance. Can you have profits and principles? Or do you have to sacrifice one to gain the other? After all, don’t those who lie, cheat, and steal make the most? And those who are honest, ethical, and true to their moral compass suffer?

This is truly how many Americans think. You have to sacrifice returns in order to pursue your values and faith. Yet this myth is exposed as a lie in a recent study done by Ameriprise and Doug Lennick. Doug, who co-authored the book Moral Intelligence: Enhancing Business Performance and Leadership Success, looked at companies whose leaders promoted a strong tradition of moral intelligence. He found that the companies with the highest moral intelligence were also the best-performing companies. He wrote “A funny thing happens when leaders consistently act in alignment with their principles and values: They typically produce consistently high performance almost any way you can measure it–gross sales, profits, talent retention, company reputation, and customer satisfaction.”

The Lennick Aberman Group and Ameriprise Financial study revealed that financial advisors with the strongest moral, emotional, and behavioral competencies got a significantly higher portfolio performance than those with low scores. According to the details of the study, they measured actual investment returns over a four-year period and tied them to advisors’ competence in 70 different behaviors. “A key differentiator between financial advisors who help their clients achieve positive returns and those who help their clients achieve superior returns is moral and emotional competency.” Integrity–considered the hallmark of the morally intelligent person in which the advisor acts in line with principles and beliefs–had the strongest impact on helping clients achieve optimal returns. It is interesting to see that the higher the advisor’s moral competence the higher returns his client’s achieved. Doing the right thing pays off.

As a strong advocate for faith-based or values-based investing, I need very little convincing. I have seen the results firsthand and am a true believer that strong principles lead to better performance. I started a website in January at www.faithbasedinvestor.com with the intent of showing my exact moves for some of my faith-based and values based investing clients and the results have been crushing the stock market. By staying true to our principles we are getting better returns.

How do we do it? We look for companies that stay true to our beliefs. We look for companies making a positive difference in our society while avoiding companies morally polluting our culture. This difference of focusing on positive, well run companies with low debt, good sound business principles, and a passion to make a difference has led us to find companies we are Proud to Own. Though we are up nearly 40% this year (as of yesterday), it is the thought that the companies we select reflect our values and faith that means the most. Yes, achieving great returns is a reward in itself, but aligning our purpose and passion in life with our finances is as they say, “priceless”!

There are few quick fixes in life.

For the most part, making changes in your life takes time. The good news is that when you work on something day in and day out, you will eventually achieve huge positive changes in your life. If you don’t stick with a solid plan through the bumps, however, your results will often be disappointing. Identifying and developing God’s purpose for your life is also a gradual process. Most of us don’t wake up one morning with perfect clarity about who we are, and what we should be doing. But as you make a daily conscious effort to find your calling, you will see an impressive difference in your life over time.

I wish I could say that creating wealth is easy. It often takes many new habits to change direction. It will take hard work, dedication, and most of all, your commitment. Your determination will be your ultimate key to success. Make your goals personal and stick to them!

Form better habits!

You have the power to achieve faith-based wealth. It begins with your will. You can continue to sleepwalk through life and just go through the motions, or you can wake up and begin anew. Take the road less trav­eled and discover that your financial life can take on new meaning. How do you start now? Do not let another day pass you by. Commit to fol­lowing the ten principles below for the next month. Once you have been following them for a month, this new routine will quickly become habit. Once you have formed new habits, financial progress can begin.

Ten Habits to Create Wealth

1. Make it your daily mission to find your true financial purpose. Your priorities may shift over time and you may find new purposes. Always fully understand why you are saving, what you are saving for, and what the end results mean. Have this purpose engrained into your mind and do not lose focus. Always look to ignite the flame.

2. Make new choices daily. Remember that each dollar that comes into your hands is won or lost by the choices you make each day. Choose to be wealthy instead of letting endless dollars slip away.

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No Answers

Has anyone ever asked you a question that you could not answer? Not just a simple question, but one of those really deep, meaningful, complex questions of life. You know the type: Is there life after death; do you believe in God; is Jesus the only way to heaven? Imagine yourself for a moment, listening to a soul-searching question–one that is convicting, paralyzing, and so deep that it penetrates the depths of your soul. If you have been there, you know how this feels. Contemplating the possibilities can leave you speechless. Your mind becomes impatient and longs for an instant answer. Yet, often there is nothing there. There is no foundation on which to formulate a response–just emptiness. No matter how hard you try, you cannot craft a response. You could fake it, but then you would risk sounding foolish. I received such a question in February 2003.

The question came in the form of a phone call from a dear client. The phone rang with a life-altering inquiry that literally turned my world upside down. After nearly seven years of professional experience at the time, a master’s degree in financial planning, and rigorous train­ing to become a CFP professional, I could not answer “the question” because it challenged conventional wisdom.

My mind kept racing. Every time I thought about “the question,” I interrupted myself. Though I had all this schooling and industry ex­perience, I did not even know where to start in attempting a solution. I continued looking out the window as if the answer were there. How can you not have a response, you coward? I thought. I sat there with a blank stare for another fifteen minutes before moving on to a more meaningless task. It was as though a barrier in my mind prevented me from reaching a logical conclusion.

Because I could not lay “the question” to rest that February evening, my mind continued to search for a resolution. The more I thought about it, the more it haunted me. I would think about it long and often, some­times at the most inopportune moments. It began to tug on my soul, it kept me up at night, and it wrestled with me and nearly won.

This continued for almost two years until I finally reached a conclu­sion. Though I would like to say the journey was smooth sailing, it was anything but. Sixteen years of school and by now nearly ten years of pro­fessional work experience were contradicted by a simple question. What appeared so innocent was actually a pivotal moment in my life. Little did I know, I was at a crossroads and forced to choose sides. By now you are probably intrigued. At least I hope so . . . What was “the question”? How could something that appeared so simple challenge a financial advisor’s foundational beliefs? What could it possibly be?

The Question That Changed It All

I remember these words from one of my clients like it was yester­day: “Jay, can I expect God to bless my investments if I am investing in companies that violate His principles?” Wow! I had never con­templated this. I’m paid to provide financial advice and improve the financial lives of my clients. Such a powerful question had never been posed to me. Here was a Christian woman asking if she could expect God to bless her investments (401[k], stocks, and mutual funds) if she was investing in the abortion industry or pornography companies. This question challenged and convicted me. I’d never thought about this in regard to my personal finances, let alone those of my clients. I felt like a deer caught in the headlights. My education and industry experience never prepared me for this question. Today, with confidence, I can not only answer this question, but I can also help you develop a financial plan based on integrating your faith into your investments.  I detail my entire 2 year journey in The Faith-Based Millionaire (foreword by Dan Miller).

COULD SMALL BUSINESSES COPE WITH MANDATORY HEALTH INSURANCE?

What would they have to do if health care reforms pass?

Provide employee health insurance, or pay a penalty?

Small business owners worry about having to face that choice. That possibility moved a step closer to reality in mid-July, as three of five Congressional committees approved new legislation to remake American health care – legislation that could expand health insurance coverage to 46 million uninsured Americans, with potentially harsh consequences for business owners.

Two variations of pay-or-play.

The House version of the bill would levy a fine on employers that don’t offer health coverage – a fine as large as 8% of a company’s annual payroll. However, some businesses could qualify for tax credits and some very small firms wouldn’t have to pay such penalties.

The Senate alternative would spare small companies (25 workers or less) from annual penalties. It would require a business with 25 or more employees to fork over $375-750 per worker annually if that business refused to offer health coverage or paid less than 60% of employees’ monthly health plan premiums.

Could businesses handle this?

After all, some companies have considered dropping health plans altogether. Health insurance premiums paid by businesses have increased more than 200% in the last ten years, according to a Kaiser Family Foundation report; in 2008, single coverage averaged $4,704 and family coverage $12,680. The report found that less than half of businesses with three to nine employees offered health plans at all last year.

The House version of the bill would require a small business with a payroll of $250,000 or more to provide coverage or be penalized. The penalty would actually be a sliding-scale payroll tax: it would be 2% of payroll at $250,000 and climb to 8% of payroll for companies with $400,000 payroll or greater.

What if you’re self-employed?

No break for you. In the Senate version of the bill, any self-employed individual would have to buy health insurance or pay a $750 penalty annually. However, insurers could not use past claims history or pre-existing medical conditions to deny you coverage. Individuals whose income is within four times the poverty level (i.e., $88,000 or lower for a family of four) could qualify for subsidies.

As for the House version, it asks self-employed individuals to buy coverage or pay a tax equivalent to 2.5% of the difference between their adjusted gross income and the tax filing threshold (which was about $9,000 in 2008). Sliding-scale subsidies would be offered to self-employed Americans so that they would not have to spend more than 11% of their income on health coverage. As in the Senate bill, insurers could not wiggle out of providing coverage by citing pre-existing medical conditions.

What would the long-term impact be?

In the bleakest scenario, businesses would be hard pressed to offer workers decent wages or decent health coverage. Nationally, fewer and fewer companies are offering health benefits in the first place. A 2008 National Small Business Association poll found that just 38% of small companies could afford health plans at all, compared to 67% of small businesses in 1995.

A sunnier outlook comes from the Small Business Majority, a nonprofit advocacy group founded by small business executives. Its report examined three scenarios using different levels of employer tax credits and employer payments. It concluded that the proposed health care reforms could save small businesses as much as $855 billion, and preserve as many as 128,000 jobs that would have been lost because of runaway health insurance costs.

Stay tuned.

Will Congress give business owners more of a break? Could penalties be reduced, or requirements eased? Will fewer businesses offer health plans, assuming that their employees could qualify for federal subsidies toward individual health insurance? At this point, there are more questions than answers – but with the median health insurance cost for U.S. businesses already at about 11% of payroll, any increase would be unkind.

Higher taxes, out of control spending, bailouts: defintely not the kind of change we can believe in!

Wealth comes to those who spend carefully, use debt wisely, and develop a regular savings program. There are some common threads that run throughout many areas of your financial life. When I look at where the typical family in America is financially, I am saddened. I believe that if each family lived with these rules, the world would be a much better place:

1. Live below your means.

2. Allocate time, energy, and money efficiently to build wealth.

3. Turn to God in times of need.

4. Question needs versus wants.

5. Financial freedom is more important than high social status.

The Bigger Questions

Whenever you consider purchasing something think, “Is It adding to or subtracting from my wealth?”

Assets are things that bring wealth. They have value and grow over time. They have the ability to provide you income today, tomorrow, or at some point in the future. Examples of assets include certificates of deposit (CDs), savings accounts, mutual funds, stocks, bonds, and investment real estate. Liabilities, on the other hand, are things that take away from your wealth. They require that you make payments at some point to reduce what you owe. Examples of liabilities include mortgages, loans, credit cards, and IOUs.

As you begin to work through this area of your life, evaluate:

* What is my monthly income? How can I increase it?

* What are my monthly expenses? How can I reduce these?

* What assets do I own? How can I get better returns?

* What liabilities do I owe? How can I pay these off as quickly as possible?

* What else do I own? Do I really need it or can I sell it to help with my goals?

Questions like these will help you get into the mind-set you need to succeed financially. Financial freedom should be the goal of every individual. If you are not planning ways to add to your wealth, chances are you will never end up accumulating any. There needs to be a process, a plan, and a strategy to overcome your weaknesses and add to your strengths. With God on your side, all is possible. The only thing holding you back is you!

Why are investors turning to exchange-traded funds?

Exchange-traded funds (ETFs) have become fundamental instruments in the pursuit of tax-efficient investing. ETFs have low operating costs, so they represent intriguing alternatives to garden-variety mutual funds that can gradually “nickel and dime” an investor.

Four Reasons ETFs may make some sense for you:

1. The fees are minimal. With their very low charges and management fees, ETFs give you a cheap and convenient way to build a portfolio of index funds. The annual expenses of an ETF (which come out of dividends) range from 0.1-0.65%. If you search, you may find an index mutual fund that charges 0.1% – but some charge more than 3%.Besides being more tax-efficient than index mutual funds, ETFs are easier to manage when it comes to tax loss selling (the swap of short-term capital gains or income tax liabilities for lower long-term capital gains liabilities). And of course, they give you tax deferral to aid in compounding.

2. They trade like stocks. Unlike a conventional mutual fund, ETFs trade throughout the day. They can be bought or sold at any time of the market day. Compare that to mutual funds – you can only redeem them at the closing price of a trading day.

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