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.

READ MORE HERE

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.

READ MORE HERE

Many Muslims have been investing according to their faith for years In fact due to the popularity of Islamic investing, last month the first Exchange Traded Fund (ETF) adhering to strict Islamic beliefs, Dow Jones Islamic Market International (NYSE: JVS), began trading.

Following the Shariah law, this index screens out companies involved in the following industries: pornography, gambling, alcohol, tobacco, weapons, borrowing or lending, women’s fashions, cosmetics, modern cinema, popular music, or pork.

The wave of faith-based investing is catching on. Later this year five new ETFs dedicated to other faiths will roll out. FaithShares, Inc. has created 5 Exchange Traded Funds (ETF) to be managed by FaithShares Advisors, LLC., that are based on the 5 largest Christian denominations in the United States – Baptist, Catholic, Lutheran, Christian, and Methodist. The bigger question is how will funds that avoid “sin stocks” perform?

Sinful Profits

I don’t think anyone would argue that sin is not profitable. A September 14, 2007, New York Times article titled “At Least on Wall Street, Wages of Sin Beat Those of Virtue” claimed that “sin” stocks (those involved in gambling, alcohol, and tobacco) outperformed the S&P 500 Index over a five-year period (September 2002-September 2007). It even highlighted a mutual fund that had purposely invested in “sin” stocks and averaged over 20 percent per year for the five years. A detailed analysis of the fund revealed it was investing as follows:

* 5 percent of the fund was invested in pro-abortion-related companies.

* 10 percent of the fund was invested in companies involved in the production and distribution of pornographic materials.

* 30 percent of the fund was invested in companies involved in alcohol manufacturing and distribution.

* 20 percent of the fund was invested in tobacco companies.

* 30 percent of the fund was invested in casinos, online gaming, and other gambling companies.

Is this the type of fund you would want to invest in? The returns were quite attractive, but do the types of companies in this mutual fund mirror your values and beliefs? It is true that many stocks in these industries have per formed well over time. Selling illegal drugs and prostitution have also been very profitable. Does that make those activities right?

What’s more important to you?

Is the return on your investments more important than the source of the profit? Do you turn your head and invest blindly or develop a process to screen out investments that violate your faith? The choice is up to you. If you would not knowingly invest in the mutual fund described above, why would you not take the time to discover what values your investments are supporting?

Merrill Lynch recently examined the performance of alcohol, tobacco and casino stocks in all recessions since 1970 and found that while the S&P 500 fell 1.5% on average, vice stocks rose an average 11%. Why such a huge difference? Is it security selection? Taking advantage of habits that transcend economic down times?

Profit without principles is ill-gained profit. Principles without sound financials often lead to weak profits. However, principles with sound financials will help you maximize profits. The two go hand in hand. You should consider both your principles and the financial feasibility of the investment. If you are privileged enough to be able to invest, shouldn’t you make sure that you are doing the best you can to maximize your money? At the same time, shouldn’t you make sure you are not profiting at the expense of others’ misfortunes?

Sin versus Virtue

Take a look at two funds the Vice Fund (VICEX) that specifically seeks out tobacco, alcohol, and gambling companies. As of 7-15-09 the fund was up 2.45% for the year (0.71% better than the Standard & Poor’s 500 Index). However a look at the Gilead Fund (ETGLX), a fund dedicated to faith-based investing and avoiding “sin stocks”, is up 20.18% over the same period. This clearly trumps the S&P 500 and the Vice Fund. You can slice and dice the numbers any way you want, screening doesn’t harm performance when you have good money management. It comes down more to security selection, asset allocation, and developing a disciplined investment approach.

History confirms that bad behavior has a way of catching up with both people and companies. Earning a return in a manner that honors God and is a blessing to your fellow man is more important than just maximizing your returns without considering what your dollars are supporting. It may or may not prove to be more profitable to invest in “sin” stocks, but eventually there may be a price to pay. Are you willing to take that risk?

Those three little letters signify some very high standards in financial planning.

“Certified Financial Planner” – what does that title really mean? When you search for a financial advisor, it means everything. Let me explain why the CFP designation is so important.

Today, the financial world is full of credentials and designations. Some are respected, some aren’t. The CFP designation is easily the most respected. You really have to earn it. (There are some financial credentials simply conveyed to people after the completion of a glorified sales course. The CFP designation is not one of them.)

It denotes education. To become a Certified Financial Planner practitioner, you have to study financial planning at a college or university (or at the very least, through an educational program) that offers a comprehensive financial planning curriculum. You also have to pass a 10-hour exam administered over two days (kind of like a bar exam) which covers financial planning, tax planning, employee benefits and retirement planning, estate planning, investment management and insurance topics.

It reflects ethical and experiential standards. Before you can be certified as a CFP, you must pass a strict ethics review and agree to work by the CFP Board’s Code of Ethics and Professional Responsibility. As a CFP practitioner, you must put the interests of the client first, and act “fairly and diligently” when providing financial planning advice and services. Those services must be based on the client’s needs, and delivered with objectivity and integrity. You must also have at least three years of experience working within the financial planning field before you can even earn the CFP certification.

You must maintain these standards. As a CFP certificant, you have to be recertified every two years. That requires at least 30 hours of continuing education, so that you may stay informed of the latest developments affecting the financial planning profession. Two of those 30+ hours must be spent studying the CFP Board’s Code of Ethics and Professional Responsibility or Financial Planning Practice Standards.

This is why the CFP designation is so respected. Knowing all this, would you settle for any less qualified financial advisor? I doubt it.

The critical difference. Many people today call themselves “financial planners” without having this kind of experience and knowledge. Many of them work with a sales-based mentality. Often, they will suggest an investment product as a financial solution. Quite often, they get a nice commission off the sale of that product.

On the other hand, CFP practitioners know that investments are simply components in an overall financial plan, not financial solutions in themselves. We have the education and experience to create integrated financial plans using not only investments, but also strategies for tax reduction, wealth accumulation, wealth preservation and tax-efficient wealth transfer. We have the knowledge to plan for the long-term goals of our clients, and the experience to implement, oversee and revise these plans through the years.

Choose a CFP. If you are searching for financial planning advice, you should first see a Certified Financial Planner practitioner. Talk to a CFP practitioner today, and enjoy the confidence that comes from meeting with a truly educated and qualified financial advisor.

Managed futures & SAVVY INVESTORS

Why this alternative asset class is getting attention.

Why is there a buzz about managed futures?

They offer the dual possibility of improving returns while reducing overall portfolio risk. When the stock market sputters, managed futures can offer a terrific hedge – as they did in 2008. While stocks slumped 37% that year, managed futures funds gained an average of 18.3% according to the Credit Suisse/Tremont Index.

Finding the positive in the negative.

In a bad year for stocks, who wants a portfolio anchored in mutual funds or hedge funds? In contrast, a managed futures fund could perform relatively well in such a year, aided by negative correlation – the tendency for alternative asset classes to outperform a down market.

To take advantage of negative correlation, a managed futures fund may direct assets to assorted futures contracts, options on those contracts, currencies, and Treasury bonds and notes as alternatives to stocks. If certain commodities make a bull run, the fund may let you take advantage.

In any economy, investing in asset classes with low or no correlation to the stock market is a savvy move. When seasoned investors think of managed futures, they think “balance”, “diversification”, and “opportunity.” They see an absolute return strategy they would like to enact or know more about.

The mission: exploit market trends.

Managed futures programs use computer models to try to determine near-term market movements (the “near term” may be anywhere from the next few market days to the next few months). The more price movement, the more opportunity for the fund.

It’s not just about exploiting the upside: a managed futures fund also seeks to capitalize on the downside. To do all this, the fund manager (the CTA, or commodity trading advisor) truly has to “run the show” and take discretionary control over the invested assets.

The Barclay CTA Index (which tracks representative performance of commodity trading advisors) has posted a 12.2% average annual gain since 1980. It has had only three losing years in that period. From January 1980 to May 2003, the gap between the peak return and the worst return for managed futures was just -15.7%, compared to a -44.7% variance for the S&P 500 and a -75.0% variance for the Nasdaq.

Strong regulation.

Managed futures funds are closely monitored by the Commodity Futures Trading Commission (CFTC) – that’s a federal entity. Another layer of supervision exists: the private-sector National Futures Association patrols their behavior. Additionally, each CTA has to pass an FBI background check.

A welcome level of transparency.

Investors in managed futures programs often have online access to their accounts and can see each individual trade made by a CTA. They can usually also make redemptions whenever they wish. These funds only trade in liquid instruments – no REITs, no private equity funds or leveraged buyouts. All capital invested in managed futures funds is held in customer-segregated accounts – CFTC rules prohibit commingling of assets.

As for fees and minimums …

The minimums on these accounts vary widely. Annual fees can be high, as high as 6-8%. (Returns are reported after fees are deducted, sales charges excepted.)

For serious investors only.

Trading futures can involve considerable risks as well as considerable rewards, and you must recognize this if you direct part of your investable assets into a managed futures program. Futures markets tend to run in cycles, which is why many investors tend to hold their accounts for several quarters or longer. They understand this is not a short-term trading opportunity.

If you are seriously looking for a way to diversify your portfolio and improve its performance, then take a look at managed futures with your financial advisor. You may soon join the ranks of the savvy investors who are assigning slices of their portfolios to this alternative asset class.