Faith Based Investing

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.

FAITH-BASED RETIREMENT PLANNING

An option to keep your values in check with your plan at work.

Most who have retirement plans at work have little to no choices if they want to invest according to their faith, values, or beliefs inside with their employer sponsored retirement plan.  Whether you have a 401(k), 403(b) or some other form of retirement plan, most of these plans offer mutual funds which rarely screen for important moral or social issues.  Thus this leaves faith-based investors with three difficult choices:

1) Do not participate in the plan

2) Do research and find the least offensive choices

3) Ignore your faith, morals, and values and invest whereever

What if there was another choice?

For many there is!  If your plan allows what’s called an in-service withdrawal, you may be able to roll your money out of a 401(k) into an IRA and invest wherever you choose.  This allows for you to invest in more faith friendly options.

Can you withdraw money from your 401(k) while you are still employed? Not everyone should; not everyone can. However, if you can, it may mean that you can effectively implement part of your retirement income plan before you retire.

If your 401(k) plan permits it, you can take an in-service withdrawal and redirect some of your 401(k) funds into another investment vehicle that screens your investments.  You can then invest in stocks, mutual funds, ETFs, and many other choices that meet your criteria.

The reasons why. A non-hardship withdrawal can provide you with early access to a portion of your retirement assets, freeing you to manage them as you wish. If the mix of funds in your 401(k) have taken a big hit lately, you might also be wondering how some of those assets would do in other kinds of investments, especially those with less risk exposure.

Need helping figuring out if this option is right for you?  Don’t hestitate to email me at info@jayperoni.com. I’d be more than happy to help you sort out your options!

THE INS AND OUTS OF LIFE INSURANCE

If you’re just starting to look into life insurance,
the myriad of choices can be confusing.

Man is Mortal. That makes life insurance a little unique and interesting, doesn’t it? We purchase things like health insurance, car insurance and home insurance, then hope we never have a need to use them. Life insurance is different, because it’s a widely accepted fact that sooner or later, each one of us will die.

So many choices. When it comes to life insurance, there are many options. You may have heard terms like “whole life insurance”, “term insurance” or “variable insurance” … but what does it all mean? And what are the differences? Well, first let me point out what they have in common: all life insurance policies provide payment to a beneficiary in the event of your death. Except for that basic tenet, the differences between policies can be major.

Whole life insurance. This type of insurance covers your entire life (not just a portion or a “term” of it). Insurance companies tend to be cautious when selecting their investments, so the benefits could be lower than if you invested on your own. Whole life policies also tend to cost more than “term” policies. This is both because they grow what is known as “cash value”, and because after a time you will be able to borrow against or withdraw from your whole life benefits.

Term insurance. Rather than covering your whole life, “term” insurance covers a pre-determined portion of your life. If you die within that term, your beneficiaries receive a death benefit. If not, generally you get nothing. To put it simply, term insurance allows you to purchase more coverage for less money. Basically, you are betting on the probability of your death occurring within that specified “term”.

Variable life insurance. Variable life insurance is a permanent insurance. However, unlike whole life insurance, variable insurance allows you to invest the cash value of your policy in “subaccounts” (which can include money market funds, bonds or stocks). Variable insurance offers a bit of control, as the value and benefit depend upon the performance of the subaccounts you select. However, that means there could be significant risk involved, since the performance of your subaccounts cannot be guaranteed.

Universal life insurance. With universal insurance, it all comes down to flexibility. It is permanent life insurance that provides access to cash values that build up tax-deferred. You can choose the amount of coverage you feel is appropriate, and you retain the ability to increase or decrease that amount as needs change (subject to minimums and requirements). You also have some flexibility in determining how much of your premium is goes towards insurance, and how much is used within the policy’s investment element.

So, which is right for you? Many factors come into play when deciding what type of life insurance will best suit your needs. The best thing to do is speak with a trusted and qualified financial professional who can assist you in looking at all the factors and help you to choose the policy that will work best for you.

Since 1980, the U.S. has imported more than it has exported. It makes up for this trade deficit by issuing Treasury bonds and other debt instruments. Foreign governments have long lined up to buy them.

China holds almost $800 billion of U.S. Treasuries.

That’s the April 2009 figure from the U.S. Treasury (at this moment, the most recent data). In addition, Japan has $686 billion in Treasuries. Hong Kong has $81 billion, Taiwan $78 billion, Singapore $40 billion, India $39 billion, and South Korea $35 billion. Away from Asia, Great Britain holds $153 billion, Russia holds $137 billion, and Brazil holds $126 billion. U.S. Treasury bonds offer these institutional investors some stability in uncertain times.

Are China and Japan wary of buying more?

Earlier in the decade, China, Japan and other nations readily bought Treasuries. From 2004-2008, China spent as much as 14% of its GDP on the purchase of foreign debt – mostly American debt. What happened as a result? China, Japan and other creditor countries got a nice return on their investment and a strong export market. We got to buy inexpensive imports. This kept the dollar strong and interest rates low. Now we have two problems that could potentially sour this relationship.

The economies of China, Japan and other countries have suffered along with ours in the global recession. Moreover, the U.S. has run up a huge budget deficit to accompany its trade deficit. Our President is on record as saying that we may have trillion-dollar deficits for “years to come.” Under these conditions, China and Japan are naturally getting leery of holding so much American debt (especially when the Federal Reserve is printing money to buy it). China needs to pay for its own $600 billion stimulus package, and Japan announced a $154 billion stimulus in April. Tax revenues in both economies have declined with the recession. Government regulators in China have ordered banks to direct money this year to local governments and small- and medium-sized businesses. All this means China and Japan aren’t as eager for dollars and Treasuries as they were a few years ago.

What if other nations stop buying our debt?

There are three potential side effects. One, interest rates would likely increase as there would be fewer buyers for Treasuries. Two, the dollar could weaken. Three, long-term bond prices could fall. Voices on the fringe worry about a scenario in which the central banks of China, Japan and other nations jettison dollars en masse or abruptly quit buying U.S. debt. Realistically, the odds of something like this happening are slim but it is possible.

Need any more evidence? Check out this 5 minute video

Nearly two months ago, Rep. Alan Grayson asked the Federal Reserve Inspector General about the trillions of dollars lent or spent by the Federal Reserve and where it went and the trillions of off balance sheet obligations. Not only could Inspector General Elizabeth Coleman not answer the question she seemed bazzled about what was be asked.   With all the bailouts, where is the money?  Who’s tracking it?

The truth remains!  We have a national debt now exceeding over $11.2 trillion, which represents a liability of $36,000 per American citizen. Not only that, but the Trustees of Social Security estimate a current unfunded liability in excess of $100 trillion in 2009 dollars. This means that the federal government has obligated itself to pay more than $100 trillion over and above any taxes it expects to receive. Are we in trouble? I think you know the answer!

The solution? Smaller government, less spending, less taxes and more money to the businesses (big and small) who fuel our economy!  I can’t wait for the 2010 mid-term elections, let’s send our government a message: Less is more!

WATCH THIS SHOCKING VIDEO

Can i invest in real estate with my IRA?

With investment property priced to move, some IRA owners are buying actual real estate properties. Did you know you could do that? Most people don’t. Not everyone can do it; not everyone should do it. However, some people are doing it – particularly high net worth IRA owners who see great deals in a buyer’s market.

Everyone assumes IRA assets have to be invested in securities, but it is fully possible to invest in real estate with retirement funds. IRS Code Section 401 IRC 408(a)(3) prohibits life insurance contracts from being held in IRAs, and IRS Publication 590 states that your IRA will be hit with additional taxes if you invest in collectibles. Those warnings aside, IRA assets may be invested in other options, such as real property.

Careful, not all IRAs are created equal!

You can’t buy real estate with any old IRA. You have to create a self-directed IRA or an IRA LLC. You also have to find an IRA custodian that will let you make non-traditional investments. This custodian has to be a registered trust company. One I have had a lot of success with is Pensco Trust.

If you set up an IRA LLC, you retain control over the invested IRA assets held with said custodian – that is, you have “checkbook” control and don’t need IRA custodian approval to make the real estate investment.

READ THE FULL ARTICLE HERE