Faith Based Investing

The Magic
If you have ever taken a finance course or watched the magic of compounding in action, it is like magic. What starts as a tiny amount, grows incredibly large over long periods of time. One of my favorite discoveries in finance was the rule of 72. This rule says take the number 72 and divide it by the interest rate you expect to return. Let’s use 12% for an example. 72 divided by 12= 6. What exactly does the answer 6 give us? This is the number of years it will take to double your money.

Let’s say you are an average investor achieving a 12% average annual return. You start with $25,000 at age 20. By age 26, your assets would be around $50,000 assuming you did not add or subtract from your original amount. At age 32, the assets would grow to approximately $100,000. By 38: $200,000, by 44: $400,000, by 50: $800,000 and to $1,600,000 at age 56. This of course is a simple illustration, but it shows the magic of compounding. Like a snowball that starts out small, the investment starts out small and becomes gigantic as it rolls down the hill. Compounding is a great friend when you are investing.

Now it’s Tragic!
When you borrow money, compounding becomes a horrible enemy because it works against you. What started out as a small amount you are borrowing turns into a great sum over time. Instead of the rule of 72 seeming like magic, it becomes tragic. You create a nice huge profit for the lender, who basks in the glory of compounding while collecting all of your interest to the bank. The bottom line: Don’t borrow unless you absolutely have to, even then look for alternatives. Borrowing money is easy; paying it back is the hard part

For the last fourteen years,   I had the privilege to work with hundreds of millionaires, entrepreneurs, and investors.  After studying their behaviors for years, it was easy to determine why they were wealthy.  They had a set of beliefs and followed simple behaviors that most people never do. In fact the behavior of the average person is exactly opposite of what the wealthy do and that is exactly why most people are comparably poor.

There are simply ten ways to become rich:

#1: Start your own business:
Do you have a compelling vision?  How about entrepreneurial skills?  If you pick an up and coming or growing field, you could become rich.  However, you must choose an unfulfilled need or improve upon an existing need.   What part of the world will you change? Start small, but dream big!

#2: Become a CEO of a company:
Are you good at taking responsibility? Does leadership come natural to you?  Find a field you love and work your way up the corporate ladder.  It takes time, but you can become rich.  You must always lead and provide value.

#3: Marry up:
Want to marry someone for money?  I couldn’t do it, but many do! This can lead to instant wealth but at what price?

#4: Invest in real estate:
Good at finding real estate bargains?  Good at collecting rents?  Those who know how to leverage money and real estate know-how can become rich.  Finding a vibrant market and being a value savvy, long-term investor is a better formula than short-term flipping.

#5: Enter the legal field:
Like arguing?  Good at convincing people?  The legal filed is a way to become rich. Not just any lawyer, but most rich lawyers are plaintiff’s lawyers.  You need sympathetic clients and villains to pursue.  Class action lawsuits are riches waiting to happen…

#6: Save and invest wisely:
Good at saving and investing?  Have a disciplined, systematic approach?  This may lead you to riches.  Having a high-paying job, religiously saving 10-20% or more of your income, and getting your money to work hard for you by owning stocks is the surest path.

#7: Manage other people’s money:
Have an attitude toward numbers? Nerves of steel? Good money management skills?  Whether you are a money manager, banking mastermind, hedge fund pioneer, a brokerage or insurance expert, this is a road that often leads to wealth.  Check out how many became billionaires – managing other people’s money.  You have to be able to get clients, keep them happy, and grow your business.  `

#8: Be an athlete or entertainer:
Have extraordinary talents or skills? Don’t mind losing your privacy?  If you can out-sing, out-dance, out-act, out-write, or be more athletic than less 99.9% of the people in the world, you have a great shot at riches.  It still takes hard work, dedication, motivation, and a little of the “being in the right place at the right time” opportunity, but this is a path toward success.

#9: Invent ways to generate passive income:
Are you creative? Are you good at finding ways to keep getting paid time and time again?  If you are good at finding ways to monetize a product or service with value, this will make you wealthy.  The key is finding an unmet need and offering a way to capitalize time and time again (patents, merchandising, franchising).

#10:  Be part of someone else’s vision and be along for the ride:
Not quite head honcho material, but good at spotting winners?  Every Batman needs a Robin.  Riding along with a Donald Trump, Warren Buffett, or Bill Gates will lead you to riches.  Pick a company and person with a good track record and be a loyal, trustworthy companion and business leader and you will be successful.

Are there more ways? Of course, but the less common ways (inheriting money, winning the lottery, etc) are not as practical, nor predictable.  These ten ways cover how most of those on the Forbes list of the 400 richest people in the world gained their fortunes.

As striking as this list is, there is another list – a list of seven beliefs that will not only keep you from becoming rich, they will destroy your wealth potential.  Wasted potential is like a cancer that spreads to other areas of your life.

I created a seven day challenge at www.santafactor.com

LEARN THE 7 BELIEFS ABOUT MONEY THAT ARE KEEPING YOU FROM GETTING RICH!

What is the worst thing you can imagine supporting with your money?

Abortion?

Pornography?

Tobacco?

Alcohol?

Gambling?

Embryonic Stem Cell Research?

Violent video gaming?

Environmentally irresponsible actions?

Or something else?

Did you know that you might be supporting the things you most disagree with and not even know it?

Many times people invest in the stock of companies that are involved in things that go directly against the core values they hold so dearly. For example, let’s say you’ve invested in a food company that is not only very successful, but also involved in some socially positive efforts. But, looking deeper, you later find out that the company has a division that sells tobacco products, which you personally don’t agree with. Without even realizing it, your investment dollars are supporting and even helping to grow a company that is involved in things that are at odds with your values.

Does your financial planner take the time to learn what is important to you? Does he or she determine with you what values drive your core inner being and then use that information in the process of developing a personalized financial plan for you?

What would you be most proud to support with your money?

Lifesaving disease cures?

Food distribution to the disadvantaged?

Technology development to help advance underprivileged societies?

Family-oriented entertainment products?

Green technology?

Or something else?

Did you know that not only can you use the power of your financial plan to attain goals for you and your loved ones, but those same investments can work toward both attaining your goals and supporting industries you can be proud of? Does your financial planner apply your values in finding investments you would be proud to own? Are you proud enough and confident enough in your investments to want to encourage others to make the same decisions?

The issues raised above are two sides of the same coin. They represent the positive and negative qualities of your investments.

Out of Work: Now What?

What can you do to help yourself after being laid off?

You just got the news… you’re being laid off. Maybe it’s no surprise. Maybe it comes as a shock. The question becomes: what now?

Basically, you have three quick to-dos: leaving work with as much money as possible, securing health insurance for the interim, and arranging unemployment benefits. Beyond these items, stay calm and stay in the hunt – or alternatively, work for yourself.

Negotiate your exit. While no law requires your employer to give you a severance package, some employers do provide them. Severance package or not, you may very well receive two weeks pay and perhaps compensation for unused vacation or sick days.

Don’t be meek here. If you’ve been a key employee or simply a good employee, make the case for your company to extend your health coverage a little longer or give you a true severance package. They may see the merit if you have proven yours.

In tax terms, it may be better to receive your severance pay in the form of recurring checks rather than a lump sum. If you get a lump sum, it’s quite possible you could have too much withheld.

If you know you are getting laid off in the next few months, you can request to reduce the amount of withholding taxes on your last few paychecks to give yourself more take-home pay. And if it looks like you are going to receive a lump sum severance before December 31, think about deferring that payment until 2010 so you don’t have to include it on your 2009 tax return.

Keep yourself insured. If you can sign up as a spouse for the plan offered by your spouse’s employer, it makes sense to do it as soon as you can. If that doesn’t describe your situation, then the options are extending coverage through COBRA or keeping up the payments on private life or disability insurance that your company provided.

If you sign up for COBRA at the moment, the federal government will subsidize 65% of the cost for nine months as a result of the federal stimulus. In COBRA, you will have to pay the entire premium on your health insurance plus a 2% administrative fee.

Sign up for unemployment benefits. As few of us have bank accounts equal to six months or a year of salary, it is wise (not demeaning) to sign up for these benefits. You will want to do so ASAP, because it may take a few weeks for that first check to arrive. In some states, you can receive unemployment checks even if you have been given a severance package – although you may have to wait until the entirety of the severance is issued to you before jobless benefits can follow.

Remember that the federal government is pulling out all the stops right now. Take advantage of the federal economic stimulus effort, which is directing $500 million toward helping the jobless find jobs. New search assistance, education, and retraining programs are available. The government is also boosting unemployment payments a bit and elongating parameters of eligibility. Currently, the average weekly unemployment check in America is about $300. Jobseekers can receive unemployment benefits for up to 46 weeks – up to 59 weeks in states where the unemployment rate tops 6% for more than three months in a row, which would be just about everywhere right now. Under the stimulus, weekly unemployment checks will increase by $20 – and the first $2,400 of unemployment payments will be tax-exempt.

Press flesh, not just keys. Despite the buzz surrounding job boards like Monster.com, Dice.com and CareerBuilder.com, an article this winter in the San Francisco Chronicle noted that only about 2-3% of new hires find their jobs through such resources. About 15% of new hires find work directly by applying at a company’s web site, and about 65% find new jobs through that old standby – networking.

Older employees may actually cope with layoffs better. That’s what a collaborative study coming from the Federal Reserve Bank of Chicago and Columbia University has just concluded. It found that laid-off workers younger than 55 experience a much greater increase in “mortality hazards” than their older counterparts – stress and health risks, addictions, and negative personal behaviors. Perhaps this is because workers over 55 are somewhat less likely to deal with making ends meet and the pressures of raising a family; they may have already thought about (and planned for) a retirement transition and they have the options of Medicare and Social Security now or in the near future.

Have you been given a gift? That’s one way to look at it: one door closes, another opens. If you have an entrepreneurial ambition, or just suspect that like many Americans you will one day have to be your own boss, then maybe now is the time to talk over your options with a potential mentor – a friend who owns a business or makes a living as an independent professional in your industry. If you are mature and want or need to keep working, you might even think about a life or career coach – someone who can help you see the full range of possibilities, including those that you may not have considered five or ten years ago.

Happy Independence Day!
The fourth of July is one of my favorite Holidays … and not just because it usually means a fun-filled barbeque with family!

Independence Day is important to me, because it reminds me to step back each year and take account of the freedoms I enjoy – and to remember how important they are. We all seem to take our freedoms for grated from time to time, myself included. But as I look at the headlines from around the world, I’m reminded just how amazing our independence is.

Adlai Stevenson described it beautifully …

“America is much more than a geographical fact.

It is a political and moral fact – the first community

in which men set out in principle to institutionalize

freedom, responsible government, and human equality.”

As we remember the importance of our freedom and celebrate our independence, I hope you and yours enjoy a very happy and safe fourth of July!  God Bless you and God Bless the USA.

My best to you,

Jay Peroni, CFP

Why are more businesses offering

Roth 401(k)s?

Simply put, more firms are recognizing their advantages – especially when it comes to the retirement planning of professionals, business owners and executives. Your company may offer a Roth 401k option that allows you to contribute after tax dollars that will potentially grow tax-free! If you are a business owner, you may have the flexibility to set up a Roth 401(k) for you and your employees.

Here are six reasons to consider a Roth 401k

   1. Tax-free growth. Roth 401(k) assets grow without being taxed, as employee contributions are made with after-tax dollars. When you withdraw the money in retirement, you don’t pay taxes on it – provided you’ve owned the account for 5+ years and are 59½ or older when you start withdrawing. With this tax-free growth, a Roth 401(k) can help professionals, business owners and executives save more to get their retirement planning back on track.

   2. No income limitations. Income limits prevent high-salaried individuals from having a Roth IRA. There are no income barriers preventing you from having a Roth 401(k).

   3. No required withdrawals. You don’t have to withdraw money from a Roth 401(k) at age 70½, unlike with a traditional 401(k).

READ ALL SIX REASONS HERE