Faith Based Investing

“A good leader is a person who takes a little more than his share of the blame and a little less than his share of the credit.” –John C. Maxwell

Why are people so quick to blame others or circumstances for their problems? Often I see people who are quick to point the finger and it rarely points back at them. Choices are made each day, and these choices have consequences. When the results come in less than favorable, somehow it is easier to push the blame toward someone or something else. This is especially true with finances. One example: Most Americans used to be able to rely on three income sources for retirement– the company pension, Social Security, and personal savings. As the futures of company pensions and Social Security hang in the balance, the pressure builds for you to save on your own for retirement.

If you do not have enough income when you retire, whom will you blame: your employer, the government, or will you accept responsibility? The natural inclination of many people is to pass the blame. You know you are not accepting personal responsibility if you blame other people for your financial problems. I see many people pass the blame whenever they are faced with difficulties. It wasn’t the credit card company’s fault you maxed the card out. It wasn’t the bank’s fault you defaulted on your mortgage. It wasn’t your employer’s fault you didn’t save enough for retirement. These life situations, hardships, character flaws, or whatever else you want to call them begin with you. Rather than agreeing that the common denominator in all your problems is you, will you continue to blame others?

Do any of the following excuses sound familiar?

* I was late because of traffic.

* I have been so busy that I haven’t been eating right or exercising so that is why I put on a few pounds.

* My company isn’t paying me enough, so I cannot save for retirement.

By taking responsibility, you admit your part in creating the problem. You could have been on time if you left earlier. You could have maintained or lost weight if you reprioritized your schedule. You could have saved for retirement if you cut back on spending. There is always a cause-and-effect relationship.

When you consistently point fingers at others, you look at yourself as a victim. Have you ever seen a rich victim? They are not very common. I have seen many poor victims. These are people who are poor and blame others. They blame their lack of financial success on circumstances and people around them.

Many people get into financial trouble because of greed, laziness, or lack of commitment. Quit blaming others. Admit you are the problem. You can always work toward improving your own bad habits, but it is very difficult to change the circumstances and the things around you. So if you concentrate on yourself and what you could do differently, you can begin to create new opportunities. Blaming the world limits your choices. You can either take responsibility or continue playing the blame game.

Harboring negative emotions and anger about your financial situation diminishes financial progress. Your financial problems can begin to eat away at you little by little. Financial stress can become overwhelming and lead to withdrawal, depression, and other dangerous behaviors.

In order to make financial progress, you also need to have an open mind and look to others for guidance. Begin to identify areas in your financial life that you would like to change and commit to finding solutions.

Take smart, calculated risks, and realize that you are responsible for the outcomes. Begin to recognize any areas in which you need financial advice and seek a professional who is able to help you begin to identify solutions you never considered. You can make progress, but you first have to claim responsibility for your actions.

In the book of Mark, this question is posed: “What does it profit a man to gain the whole world, and forfeit his soul?” (8:36 nasb). Through the effort to find solutions to address the issues that go along with this question, faith-based investing was born. This movement seeks to align a person’s faith, moral beliefs, and ultimately God’s Word with the investment community.

There are now millions of religious investors attempting to align their morals and values with their investment portfolios. Religious concerns have long been a factor in the investment process because investors have wanted to avoid companies that contradict their belief system.

This began with social screens for products such as alcohol and tobacco and has migrated to moral issues such as pornography and abortion. There has also been a recent movement for investors to reassess their financial priorities in light of the corporate and mutual fund scandals that have surfaced over the last ten years. People are looking for more meaning in their lives and ultimately to make a more positive difference with their investments. This has led to the desire and ability to screen for more social and moral issues.

The rise in the number of faith-based investment choices has opened the door to new avenues of investing. There also has been a surge in the level of sophistication in research available to advisors, money managers, and individual investors. As a result of this movement and awareness, millions now have the opportunity to put their money where their values are.

The appropriate starting point for any investment should include having a noble purpose as well as developing a process to maximize moral integrity. It is not just whether you should compare the harm of investing in one company vs. another company. It is more about trying to avoid the “blood money” that results when you invest in companies that are not in line with your beliefs. If you participate through your investment dollars in things you do not agree with, you are still enabling that activity. More important, when you send money into a mutual fund that invests in things that are objectionable to you, your moral integrity has been compromised.

The limitations of your knowledge should not blind you to the fact that there is a moral responsibility when you invest. If you look the other way when others are doing wrong, you are still morally responsible. So how do you invest in a manner that reflects your morals and values? This will be discussed at length throughout the book. The first part of the process is to determine what is truly important to you. Is God a top priority in your life? Are you looking for balance and consistency? Doesn’t it make sense to include your faith in all areas of your life–finances included?

gETTING A MORTGAGE TODAY

What can you do to help yourself get pre-approved?

Remember when getting a mortgage was easy? Now, you need pre-approval. So how can you increase your chances of passing that all-important test?

You want a lender in your corner. Sellers and agents don’t want to waste their time working with a buyer who isn’t pre-approved. Why should they contend with uncertainty?

A buyer with a pre-approved loan gets respect when a seller gets multiple offers. A pre-approval shows the seller the size and terms of the loan the bank is ready to greenlight. Commonly, a pre-approval is good for 90-120 days.

Pre-approval is a whole different level than pre-qualification. You can supply very basic financial information to a bank or lender and walk out with an estimate of how much mortgage you might be able to carry. However, that is no promise. Pre-approval is an actual commitment from the lender to you.

So what can you do to earn that commitment?

Test the waters well before you test the housing market. Visit more than one lender, and see what you can borrow, just how much home you can afford, and what kind of mortgage options you have. Keep in mind that a pre-approval is a pledge that a mortgage lender makes to you, not a contract. Should some other bank or mortgage company make you a more attractive pledge, you are free to switch horses.

Make your case. Don’t skimp on the documentation you bring to the appointment. Usually, a mortgage lender will want to see the hard data of your financial life over the last couple of years: the bank statements, the federal tax returns, the W2s, the pay stubs. If you earn investment income, bring paperwork showing that you do. If you deposited any big sums into your bank account recently, you’ll probably be asked what that deposit represents.

The amount you are pre-approved for typically reflects three factors: how much you have saved up for a down payment, your FICO score and your current address. It should only take a few business days for a lender to get back to you and let you know how much mortgage it will pre-approve for you.

Aim to get pre-approved within 30 days. This way, you don’t risk harming your FICO score so much. The majority of credit-scoring paradigms out there don’t penalize your credit rating for home loan, student loan and car loan inquiries made 1-30 days prior to the score calculation.

Don’t expect all the details right away. When you apply for a loan, your lender is using that day’s mortgage rates to calculate costs and payments, and rates move. So the pre-approval may be light on particulars about the interest rate or the loan type.

Avoid fly-by-night lenders. The seller and the seller’s agent want to see that a reliable, “name” lender is issuing its stamp of approval here, not an obscure Johnny-come-lately. Credibility counts.

Can’t get a standard loan? Don’t forget about the Federal Housing Administration, through which you might be able to arrange a mortgage with as little as 3.5% down. Most lenders can process an FHA loan like a standard loan, and commonly the rates are about an eighth of a point higher than a standard mortgage. Also, remember that first-time buyers have until the end of 2009 to qualify for an $8,000 federal tax credit which can be put toward the down payment and closing costs.

“The only thing necessary for the triumph of evil is for good men to do nothing.”

–Edmund Burke

How many sit silent on the sidelines, complaining about how bad it is yet take no action?

How many people complain about the direction of this country yet don’t vote?

Ho many complain about the trouble of their job or company, yet keep working there?

You get my point.  We sit silent waiting for some miracle to happen yet we do nothing to make it happen.  It’s the same when we invest.  Are your values being reflected with your investment dollars?

You may be investing in companies that violate your morals and values. Make a conscious effort to find out where your investments are going and what you are involved in. Look at your mutual funds and stocks and analyze your various accounts. The first step is to commit to becoming aware and consider the alternatives that you may not have known you had.

First, let’s look at the definition of blood money:

Blood money

blood money (blud mune) n.

1. money paid to a hired killer

2. money paid as compensation to the next of kin of a murdered

person; wergeld

3. money gotten ruthlessly at the expense of others’ lives

or suffering

Source: http://www.yourdictionary.com/blood-money

You have values and beliefs that are important to you. When you compromise your values to enhance your finances, profits can resemble blood money. Both your personal internal value system and our country’s external legal system define immoralities and crimes, thus both illegal and legal profits can have negative results. Even if good outcomes ultimately result from immoral or illegal activities, the underlying source of profit is an activity that either is breaking the law or compromises your value system. This can resemble blood money as defined by definition number three below:

3. money gotten ruthlessly at the expense of others’ lives or

suffering

Examples of blood money include, but are not limited to, profits from a prostitution ring given to a church, illegal drug money being used to help the poor, even legitimate profits from an investment in a company that explicitly violates your values. Your investment dollars may be funding immoral activities.

• If your value system rates protection of the institution of marriage and the family as an extremely important issue, would you want to invest money in companies that are producing entertainment that seeks to destroy appropriate attitudes and promote alternative lifestyles?

• If preventing human cruelty is important to you, would you want to invest in companies that carry out substandard labor practices?

• If abortion is a key issue for you, would you want to invest in companies manufacturing abortion drugs or performing elective abortions?

Doing nothing takes no action. It’s easy. Taking a stand is difficult yet can be rewarding. Better yet, taking a stand based on your faith and values can bring you a step closer to God. Does your heart break watching our world get further away from God? Do something about!

Solomon once wrote, “Where there is no guidance the people fall, But in abundance of counselors there is victory.” (Proverbs 11:14 NASB) In the world of investing, there is no shortage of people willing to give you advice. From mutual fund offerings to investment advisors to insurance salesman, everyone wants to get in the game of advice. But could this advice be detrimental to your faith and wallet?

The other day I read a puzzling report about how mutual fund inflows were the highest in nearly two years. Strategic Insight, a firm specializing in mutual fund consulting reported that over $136 billion flowed into stock and bond funds during the 2nd quarter of 2009. The money going back into the market isn’t the troubling part; it’s the amount going into mutual funds, especially retail mutual funds. Retail mutual funds tend to have layers of hidden fees.

Here are 5 reasons why mutual funds may be a bad idea for your family:

1. The fund manager’s values and interests often are in direct opposition of yours

When I think of investing, I am often reminded of Mark 8:36, “What good is it for a man to gain the whole world, yet forfeit his soul?” I believe this verse has much wisdom that can be applied to one’s portfolio. What is more important the amount of profit or the source of that profit?

Mutual fund companies seek one major goal: to make a profit. This profit often comes at your expense. In 2008, almost every equity mutual fund lost money yet mutual fund companies kept collecting their fees. They make money regardless of whether or not you ever see a profit.

On top of that, many funds invest in companies that directly oppose your values. They are free to invest in companies supporting abortion, pornography, alcohol, tobacco, homosexual activism, and embryonic stem cell research. Do you really want to profit from these industries? The heart of faith-based investing is seeking companies you could be proud to own: companies making a positive difference in our society all the while avoiding companies that are morally polluting our culture. Though the question you must ask yourself…is…will God bless your investments if they go to support efforts that are contrary to the bible? That’s the one that should keep you up at night…

2. A lack of transparency

It is very difficult without proper tools to have any understanding of what you truly own inside of your mutual fund. The lack of transparency essentially leaves you in the dark as to where and in what you are investing. Do you own assets that violate your values? Do you have exposure to companies going bankrupt? The lack of an ability to “know what you own” is a major disadvantage for those seeking to align their faith and values with their investment plans.

3. Supersized fees

The biggest problem I have with mutual funds are the high-level of fees. Even when you “think” you are paying 1 percent a year, you may be shocked to “know” that the fees you are paying actually exceed 4 percent. Over time, this can mean thousands or even millions of dol­lars. The longer you invest in mutual funds, the more you pay in fees. In The Faith-Based Millionaire, I wrote about how a 1 percent fee quickly turns into a 4 perfect fee.

So how does 1 percent become 4 percent? If you look at the fixed expenses of a mutual fund, they are included in what is known as the Annual Expense Ratio (found online or in the fund’s prospectus). Every mutual fund and exchange-traded fund (ETF) charges this fee. “No-load” funds (no commissions when you buy or sell shares) still charge annual fees. The expense ratio pays for the fund’s recurring operating costs (such as salaries, research costs, technology, and service, to name a few), but it does not cover trading and other costs. Morningstar, the leading independent third-party mutual fund rating company lists the average expense ratio as 1.56 percent per year.

What are not listed in the expense ratio are variable costs. The biggest variable costs are brokerage commissions and trading expenses. When­ever the fund manager buys or sells a security, he pays brokerage com­missions–just as you would if you were to buy or sell a stock or bond. Typically, funds spend tens of millions of dollars in trading costs per year, and these expenses are not included in the Annual Expense Ratio or even disclosed in the prospectus. To find these and other expenses, you must look in the fund’s Statement of Additional Information (SAI).

These additional expenses are difficult to determine, but a 2007 analysis by Virginia Tech, the University of Virginia and Boston Col­lege revealed that the average SAI charge is 1.44 percent per year. This is in addition to the 1.56 percent charged by the average Annual Expense Ratio. In other words, the total charge of the average mutual fund is 3.00 percent per year. If you pay an advisor 1 percent or more per year to manage your assets in what is known as a “wrap account,” you may be paying total annual costs that exceed 4 percent per year. In this down market, the last thing you need is to be hit with layers and layers of fees!

4. All chips on the table all the time

Though I do not recommend market timing (trying to predict short-term stock market movements), I do believe it is prudent to be more cautious or defensive at times. Most mutual funds stay 100% fully invested in the market at all times and do not account for changing economic conditions. The charter of most equity mutual funds requires the fund manager to maintain high exposure to stocks indefinitely. Whether there are good buys available or not, said manager has to keep buying companies knowing full well that the timing may not be right. Worst yet, he may have only 20-25 stocks he feels have good upside yet his charter requires more diversification so he is forced to buy “losers” to spread out risk.

5. One size fits all bad advice

Mutual funds get paid to keep you invested all the time. Marketing materials can be sliced and diced to tell you the story you want to hear. The fact of the matter remains that most mutual funds underperform their respective indices. Good money managers are hard to find yet there are thousands of mutual funds lining up to handle your money.

So where do you go?

It starts with find a team of financial professionals you can trust. If you are a faith-based investor, a great place to start is seeking out a qualified Kingdom Advisor, who specializes in faith-based or biblically responsible investing. There are many faith-based options that can support both your family’s goals and values. Mutual funds aren’t the only game in town. Stocks, bonds, ETFs, real estate, commodities, and gold offer additional choices to diversify your portfolio and help you have a better understanding of exactly what you own.

Hire Your Own Personal Faith-Based Portfolio Manager

There is a relatively more-popular investment process called separate ac­count management. It is similar to mutual funds in many ways, but allows you as the investor to see what is going on “behind the scenes.” Separate accounts provide individual investors access to institutional-quality money managers at reduced account minimums. Within this structure, the inves­tor directly owns the securities in the portfolio, and can impose restrictions against the purchase of specific securities as a means of customizing the port­folio for personal requirements. This flexibility allows the investor the ben­efits of direct security ownership combined with professional management.

Over the last ten years, separate accounts have become more popular. Many managers today will accept accounts of $50,000 or $100,000. This allows investors who normally would not have access to these managers to now participate. A major advantage of a separate account over a mu­tual fund is called the transparency factor. You are able to see every single holding that you own. Unlike your mutual fund, which reports its hold­ings monthly or quarterly, you can see what you own on a daily basis.

Benefits of Separate Accounts

1. Investment Flows. Often, mutual funds are managed based on the net inflow or outflow of their investors’ deposits. Stocks may be sold prematurely to meet redemptions, and other stocks may be bought at unattractive prices simply to put excess cash to work. A separate account is managed with your individual needs in mind.

2. Client Input. Although these are often model portfolio approaches, many managers allow clients to tailor their accounts. For example, certain in­vestments may be excluded because of religious or social concerns.

3. Tax Efficiency. For taxable investors, a separate account avoids the pitfalls of mutual fund capital gains distributions. In some years, a mutual fund investor might have unrealized losses and yet owe taxes because of activity within the fund. You won’t pay taxes on gains you did not realize.

4. Tax Planning. For taxable investors, you can typically instruct the manager to generate gains or losses, if applicable. This allows your separate account to be integrated with your overall tax strategy.

5. Reporting. You will receive detailed reports from your manager, outlining exactly what you own and how your individual ac­count has performed.

6. Transparency. You will see all of the trades (buys and sells) and charges.

7. Expenses. A private account is generally cost-effective when com­pared to the alternatives.

Faith-Based Separate Account Managers

Here are a couple of sample managers who run portfolios for faith-based investors. They generally accept accounts of $100,000 and over and have a wide range of portfolio options that range from conservative to aggressive. Please contact the individual managers for more specific information and for the most current data and performance records.

American Values Investments

www.americanvalues.com

1- 423-722-1776

Stewardship Partners

www.stewardshippartners.com

1-800-930-6949

What Do Most Faith-Based Millionaires Invest In?

Most faith-based millionaires invest in one vehicle: “businesses.” Whether it is their own personal business or those of other private or publicly traded companies, most of the faith-based millionaires I have met do not use mutual funds as the “vehicle of choice.” Many financial experts advise you to “invest for the long-term in mutual funds.” This can be bad advice over the long run as you are losing wealth through these high fees. Mutual funds lack transparency, may own companies objectionable to your faith, and have layers of hidden costs as I have just explained. There is a better way!

Here is why most faith-based investor prefer to own individual stocks and not mutual funds:

1. They know which stocks they own every minute of the day. With a mutual fund, you don’t know on a daily basis which stocks the fund manager is buying or selling.

2. With mutual funds, you have no input into what the fund manager buys or sells. The manager may be buying companies that contradict your faith unless the mutual is screening what types of companies it buys. Most mutual funds do not screen. With individual stocks, investors make the decisions: what to buy, how long they want to own it, and when to sell.

3. A mutual fund manager may be forced to sell shares to meet re­demptions. This forced selling may be counterintuitive to what should actually be done–buy low and sell high. Most faith-based investors are not as inclined to panic. In a mutual fund, many investors panic, bail out, and hurt other shareholders.

4. By owning individual stocks, they have direct control over their investments. In a mutual fund, you turn control over to some­one you most likely have never met and cannot ever speak to.

5. By owning individual shares, they decide how many companies they want to be invested in at any one time and can control the amount of diversification. In a mutual fund, there may be so many different stocks that they are overdiversified.

Bottom Line: If you don’t have the time or that much money to invest, mutual funds may be for you. But if you have the time, and you want control over what you own, then you, too, can be like most faith-based investors and own individual companies rather than mutual funds. Once this choice is made you can still either manage the portfo­lio yourself, hire a faith-based portfolio manager, or hire a faith-based financial planner who specializes in stock portfolio management.