Faith Based Investing

NO GUTS, NO GLORY!

With one onside kick, on one of the most unexpected plays in Super Bowl history, The New Orleans Saints proved winning takes guts…

If you have been following me here or at at JayPeroni.com, you know I’m a die-hard New England Patriots fan. Since my Patriots did not make it to the Big Game on Sunday, I got to see the next best thing: the Indianapolis Colts lose! But even better than that was getting to see the New Orleans Saints claim victory after such hardship the past several years. Between the high crime rates and the disaster of Hurricane Katrina, most of America was rooting for some joy for that city.

Though nothing can take back the pain, loss and devastation from Katrina, but to see so many smiles and such joy on the faces of the many folks in New Orleans was priceless. In one of the most exciting Super Bowl games in the past decade (besides my Patriots’ three Super Bowl wins), yesterday’s victory proved winning takes guts.

Coach Payton of the Saints proved that to beat the overpowering Colts it was going to take stamina, smarts, and a good dose of risk – high stakes, high reward plays. There was no shortage in Super Bowl XLIV. From the risky call to go for it on 4th down inside the Colts 2 yard line to the gutsy onside kick to begin the second half the underdog Saints had one goal in mind: put it all on the line to give that hurting city something to be proud of.

The players knew what was on the line. They knew what it meant and they were willing to do whatever it took to claim victory. It was their way of saying thank you to the fans, their way of realizing how far the city had come in such a short time, and most of all they knew they could play a small part in helping New Orleans to rebuild what it had lost.

WHAT ARE YOU LIVING FOR?

What about you? What are you playing for? What are you willing to throw it all on the line for? If you are still living, God wants to do something amazing through you. You are not dead for a reason. You still have a purpose and He has a plan for your life. But are you just going through the motions? Are you investing your life into something worthwhile?

When I awake every day, I know it could be my last day here on earth. We have no promise of another day. Yet we take so much for granted. If today were your last day, how differently would you live? What’s holding you back? Just like the Saints put it all on the line last night, played with heart, and took chances, are you doing the same? To get where you want to go in life, anywhere worth going, it will take a whole lot of guts. Are you willing to risk it all for what you believe in?

What about that business you never started, that investment you never made, that person you never told how you really felt?… We only have so many chances to get it right. We can either dream about the life we wished we had or we can take some chances and work toward creating the life of our dreams – the choice really is up to you: No guts, no glory!

RULES change for IN-SERVICE 401(k) rOLLOVERS 

401(k)-to-Roth rollovers are now possible before age 59½.

A new possibility. Sometimes employees want to pull money out of a 401(k) before they retire. It isn’t always because of an emergency. Some workers want to make an in-service non-hardship withdrawal just to roll their 401(k) assets into an IRA. Why? They see lower account fees and greater investment choices ahead.

As a result of the Tax Increase Prevention Reconciliation Act (TIPRA), tax laws now permit in-service non-hardship withdrawals from 401(k), 403(b) and 457 plans to traditional IRAs and Roth IRAs before age 59½. Of course, the employee must be eligible to take a distribution from the plan, and the funds have to be eligible for a direct IRA rollover.

This option may be very interesting to highly compensated employees who want the tax benefits of a Roth IRA. The income limits that prevented them from having a Roth IRA have been repealed, and they may have sizable 401(k) account balances.

Does the plan allow the withdrawal? Good question. If a company’s 401(k) plan has been customized, it may allow an in-service withdrawal for an IRA rollover. If the plan is pretty boilerplate, it may not.

The five-year/two-year rule also has to be satisfied. IRS Revenue Ruling 68-24 says that for an in-service withdrawal from a qualified retirement plan to take place, an employee has to have been a plan participant for five years or the funds have to have been in the plan for two years.

401(k) plan administrators may need to amend their documents. Does the Summary Plan Description (SPD) on your company’s 401(k) plan allow non-hardship withdrawals? If it doesn’t, it may need to be customized to do so. This year, plan administrators nationwide are fielding employee questions about rollovers to Roth IRAs.

401(k) plan participants need to make sure the plan permits this. An employee should request a copy of the SPD. If you ask and no one seems to know where it is, then call the toll-free number on your monthly 401(k) statement and ask a live person if in-service, non-hardship withdrawal distributions are an option. In some 401(k)s, an in-service non-hardship withdrawal will prevent you from further participation; be sure to check on that.

If this is permissible and you want to make the move, you better make an IRA rollover with the assets withdrawn. If you don’t, that distribution out of your qualified retirement plan will be slapped with a 20% federal withholding tax and federal and state income taxes. Oh yes, you will also incur the 10% early withdrawal penalty if you are younger than age 59½. Additionally, if you have taken a loan from your 401(k), any in-service withdrawal might cause it to be characterized as a taxable distribution in the eyes of the IRS.

Obviously, this IRA rollover possibility is not a big hit with the national and regional retirement plan providers, who would like to see you keep participating in their 401(k) programs rather than partly or fully bail out. But many employees would like a broader and more diverse range of investment options – and some would like the chance to direct their money into vehicles designed to produce future income streams.

Don’t forget to talk to the professionals. Retirement plan administrators and participants should talk to the financial consultant that has helped them with their 401(k) program before making a move. This article is simply an overview, and there will be different details to attend to with each employee. So be sure to touch base with the financial professional you trust.

Other articles to consider:

5 Reasons Your 401k is a Bad Investment

401k Fees: See what you’re really paying

The Midas touch

Tom and his brother Greg had the Midas touch! No matter where they invested, success was soon to follow.  Their claim to fame started in the late 80s when they built a pharmaceutical manufacturing company. By manufacturing other company’s drugs they found a way to avoid expensive research costs, yet reap huge profits.  After a merger in 1991, Tom and Greg took all their sweat equity and walked away with nearly $100 million.  I asked Tom about his philosophies and keys to being a successful investor.  Here is what he shared with me:

1. Don’t expect the market or an opportunity to give you a second chance. You have to seize moment and take risks.  Not careless risks, but rather calculated ones that have a high chance for a payoff.

2. Take action on your gut or years of learned experience. Your gut will rarely lead you wrong.

3. Understand the upside (best case scenario) and more importantly the downside (worst case scenario) before investing a dime. Plan for the worst and hope for the best.

4. Disregard advice that violates your common sense no matter how eminent the source.

5. Read the annual and semiannual reports. Study before you invest. If anything doesn’t make sense, sell it or don’t buy it.

6. Admit and correct mistakes—sooner rather than later.

7. Keep your own independent counsel of advisors.

8. Be skeptical, not cynical.  Trust your own research.

Now coming from someone who’s been there, done that, made a fortune without sacrificing his principles, I’ll listen.  Here is one class act who claims Jesus as his Savior and let’s his walk do the talking.  He is one of the most generous guys I know!

“No More Just Surviving, Let’s Start Thriving! How to recession proof your assets and retirement” 

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“Why 401ks, Annuities, and Mutual Funds are a Bad Idea!”

Tired of all the bailouts?
Tired of the moral decay in America?
Tired of going nowhere financially?
Not sure where or how to invest?
Concerned about the economy, your job, career, or finances??

Spend an hour with Jay and he can help you find some direction!

Come and learn from America’s #1 expert on the subject of:
“Faith Based Investing”

You do not want to miss Jay presenting “How to
recession proof your assets and retirement” 

When: February 16nd, 2010
Time: 7:00-8:00 PM EST
Where: You can participate by phone or on the web.

Would you like to ask Jay a specific question?
You may leave your question on the web cast page that you will receive after
you have completed the sign-in process.

In a rising rate environment, where do you turn for fixed income ideas?  As we know when rates rise, bond prices fall.  So what’s a fixed income investor to do?  How about considering a few preferred stocks in the portfolio?  Let’s look at some of the pros and cons.

Stocks that tend to pay sizable dividends

Institutional and individual investors buy preferred stocks because they offer fixed dividends – in fact, dividend yields are typically greater than those of common shares.

Preferred stocks are occasionally called hybrid securities, because they have characteristics of debt instruments as well as equities. Let’s review some of their features and pitfalls.

Priority dividend payouts

As the “preferred” adjective implies, these shares are a step above common stock. If you own preferred stock in a company, you will get your dividend first; all the common shareholders will get theirs second. You also have preference if a corporation declares bankruptcy or liquidates and sells assets. In that instance, debt holders are paid first, then the preferred shares, and finally the common shares.

Dividend determination

Dividends paid out on preferreds are akin to coupon payments on a bond. A preferred stock obviously doesn’t have a maturity date like a bond, but it does have a par value, which is used to figure out the payouts. (A good stock research website can help you find the par value and preferred dividend rate of return.) You determine the preferred dividend by multiplying the preferred dividend rate percentage by the par value.

If you need to figure out the market value of a preferred stock, you can do that simply. Divide the dividend amount by the yield (required rate of return stated by the issuer). A visit to a stock research website will give you the yield percentage on a preferred.

Similarly, the price of a preferred stock equals the preferred dividend divided by the yield percentage.

Accumulating dividends

Sometimes a corporation can’t pay dividends to preferred shareholders. If that’s the case, the company will often let the preferred stock dividends accumulate until cash flow improves.

The five kinds of preferreds

Most preferred stocks are cumulative – that is, any missed dividend payments accumulate for an eventual payout. Most preferreds are also callable – that is, the stock issuer has a chance to call (redeem) the shares at par value. Yields on preferred shares sometimes include premiums in recognition of this risk.

Some preferred stocks are convertible, with embedded options allowing you the chance to exchange preferred shares for common ones. (Sometimes a provision is allowed that gives the issuer the chance to call for the conversion.)

Some preferreds are participating – when a company does well, the dividends from these shares may be greater than the published yield. Finally, when a corporation issues multiple rounds of preferred stock, there may be preference-preferred shares; if you own shares from the first issuance, your preferreds take priority over preferreds issued later.

Possible pitfalls

So what is the downside of owning a preferred stock? Well, they do present potential and actual disadvantages. When a market sector heats up and common shares take off, preferreds often lag behind. Interest rate hikes can reduce the value of preferred shares. Additionally, you have no voting rights as a preferred shareholder.

Ratings

There is no “official” rating system for preferred stocks; however, the big credit agencies that rate bonds rate preferreds as well. Standard & Poor’s and Moody’s do, and when they downgrade, it can hit a preferred stock hard. Preferred stocks rated beneath BBB- at Standard & Poor’s or beneath Baa3 by Moody’s are considered junk preferreds.² If you have to go outside of S&P or Moody’s to find a preferred stock’s rating, that’s a red flag – it might mean that it couldn’t get a decent rating from S&P or Moody’s.

A preferred stock investor would do well to research a company’s financial ratios and cash flow, and its interest coverage ratio (higher is usually better).

Consider the variables

Preferred stocks have looked attractive to retirees and others seeking consistent dividends. Rather than explore them alone, you should see a financial consultant who can help you thoroughly understand your options in this area and compare them to other choices you may have.

Are there too many hands in the cookie jar?

There are five major problems with tax-deferred plans at work, whether you have a 401(k), 403(b) or another plan at work.  Here are 5 reasons your plan may be a bad investment:

1st Problem: Limited Choices.

For most, this provides two challenges: the limited ability to screen your investments for moral or social issues important to you and the limited ability to find the best investment vehicles (place to get the highest potential return).

2nd Problem: No personal relevance.

When you simply select funds from a plan at work, there is no personal meaning or connection to your life. You are handing your money over to someone else who does not know you or anything about your situation. Your faith is in the hands of a money manager or team of managers and fully out of your control. Why do you think so many people stop contributing to a 401(k) when the markets are going down? If instead your investments had relevance to your life and were in full alignment with your faith, values, belief, and mission in life don’t you think you would continue investing?

3rd Problem: High Fees.

Most retirement plan fees are hidden beneath layers and layers of costs assumed by mutual funds. There are the widely publicized expenses reflected in the prospectus of the mutual fund listed under the expense ratio. But there are also broker fees, trading costs, commissions, and other fees that you can find only in what is called the 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.

4th Problem: Ticking Tax Time Bomb.

Make no mistake about it. The government knows how to generate future tax revenue at your expense. They do this by allowing you to take tax breaks today in exchange for much larger tax bills in the future. Many people just look at the tax benefits of tax deferral and neglect to factor in that what used to be a $5,000 tax write-off is now a tax bill for tens or even hundreds of thousands of dollars. Uncle Sam is no fool. He’s figured out how to entice you into funding his future spending.

5th Problem: Lack of Liquidity and Accessibility.

If you need access to your funds prior to age 59 1/2, your retirement plan generally will have a 10% penalty and you may also owe federal and state taxes. Often a withdrawal from a retirement account can cost you 40% of more. That means every $10,000 would lose $4,000 in taxes and penalties…that’s not what you can easily accessible. Of course there are exceptions to the rule, but in most cases, your retirement plan at work is very inflexible and costly if you need to access the funds.

Also SEE:

401ks: see what you’re really paying

Is Nationwide on your Side?

“Every moment of our lives we are either growing or dying…” – Robert Cooper

“Without continual growth and progress, such words as improvement, achievement, and success have no meaning.” – Benjamin Franklin

We are either growing or dying spiritually.  There is no status quo!  God calls us to a life of commitment to Him.  Our finances reveal our commitments in life.  Where we spend, invest, and give our money reveals our priorities in life.   As we grow in our faith, we should long to have our finances line up with God’s word.  This means that we need to make a commitment to Him to make changes in our lives.  Over the next year we will look at various ways to combine our faith and finances.  Your journey begins today. 

Make a commitment to God that you will seek to learn His ways.

Psalm 37:4-6 sums it up:

 Delight yourself in the LORD and he will give you the desires of your heart. Commit your way to the LORD; trust in him and he will do this:     He will make your righteousness shine like the dawn, the justice of your cause like the noonday sun.

Judy came to see me frustrated and upset. She was tired of the long hours, unfulfilling work, and lack of passion for what she did.  As a telephone worker for nearly thirty years she had enough.  She couldn’t take it anymore.  When the company offered her a voluntary early retirement package, she thought it was an answer to prayer.  However her lifestyle of living beyond her means had overtaken any chance of accepting this package.

In order to prepare her for a future package and as a requirement to become a client of mine, I made Judy sign a commitment that she would change her habits and open her mind to learn new strategies to improve her financial situation.  She needed to make changes and commitments in order to have any chance of ever retiring.  The commitment was her first step in the right direction.

The definition of insanity is doing the same thing over and over and expecting different results.  If you do not commit to change, you will not learn and get past your mistakes.  Turn to God today and ask for the strength and discipline to seek change.  Make a commitment today and stick with the plan.

In what areas is change needed?

What are your biggest financial obstacles today?

What are some steps you can take to change your situation?

Someone asked me the other day, why I recommend and use FolioFn.  Who are they and why use them? 

FolioFn:     

The company was founded in 1999 by Steven Wallman, a former commissioner of the U.S. Securities and Exchange Commission widely recognized for advocacy on behalf of investors. We are based in the Washington, D.C. suburb of McLean, in the heart of the Northern Virginia high-technology corridor.

Mr. Wallman gained a unique perspective on Wall Street during his years as a Commissioner of the U.S. Securities and Exchange Commission. He saw first-hand how the needs of many investors were not being fully met by existing financial institutions and existing financial investment vehicles. Folio Institutional was founded, in part, to provide advisors and other professionals the tools they need to deliver better solutions to their clients:

With Folios, investors of all sizes and investment styles can enjoy the advantages of a flexible and diversified portfolio.

Folios help reduce the drain on your earnings from fees, trading commissions, and capital gains taxes.

Folios, in contrast to mutual funds, provide you transparency and control over the securities your money is invested in.

At Values First Advisors, we use FolioFn for our trading  and money management.  Here are five reasons, I use FolioFn:

1. Screening portfolios:  We are able to screen out of our portfolios, companies involved in:

* Abortion

* Pornography

* Homosexual activism

* Violent and sexually explicit entertainment

* Embryonic stem cell research

* Gambling

* Tobacco

* Alcohol

2.  Unlimited trading:  We also can do unlimited trading for a flat fee, saving our clients hundreds or even thousands of dollars a year in trading costs!

3.  Low cost diversification: We can build our own mutual funds using state of the art technology. Instead of paying upwards of 3-4% to have a mutual fund manage your assets (expense ratio and statement of additional info fees), we can manage accounts for a fraction of the cost of most mutual funds. 

4.  Convenience: All your assets and holdings appear on one statement.  Your account can be accessed 24 hours a day/ 7 days a week.

5. Tax efficiency:  You can control when investments are bought and sold and can harvest gains and losses and take advantage of favorable tax laws.

The market has rebounded … is it poised to keep rising?

Remember when people were getting out of stocks? In the last quarter of 2008 and the first quarter of 2009, some people made the decision to move money into forms of investment with low or no stock market correlation. The recession was going full blast; the Dow was falling. But recessions are temporary, and markets improve.

The recent recovery wowed even the most jaded market analysts. From the March 9, 2009 market lows to the end of the year, the S&P 500 shot up 64.83%, the DJIA gained 59.28%, the NASDAQ 78.87% and the Russell 2000 82.19%. The CBOE VIX, the so-called fear index, dropped 56.14% in that stretch.

Was March 9, 2009 the point of capitulation? Have you heard of that term? It references a point of “surrender” or maximum exodus from stocks to CDs and Treasuries in a bear market. The theory goes that when that point of capitulation is reached, a measured, rational market recovery will begin leading to either a cyclical bull market or (fingers crossed) a new long-term bull market.  

The rebound off the March 9 lows wasn’t measured, it was phenomenal. On August 6, 2009, the head of Goldman Sachs’ investment policy committee declared that “the new bull market has begun.” On CNBC, Abby Joseph Cohen shared her belief that the S&P 500 would finish 2009 in the 1,050-1,100 range, up from a March 9 trough of 666.79. It exceeded her expectations, ending the year at 1,115.10.

Will stocks keep advancing in 2010? There’s an old phrase people like to cite: past performance is no indication of future success. That disclaimer aside, many analysts think that the stock market will realize at least moderate gains in 2010. The mood is certainly more optimistic and the economy seems to be improving.

Will investors be patient? Good question. In late 2008, you had people swearing off stocks. In 2009, some of those same people changed their mind and ran back to stocks. If 2010 brings a correction, will these investors ditch stocks again? History suggests that these short-term shifts may be damaging.

DALBAR, that goldmine of investment research, looked at the behavior of the average mutual fund investor over a 20-year period ending December 31, 2007. The 20-year survey found that while the broad stock market (S&P 500) returned an average of 11.82% over those 20 years, the average mutual fund investor bailed out at times, missed out on great market days, and only realized an average return of 4.48%. This is a really compelling argument for patience and sustained investment. In late 2008, both Warren Buffett and John Bogle made the case that investors should stay in the market, as some major values were available as a result of the downturn.

How are you invested these days? We’ve seen a lot of change in the last three years, and many people have really changed up their portfolios. How about yours? Is your asset allocation still appropriate for your long-term objectives? You might want to talk to a qualified financial advisor today to review where you are at and how you might position yourself for the years ahead.