Faith Based Investing

Here’s my post from ChristianPf.com

“Does the song you sing have enough meaning? Inspire us to sing along? Does the song you sing keep echoing?  Inspire us to sing the song you sing?”

- From “The Song You Sing” from Creed

I was listening to this song the other day and the words grabbed my attention. It spoke to me because very few people sing a song worth singing… They hold back from living their ideal lives and miss the abundant blessings God had in store for them.

I talk with hundreds of people each week. Yet few are living their ideal life. Few people inspire me. I see a lot of people going through the motions – living for the moment yet no passion, no purpose, and no plan. I hear a lot of negativity, a ton of excuses, and a whole lot of reasons why it’s too difficult to succeed financially.

God wired each of us for a specific purpose as part of His plan. If you are still alive, God is not finished with you yet. He has a big plan for your life. Are you obediently waiting for your next mission? Or are you too busy living for yourself?

What is important to you?

What you invest your time, talent, and treasure in reflect your true priorities and what you truly deem important. I say show me a man’s checkbook and calendar and I can immediately see where his heart is. God said “where your treasure lies you heart lies also”. Are you building Kingdom wealth that will have eternal value or are you investing in earthly riches that “rust and moths will destroy”?

It all begins with a life theme. A mission that is so compelling that you will stop at nothing to succeed. Today, what is your life theme song? Have you found true meaning and purpose? Are you living it out each day inspiring others to buy into your vision? If not, what’s holding you back?

Depression? A lack of excitement? A safe job? Hopelessness? A lack of direction? Something is most likely getting in the way.

I saw a study recently that showed that if someone were to I saw a study recently that showed that if someone were to win the lottery, the likelihood that this person would continue working the same job was about 10 percent. Really? That low? Too many people are in it only for the money.

Yet 10 percent of the population loved what they do and would continue doing what they do despite having more than enough money. Are you in the 90 or 10 percent?

Maybe you have Stockholm Syndrome?

According to Wikipedia:

“The Stockholm syndrome is a term used to describe a paradoxical psychological phenomenon wherein hostages express adulation and have positive feelings towards their captors that appear irrational in light of the danger or risk endured by the victims.”

Are you lulled in by the dullness of your life? Have you allowed safety to become your top priority? What appears safe is often the riskiest thing you could do.

Being complacent you often miss God’s greatest blessings. Being too conservative with your investments you often lose purchasing power (inflation) and pay too much in taxes. Staying in a safe job often limits your God-given potential. Failing to live out your faith limits the opportunities God sends your way.

The Stockholm syndrome was named after a famous bank robbery that took place in Stockholm in August of 1973. The bank robbers held a host of bank employees hostage for six days. The victims then became emotionally attached to their captors. The hostages even refused to testify against the robbers and defended their illegal actions!

What is holding you captive? Are you justifying, making excuses for your lack of success? God does not want you to be poor. It does not make you more faithful. Wealth and success are morally neutral. It is your attitude that determines your motivations with money and success.

If you lack money and success you may not be singing a song with enough meaning. Chances are you are not inspiring others to sing along.

Keep seeking to develop your God given talents and gifts. Find a way to find more purpose and passion with everything you do: where you earn money, where you spend it, what causes you support, and where you invest.

Christ-follower involves risk.  It is the only way to grow. Get out of your comfort zone – get out of the boat and walk on water! Take that leap of faith God has been calling you to. Stop waiting! Seek to be a leader and help improve our world. You can make a difference!

“Knowledge is the key to financial freedom”

How do you reach your financial goals without sacrificing your principles?

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

Why emerging market equities have the world’s attention.

Brazil. Russia. India. China. These four nations have some of the fastest-growing economies on earth and are becoming drivers in the world economy. In the coming decades, they may command as much attention as the U.S., Japan and other “heavy hitters” … or more.

The future aside, we know one thing about the BRIC nations and other emerging markets: collectively, stocks in these countries have outperformed U.S. stocks for the last 20 years.

During this past decade alone, the MSCI Emerging Markets Index brought a total return of 102.4% while the S&P 500 posted a total return of -10.0% (-24.1% before dividends). Across the 1990s, the S&P 500 produced a total return of 432.0% – pretty impressive. Yet the MSCI Emerging Markets index posted a total return of 2408.6% for that decade.

Great volatility, but also great potential. If U.S. stocks soar or fall, emerging markets really feel the effect. We’ve seen them recoil in the first quarter of 2010. Yet short-term slumps aside, there are compelling arguments for investing in emerging market equities as part of a diversified portfolio.

Look at last year’s returns. In 2009, the benchmark index in Brazil (the Bovespa) gained 82.66%. Russia’s RTS gained 128.62%. India’s Sensex 30 advanced 81.03% and China’s Shanghai Composite rose 79.98%.

Look at the last decade. The Dow and the S&P 500 underperformed in the 2000s compared to previous decades. How did benchmark indices in the BRIC nations do?

Are you sitting down? Brazil’s Bovespa gained 301% across the 2000s. India’s stock market gained 249%. China’s Shanghai Composite was the laggard, only rising 72% over that stretch. Russia’s RTSI gained 863% in the past decade.

BRIC, or BRIMCK? Some economists would modify BRIC to BRIMCK, arguing that Mexico and South Korea belong in this collective powerhouse. The key market indices in Mexico and South Korea respectively advanced 44.87% and 49.65% last year.

The (corporate) opportunity of a lifetime? Wall Street bulls see wisdom in giving more and more weight to the BRICs in portfolios. They draw a line between the impressive, sustained growth of these nations to higher returns and rising demand for capital. They look at these nations and see a rapidly growing middle class and upper middle class and a corresponding rise in spending … translating to a momentous opportunity for global companies who leap into the right place at the right time … translating to great corporate profits down the line.

Of course, this vision assumes that the BRIC nations will a) keep economic policies in place that drive growth, b) avoid political and social upheaval, and c) escape the worst of global economic crises.

A new alliance? A decade ago, “BRIC” was simply Wall Street slang – a term coined by Goldman Sachs economist Jim O’Neill. Today, the BRIC nations appear to be heading toward some form of coalition. In recognition of their power, BRIC leaders have scheduled annual economic summits – the first one was in Russia in 2009, the 2010 summit is in Brazil. The presidents and prime ministers of these countries entered into dialogue to determine how their economies can work together and maintain their fantastic growth.

In sum, the BRIC nations are responsible for about 15% of global GDP, and about 40% of the gold and hard currency reserves on earth are in their possession.

Does the BRIC demand your attention? Some financial consultants think that any well-diversified portfolio should have a toe (or a foot or a leg) in emerging markets – the gains of recent years are simply too spectacular to ignore. Others counter with the argument that past performance is no guarantee of future results, and cite the remarkable volatility that can affect the stock markets of these nations. If you are interested in learning more, have a chat with the financial professional you know and trust.

Mistake # 1: choosing a salesperson instead of an independent professional with a fiduciary responsibility.

According to Registered Representative Magazine, salespeople in the financial services industry earn on average $175,000 to $200,000 per year. It’s not uncommon for financial advisors to earn millions annually.

Though many advisors may claim to have your best interest at heart, you actually fall to the third slot on the totem pole of many advisors:

1.         Your advisor’s interests

2.         His or her firm’s interests

3.         Your interests

The Securities and Exchange Commission (SEC) and the National Association of Securities Dealers (NASD) govern brokers and investment advisors.  However, the odds of an advisor facing daily conflicts of interest are as common you spotting a Toyota while running an errand.

Conflicts are so widespread and entrenched on Wall Street that all attempts at reform have failed. The backroom deals, commission incentives, payments for shelf space, etc are happening as you read this.  Advisors are often “glorified salespeople” who have one goal: make as much money as possible.  Most have no fiduciary responsibility so the prudent rule says they can invest in anything as long as it does not harm you.   So the advisor is free to sell you a variable annuity with a 10 percent commission.  Your cost? Five percent annually in fees and by the way you can’t sell it for at least ten years or you’ll pay huge penalties.

So in essence, they are not bound to act solely in your best interest.  With commissions on the line, many sales people will act in their own self-interest, justifying the product with the highest commissions. With two identical product choices (one paying a 7% commission, the other 4%, which do you think the advisor would choose?)

From a legal standpoint, an advisor is only required to avoid selling you an “unsuitable” investment product. This meets a very minimum standard.  There is no requirement to act in

your best interests or as a fiduciary on your behalf. Additionally, they don’t even have to disclose any conflicts of interest that may exist.  Talk about a bum deal for you!

Mistake # 2:  Listening to the media

Money magazine, Fortune, USA Today, CNBC’s Jim Cramer, Forbes, you name it; they are all there to entertain! Let me repeat this they are all there to entertain. This means sell you something! If you don’t tune in, buy from their advertisers, and continue to frequent them regularly, they go out of business. Bold headlines, irrational advice, entertaining news, sensationalized stories…it must capture your attention.

How poor is the advice from the media? In 2000, Case Western Reserve University conducted a study showing that investors who follow media recommendations lose 3.8% of their money in the following six months after the recommendation. So why do so many people blindly follow the media’s investment advice? Predictions made about sports, weather, and Wall Street make good conversation pieces, but poor investment strategies!

Mistake # 3:  Listening to friends and family talk about “what’s hot”

Since 1990, we’ve seen investing fads come and go. In the 1990s it was technology stocks, followed by real estate, and then it became oil and gold, then emerging market countries like Brazil, Russia, India, and China. Today many flock to any form of green or environmental investing. Investment fads are only in vogue until everybody knows about them. Once they become cocktail party conversation, financial magazine material, or an internet sensation, the fad is as good as dead on arrival.

I remember late in 1999 when I received a call from one of my beloved clients Molly. Molly was in her mid-80s and a very conservative investor. She was wondering if she should sell many of her dividend stock investments and put them into an Internet mutual fund. I asked Molly about her nearly 30% return from the prior year. Was she not happy? She said she had a friend (and everyone has one of these friends) who made over 100% the prior year in an Internet fund. After explaining the risks, and discussing her personal situation, I talked Molly out of investing in the Internet fund. Not that I had a crystal ball or anything, Molly had no place being in the internet.

Normally a fixed income and dividend stock owner, this would have taken her risk level from a 4 all the way to a 10. Molly took my advice and we all know how the Internet story unfolded. I don’t always claim to get it right when it comes to trends or predicting short-term movements in the stock market, but what I can spot are troubled signs that a strategy is headed for disaster. Human nature drives people to invest in fads only after prices have already risen. This means those late to the game are the most apt to get hurt. We only hear about a trend after people have already been successful making it less and less likely that you can follow their success. Instead, you need to figure out how to buy low and sell high. Here’s a hint: investing in fads is not the way!

Mistake # 4: Listening to your co-workers

Too many people put too much in their own company’s stock or take too much advice from co-workers.  When it comes to investing, many turn to the well known well established companies. After all they can’t fail? Wait, Enron, WorldCom, Lehman Brothers, and Ginnie Mae to name a few, were giants who became extinct just like enormous dinosaurs. Bigger is not always better! In fact, much of the growth for many companies takes place within the first few years of operation.

Bloomberg provided further proof that the largest companies aren’t always the best. Their publications (as of December 31, 2008) show that 49% of the companies in the S&P 500 (largest, most widely known companies) had lower prices in 2008 than in 2000. In fact Merrill Lynch lost 78% in 2008, AIG lost 97%, Fannie Mae lost 98% Freddie Mac lost 98%, while Wachovia lost 85%. Still not convinced?

From 2000 to 2002 GE lost 53%, from 1999 to 2005 Coca-Cola lost 40% within seven years, from 2000 to 2002 McDonald’s lost 60% in three years, even trusty old Wal-Mart lost 37% from 2000 to 2007 (a 8 year span). These are some of the largest companies in the entire world. If they can lose almost half or more of their value within a relatively short period of time, biggest isn’t always best!

Don’t get me wrong, large company stocks have their place in a portfolio. My point is just don’t assume that if you buy the biggest and best companies you will profit. As they say “timing is everything”.

In order to truly understand an investment opportunity, much homework is needed. You should evaluate a company’s financial potential by looking at a wide number of financial data available at sites like www.Morningstar.com, www.valueline.com, www.zacks.com, and Yahoo Finance to name a few.

Where do you turn for financial advice?

So where do you turn? Rather than running from advisor to advisor, changing accounts from firm to firm, or seeking a savior, other than The Savior Jesus Christ, it starts with your education. You can’t expect someone else to bail you out of trouble.  It all starts with you!  You have the power to change your financial future if you are willing to put in the time, energy, and effort.

There is no one-size-fits-all solution. Truth being, there is no shortage of good ideas: Stocks, bonds, real estate, options trading, commodities, exchange-traded funds — there are dozens of ways to invest. Chances are you’ve probably tried some or many of these options. How successful have they been? If those ideas made you rich, why are you reading this book?

Your education is the key to your future success. If you want to grow your wealth, you cannot keep doing the same things you’ve done in the past and expect different results. You probably tried a lot of ideas with little to no success. This is okay. In fact better than ok, it’s perfect! This is perfect because you’ve seen what hasn’t worked and you now know there has to be a better way.

I found a better way!

Throughout the past 15 years, I have been managing millions of dollars for people just like you. I’ve spent years studying for the CFP® designation, years getting my masters degree in financial planning, and working for some of the largest firms on Wall Street. Then finally I had enough! I was tired of working for firms that claim to have the best interest of their clients at heart but their decisions clearly indicated otherwise.

The chain of command often does not work in your favor. If your firm is publicly traded, shareholders come before you. If you invest in mutual funds, your manager gets paid whether he makes you a dime or not. Mutual funds spend billions each year selling you product yet very few outpace their benchmark.  If you invest at a bank or credit union it’s often about fee revenue more so than making you money. If you invest with an insurance company often it’s about making a commission and there is little incentive for servicing your account.

Now don’t jump to conclusions. I’m not here to bash every financial advisor, broker, planner, or a Wall Street firm, I am here to say I have found a better way.  That’s exactly why I help start   We charge fees for our services based on the value of our time and the amount of money we are managing.  It’s all about having someone working in your best interests, if we can help you in any way, please let us know.

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.

How is your financial motivation?

Being a New England Patriots fan, I couldn’t resist a blog post talking about Randy Moss and Wes Welker.  How do I tie it into finances?  Easy, let’s talk motivation…

What motivates you to succeed financially? Is it:

• Your relationship with God?
• Your family?
• Your desire to help more people?
• Your desire to have more stuff?

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