Christian Finance

Is it safe to buy GM - Part 6

I know - I said that I wasn't going to post on this topic anymore, but recent activity in the market and resulting traffic to this website made me change my mind.

General Motors emerged from bankruptcy today.  The 'new' GM is owned primarily by the United States, with some shares owned by the Government of Canada, and the UAW.  Its stock is not tradable on any stock market or over the counter market because it is no longer a publically traded company.  If you have a hankering to own a piece of the new pie, there are indications that an initial public offering of stock may occur sometime next year.

Since the bankrupty declaration, the 'old' GM had been trading over the counter under the ticker symbol GMGMQ.  Its purpose for trading was explained in here and here.  I am bringing this to you attention again because it appears that many folks were purchasing these shares today with the belief that they were purchasing shares in the 'new' GM.  Trading was halted in these shares mid-day and at of the time of writing, there is no indication of whether they will trade ever again - which of course would mean that they are worthless.

If you hold these shares, then it is possible that you are stuck 'holding the bag' - an unfortunate investment lesson indeed.  If the shares do start trading again, I will inform you of such.  Sorry to be the bearer of such news right before the weekend.

Long Term Market Cycles

A couple of days ago, I heard something on CNBC that caught my interest - the concept of an 18 year market cycle.  Researching it a little more brought some rather startling revelations about historical market performance.  The general concept of this theory is that the stock market tends to run in cycles that last about 18 years - and these cycles are either bullish or bearish on an overall basis.

First think about the cycle itself: the last bull market is generally accepted to have begun in 1982 - and the way things look right now, it ended in the spring of 2000.  The bear cycle prior to 1982 begun in approximately 1974, with a bull market prior to that beginning after World War 2.  And prior to that, we had the stock market crash of 1929 with the resulting depression triggered by it.  Think about this for a moment: if this cycle turns out to be the case, it means that our current market cycle could last toward almost the end of the next decade!  Horror of horrors!  

I this proves to be true, then how can an investor watch out for themselves in this type of market?  The general theme is that a 'buy and hold' strategy will not work in a non-bullish cycle - obviously if a market moves sideways for years on end, there will be no capital gains made during that time frame.  This would conceptually apply to index funds as well (i.e. passive investing).

Rather, an active investing approach is required - which for most of us means professional management of funds through quality investment managers like Dodge & Cox or T. Rowe Price.

While I am not suggesting that this theory is a valid predictor of market behavior, it does provide an interesting historical perspective on market trends - so you may wish to consider it when allocating your investment dollars amongst actively and passively managed funds.  By taking a prudent investment approach, you can  help mitigate some risk to your investment portfolio while still trying to maintain positive investment returns - no matter what type of market cycle we may be in.

Thoughts on the economy

Notwithstanding the fact that summer is here, I have recently taken some time out to ponder the current state of our economy and consider the direction that it is moving in.

After a flurry of 'green shoots' economic news this spring, the past month or two have really given little indication as to our current state of affairs.  I look at people around me and note that most of them are still working and living like they always have been.  Yes - I know there have been casualties of the employment market, but I also know that when I go to a restaurant on the weekend that the lineups are just as long as they have always been, and I noted on a recent Costco run that there were few, if any,  signs of a recession.

And then yesterday brought news that in the Seattle area (where I live), June 2009 home sales actually increased compared to June 2008.  However, unemployment in our state continues to grow.

It is obvious there many economic signals all around us that make us constantly aware of the state of things around us.  Yet with this recession, it is truly difficult to get a handle on just where we are at.

So what do I think is going on?  I believe that the worst of things is over with.  However, I am not necessarily convinced that we are on any rapidly rising path to economic recovery right now.  Perhaps it is just summer doldrums setting in, but there are no consistent set of economic signals that strongly point in any economic direction.

Take the stock market for example - after hitting decade long lows back in March, it rebounded sharply throughout the rest of the spring.  And now for the past month and a half, it has done absolutely nothing other than stay within a fairly tight trading range.  If "Mr. Market" is on a directionless path, then how is the rest of the economy supposed to be doing something more unique?

Because there are no obvious signs of where we are heading, it is times like this that it is especially important to use good stewardship over your finances:

• Prepare yourself for another financial storm - while this may not happen any time soon, at some point in time, there will be another economic downturn that you may find yourself caught up in. There is nothing wrong with being prepared.
  
• Having said that, do not deprive yourself of any and all enjoyment - life and work can be very overwhelming without these outlets.
• Remember the 80-10-10 rule and do everything you can to live within it. 
• Trust God - he promises to never leave or forsake us.  That promise will never change. 

It is not my intention to deflate your hopes with this post - and neither is my intention it to increase your fear.  These are unusual times that we are living in, and I'm afraid that the great vitue of patience is going to be required before we get any better indication of where the economic ship is sailing.

Budgets - Part 3

Next to housing, transportation - which for most of us means an automobile of some sort - can often be our second largest expense.

If you are like most people, you probably have a car loan right now.  Add to that the cost of maintenance, gasoline, and repairs (insurance is a separate budget category and will be addressed in Part 4) and the dollars going out the door each month add up rather quickly.

Oftentimes I hear people lament about the cost of their vehicle and gasoline - but I always remember that in many cases, it is the very ownership and use of that vehicle that allows us to get to work, which in turn generates the income that allows us to invest, save and pay for our expenses.  Think about how you would get to work without a car?  In my case, it involves driving (or getting a ride) to a park-and-ride lot, taking a connector bus to the train station, taking a train, and then taking another bus to my office.  This would use more than double my regular commute time each day and limit the flexibility that I sometimes require.  I tried it for a while last year, but notwithstanding the environmental benefit of utilizing public transportation, the lack of convenience (for me) was too great of an obstacle to overcome.  NOTE: if you live in a city with an excellent public transportation system (e.g. New York), then I would strongly suggest utilizing it since in the long run, it will likely be cheaper and more convenient than driving to work each day.

Because I look at my car as a requirement for me to earn income, a primary concern for me is reliability.  When I was younger, I used to own a car that was just not reliable.  My most memorable experience was stalling in the middle of an intersection, blocking traffic in all directions in the process.  It was at that moment that I realized that ‘cheaper is not always better’ - especially for a tool designed to get me to work each day.

Keeping that in mind, here are a couple of things to think about when planning your automobile budget:

 

1.  Vehicle cost - when you are purchasing a vehicle (especially if you are taking a loan), focus on the price of the vehicle - not just the payment!  If you are financing your purchase,  a car salesperson will go out of their way to make a payment work for you - but oftentimes this will involve inflating either the price of the car, the interest rate on the loan, or the amortization period of the loan.  All of these will cost you more in the end - notwithstanding the fact that you can afford the payment.

2.  Savings - if you currently have a loan on your existing vehicle, once it is paid off, continue to save the same amount as the payment was each month - this will allow you to increase your down payment or possibly even purchase your next car for cash.  If you do not currently have a car loan, start putting away some money each month since at some point in time, you will need to purchase another car.

3.  Gasoline - this will be your most notable day-to-day vehicle expense.  My only advice: think long term.  Gasoline, although cheaper than it was a year ago, is still far more expensive then it was just a couple of months ago.  Consider where gas prices are going - not where they are.  And choose a vehicle to match your expectation.

4.  Maintenance - while a new car has relatively minor maintenance expenditures, as soon as it is off warranty, the possibility of expensive repair bills can increase significantly.  To be prepared for situations like that, I suggest saving some amount each month to offset the cost of these repairs.  Even $50 per month will add up to $3,000 in five years from now - which is enough to cover even the most expensive of repairs.  If you wind up not needing these funds, you can use them as part of your down payment when purchasing another vehicle.

5.  Purchasing new versus used - this is a question I ponder very seriously because it addresses the reliability concern above.  Of the last two vehicles we purchased, one was new and the other was 3 years old.  Would I purchase new again?  Yes indeed.  Would I purchase used again?  Yes - in the right circumstances.  To give you an example, earlier this year, we were able to purchase a low mileage 3 year old car saving about $17,000 over what a new one would cost.  In that type of circumstance, it just made sense since we were able to purchase a much nicer - albeit used - car than we would have been able to if we were just looking at new cars.  And quite frankly, we haven’t looked back - it has been absolutely wonderful and worked out well for us.

As you can see, there is a lot more to your automobile budget than just choosing a car and filling it with gasoline.  Keep in mind these things when you are considering a vehicle purchase, or even if you are not yet in the market for one.  At some point in time, it is quite likely that you will be on the market for another car - so now you will be prepared for that moment!

One more thing to think about:

If you are on the market for a new vehicle, don’t forget about the cash for clunkers program .

President Obama has signed the bill creating this program into law.  The official website for this program is: http://www.cars.gov

Celebrate!

While I know there are readers of this blog from around the world, I also know that the vast majority of you are American, so the rest of this entry relates directly to that:

Have a wonderful Independence Day!  Take some time this weekend to celebrate the freedoms bestowed upon us.  Our Nation's founders could not have been more eloquent:

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.

While you are celebrating, take some time to pray for those around you who may not be as fortunate as you are.  Or even go a step further and do something special for them - perhaps invite someone over for your barbeque on Saturday, or offer to take somebody to your local fireworks display.

We have been blessed by our God to live in a nation like the United States and we have a lot to celebrate. Enjoy!

Prayer - Part 2

On a slightly lighter note today, I had a flashback to my Prayer posting from last week.  As I was concluding a meeting at work, somebody casually mentioned that they had really noticed a difference in me lately. This is where it got funny - she whispered and asked if I was 'taking something' for it.  I had to laugh out loud at that, and just told her something that changed with me last week.  

This is obviously a very good reason to keep up with the praying, huh!

Bad Credit - Part 1

I recently started financially mentoring somebody and we are currently going through details in his financial life - to date we have focussed primarily on budgeting.  Anyway, we expanded things yesterday and reviewed his credit report.  I was sad to see that there were some blemishes on it because of things that had happened several years ago.  While time may stop the collection calls, it does not stop the credit reporting - at least not for seven years anyway.

Rather than jump to any conclusions, we ordered copies of his report from two other credit bureaus in order to compare the three side-by-side.  And we began to formulate a plan of action to attack the situation.

He distinctly recalls an old utility bill, so there was no dispute there.  However, there were a couple of other items that he did not recall - hence we want to see how the other credit reports look to see if indeed there is an error, or rather if there is something that will have to be explored further to determine validity and responsibility.

I must complement him for his willingness to want to be responsible and take care of this.  And we are going to face this problem head-on until it is resolved and paid off.  That is the right thing to do.  And it is what God expects us to do.

If you are wondering about your credit, this is the only legitimate - it is managed by the three credit reporting agencies and mandated by federal law - and free place to be able to receive your credit report.  Any other "free" credit report website is not free and should not be utilized.  https://www.annualcreditreport.com/cra/index.jsp

You are entitled to one free report from each of the three credit reporting agencies every

year.

The Economy - where do we go from here?

With the United States Federal Reserve Bank deciding to keep interest rates stable today, we again take a look at the economy and try to gain some sense of the direction it is in.

The signal of not changing rates, along with their statement that rates would remain low into the foreseeable future indicate that things are at least not getting any worse - however, it is also a signal that things are not getting any better.

They did indicate that the pace of economic contraction was slowing - this has been evidenced by various positive economic signals over the past few months (several of them mentioned in this blog), so there is no surprise there.  In addition, there was another positive economic signal today indicating that durable goods orders increased for the second month in a row.

So where do we go from here?  While there is no doubt in my mind that we are not in an economic freefall right now, notwithstanding the positive signs we see, there is also no definitive recovery in place.  This leads me to conclude that unlike previous recoveries, this one may take longer to work its way through to everybody.

How can you best prepare and navigate through this?  Continue saving - aim for 10% of your income.  Be prudent with your spending - and don't assume unnecessary consumer debt for unnecessary purchases.  And finally, be faithful to God - both with your heart and with your tithes.  He will always be by your side.

Prayer

I have had a difficult past couple of weeks. During a recent visit with my parents, something that my Mom told me was weighing heavily on my heart.  And what was my reaction to it? Absolutely nothing.  It was something that just sat there in the back of my mind.  Apparently those around me noticed however, because I was having several people ask me every day what was wrong.  Of course, I gave the standard "I'm fine" answer and just moved on.

Yesterday in particular was a difficult day because of a couple of work related things that I am dealing with.  While it did give me the benefit of staying in my office all day (buried in a spreadsheet), it removed me enough from those around me that there was legitimate concern expressed by those who know me best.

I woke up weary this morning, and on my drive to work, it just struck me: I haven't prayed about it at all.  Add to that the fact that my prayer life has been suffering a little for the past couple of weeks, and the reality is that I was down becauze i was just not taking the time i needed with God to lay my burdens on him and move forward.

I was so excited at my realization that as soon as I got to work, I told one of my co-workers about it (she is also a Christian) since she had expressed concern for me over the past while. She smiled and told me that she figured out the same thing and was going to tell me today - talk about a God thing or what!

We took a couple of moments to pray about some office things and then just dove in to the rest of the day.  And the day was great! People noticed the difference, and I just felt so much better - and I even walked around with what was likely a goofy grin for most of the day.

What's my point with all of this?  Very simple: spend quality time with God.  It is amazing how taking time off from that will negatively affect your day-to-day goings on.  It seems so simple actually, doesn't it?  Yet it's amazing and powerful - and I am grateful that my God is so awesome that He is always there for me, and will never leave or forsake me. 

This is the best advice that I will ever give you.

The Clunker Bill

Late last week, Congress passed the Supplemental Appropriations Act of 2009 to continue funding for the wars in Iraq and Afghanistan.  A last minute insert into this bill revived the ‘cash for clunkers’ concept that has been floated through Washington through this spring.

Since President Obama is expected to sign this bill into law, I am going to summarize the clunker provisions for you:

•  You must currently own a vehicle made 1984 or later that gets 18 miles per gallon or less;

•  You must have owned and insured this vehicle for at least one year and it must be in drivable condition;

•  For the purchase of a new passenger car, an increase of 4 miles per gallon gas mileage will make you eligible for a $3,500 voucher toward your new car purchase - and if your new car earns at least a 10 miles per gallon improvement, then your voucher will be worth $4,500;

•  For the purchase of a new light truck or SUV, a 2 mile per gallon improvement will net you the $3,500 voucher and 5 miles per gallon increase will receive the $4,500;

•  These mileage requirements are based on the EPA combined city/highway ratings - you can get this information at: www.fueleconomy.gov ;  and

•  You must purchase your new vehicle between July 1 and November 1, 2009, and the purchase must be made at a participating dealer.

If you currently own an older vehicle and have been thinking about purchasing a new one, then I would suggest taking advantage of this program as soon as possible.  Total funding appropriated for this program was $1 billion, so it is likely that the funds will run out prior to the program expiration date.