Christian Finance

In today's economic data release...

The catalyst igniting the strong stock market rally today was news that existing home sales in October were at their highest level since February 2007.  A major reason for the large jump was likely due to the recently extended homebuyers tax credit.

While this is good news, it is unfortunate that a large number of homes sold were those in foreclosure proceedings - 30% to be exact.  The only positive light from this is that 'excess housing inventory' is being worked through and gradually being reduced.  We can only hope that this trend continues.

2010 Retirement Plan Contributions

This entry is applicable only for readers in the United States.  For my international readers, feel free to continue, but I'm afraid this will likely not be applicable to your personal finance situation.

Many sections of the Internal Revenue Code - whether it be personal exemptions, other deductions, or retirement plan limits - are generally indexed to some type of inflationary index each year.  This generally results in an increase of applicable amount from year-to-year.

Whether it be in an IRA, 401(k) or other workplace plan, if you are currently maximizing your retirement contributions, then you will not be happy with this news: the 2010 contribution limits are going to remain unchanged in 2010.  This means that you will be limited to the following contributions next year:

IRA - Roth or Traditional $5,000

401(k) $16,500

403(b) $16,500

457(b) $16,000

In addition, if you are over age 50, the additional 'catch-up' contribution limits will also remain unchanged:

IRA - Roth or Traditional $1,000

401(k) $5,500

403(b) $5,500

457(b) $5,500

If you were planning on increasing your 2010 contributions but are unable to do so, I would suggest putting the additional funds in the appropriate savings or investment vehicle so that you can still retain the savings benefit - albeit without the tax-free growth of earnings.

Thoughts on September

Notwithstanding the fact that many market corrections (and crashes) have historically occurred in October, September has traditionally been the worst month for stock market returns.

Recall my posting regarding the old saying 'sell in May and go away' in which I predicted that this may a good year to ignore the traditional advice.  No doubt it turned true - the period of April 30, 2009 through August 31, 2009 had the S&P 500 index increasing almost 17%!

Keeping that in mind,  I have been compiling my thoughts on the history of September to determine whether I should invest the balance of my 2009 Roth IRA contribution now, or wait another month or so in hopes of obtaining mutual fund shares at lower prices.

Yesterday's start to the month (almost a 200 point drop in the Dow Jones) reinforced my opinion that it may be best to wait a little longer before investing any extra dollars right now.  There are signs that the economic growth we had been experiencing earlier this year may be slowing down - basically, a stagnant recovery may be occurring (this is where the economy isn't shrinking any more, but it's not growing much either). 

While market timing should not be a major consideration when investing your cash, it is still wise to be aware of current market strengths and weaknesses in order to obtain the best value for your investing dollars.  Ask yourself this: why pay a higher price today for something that you can get on sale a little bit later. The same philosophy holds true with your investments too!

Importance of Planning

In my office, there exists a small group - including myself - that have made a committment to better physical health.  In that regard, we try to workout several times each week, and do other things to help each other - like keeping chocolate out of sight!

Today I was talking to one of our group and she was describing what she had packed for lunch - she had made a chicken wrap and instead of using mayonnaise or other condiment, used low-fat sundried tomato basil cream cheese. That caught my attention because it sounded so good.  But she continued her story by saying that eating good was actually a lot of work - she had to go shopping for the cream cheese, had to cook the chicken breast and put the whole thing together the night before.

I contrasted her lunch with mine - I stopped by a local teriyaki place and grabbed chicken and vegetables on a bed of rice - still healthy, but her lunch just sounded so much better than mine (and cheaper too!).

In my mind, this really put the importance of planning at the forefront.  Because she had the insight to think ahead and take action ahead of time, she was able to put together something unique (and delicious) - on the otherhand, due to my lack of planning, I wound up with something rather average instead.

This anecdote illustrates the importance - and benefit - of proper planning. Although it is only talking about today's lunch, planning is very important when it comes to your financial life.  What are your goals?  Do you have children or want to have children?  Do you have aspirations to return to college?  Any and all goals require some way of paying for them!

Without a healthy financial plan in place, you will be stuck with average (at best) outcomes because you will often be compelled to take whatever option may be presented to you at decision making time rather than having the luxury of time and choice beforehand.

Take a moment to step back and think about where you are - and where you want to go. Create your own personal roadmap to get to where you want to go. And then work back and determine whether major decisions have to be made along the way. Put these important timeframes on a calendar and give yourself enough time to research and investigate your options so that you will be fully prepared at decision-making time.

Yes, planning - just like making lunch for tomorrow - does take effort.  But doing so will minimize your need to react in haste at circumstances - a wise financial approach indeed.

Headlines

I hope that your day went well today.  Mine was a little bit unusual, but I'm no less for wear and am accordingly grateful.  God has been good and I remain thankful for the ways in which he continuously manages to amaze me.

One thing that caught my attention today was the wide array of headlines that I read from one particular (reputable) financial website. While reading these, please keep in mind they all appeared today from the same site:

• Bull Market Will Continue
• Stocks Extend Winning Streak
• Stock Flop As Four-Day Rally Fizzles
• Is The Death of Doom Greatly Exaggerated

This kind of runs the gamut of pretty much everything that could be expected - both good and bad.  It is enough to make anybody's head spin.

There are obviously glaring contradictions between these headlines. This should lead one to conclude that a headline on its own means little, so it is important to dig deeper into it and see what the real story is.

How many times have you been tempted to pursue something - whether it be an investment, a purchase of some sort or something entirely different - based purely on its 'headline'?  Did you ever regret that pursuit?  Do you ever wish for a 'do-over' that would have led you to read between the lines further, or possibly even walk away from it in the first place?

Of course you have - we all have!  And that is why I believe it is important to show some prudence and restraint when it comes to your finances.  Oftentimes, a shiny investment may really turn out to be a dog, while one that appears absolutely awful may actually be a diamond in the rough.

Don't just scratch the surface (i.e. headline) of something.  Peel it back and look inside; ask questions that are relevant; assuage any concerns that you have; talk to others about it; talk to God about it.  Until you have taken steps like these (the fancy terminology is due diligence), all you may be doing is jumping in to what proves to be a false headline. Don't fritter away your financial life pursuing such headlines - be a good steward with what God has granted to you.

Did you sell in May?

I hope that my entry on April 30 (Sell in May and go away?) gave you some food for thought when you read it.  Summer has historically been a poor time to be invested in the stock market, but this year there were certain factors that made me think that perhaps this year would be different.

Well, now that we are a couple of months into summer, I am pleased to say that the overall market - as measured by the MSCI World Index (a widely accepted measurement of all stock market activity) - was up about 19% from May 1 through August 3!  There are definitely no complaints about that.

This just goes to show how many market adages are just catchy metaphors and may not always play out in a manner that you may expect.  Here are some others to think about:

• As goes January, so goes the year;

• Don't fight the Fed;

• The trend is your friend.

You will hear these - and many other - sayings that obviously have some basis for usage, but as with all things market, will not be correct every time.  Be prudent and use good judgement.  I have said this over and over, but it is something that holds true.  Consider this: if you are one to take unnecessary investment risks, then you are effectively gambling your money and not investing it. 

In closing today, especially in light of the fact that the Dow Jones is down about 100 points as I write this, I give to you one last quote to ponder: "Nobody ever went broke taking profits".

Investing Choices

So let's assume for a minute that you recieved some type of unexpected windfall - for example an inheritance - and you now have $25,000 of free cash burning a whole in your proverbial pocket.  What would you do with it?

I know somebody in this situation and they have been kind enough to share their thoughts on options they are considering (note that they are debt free other than their mortgage and are not included to go on a spending spree):

1.  Invest the windfall in a portfolio of stocks and/or funds;

2.  Invest the proceeds as a down payment on a condominium (and borrow additional money) and then rent the condominium out; or

3.  Invest the proceeds as a down payment in a cash flow positive small business (again borrowing additional money) that could possibly pay off the loan and return your investment within five years.

Each of these of these choices brings its own set of risks and rewards along with it.  Because the choices are so diverse, it must also be recognized that each choice will have differing amounts of work attached to them.

From purely a cashflow standpoint, it is likely that the third option will provide the greatest reward - however, at what cost will that reward be achieved? (think about the hours of work that will be involved in handling the affairs of the business).  This individual has to seriously consider whether they are willing to invest the time required to generate business profits.

If a limited amount of effort needs to be expended, then leaning toward an investment portfolio may be a good consideration.  However, consider that with an investment of that size, it is unlikely that a good portfolio of quality stocks can be put together, so the investor must choice funds instead - and these bring their own set of risks and rewards along with them.  Rewards from this option will likely be lower - I would not anticipate long-term returns of greater than 8% (notwithstanding any market fluctuations).

If long-term gains are the goal, then the real estate option is likely the best choice to make. Because the condominium is available at a deflated price, a good rental market and low interest rates gives it almost a positive cash flow from day one with a limited amount of work - along with a lot of long-term potential upside once the housing market rebounds.

So what is the point of this?  It simply comes down to choices.  As an investor, you must make choices that work for you - notwithstanding what your friends might be saying or what you have heard on TV or from reading some kind of blog.  Sit down and think about what you are investing in; don't jump in too fast or without thinking things through; do your research.

Most importantly: pray about it! (duh)  It is not every day that you come into a lump sum of cash.  Be a good steward with what God has blessed you with.

GM Bankruptcy Shares - Update

As I outlined here, 'old' GM shares have absolutely nothing to do with the 'new' GM.  Old GM holds the assets that will be auctioned off to pay creditor debts.  As has been stated repeatedly by not just me, but even GM itself, it is highly unlikely that the shares will retain any value since the assets available are far less than the debts owing on those assets.  Anyway, the shares are trading again - now under the ticker symbol MTLQQ - under the name of Motors Liquidation Company.

If you happen to have any of these shares, it is up to you what to do with them, but the fact that they still hold a bit of value gives you the opportunity to recover at least something from your investment.  They will be worth nothing soon.  Be wise - and do the right thing!

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.