1. Investing With a Sound Mind Part 3 (Ecclesiastes 11:2)
Have people open their Bibles to Matthew 6:19-24
"A grazing Mace, how sweet the hound, that saved a wrench for me!"
My testimony
C: Do you have Grounds?
W: No, but we have about 5 acres?
C: Does he have a grudge?
W: No, we have a carport.
C: Well, Does he beat you up?
W: No, I usually get up first in the morning.
C: Do you wake up grumpy every morning?
W: No, I usually let him sleep in.
C: Well, what I'm tying to get at, is: "Why do you want a divorce?"
W: We just can't communicate.
5 (6/20/07)

2. Money Possessions, and Eternity
Appendices
A: Financial Integrity and Accountability in Churches and Ministries
B: The Use of Ministry Funds for Building
C: Lending Money, Charging Interest, and Co-signing a Loan
D: Practical Guidelines to Control Spending
E: Should Giving Always be Kept Secret?
June 13
Later
May 30
May 23
June 6
6/20/07

3. Investing With A Sound Mind
Part 1 – The Challenge of Money and Possessions
Ch. 1-5: Asceticism, Materialism & Prosperity Theology
Part 2 – Seeing Money in Eternity’s Light
Ch. 7-11: Stewards Destiny and Eternal Rewards, and the Pilgrim’s Mentality
Part 3 – Giving and Sharing Money and Possessions
Ch : Tithing, Reciprocating God’s Grace, Helping the Poor, Reaching the Lost, Ministry Finances and Fund-Raising
Part 4 – Handling Our Money and Possessions
Ch : Making Money, Debt, Saving, Retiring, Insuring, Investing, Leaving Money, and Teaching Children
Conclusion: Where Do We Go from Here?
6/20/07

4. Investing with a Sound Mind
Investments and Biblical Principles (p. 356)
Values Based Investing (p. 357)
How much risk is appropriate? (p. 360)
Is Investing Gambling? (p. 361)
Why am I investing? (p. 362)
Guidelines for Investing (p. 363)
6/20/07

5. Biblical Guidelines for Investing
Biblical Principles
Prov. 31, Christ’s Parables, Matt. 6:19-21
Values Based Investing
When investing becomes gambling
Understand how much risk is appropriate
Know Why you are investing
Guidelines for Investing
Avoid Disasters
6/20/07

6. 6/20/07

7. Biblical Guidelines for Investing
Biblical Principles
Prov. 31, Christ’s Parables, Matt. 6:19-21
Values Based Investing
When investing becomes gambling
Understand how much risk is appropriate
Know Why you are investing
Guidelines for Investing
Avoid Disasters
Seek Wise Counsel
Spouse involvement
Understand Mutual Funds
This Time: Diversifying For Safety
6/20/07

8. Review: Mutual Fund Investing
Lending
Lower risk
Banks, Governments, Large Corp., insurance
Owning
Higher risk – Economic outlook is important
Common Stocks, Real Estate, Precious Metals, Collectibles
Asset Allocation:
% lending + % owning = 100%
Greatest impact on return
6/20/07

9. Review: Mutual Funds Advantages of Mutual Funds
Big pool of money with thousands of investors
Able to gain advantages normally only available to wealthy investors
Managed by a hired professional paid by size of fund (sometimes on performance)
Mutual Funds are Easier and Safer
Reduce risk via diversification – less volatile, more predictable
Commission Costs are low
Convenient services
Automatic investing, check writing, tax reporting, safety
Can sell shares on a daily basis
“Load”: (< 8.5%) vs. “No-load” – sold to investors directly
6/20/07

10. Diversifying for Safety
Give a portion to seven, and also to eight; for thou knowest not what evil shall be upon the earth.
Ecclesiastes 11:2 47
6/20/07

11. Investing With A Sound Mind
For God hath not given us the spirit of fear; but of power, and of love, and of a sound mind.
(2 Timothy 1:7)
6/20/07

12. Investing With A Sound Mind
For God hath not given us the spirit of fear; but of power, and of love, and of a sound mind.
(2 Timothy 1:7)
6/20/07

13. Investments and Biblical Principles (Summary)
Although Gambling Violates Biblical Principles, other risky actions are legitimate
Illustrations involving investment
Real Estate (Prov. 31:16)
Jesus teachings suggest he approves
Parable of Talents (Matt 25:14-29);
Parable of the 10 pounds (Luke 19:12-26)
Jesus teaching to invest in eternity (Matt 6:19-21) adds perspective
Mutual Funds distribute money across many companies
Some of which do things a Christian wouldn’t condone
Can we invest when it profits abortions, tobacco, alcohol, etc.?
6/20/07

14. Values-Based Investing (Summary)
Churches often don’t evaluate source of gift
Similarly, Christians don’t evaluate source of income
Thou shalt not bring the hire of a whore, or the price of a dog, into the house of the LORD thy God for any vow: for even both these are abomination unto the LORD thy God. (Deut 23:18)
Socially Responsible Investing (SRI)
Isn’t easy to track
Complexity should drive us to think more, not less
Not new! Quakers in 1800s
The Debate
Boycotts more effective than minute ownership
Direct Involvement vs. indirect involvement
Phillip Morris Example (Altria Group)
Conclusions
We are in the world and must function in it (1 Cor. 5:9-10)
We can’t avoid contact with all disagreeable people
Not possible to have complete investment purity
Ultimate goal is be more effective in stewardship
6/20/07

15. How much risk is appropriate? (Summary)
Mutual Funds range from …
Conservative to Aggressive
What risks should we take with God’s money?
Steady plodding (not hasty speculation)
“The thoughts of the diligent tend only to plenteousness; but of every one that is hasty only to want.” (Prov. 21:5)
Investors who are eager to get rich set themselves up for loss
“Wealth gotten by vanity shall be diminished: but he that gathereth by labour shall increase.” (Prov. 13:11)
Many lose sleep as well as money because they are not content to gather money “little by little”
Law of Risk and Return
Higher the promised (or potential) return, the higher the risk
All investments are risky
Farmers take risk when they plant their seed
Weather, tornado, insects, burning barns
Life involves risk
Some necessary, reasonable, well worth taking
Some not
6/20/07

16. Is Investing Gambling? (Summary)
Not all risk is gambling
The temptation of “Worry”
Evaluate risk/return of the investment
When is an investment not an investment?
Bad Reasons to Invest
Greed (1 Tim 6:9) – Build your kingdom.
Rich toward self and not God (Luke 12:31)
Envy (Psalm 73:3)
Pride (1 Tim. 6:17)
Ignorance (Prov. 14:7)
Fear and Insecurity (Phil 4:19)
Good reasons
Provide for Family, the needy, ministry
Many foundations invest principle and use earnings for ministry
Must ask - if we gave principle, would God get a better return?
Once given, it is safely in God’s hands
If not, we risk it leaving (or us leaving) before we can give
Many have learned this the hard way
Downturns, takeovers, bankruptcies
The only sure way to invest in eternity is by doing what the poor widow did
Give it all now 25
6/20/07

17. Investments and Biblical Principles (p. 356)
Although Gambling Violates Biblical Principles, other risky actions are legitimate
Illustrations involving investment
Real Estate (Prov. 31:16)
Jesus teachings suggest he approves
Parable of Talents (Matt 25:14-29);
Parable of the 10 pounds (Luke 19:12-26)
Jesus teaching to invest in eternity (Matt 6:19-21) adds perspective
Investing often benefits the business (as well as the investor)
e.g. investing in high yield 2nd mortgages exploits those who do what we recommend against
Mutual Funds distribute money across many companies
Some of which do things a Christian wouldn’t condone
Can we invest when it profits abortions, tobacco, alcohol, etc.? 25
6/20/07

18. Values-Based Investing (p. 357)
Churches often don’t evaluate source of gift
Similarly, Christians don’t evaluate source of income
Thou shalt not bring the hire of a whore, or the price of a dog, into the house of the LORD thy God for any vow: for even both these are abomination unto the LORD thy God. (Deut 23:18)
When leadership knows, they should address it
For donors, ministry, and those affected by donors actions
Socially Responsible Investing (SRI)
Amy Domini established Domini index in line with liberal views
Avoided Weapons, Nuclear Energy, Environmentally unfriendly
Often out performed S&P 500
Couldn’t Christians do the same for abortion, anti-Christian bigotry, sex and violence
And have no fellowship with the unfruitful works of darkness, but rather reprove them. (Eph. 5:11)
Isn’t easy to track
What’s difference between Playboy and Telescan?
Hewlett Packard support Planned Parenthood
Am Ex uses shareholder funds to promote Homosexual causes
Disney owns Miramax, Touchstone, and Hollywood Pictures
6/20/07

19. Values-Based Investing (p. 358)
Some argue boycotts are more effective than worrying about minute ownership
Selling shares may drive price down, but the market will then find it attractive, and drive it back up
If I refuse to buy their product, they lose profit, and the market drives their price down
Problem is that we selectively boycott, and our business may well go to others with just as many anti-Christian tendencies
Complexity motivates us to give more thought to the issue, not less
Regardless of movement of share price, we are accountable for where we put God’s money
e.g. Talisman energy, large Canadian oil company (25% of business in Sudan) supports the genocidal regime that enslaves persecuted Christians
TIAA-CREF, Vanguard and New York divested themselves, Fidelity did not
Scott Fehrenbacher makes case that Christians shouldn’t own companies that invest in anti-moral and anti-Christian behavior
Put Your Money Where Your Morals Aare
eVALUEator
6/20/07

20. Values-Based Investing (p. 359)
Mennonite Mutual Aid Association had >$1B in MMA Praxis Growth Fund (>30% in abortion or porn or promoted homo sexuality in their policies)
Values-based investing is not new
Quakers withdrew over slavery in early 1800s
In 1920s churches screen “sin stocks” (Alcohol, Tobacco, Gambling)
Some Christians use the Timothy Plan
Some years it underperforms, but they stick with it
If enough Christians adopt values-based approach, perhaps mutual funds would shift to moral stocks. But even if they don’t, God holds us accountable.
6/20/07

21. Socially Responsible Investing (SRI) The Debate over where to draw the line Austin Pryor – (4/06)
Every financial Decision has stewardship issues
Consumer products
Housing
Entertainment
Children’s Education
Investments
Who we are employed by
Where Do We draw the line?
All decision should be in light of a relationship to Christ
Where and for whom do we work?
How and for what will we spend?
How and in what will we invest?
Where and how much will we give?
6/20/07

22. Basics of SRI SRI screens fall in three camps Secular Screens
Avoidance Investing (negative Screening)
Penalize the bad guys
Advocacy Investing (activist screening)
Convert / Replace the bad guys
Affirmative Investing (positive screening)
Reward the good guys
Secular Screens
Affirmative Action, Animal Rights, Environmental Protection, Gay and Lesbian Rights, Gun Control, Low Income Housing, and so-called Women’s issues (pro-abortion)
Against air pollution, alcohol, defense and weapons contractors, gambling, nuclear power, and tobacco
SRI funds are all over the map – evaluate carefully
Avoiding Direct Involvement
SMI has written favorable articles on Timothy Plan, South Shore Bank in Chicago, etc.
But SMI has not made major emphasis on SRI funds because non-SRI funds are acceptable vehicles
6/20/07

23. An example thought Process
Philip Morris is on almost everyone’s SRI bad list
They also own Kraft Food
Work
I wouldn’t work for Philip Morris
But I could work for Kraft Foods
Spending
I wouldn’t buy Marlboros
But I see nothing wrong with buying Kraft Cheese, salad dressings, Oreos, Ritz crackers, Post cereals, Jell-O, Kool Aid, Cool Whip
How can I purchase products that profit a bad company?
Because corporate interconnectedness makes it impossible not to
Focused boycotts are effective
6/20/07

24. An example thought Process
Philip Morris / Kraft Food
Investing
I won’t buy Philip Morris Stock (now called Altria Group)
Direct conscious effort to profit from tobacco sales
I will buy a mutual fund that invests in Altria
Indirect incidental contact as I attempt to diversify
e.g. $10K in Vanguard Index 500 (worth $109.4B)
I would own of a fund that owns of Philip Morris
One piece of 865 million pieces
When a fund buys a share, it doesn’t go to the company
Secondary Market purchases from other investors
It’s like buying a used car
Giving
It could be a job or investment with Philip Morris would gain more, thus increasing my giving
Greater giving potential doesn’t trump the “direct involvement” ethic
6/20/07

25. Avoiding Even Indirect Involvement
You may believe indirect involvement principle isn’t good enough
Austin doesn’t believe Bible requires it
Nor does he believe it is achievable
Your Work
Work only for companies that are morally pure
Rules out: AT&T, Disney, Pfizer, J.P. Morgan, Chase, Nike, Microsoft, Levi Straus, Bank of America, Neiman Marcus, Circuit City, Wells Fargo, Time Warner, Holiday Inn, etc.
Should no Christians work there?
Your Spending
Unlike buying stock, buying products profits companies
Maybe easy with Circuit City
What about Johnson & Johnson, General Mills, etc. Not likely.
Your Investing
Even Christian Mutual Funds draw the line somewhere
Some don’t screen for companies which support domestic partners or the U.S. government
Perhaps just leave your money in your bank
No guarantee they do any better.
Your Giving
If an SRI fund returns 7% over 5 years vs. 12% in other funds, is the lower amount you have to give worth the reduced return?
Some say yes, because of principles
Others say no
6/20/07

26. SRI Conclusions – The End
We are in the world and must function in it
I wrote unto you in an epistle not to company with fornicators: Yet not altogether with the fornicators of this world, or with the covetous, or extortioners, or with idolaters; for then must ye needs go out of the world. (1 Cor. 5:9-10)
We can’t avoid contact with all disagreeable people
Doubt it is possible to have complete investment purity
Any more than desire to breath clean air leads us to wearing gas masks
At some point the marginal improvement in purity isn’t worth the added restriction
Ultimate goal is be more effective in stewardship, respecting each other’s opinions
With all lowliness and meekness, with longsuffering, forbearing one another in love; Endeavouring to keep the unity of the Spirit in the bond of peace. (Eph. 4:2-3)
6/20/07

27. How much risk is appropriate? (p. 360)
Mutual Funds range from …
Conservative: striving for steady, consistent growth
Aggressive: more volatile, greater potential for growth (and loss)
What risks should we take with God’s money?
Steady plodding (not hasty speculation)
“The thoughts of the diligent tend only to plenteousness; but of every one that is hasty only to want.” (Prov. 21:5)
Investors who are eager to get rich set themselves up for loss
“Wealth gotten by vanity shall be diminished: but he that gathereth by labour shall increase.” (Prov. 13:11)
Many lose sleep as well as money because they are not content to gather money “little by little”
6/20/07

28. How much risk is appropriate? (p. 360)
Law of Risk and Return
Higher the promised (or potential) return, the higher the risk
100% annual return prospectus example. Why?
Because so risky (or illegitimate) that no bank would loan them money
All investments are risky
Farmers take risk when they plant their seed
Weather, tornado, insects, burning barns
Life involves risk
Some necessary, reasonable, well worth taking
Some not
6/20/07

29. Is Investing Gambling? (p. 361)
Not all risk is gambling
Crosses line with risk too great
Stock market involves risk
Reasonable investment for those who choose carefully
Every decade or so, the market takes a huge dip
Reminds us we cannot count on constant upward movement
Venture Capital Investing – Helping young emerging companies
High Potential Return, High Risk of Loss
Arguably provides a service to society
Requires someone not prone to worry
No worries
Those who invest this way must be patient and detached
Those whose heart and happiness go up and down with the stock market, lose their ability to focus on following Christ
Since our hearts follow our treasures (Matt. 6:21) this doesn’t come naturally
6/20/07

30. Is Investing Gambling? (p. 361)
$600 computer stock and the hospital call
Randy’s stock tripled when ready to sell
Church member in hospital required him all day
Next day, stock fell – lost $800
If God wasn’t worried, why should He be?
Evaluate risk/return of the investment
Also evaluate time, energy, and emotional attachment
Sometimes money is the smallest cost
The land deal that destroyed the family
Partner with brother when close (now distant)
Difficulty making payments
Wife ill
Stressed family
“Looked like a great deal – price was enormous”
6/20/07

31. Why am I Investing? (p. 362) When is an investment not an investment?
Doesn’t profit
Intending to be used (otherwise, it’s a purchase)
Examples - wedding ring, car, mountain cabin
Bad Reasons to Invest
Greed (1 Tim 6:9) – Build your kingdom.
Rich toward self and not God (Luke 12:31)
Envy (Psalm 73:3)
Pride (1 Tim. 6:17)
Ignorance (Prov. 14:7)
Fear and Insecurity (Phil 4:19)
Good reasons
Provide for Family, the needy, ministry
Many foundations invest principle and use earnings for ministry
Must ask - if we gave principle, would God get a better return?
Once given, it is safely in God’s hands
If not, we risk it leaving (or us leaving) before we can give
Many have learned this the hard way
Downturns, takeovers, bankruptcies
The only sure way to invest in eternity is by doing what the poor widow did
Give it all now
6/20/07

32. Guidelines for Investing (p. 363)
Never risk money you cannot afford to lose
Never make uniformed hasty decisions
Never make major financial decisions without counting all costs
Financial
Mental
Emotional
Spiritual
Must be good stewards in giving and not borrowing before investing
Sadly – many investors are also deeply in debt
Guaranteed 18% risk free return – pay off credit card
Someone with $millions in investments can be in more bondage than someone with none
6/20/07

33. Guidelines for Investing (p. 363)
AVOID DISATEROUS INVESTMENTS
Get Rich Quick schemes offer huge returns for seemingly little risk
Real Estate elsewhere, Gold in the Yukon
New microchip, Cure for cancer
Engine that runs on water, Skunk Farms
Typically from a “friend” (who heard it from a cousin, whose brother-in-law is a financial wizard who says this is the next Microsoft)
Makes you feel like he’s doing you a favor
Must make decision quickly
Christian investment firm seminars at Christian colleges or churches
Often disappear after they have everyone’s money
Randy’s small group study – 4 of 6 couples had disastrous stories
1 - Lost entire retirement in one bad investment
2 – Condos – lost nearly all their money
3 – Huge losses in a risky investment
4 – co-signed for a respected Christian business man who didn’t pay
Years later, he has a tremendous salary, living affluently, hasn’t repaid
Not just the financial loss – time and energy, emotions and relationships
Christians are more gullible with other Christians
Especially bad when pastors and Christian leaders become involved
Not all losing investments are dishonest
Can be honest but unwise
Can be unwise and make money
Can be wise and lose money
Some think the law protects them
Many bad investments are honest
Many dishonest investments are legal
6/20/07

34. Guidelines for Investing (p. 363)
OBTAIN WISE COUNSEL
I will bless the LORD, who hath given me counsel: (Psalm 16:7)
Thy testimonies also are my delight and my counsellors. (Psalm 119:24)
Scripture is the most valuable counsel, but other wise counselors can also help
For wisdom is better than rubies; and all the things that may be desired are not to be compared to it.( Prov. 8:11)
The way of a fool is right in his own eyes: but he that hearkeneth unto counsel is wise. (Prov 12:15)
Without counsel purposes are disappointed: but in the multitude of counsellors they are established. (Prov. 15:22)
Hear counsel, and receive instruction, that thou mayest be wise in thy latter end. (Prov 19:20)
The words of wise men are heard in quiet more than the cry of him that ruleth among fools. (Eccl 9:17)
Seek many, not just one – but quality, not just quantity
Godly counsel (Prov 9:10, Psalm 1:1)
God’s counsel (James (1:5)
Easier to find Christian Financial Counselor than Biblical one
Fee-based are usually best (no vested interest in YOUR decision)
Studies show No-load funds perform as well as Load
Randy asked to advise two wealthy widows on what ministries to support
Ground-rule: Nothing for Randy’s material benefit
Once you’ve received counsel, it’s YOUR decision
6/20/07

35. Guidelines for Investing (p. 363)
CONSULT YOUR MARRIAGE PARTNER
a prudent wife is from the LORD. (Prov. 19:14)
Many foolish loses come from husbands not consulting (or listening to) their wives
4 of 5 wives will be widows
Essential to include her
Things both spouses should know about
The will, trust
Bank accounts and investments
Insurance policies
VA and Social Security
Financial ignorance just after spouse dies is one more pressure he/she doesn’t need
The Best Gift
Write a letter
Leave instructions
Points of Contact
Godly Counselors
6/20/07

36. Based on the Best Selling Book,
Investing Principles
Based on the Best Selling Book,
By Austin Pryor
6/20/07

37. An Overview of the SMI four levels (from “Jump Start”)
6/20/07

38. The SMI Road Map (p.4) Section 1: Getting Debt Free
Section 2: Saving For Future Needs
Section 3: Investing Your Surplus
Section 4: Diversifying For Safety
Section 5: Retirement Countdown
Section 6: Investing That Glorifies God
6/20/07

39. Section 3: Investing Your Surplus
9 – What Investing Is/ Why It’s Simple
10 – What Mutual Funds Are
Their Advantages To Investors
11 – How Mutual Funds Are Sold
12 – Necessary Cautions
13 – Income Taxes and Mutual Funds
6/20/07

40. 9 – What Investing Is and Why It’s Simple (p. 99)
It’s Simple: You have two Choices
Choice #1 - Investing by Lending
Lower risk – avoid locking in poor rates of return
Banks, Governments, Large Corp., insurance
Choice #2 - Investing by Owning
Higher risk – Economic outlook is important
Common Stocks, Real Estate, Precious Metals, Collectibles
Asset Allocation: % lending + % owning = 100%
has the greatest impact on return
Section 3 Investing Your Surplus
The greater the return, the greater the risk
6/20/07

41. 10 – What Mutual Funds Are Their Advantages To Investors (p. 107)
For most, best way to assemble well-balanced, diversified portfolio
Big pool of money with thousands of investors
Able to gain advantages normally only available to wealthy investors
Managed by a hired professional paid by size of fund (sometimes on performance)
Invested by “ground rules”, usually a particular kind of stock or bond
Section 3 Investing Your Surplus
6/20/07

42. 10 – What Mutual Funds Are Their Advantages To Investors (p. 107)
Mutual Funds are Easier and Safer
Reduce risk via diversification – less volatile, more predictable
Commission Costs are low
Full-time daily professional management
Past performance is public record
Efficient reinvestment of dividends
Convenient services
Automatic investing, check writing, tax reporting, safety
Useful for IRA’s and other retirement plans
Can sell shares on a daily basis
Section 3 Investing Your Surplus
6/20/07

43. 11 – How Mutual Funds Are Sold (p. 117)
“Load”: Up to 8.5% goes to the sales person
Not typically reflected in reported returns
“No-load” – sold to investors directly
100% of each dollar goes to work for the investor
On going Costs:
Management fees (All)
All Funds have Operating Expenses
~ 70% of funds charge marketing fees (12b-1)
Average “expense ratio” is 1.6%
about $16 for every $1000 invested
Section 3 Investing Your Surplus
6/20/07

44. 12 – Necessary Cautions (p. 127)
Fund Field is crowded and competitive
Many funds are taking on extra risk
Industry system for classifying risk is subjective
Open to misinterpretation and abuse
Red Flags
1: Can’t accept “investment objective” at face value
2: Can’t accept “diversification claims” at face value
3: Can’t accept “implied performance” at face value
4: Can’t accept “fund rankings” at face value
YOU must take responsibility
Learn to read the “prospectus”
CAUTION
Section 3 Investing Your Surplus
6/20/07

45. Example of Carefully Chosen Advertised Performance
6/20/07

46. Investing with a Sound Mind (Summary of Part 2)
Study the Biblical Principles
Reach your own conclusions about Values Based Investing and when investing becomes gambling
Understand how much risk is appropriate
Know Why you are investing
Guidelines for Investing
Avoid Disasters
Seek Wise Counsel
Spouse involvement
Understand Mutual Funds
Next Time: Diversifying For Safety
6/20/07

47. Section 4: Diversifying For Safety (p. 145)
14 – The Basics of Bonds
15 – Stock Market Basics
16 – Just The Basics Strategy
17 – Selecting Your Portfolio Mix
18 – The Road To Financial Security
19 – Systematic Strategies
For Meeting Long-Term Investment Goals
20 – Making The Transition
From Where You Are Now
6/20/07

48. 14 – The Basics of Bonds (p. 147)
Bonds are merely long-term IOUs
Promise to Pay at a specific time in the future
Fixed rate of interest that doesn’t vary
Higher risk than money market due to longer maturity
Two Major risks (both can be neutralized)
Credit worthiness
Use mutual funds to diversify
Interest Rate Risk
Use shorter maturities
Corporate
Bonds
Section 4 Diversifying For Safety
6/20/07

49. 15 – Stock Market Basics (p. 163)
Stock shares are part ownership in a business
Company growth and Dividends
“Market” fluctuates with supply and demand
Two major risks (and mitigations)
Company Failure: (selection & diversification)
Economic Downturns: (don’t sell in a panic)
Bull and Bear Markets
Market Timing not recommended for the “average” investor
Section 4 Diversifying For Safety
6/20/07

50. How SMI Categorizes Stock Funds for Risk
Know the average company size and manager’s “style”
Large companies safer
Small companies have greater potential gains
“Value” style more conservative than “growth”
Lowest risk/reward are Large Co. /value funds
Highest risk/reward are Small Co./growth
6/20/07

51. 16 – Just The Basics Strategy (p 177)
80% of managers fail to “beat the market” over time
Loser’s game – He who makes the fewest mistakes wins
”Index” funds try to reflect various indices
e.g. SP500, NASDAQ, TOTAL Stock Mkt, etc.
Perfect for the loser’s game
“Just-the-Basics” uses no-load stock & bond index funds
“Allocation” is most important decision
Also includes international component
Advantages:
Focus on asset allocation
Guard against sub-par returns
Lower expenses
Fewer Taxable Distributions
Easy Accessibility
Update annually
Section 4 Diversifying For Safety
6/20/07

52. 17-Selecting your Portfolio Mix (p. 189)
We all have “money personalities”
Four Temperaments reflect emotional reactions to “risk”
Preserver, Researcher, Explorer, Daredevil
The four financial phases of life
Laying the foundation (up to 40’s)
Accumulating assets (40’s and 50’s)
Preserving assets (60’s and 70’s)
Distributing assets (75 and beyond)
6/20/07

53. 17 – Selecting Your Portfolio Mix ( p. 190)
“Temperament” & “Season of life” determines how much risk is appropriate
6/20/07

54. Comparing “Just-The-Basics” and Upgrading Strategies
Some years the upgrading strategy has beat the market … some it hasn’t
6/20/07

55. 18 – The Road To Financial Security (p. 199)
6 key principles for Investment Strategy
Diversify, Diversify, Diversify
Objective rules for decision making
Stay within your emotional comfort zone
Acknowledge current financial limitation
Start investing in small amounts.
Be realistic about returns to expect
Open a “Just The Basics”
Avoids the “Red Flags”
Only other action needed is “annual rebalancing”
Section 4 Diversifying For Safety
6/20/07

56. Section 4 Diversifying For Safety
19 – Systematic Strategies For Meeting Long-Term Investment Goals (p. 211)
Dollar Cost Averaging
Same amount of money in same investment as regular intervals
Buy more when market down, less when up
Value Averaging
Varying amount monthly to meet overall goal
Buy even more when down, even less when up
Strict Buy/Sell Discipline-
Disciplined strategy protects you from:
unexpected swings in the market
Your emotions
Section 4 Diversifying For Safety
6/20/07

57. 20 – Making The Transition From Where You Are Now (p. 223)
Remodeling your Portfolio
“Right” moves aren’t just based on maximizing profits.
Can’t position to always maximize profits
Be consistent with sound long-term strategies
Pray and seek experienced Christian counsel
You must understand it
Must pass the “Prudent” and “Common Sense” tests
Be consistent with your risk tolerance
Section 4 Diversifying For Safety
6/20/07

58. 20 – Making The Transition From Where You Are Now (p. 223)
6/20/07

59. The Sooner, The Better Want A Million $ Retirement Fund by 65?
(Computed At Historical Market Averages)
Starting Age Weekly Savings
$3,095
$1,157
$564
$303
$171
$99
$58
$34
$20
$16
6/20/07

60. Plan for the Future
Go to the ant, thou sluggard; consider her ways, and be wise: Which having no guide, overseer, or ruler, Provideth her meat in the summer, and gathereth her food in the harvest.
Proverbs 6:6-9 44
6/20/07

61. Investing with a Sound Mind (Summary for Part 3)
Know Why you are investing
Understand basics of Mutual Funds, Bonds, and Stocks
Try the “Just The Basics” Strategy
Select Your Asset Allocation (Portfolio Mix)
Six Principles of Financial Security
Diversify
Objective rules for decision making
Stay within your emotional comfort zone
Acknowledge current financial limitation
Start investing in small amounts.
Be realistic about returns to expect
Making The Transition From Where You Are Now
6/20/07

62. Follow-On
Sound Mind Investing
Handbook
Newsletter
Web Page
6/20/07