Truth in Financial Planning

Honor the Lord with your wealth, with the first fruits of all your crops; then your barns will be overflowing and your vats will brim over with new wine.
Proverbs 3:9-10
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Is Having Debt Really a Sin?

Is Having Debt Really a Sin?

“For the love of money is a root of all kinds of evil. Some people, eager for money, have wandered from the faith and pierced themselves with many griefs.” ‭1 Timothy‬ ‭6:10‬ ‭NIV‬‬

Is money inherently evil? No, money is a tool. The Bible specifically says that the “love” of money is evil. If we put money above God in any way, our relationship with money is unhealthy. We know that money can be used for great causes and can be a blessing in many ways. Given to a family in need, money might be the reason that family successfully makes it through a hard time or tough season in their lives.  Likewise, money can be used for gambling or other addictions.  It can become an idol and so sought after that is drives us to put money and our jobs above not only our families, ourselves but even God.

Well how about debt? Is debt evil? We are all familiar with Proverbs 22:7 that states, “The rich rule over the poor, and the borrower is slave to the lender.” Is this saying that debt is bad? It can be, however I have not seen a verse in the Bible that states that as a Christian, you should not use or have debt. In fact, the Bible never states that you should not use debt. It does state however many times, that you should use extreme caution when doing so. Just like money can be used as a tool for good reasons and for bad, debt is the same way.

First, It is important to understand the types of debts. There is oppressive debt or destructive debt which shows up as many types of consumer loans. These are typically credit cards, vehicle loans and student loans. Most of these types of loans have crushingly high interest rates. Even though some car loans or student loans might have lower interest rates, because of easy access, they typically encourage you to borrow much more than you should and thus the reason to include them in this category.

There is another type of debt however that we rarely discuss from a biblical perspective. This is the same debt that churches use to build new buildings and campuses and that companies use in order to grow their respective businesses. It is used often by real estate investors when they acquire a new rental property. It has been referred to as the “good” debt,  wealth creation debt or constructive debt. This debt, typically is at a lower interest rate and is intentionally invested into something that can gain in value greater than the interest rate being charged. For example, borrowing money at 4% and investing into something that can make 7% or borrowing money from a bank in order to buy a rental property where the income from the property more than pays for the mortgage payment. By doing this, the borrower is able to increase in wealth.

So is “good” debt bad? I believe that depends on how it is being used and what our relationship with money really is. Matthew 6:24 says, ““No one can serve two masters. Either you will hate the one and love the other, or you will be devoted to the one and despise the other. You cannot serve both God and money.” So what is your relationship money? Whether rich or poor, If you are so in debt that it consumes you, I believe this is wrong. I also believe that if you are so in love with the idea of being wealthy or wealthier and you are pursuing riches of this world, that is wrong as well. Even “good” debt can be used incorrectly with negative consequences and must be managed very diligently.

As Christians, we need to be storing up treasures in heaven and we should not be so consumed about our “wealth” in this world. If we are right with God and our relationship with money being used as a tool for good and to further His Kingdom, then I do think it is okay to use “good/constructive” debt for gaining additional wealth.

Personally I have paid off all consumer and oppressive debt but regularly use “good” debt to build wealth through real estate investments and for my business. This has allowed me to increase my personal net worth and income, which in turn, increases my tithe and giving, allowing me to be a blessing to even more people.

The truth is, there are many christians right now that are so focused on paying off their debts (both bad and good debt) that they are losing productive years and will not have enough money to retire.  Instead they will either have to accept a much lower lifestyle in retirement or they will run out of money.

Many people that find themselves in this situation are often forced into making the decision of selling their house and downsizing or taking out a reverse mortgage (more debt) in order to get by in retirement. When people find themselves in this situation, obviously the amount of their giving and their ability to be a blessing to others is greatly diminished.

So, is having debt a sin? I am a christian and a Certified Financial Planner™, but I am not a biblical scholar. From what I can tell however, is that having debt is not considered a sin. It is something to be weighed heavily in your heart and your overall financial plan. As I teach in Phase I, the Foundation Phase, I believe that you need to payoff all consumer and oppressive debt before you move on to Phase II and start really Accumulating Wealth. Once in Phase II, I believe that you should look at your individual situation, determine the health of your relationship with money and work with your advisors and determine if utilizing “good” debt might benefit you, so that you might have the ability to be in even bigger blessing and benefit others.

What do you think, is all debt bad? Is debt a sin? Leave a comment below.

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5 Important Responsibilities of Your Financial PLANNER

When you’re feeling stressed about money or have a lack of direction, who do you go see for advice?

Is it your aunt Patty who won the lottery? Perhaps it’s your friend Rick who seems to have a thriving business. Still, it might be your favorite television personality who has been advising for a few years.

While you might receive some good advice from these sources, the question of experience comes into play. Instead of seeking financial advice from family, friends, or television personalities, I would recommend you seek out the advice of a financial planner.

What’s a Financial Planner?

What’s a financial planner? Well, a good financial planner is someone who has significant experience helping individuals and families make short-term and long-term financial plans. Pretty straightforward, right?

Unfortunately, there are financial professionals out there who seem to be financial planners, but really aren’t. You see, many financial professionals are what are called financial advisors. Financial advisors typically sell investments and, well, that’s pretty much it. Sure, there might be some planning involved in selling investments, but if you want the works, go with a financial planner.

Responsibilities of Your Financial Planner

You should expect your financial planner to live up to their responsibilities, and there are several of them. Let’s take a look at some of these important responsibilities.

1. Financial planners should stay current on financial news.

In order for a financial planner to help their clients, they must stay up-to-date with with the latest financial news. They should know what’s happening in the markets and thoroughly understand tax law as it relates to your financial needs. Additionally, they need to educate themselves on the latest financial products and services.

For example, at Strategic Income Group, we set aside a week during which a number of investment managers visit our office to make presentations on their firm’s views, research, and investment products. This is just one way we stay up-to-date for our clients.

2. Financial planners should listen attentively to your needs.

When you sit down with a financial planner, they should always listen attentively to your needs. They should never be quick to make a recommendation and should understand the big picture before they start giving you advice.

Your financial planner’s objective should be to consider the whole of your finances, not just the areas that might benefit their paycheck.

3. Financial planners should help you set goals based on your needs.

Once you’ve shared everything with your financial planner, they should outline all the goals you should reach and how to do so. For example, they might recommend getting on a budget, purchasing appropriate insurance policies, and saving for retirement.

Everyone’s needs are different – the advice financial planners provide should be customized to your financial situation.

4. Financial planners should proactively monitor and manage your accounts.

Financial planners should be proactively monitoring and managing your accounts such as your Roth IRA or your insurance policies.

For example, if you recently told them that your income increased, they may recommend that you increase your life insurance coverage.

5. Financial planners should meet with you on a continual basis.

Change happens. Financial planners can help you put a long-term plan in place, but sometimes life’s circumstances change and therefore so should your financial plan.

That’s why it’s vital to sit down with a financial planner at least once per year to update them on changes in your life. Additionally, financial planners should proactively reach out to you to set up these meetings – they should care about meeting your needs every step of the way.

By the way, do you know if your financial planner has lived up to expectations? You can find out by using BrokerCheck by FINRA. Give it a shot!

What do you expect from your financial planner? Leave a comment below!

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Stacking Term Life Insurance Policies

Should you or your spouse pass away, would your family have the means to continue to make the mortgage payment or even put dinner on the table?

When breadwinners pass away, many families not only have to deal with the grief of their loss, they unfortunately have to figure out how to continue to pay their bills.

Term Life Insurance

That’s where life insurance can truly make a difference. Term life insurance – the type I recommend at Strategic Income Group – provides a lump sum of money to the beneficiaries of a policyholder should the policyholder pass away. Keep in mind that this benefit is only paid out if the policyholder passes away during the term. There are a wide variety of terms to choose from; for example, if you’re a 35-year-old man you might pay a monthly premium of $223.56 for a 30-year, $2,500,000 level-term policy.

The lump sum of money (in this case, $2,500,000) can be used for paying off debt, investing, or anything else the beneficiaries wish to do with the money. The Tale of Two Couples over at StrategicIncomeGroup.com goes over whether or not paying off the mortgage early might be a good idea – be sure to take a look.

$2,500,000 should be enough money to replace an annual income of $100,000 if it’s in investments (we’re also adjusting for inflation). At the retirement age of 65, there should no longer be a need for this insurance as there should be retirement portfolios with enough money to provide income going forward.

There’s one more great strategy when it comes to purchasing term life insurance . . . .

Stacking Policies

Let’s take the same example above – a 35-year-old man who wants enough insurance to last up until retirement – and see how “stacking policies” works.

Instead of purchasing one 30-year policy, he could purchase five policies with different terms and premiums:

  • $500,000 10-year policy for $21.88 per month
  • $500,000 15-year policy for $26.69 per month
  • $500,000 20-year policy for $32.38 per month
  • $500,000 25-year policy for $43.75 per month
  • $500,000 30-year policy for $48.56 per month

For 10 years, there would still be $2,500,000 of coverage after which it would be reduced by $500,000 and again by the same amount every five years. Over time, the coverage would drop, but so would his premiums.

In fact, starting out, the policies would only cost a total of $173.26 per month. This is cheaper than first example by $50.30 – this money could be used toward other financial goals.

Assuming that this man has completed Phase I: The Foundation Phase, he could start investing the savings and probably get an 8% return every year. I completed the calculations and found that at this rate of return after 30 years, the investment balance would be $102,009.78. Not only would he still have adequate – albeit less – insurance over 30 years, he would have a nice nest egg as well (something that buying a 30-year term only wouldn’t provide).

Why Term Life Insurance?

You might be asking, “Why get term life insurance in the first place?”

The truth is that term life insurance is the cheapest life insurance option available. In this case, cheapest is best because you can use the savings to invest and get more money than you would if you purchased a whole life policy.

Whole life policies have investments wrapped up in life insurance – and they provide horrible returns (think around 1.86%). The stock market conservatively yields at least 6% per year over the long-term – 8% could be expected as well. This trumps the returns you’d see from a whole life policy.

Be smart and stack term life insurance policies and invest the rest. You won’t be sorry.

Do you have enough life insurance? Find out with our Life Insurance Calculator!

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Should You Give Your Advisor Authority to Trade on Your Behalf?

When the market is changing under your feet, does your financial advisor have the authority to act on your behalf for the betterment of your investments?

They may or may not. That’s why you should ask them.

Some financial advisors don’t have the ability to buy and sell your stocks/investments on your behalf without your prior authorization. If you trust your financial advisor, wouldn’t you want them to have this ability?

This ability is what’s called “discretionary investment management.” This is one type of investment management that allows investment managers to buy and sell investments at their own discretion without prior approval from their clients.

Aligning Goals

Both the investor and the financial advisor have an interest in making money. Many financial advisors charge a fee for their services based on a percentage of assets under management. Therefore, it is in the best interest of the investor to seek a financial advisor who both charges a percentage of assets under management and provides discretionary investment management – when a client’s portfolio goes up in value, so does the investment advisor’s paycheck. Discretionary investment management has the potential to increase earnings for both the client and their financial advisor.

This alignment of goals benefits the client as the financial advisor has a real incentive to increase the client’s portfolio value.

Efficient Service

Non-discretionary investment managers unfortunately have their hands tied behind their backs when they see an opportunity for their clients because they must first gain their approval. Sometimes this takes a great deal of time, as clients are not always readily available to authorize their financial advisor’s recommendations.

Discretionary investment managers are able to take action on their recommendations immediately. This gives clients of discretionary investment managers a huge advantage as their financial advisors can take timely action in the midst of changing market conditions. This level of efficiency may make a real difference in a portfolio’s performance over time.

Strategic Portfolios

At my firm, Strategic Income Group, we undertake discretionary investment management on behalf of our clients. The ability to make decisions for our clients without calling them ensures we can provide our clients with the prompt service they deserve.

For example, when emerging markets are dropping like a rock, we can do something about it immediately to ensure our clients aren’t subject to further loss.

We practice discretionary investment management through the use of our Strategic Portfolios. These portfolios are tailored to specific types of clients and their investing goals. When our team feels strongly that a change needs to be made to one, several, or all of our Strategic Portfolios, we’re able to execute trades right away so that the clients who are invested in our Strategic Portfolios are positively impacted.

Fiduciary Responsibility

Financial advisors like those of us at Strategic Income Group have a fiduciary responsibility to do what is in the best interest of their clients. This responsibility is mandated by various credentials and also through government regulation.

However, some financial advisors – although they have a fiduciary responsibility to their clients – aren’t able to immediately do what’s in the best interest of their clients because they are non-discretionary investment managers.

That’s why it’s so critically important to figure out which type of financial advisor you have and ensure that your financial advisor has the power to make trades on your behalf in your best interest without your prior authorization.

Take a few moments to call your financial advisor to learn more. If they can’t make changes without your authorization, you might want to consider giving this ability to your current advisor.  Be sure to also ask them if they are acting in fiduciary capacity so that your interest are placed first!

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How to Keep Calm During a Stock Market Drop

Imagine yourself at the apex of a rollercoaster. You can see almost everything from here. Life is grand.

Sure, you know the coaster is about to drop down an unspeakable plunge at some point, but for now, you’re on top of the world.

Then it happens. You suddenly free-fall down and for a moment have the irrational thought that the coaster might come off the tracks. You get scared and start thinking things like:

  • I know this is a rollercoaster, but is it really supposed to be this scary?
  • What if this thing fails? After all, I know people who have lost their lives on these things!
  • I can’t see the end of the tracks – there’s a foggy tunnel ahead. When will it go back up?

You want off. But this coaster is one you’ll have to ride out – you’re locked into place. Besides, if you bail now, you’d probably die.

The stock market is similar rollercoasters. It goes up and down and you might literally or figuratively lose your lunch from time to time. But there’s a key difference with the stock market: you can get off the ride whenever you want to, and that’s not necessarily the best thing for your money.

The Recent Stock Market Drop

The S&P 500 Index, a frequently used market benchmark, dropped 11.17% from August 17th, 2015 to August 25th, 2015. Ouch. That’s scary.

But there’s good news: it recovered over half of its value since August 25th, 2015. The rollercoaster is going back up. Granted, more recovery is still needed, but things are looking up.

What does this teach us? Imagine being scared out of your mind on August 25th, 2015 and thinking that the stock market was going to go lower. So, you decide to sell your investments. Then the market starts to go back up. You get excited, and eventually decide to buy again. See what happened? You sold low and bought high: a bad idea!

How to Keep Calm During a Stock Market Drop

Financial advisors like myself have to reassure people that the stock market has followed this up-and-down pattern for the life of the market. It’s a rollercoaster, so you should expect some dips and drops.

The best way to keep calm during a stock market drop is to understand the history of the stock market. Knowing that these drops will occur, reason can kick in and give you the wisdom to hold onto your funds – not sell them at a low point.

Money tugs on one’s emotions, so it’s understandable to have some “freakout moments” when the market looks grim. As long as the investor doesn’t act on those emotions, their investments are likely to be just fine in the long run.

It is the duty of a financial advisor to proactively reach out to their clients to calm their nerves when their investments plummet in value. And that is exactly what we did at Strategic Income Group when our clients experienced this most recent drop. Our clients deserve to be reassured – and our assurance is based on experience.

Many people call us and say “sell everything.” We honor their requests, but we also tell them what we think because it’s our fiduciary responsibility. If a client’s portfolio is designed for retirement, and a client is several decades away from that, should they really be worried about the daily movements of the market? Of course not.

That’s why we help our clients create what we call a “Family Investment Policy Statement” in Phase II: The Accumulating Wealth Phase of the Three Phases of Wealth. This statement allows our clients to confirm their goals for their accounts including their time horizon. This gives our clients something to look at when thinking about their accounts and encourages them to press on should they experience a market drop well before the time they intend to use the money.

Bottom line? Have a protocol in place before drops happen, remember that corrections happen, and think long-term.

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