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Joseph Slife

Joseph Slife

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Three Investment Strategies Where Ignorance is Bliss

“Deciding what not to do is as important as deciding what to do.”
— Apple co-founder Steve Jobs

Investing is made easier if you recognize you can ignore strategies that don’t fit into your long-term plan, such as those that involve high-risk speculation and most that use leverage.

A mechanical lever, as you may remember from science classes, makes it possible to use less effort to move more weight. In a similar way, financial leverage uses a relatively small amount of money to control the rights to a more valuable asset. (A form of leverage familiar to most of us is a home mortgage. Your down payment gives you control of an asset worth much more than what you put down.)

In investing, the alluring thing about leveraging is that gains are magnified. However, so are losses. Unless you’re prepared to suffer potentially large losses, you would be well advised to avoid the following three speculative strategies.

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Passing the (Digital) Plate

Retail transactions increasingly are going cashless and even cardless, made possible by mobile payment apps such as Google Pay and Apple Wallet. Other "contactless payments" systems use different technology, but the idea is the same: make a payment on the spot with no cash or check, and without needing to swipe or insert a credit or debit card.

And, not surprisingly, mobile and contactless payments are making inroads in the area of church giving.

Even the somewhat staid Church of England is testing such systems, as noted in a current report in Britain's Financial Times. "We're aware that younger generations — and there are many people now who don't carry cash — want to give in different ways," says John Preston, national stewardship officer for the Church of England. "Enabling them to give in a way that suits them is something we'd like to try." 

A 2016 Bloomberg Businessweek story noted the rise of smartphone-based church giving here in the U.S.

[Twentysomethings] don’t carry cash — and what, exactly, is a personal check? Still, about a quarter of them use mobile payment apps such as PayPal and Venmo regularly, according to a recent Accenture survey. And enormously popular services such as Seamless, Uber, and Amazon.com have normalized one-tap payments — 91 percent of millennials use their phone to buy something at least once a month, market-research firm Statista says.

Tithe.ly is one of a handful of apps leveraging that spending behavior for the good of the church. Pushpay...works similarly; worshipers decide whether to donate to a general budget or a specific program the institution designates. Another, EasyTithe, features a text-to-give option. It also provides technology for a Square-like credit card reader to await the faithful in church lobbies.

Regardless of which app a congregation chooses, the point is convenience. “We call it frictionless giving,” says Dean Sweetman, Tithe.ly’s co-founder and a former minister at [megachurch] C3 Atlanta....

But getting parishes with pastors and members older than 40 to sign on has been more Job-like. Tradition is hard to overcome.

Even giving via a church website has been a hard-sell for many churches (a 2015 survey found that only 42 percent of U.S. churches had enabled browser-based online giving). Now, mobile apps and contactless systems are bringing yet another dimension to church giving, for churches willing to adopt the technology.

If you're using mobile-payments or contactless system at your church, tell us about it in the comments section — especially if you're using it alongside the traditional collection plate during worship services.

Also, we'd be interested in hearing from those of you have concerns (theological or practical) about churches adopting non-cash/non-check options for giving (keeping in mind that even giving by check results in an electronic transaction!).

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Money Roundup: HSAs on the March, Knowledge is Not Necessarily Power, and More

Here's our weekly list of worthwhile reads related to investing and personal finance:

Senate's Obamacare replacement bill to boost health savings accounts (CNBC). Good news — if it happens. HSAs are triple tax-advantaged.

Forget ping pong, this is the hot new work perk (The Wall Street Journal via MarketWatch). Financial stress can cause workers to be distracted and less productive, so more employers are teaching employees financial basics.

Millennials are helping America save more money (Bloomberg). "[Millennials] have a greater aversion to debt...and they have a greater propensity toward saving than we’ve seen in some time." So says a spokesman for Bankrate.com, commenting on the surprising results of a survey commissioned by the personal-finance website.

15 jaw-dropping predictions for workers over 50 (MarketWatch). Once you get past the click-bait headline, there are interesting prognostications here, including: "American corporations will greatly expand job flexibility options to keep valuable boomer and Gen X employees," and "There will be a surge in volunteers at nonprofits and service organizations."

Boris Becker declared bankrupt over 'substantial' long-standing debt (The Guardian). The three-time Wimbledon champ's money woes suggest that financial stability is less about how much you earn than about how much you spend.

And from the blogosphere...

When knowledge is useless (A Wealth of Common Sense). Gaining financial knowledge is good, but knowledge won't help much unless you take the next step.

What Christians should know about 'the economy' (Acton Institute Powerblog). A primer on the Gross Domestic Product (GDP) and why it matters.

The web makes it harder to read market sentiment (Bloomberg View). The internet has given voice to boundless numbers of self-proclaimed financial pundits. That has a downside.

Is revenue from Airbnb rentals tax-free? (Independence Advisors). The answer, surprisingly, is yes — with one very important stipulation.

Boost your savings by making your money harder to spend (Wise Bread). Smartphone apps, one-click online shopping, and debit and credit cards make it easier than ever to spend impulsively. You may want to create a few barriers between you and your money.

To weigh in on any of these topics, just leave a comment below.

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Money Roundup: Retirement Planning, Interest Rates, and More

Here's our weekly assortment of interesting web reads on investing and personal finance.

What I did on my summer vacation: 3 steps to get your retirement plan on track (MarketWatch). Practical ideas for putting your retirement-related financial records in order.

How much should you save for retirement? (Bloomberg). It depends. This article will help you think through your personal situation.

Flush with cash, top quant funds stumble (The Wall Street Journal, behind paywall). Complex isn't necessarily better. Quant funds, which use sophisticated statistical models to choose investments, are up only 1.44% this year overall (through 5/31). The S&P 500 is up 8.7%.

Don't let your power of attorney become powerless (Forbes). A good follow up to our June SMI newsletter article, "It may be time to review your estate-planning documents."

25 fun ways to make extra money (MarketWatch). Need more money for your emergency savings or to set aside for retirement? The ideas range from being a tour guide to writing greeting cards.

And from the blogosphere…

10-year Treasury yield drops despite Fed rate hike (The Capital Spectator). By raising rates this week and asserting that moderate economic growth will continue for the foreseeable future, the Fed is effectively arguing that the bond market is wrong.

Putting the tech wreck into perspective (A Wealth of Common Sense). Losses are always painful, but consider the year-to-date gains in tech stocks.

Prophets of doom with too much gloom (BloombergGadfly). Rich valuations don’t necessarily mean a market collapse is inevitable

The difference between a prediction and a probability (Pension Partners). This one is a few weeks old, but it serves as a helpful reminder that no one can reliably predict what the markets will do.

What is the average home worth in each state? (Overflow Data). Hawaii tops the list for high-priced housing, followed by Washington, D.C. Where does your state fall?


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Giving Hits a Record High – How’s Yours?

Charitable giving in the U.S. notched a new record last year, up 2.7 percent over 2015, according to a new report from Giving USA and the Indiana University Lilly Family School of Philanthropy.

Overall giving topped $390 billion, with the bulk of that (72 percent) being from individuals and the rest from foundations, corporations, and bequests.

About one-third of all giving went to religious organizations, making religion the top giving category, with just under $123 billion donated last year.

This infographic shows the report's major findings (click to enlarge):

Although giving to "religion" does remain the top category — with no other category even a close second — religion’s share has been declining, falling from 43 percent of overall donations 20 years ago to the current 32 percent.

(Unfortunately, the Giving USA survey doesn't capture data about the level of contributions to other areas — such as education and healthcare — that are motivated by religious commitments. If you make donations to a Christian-based school, for example, Giving USA considers that to be "education" giving not "religion" giving, even though you may support the school because of its reputation for strengthening young people in the faith.)

As a bit of an information geek, I find charts and graphs such as the one above fascinating. But Christian giving is about so much more than percentages and dollar amounts! It’s an affair of the heart (2 Cor. 9:7-8). Our giving, along with the tenor of our overall money management, are key indicators of our commitment to Jesus Christ (Luke 16:11). That's why once a year — in July — the SMI newsletter focuses on the topic of generosity (we're working on that issue of the newsletter right now).

So how is your personal “giving report”? What would your giving look like if represented on an infographic? Are you growing in generosity year after year?

We certainly hope so. And we’re here to encourage you in that direction, not only with our upcoming July issue but in the daily pursuit of our mission and vision.

He who gives the seed to the sower and turns that seed into bread to eat, will give you the seed of generosity to sow, and, for harvest, the satisfying bread of good deeds well done.

The more you are enriched by God the more scope there will be for generous giving, and your gifts...will mean that many will thank God (2 Cor. 9:10-11 Phillips).

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More Great News for Sector Rotation Investors

SMI's Sector Rotation strategy, available to Premium members, continues to post remarkable returns — up 24% over the first five months of the year, and up more than 40% since we recommended our current SR fund last September!

(For the uninitiated, Sector Rotation invests in a single special-purpose stock fund that focuses on a specific industry or sector of the economy.) 

Of course, we can't predict how much higher can our SR fund will go, but the sector in which it's invested "shows no signs of slowing down," according to The Wall Street Journal:

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Money Roundup: Keep it Simple, Theory and Practice, Money and Happiness

Here are this week’s picks of investing and personal finance articles from around the web.

Why your investment strategy should fit on an index card (Morningstar). For a better shot at reaching your financial goals, tune out the noise and focus on what really matters.

Have stocks reached 'a permanently high plateau'? Or: Whatever happened to market corrections? (Los Angeles Times). Markets have a way of confounding all expectations — sometimes within just a few days!

No two bull markets are alike (Morningstar). We may wish it were otherwise, but past bull runs tell us little about what the future holds.

Is efficient-market theory becoming more efficient? (The Economist). An overview of academic theories that try to explain why markets behave as they do.

Many Americans are still totally confused about credit scores (NBC). Contrary to popular belief, you don't have to have debt to have a good credit score.

And from the blogosphere...

Bogle's 7 tips for investors (ETF.com). Advice from Vanguard founder Jack Bogle, including: "Regardless of what happens in the markets, stick to your investment program. Changing your strategy at the wrong time can be the single most devastating mistake you can make as an investor." 

How many will stay the course during the next bear market? (A Wealth of Common Sense). Interesting data points: An overwhelming majority of Vanguard 401(k) investors did not bail out during the highly volatile fall of 2008, or during the turbulent days that occurred in the summer of 2011.

The happiness spending threshold and what it really means to live within your means (Kitces). Above a certain level of income and spending, more income/spending doesn’t appear to improve emotional well-being.

Your secret weapon (The White Coat Investor). We tend to focus on earning/saving more, but don't forget the other key to long-term financial stability: spending less. 

Save money with an energy audit (Financial Ducks in a Row). Energy-use improvements not only pay for themselves in reduced utility costs, your power company may even help out with the upfront costs.

Have a comment about any of the above? Speak up in the comments section.
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Ready Cash: As Home Prices Rise, Cash-Out Re-fis Are on the Rise Too

Many American homeowners are re-embracing a once-popular method of generating cash: refinancing their home loans and getting cash out in the process.

Five years ago, in the continuing wake of the financial crisis, only 12 percent of homeowners were taking cash out when they refinanced.

That proportion has now risen to 49 percent — the highest level since the fourth quarter of 2008 — according to data from Freddie Mac, graphed here by The Wall Street Journal.

Homeowners typically refinance to take advantage of a lower interest rate or to get a loan with a shorter term (for example, replacing 30-year mortgage with a 15-year loan). But in a cash-out refi, the main goal is to tap into rising equity driven by increases in home prices. A homeowner comes away with a new loan larger than the one being replaced. The borrower pockets the difference between the old balance and the new loan (minus refinancing costs). The “new” money is used (typically) to fund a home renovation, pay off other debt, or to buy something.

If home prices reverse course and start falling, the cash-out borrower can quickly end up "underwater" (owing more on a property than it's worth). 

From a story in today's WSJ:

To some housing-market observers, the fact that more homeowners are tapping their homes for cash represents a healthy confidence in the economy. It comes against a backdrop of continued gains in employment.

At the same time, the increasing use of cash-out refis causes some concern since, in the run-up to the financial crisis, borrowers used their homes like veritable ATMs.

Len Kiefer, Freddie Mac’s deputy chief economist, says this time has been different. Borrowers now are subject to stricter standards when they get a loan or refinance a mortgage. There is also less money at stake now than a decade ago.

Cash-out refis in the first quarter represented about $14 billion in net home equity compared with more than $80 billion in each of three straight quarters in 2006....

And despite the recent increase in users, the proportion of refinancers opting for cash is much lower than in pre-crisis days, when it peaked at nearly 90% in mid-2006.

It’s true that “this time has been different.” There are stricter standards now. But that doesn’t mean that this time it will be different for many of the borrowers now doing cash-out refis.

Taking on more debt always carries some degree of risk — a risk that may an especially bad idea for older homeowners. As The New York Times reported in November:

More than three-quarters of Americans over 65 [are] homeowners.... Those houses usually represent their greatest single asset.

But often there’s little equity left, even as prices have largely recovered, because so many older homeowners have borrowed against their homes.

As housing values rose more than 60 percent nationally between 2000 and 2006, [older] homeowners...(more than younger ones) refinanced and took out cash, or signed up for home equity loans or lines of credit.

I’ve witnessed the bad fruit of a cash-out refinancing. I know an 82-year-old widow who still has more than two decades(!) remaining on her home mortgage because of an unwise cash-out refi.

That’s not to say that all cash-out refinancings are bad. Sometimes a well-planned renovation paid for with a refi can help preserve the value of a home. But a cash-out refinancing shouldn’t be undertaken without careful thought about the cons as well as the pros.

Our SMI recommendation is to keep your monthly home-related expenses (i.e., principal, interest, taxes, and insurance) to an amount no greater than 25 percent of your monthly gross income — preferably no more than 20 percent. And plan to have your mortgage debt paid off no later than the time you retire.

Have you ever done a cash-out refinance? If so, why? Would you do it again? Tell us in the comments section.

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Protecting Your Financial Assets by Stepping Up Your Cybersecurity

Maybe you used to keep a spare house key under the welcome mat (or a nearby rock) in case you got locked out. Few of us do that anymore. We’ve grown too concerned about home security. But many of us still leave a spare key lying around when it comes to our banking and investment-account security. That “spare key” is in the form of easily guessable passwords for online accounts.

A hacker who gains a bit of your ID information — via a phishing scam, malware or a data breach — may be able to parlay those details into access to your financial accounts. Predictable passwords make a hacker’s task much easier.

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SMI on the Radio – Investing with the Long-Term in Mind

One key to becoming a successful investor is to "keep your eyes up and [looking] over the horizon" — as SMI Executive Editor Mark Biller explains on today's MoneyWise radio program.

Only by maintaining a long-term look can you avoid the emotional pitfalls that keep many investors "from getting the type of long-term returns they could and should be getting," he notes. Mark marshals evidence from nearly the past 70 years to show that investors who earned the best returns are those who stayed the course, regardless of the vicissitudes of the economy or the news cycle.

Later Mark fields caller questions, including:

  • "I'm retired. How can gain a greater return on my savings?"
  • "We're close to paying off our mortgage. Should we go ahead and pay it off with some of our retirement funds?"

You can listen to the entire program below. (For previous programs featuring members of the SMI team, visit our Resources page.)

MoneyWise, with Rob West and Steve Moore, is produced by Compass – Finances God's Way.

To participate in a future program, call 1-800-525-7000 and mention you have a question for either Mark Biller or Matt Bell of Sound Mind Investing.

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