From The Community, February 1-15

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I thought I would start sharing with you some of the great posts I read that you may have missed.  So here they are from the past couple of weeks:

Easy, Low PaymentsThe Problem With Low Monthly Payments

by JOE PLEMON

Lent

by Mike Whittymore

Tax Refund Check

4 Things To Do With Your Tax Refund

by Khaleef Crumbley

Fail

Have You Failed Enough To Win?

by John Frainee

My 15 Favorite Things To Purchase at The Dollar Tree

by Tanya of The Fruitful Home

5 Reasons to Buy LESS House Than You Can Afford

5 Reasons to Buy LESS House Than You Can Afford

by Kevin Mercadante

How Our Emergency Fund Gave Us Peace In The Midst of Grief

by Kim Rackley of Kimz Kitchen

Do you need a financial advisor?

Do You Need A Financial Advisor?

by Miranda Marquit

Portfolio Updates Schedule

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I hope some of you are following the portfolios I put together last month, and are interested in seeing how a conservative stock portfolio does against precious metals this year.  My goal is to get a spreadsheet tracking the performance of these two portfolios online for you to see, and download if desired, within the next few days.  And I intend to regularly send out a post summarizing their performances, along with a little investing information for you.  But in order to put more focus on writing about finances from a biblical perspective, I’ve decided to publish monthly portfolio updates rather than weekly.  Although I have a great interest in investing, my primary desire is to share my thoughts on what the Bible tells us about money and possessions, and to answer your nagging financial questions.

Now, having said that, I would love to receive some ideas for articles you would like to see.  Nothing in particular, I just want to know what financial topics you want to read about.  I have a good list of article ideas, but if something really interests you or if there’s an unanswered question on your mind, please send it to me.  I’m here to be a resource for you.

Portfolio Update – 2/1/13

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Here’s the weekly update on the two portfolios I put together for us to track this year.  Each weekend I’ll tell you how they did for the week and year-to-date versus some major market indexes which are used as general guides for how the stock markets are performing.

NAME                                    LAST WEEK     SINCE 1/11/13

Stocks/Options Portfolio         Down 0.25%       Up 2.85%

Metals Portfolio                         Up 1.02%          Up 2.87%

Dow Jones Industrial Index      Up 0.82%          Up 3.87%
S&P 500 Index                         Up 0.68%          Up 2.79%
NASDAQ Composite Index      Up 0.93%          Up 1.71%

Stock markets were up again last week, as were metals.  My stock/option portfolio was down primarily because of one stock (Nu Skin) dropping over 7%.  But it had been up a good bit in previous weeks, is still within pennies of my purchase price, and is a solid company with a dividend yield of 2.9%, so a movement like this in one week doesn’t bother me.

Many individual stock investors follow their investments daily, even hourly.  This is not an effective way to monitor a portfolio, nor an efficient use of time.  Someone who is constantly worried about how their investments are doing needs to be invested in something else.  Worry is a sure sign of being inappropriately invested.  An invested surplus should be a source of security, not fear.  When your investments have you scared about the future, it’s time to reevaluate your positions.

Investors trying to time the market also spend inordinate amounts of time monitoring their portfolios.  Market timing is touted by many salespersons in the investment community as a sure-fire way to beat the markets, and they’ll allow you to pay them to show you how it’s done!  However, most market timers lose money.  There is no crystal ball to let you know when to buy or when to sell.  Instead, emotions tend to be the driving influence for most.  And those emotions often have you buying and selling at the wrong times.  If you believe the economy will do well in the future, you should pick an investment strategy and stick with it through the daily ups and downs.

Wealth and Our Attitude

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I started writing this with the intent of talking about saving and investing.  However, it immediately turned into a post about wealth and our attitudes.  So please bear with me; it’s vitally important that our hearts are in the right place before trying to handle what God has blessed us with.

I recently read something that caught my attention.  Paraphrased, it said that for some people, an abundance of resources becomes an opportunity to use God’s riches in a way that pleases Him and brings others closer to the Kingdom.  But for others, that same abundance is a trap that Satan uses to draw a believer away from God, or prevent an unbeliever from finding Him.  I couldn’t agree more!  In Luke 18:24-25, Jesus tells the rich ruler “how difficult it is for those who have wealth to enter the kingdom of God!  For it is easier for a camel to go through the eye of a needle than for a rich person to enter the kingdom of God.”

Now you might be saying to yourself “I’m not rich, so this doesn’t pertain to me.”  Actually, by the world’s standards, most everyone reading this is wealthy.  We as Americans have had so much for so long that we take for granted, or maybe don’t know, how well off we are.  Although it seems to get more difficult each year, most of us are able to provide a good life for ourselves and our families.  For this reason, we need to heed those words of Jesus.

When we have more than enough, it can be a struggle to remember who provided everything we have.  But we read in 1 Timothy 6:17 “ as for the rich in this present age, charge them not to be haughty, nor to set their hopes on the uncertainty of riches, but on God, who richly provides us with everything to enjoy.”  We aren’t to rely on the wealth we’ve obtained, but on The One who has blessed us with it.

Some would say it’s best to try to live a meager life so money can’t be a negative influence.  To that I would refer to another verse in 1 Timothy 6.  Verse 10 says “for the love of money is a root of all kinds of evils. It is through this craving that some have wandered away from the faith and pierced themselves with many pangs.”  Here we read it’s not money that’s the issue, but rather the love of money, or our attitude about money.

It’s a heart issue.  But when it comes right down to it, it’s always a heart issue when things come between us and God.  Money can easily become an idol for us.  When that happens, we’ll experience the consequences mentioned above.  At first it’s hardly perceptible.  But it always, if left unchecked, leads to greed, envy, coveting and strife.  And eventually, we walk away from the God who provided for us.

Mike Whittymore, a good friend and fellow blogger, recently wrote an article that immediately came to mind while I was writing this one.  Mike is very passionate about the things he believes in, and I know you’ll enjoy reading his perspective on this, which can be found at this link.

Portfolio Update – 1/25/13

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Here’s the weekly update on the two portfolios I put together for us to track this year.  Each weekend I’ll tell you how they did for the week and year-to-date versus some major market indexes which are used as general guides for how the stock markets are performing.

NAME                                    LAST WEEK   SINCE 1/11/13

Stocks/Options Portfolio           Up 1.43%       Up 3.11%

Metals Portfolio                       Down 1.07%     Up 1.84%

Dow Jones Industrial Index       Up 1.80%       Up 3.02%
S&P 500 Index                          Up 1.14%       Up 2.10%
NASDAQ Composite Index      Up 0.48%        Up 0.77%

The markets were up last week, and metals were down.  We’ll see them both move back and forth throughout the year, but I wouldn’t be surprised to see everything I’ve listed above higher at the end of the year than they are now.  What I’m curious to see is whether metals will beat stocks.  That’s what I expect because of the Federal Reserve’s determination to stimulate the economy, but only time will tell.

All of the stocks I’ve selected for the stocks/options portfolio pay dividends.  Dividends are nothing more than a company sharing a portion of its profits with its shareholders.  Dividend paying companies tend to be more mature (although that isn’t always the case) than non-dividend paying companies.  Also, companies paying dividends tend to have less volatile price movements than those not paying a dividend, and are therefore considered a more conservative investment.  And their stock prices usually hold up better during market declines because investors are getting paid the dividend while they wait for the stock price to go back up, which makes them a more desirable investment.

Some investors use the dividend yield as a method for selecting which companies to invest their money in.  The dividend yield is similar to the interest rate paid on a savings account.  The annual dividend is divided by the price per share of the company’s stock to get a percentage.  That percentage is the dividend yield.  For example, Microsoft (one of the stocks in our portfolio) pays a quarterly dividend of $0.23 four times each year for an annual dividend of $0.92 per share.  The stock price closed last week at $27.88 per share.  If you divide .92 by 27.88, you get a 3.3% dividend yield.  Here’s a link to a more detailed description of dividends at Wikipedia.com.

Work To Get Past Your Differences

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One valuable treasure most of us have is family.  God placed each of us in the families we’re part of, and He calls us to nurture those relationships throughout our lives.  At times that can be quite a challenge; even people within the same family will have different temperaments, tastes and tolerances.  Will you allow those differences to damage your relationships, or will you use the diversity to energize you when you’re together?  Will you let the differences drive you apart, or will you strive to pull closer in spite of them?

I’ve dwelt on my family relationships quite a bit this week.  As some of you know, my mother passed away early Monday morning, and her funeral is tomorrow.  My father, sister and I have spent significant time together the last few days, much more so than we usually do.  And during those times, I couldn’t help but wonder why we didn’t spend more time together in the past, and why the time we did spend together wasn’t always quality time.  The conclusion I came to was that we let our differences affect our time together.

I don’t have any easy answers as to how you can navigate through some of the differences you’ll inevitably have with family.  But Scripture tells us in James 3:16-18 that wisdom we obtain from above allows us to sow the seeds of peace in our relationships.  I pray I’ll do better at seeking that wisdom in the days ahead.

Thank you for letting me share my recent thoughts, in light of losing someone close to me whom I wish I had spent more quality time with.  Please don’t let the differences within your family diminish the times you share with them.  Each lost moment is gone forever.  Whenever it’s in your power to do so, make good memories.  I hope to do just that from now on.  God bless you all.

Portfolio Update – 1/18/13

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Here’s the first update on the two portfolios I put together for us to track this year.  Each weekend I’ll tell you how they did for the week and year-to-date versus some major market indexes which are used as general guides for how the stock markets are performing.

NAME                                    LAST WEEK   SINCE 1/11/13

Stocks/Options Portfolio           Up 1.65%       Up 1.65%

Metals Portfolio                         Up 2.94%       Up 2.94%

Dow Jones Industrial Index       Up 1.20%       Up 1.20%
S&P 500 Index                          Up 0.95%       Up 0.95%
NASDAQ Composite Index      Up 0.29%        Up 0.29%

As you can see, both portfolios I assembled beat the major stock indexes pretty handily last week.  I don’t expect that to be the case each and every week, but I do think that my conservative approach to investing, together with some simple options strategies, can beat the general market most of the time.

For those who don’t know about the indexes I’ve mentioned above, here’s a brief description of them.  Click on each name to find more detailed information (index information courtesy of Wikipedia).

Dow Jones Industrial Average – founded on May 26, 1896, this index shows how 30 large publicly owned companies based in the United States have traded during a standard trading session.  The DJIA is the most widely followed stock index in the United States.

S&P 500 – a stock market index based on the common stock prices of 500 top publicly traded American companies.  It is one of the most commonly followed indices and many consider it the best representation of the market and a bellwether for the U.S. economy.

NASDAQ Composite – a stock market index of the common stocks and similar securities listed on the NASDAQ stock market, meaning that it has over 3,000 components. It is highly followed in the U.S. as an indicator of the performance of stocks of technology companies and growth companies.

Giving: How’s Your Heart?

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Have you heard of the Dead Sea?  This body of water in the Middle East sits so low that water can’t flow out of it, only in from the Jordan River.  Because of this, its salt content is extremely high, and very little life exists in it.  This process of receiving water but never giving any away is what makes the Dead Sea “dead”.  This analogy is an appropriate way to look at our personal giving.

Throughout scripture, God calls us to give.  We first read it in Genesis 4, where both Cain and Abel bring an offering to the Lord.  God reminds the Israelites in Exodus 22 and 34 that the first fruits of the harvest are to be given to Him, along with the first born of the oxen, sheep, and even the first-born sons.  It continues through the New Testament, as we’re told about the blessings of giving in Luke 6:38 and the consequences of a lack of giving in 2 Corinthians 9:6.

I can cite numerous scripture references for you about the importance God places on giving.  But there are two verses that make it real for me.  The first one is Matthew 6:21, which declares “For where your treasure is, there your heart will be also”.  Do you see the order God identifies here?  Wherever my treasure goes, that’s where my heart will go.  If I put too much emphasis on spending my money for my own well being, my heart will follow it there.  I’ll think more of myself than I ought to, and too little of others.  My heart, and therefore my actions, will downplay the importance of other people, and I’ll find it difficult or impossible to heed His call to “love my neighbor as myself.”  This verse tells me I can impact the condition of my heart by how I choose to give.

The other scripture is the second half of Acts 20:35, which says “and remember the words of the Lord Jesus, which He himself said, “it is more blessed to give than to receive””.  Don’t misunderstand me; I don’t give with the hope that God will bless me financially.  I believe the word “bless”, in this context, means I’ll encounter blessings in my life for being obedient to His desire for me to give.  Those blessings might, at times, be financial in nature, but more often they’ll pertain to my relationships with Him and those around me.  I’ll feel closer to God when I’m being generous to His children.  I’ll have a more loving spirit toward “my neighbors” when I’m giving generously.  And I’ll be working on fulfilling what Jesus called The Great Commandment in Matthew 22:37-39.  What better reason is there to be a cheerful giver?

Whether it’s my time, my talent, or my treasure, I have indeed found a wonderful joy in being generous with the things God has blessed me with.   It absolutely has changed my heart, and my life.

Stocks vs. Metals: The Portfolios

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I’ve put together the portfolios I’ll be tracking this year.  I wanted to get the list to you now, and I’ll soon have a spreadsheet online that you can download.  I used Friday’s closing prices for everything.

The precious metals portfolio consists of 25 ounces each of gold and platinum, and 2,539 ounces of silver.  The values of each as of Friday’s close are $41,592.50 for the gold, $40,875 for the platinum, and $77,541.06 for the silver.  I intentionally put twice as much money into silver as in the other two metals because I believe it will outperform them in the near term.  The total I was shooting for was $160,000 because that’s the approximate value of the stock portfolio.

The stocks I chose are:  Church & Dwight, Stryker Corporation, Cardinal Health, Walgreen  Company, Target Corporation, Cracker Barrel, Lowe’s, IBM, Microsoft, Nu Skin Enterprises, T. Rowe Price, and ExxonMobil.  Click on any of the company names to visit their website if you’re unfamiliar with them.  I chose companies that have increased their dividends for at least 10 straight years.  The dividends from the portfolio total over $3,500 per year, and the entire group yields 2.2% annually.  The average dividend growth rate for this group over the last five years is 22% per year.

As mentioned in previous articles, I have also sold covered calls on all the held positions plus one put on another.  The put is on Airgas, another company I would buy for the portfolio.  You’ll also see these options positions in the spreadsheet once it’s available.

My plan is to update the portfolio values and post the numbers each weekend.  But I won’t just throw numbers at you; I’ll also add a bit of investing information for those who want to learn a little something while we compare the results of these portfolios throughout 2013.  And please, send me questions you might have and ideas for articles you would like to see me write.  I’ll also be posting my first article of the year on finances from a biblical viewpoint soon.

Utilizing Options in a Conservative Portfolio

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In my last article I discussed the basics of using options.  The two scenarios I outlined are common uses of options, but they aren’t how I’ll be using them in our conservative stock portfolio.

The first strategy I plan to use immediately involves selling call options on stocks in the portfolio (yes, you can sell options you don’t own; it’s called “writing an option”).  What I’m doing is selling someone the option to purchase 100 shares of a stock I own at a certain price (the strike price) on a certain date (the expiration date).  This strategy is called Writing Covered Call Options.  It’s “covered” because I own the stock I wrote the option on.  If I don’t own the stock, it’s called Writing Naked Call Options.  Naked options are much riskier, in general, than covered options, and I won’t be discussing their use.

Here’s the scenario:  I have purchased 100 shares of Company XYZ for the portfolio, and it’s currently at $36 per share.  A call option on XYZ with a strike price of $40 that expires in 90 days is priced at $0.31.  I sell the option on my 100 shares and receive $31.  Regardless of what the price of XYZ is in 90 days, I keep the $31.  If the price of XYZ rises to $40 or higher, my stock gets sold and I receive $4,000 for it (the strike price).  If it doesn’t reach $40, I keep the stock and the $31.  That $31 of income in 90 days on my $3,600 stock investment is a yield of approximately 3.5% annually.  Not bad, considering the only risk I took was that my stock might be sold and I would miss out on potential profit above the selling price of $40 per share.  But had the stock sold I would have received $400 of profit ($40 selling price minus the price of $36 when I sold the option), or 45% on an annual basis!  That is in addition to any dividend XYZ would pay out while I owned the stock.

Now let’s say the option I sold on XYZ was executed and my shares were sold at $40.  I now have $4,031, less commissions, to reinvest in XYZ or another company.  Let me introduce you to my second option strategy:  selling cash-covered puts.  Selling a put gives the buyer the option of selling a stock to me at the option strike price on the expiration date if the stock is selling at or below the strike price.  In essence, I’m collecting cash while waiting for a stock to drop in price to what I wish to pay for it.  If it doesn’t drop to the strike price or below, I’m not obligated to buy it.

So, after selling the XYZ stock, I decide to buy ABC Company stock.  Its current price is $43 per share, but I don’t want to pay more than $40 per share.  As long as I have the $4,000 in my account to cover the cost of purchasing 100 shares, I can sell a put with a strike price of $40.  If the stock drops to $40 or below, I would exercise the option and purchase the stock at $40.  A put option with a strike price of $40 that expires in 60 days is available for ABC Company for $0.65, so I sell one and pocket $65.  My annualized return on an investment of $4,000 (the amount I must have in my account to purchase the stock) over the 60 days is, get this, 9.75%!  Where can you earn that kind of return on cash sitting idle these days?  I keep the $65 whether I end up purchasing the stock or not.

The risks involved with selling puts in this manner are two-fold.  If the strike price isn’t reached and the stock isn’t purchased, it could go higher before I get the chance to purchase it and miss out on potential gains.  Or, the stock price could plummet well below the option strike price, but I would still be required to pay the strike price for the stock and be in the hole from the time of purchase.  However, considering the conservative nature of the stocks I intend to use in this portfolio, rapid movements of this kind are not very likely.  The reward, in my opinion, far outweighs the risk.

I realize this has been a long post to read.  If you’ve reached this point, congratulations!  You now know more about options investing than most investors.  The two strategies I’ve just discussed work well with a conservatively designed stock portfolio, and can result in very nice returns for the long-term investor in a market that’s moving up or sideways.  In my next post, I’ll reveal the makeup of the two portfolios I’ll be tracking, one consisting of conservative stocks and options, and the other comprised entirely of precious metals.  Let the games begin!