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Christian Financial Perspectives episodes

November 27, 2018 11 – 25 Things to Consider When Investing
Click below to listen to Episode 11 – 25 Things to Consider When Investing
Episode 11 – 25 Things to Consider When Investing

Learn about 25 things to consider when investing in stocks and bonds.

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Investing is about so much more than the stock market, and there are many things to consider when investing in stocks and bonds. This week, Bob and Mary Jo cover what they consider the top 25 items to examine when it comes to investing, which is just the tip of the iceberg.
Just some of the areas included in this week’s discussion include: the different types of long term investments, different risks that are involved with the various categories of investments, and getting used to the uncertainty that surround investment decisions about the future.
After listening to Christian Financial Perspectives, please do not hesitate to contact us for a free copy of “25 Things to Consider when Investing in Stocks and Bonds”. You can call the Christian Financial Advisors office at (830) 609-6986 or email our office staff at [email protected] to simply request your copy today.

HOSTED BY: Bob Barber, CWS® and Mary Jo Lyons, CFP®
Mentioned In This Episode

Christian Financial Advisors
Website

Bob Barber, CWS®, CKA®
Mary Jo Lyons, CFP®, CKA®

Want to ask a question about your specific situation? Schedule a complimentary 15 minute phone call.
SCHEDULE AN APPOINTMENTDid you enjoy this episode? Sign up for email updates and never miss an episode.
EPISODE TRANSCRIPT

[INTRODUCTION]
Bob: Welcome to Christian Financial Perspectives, a podcast where we talk about ways to integrate your faith with your finances. This is Bob Barber.
Mary Jo: And I’m Mary Jo Lyons.
Bob: Are you ready to learn how to apply biblical wisdom to everyday financial decisions?
Mary Jo: Join us as we look at integrating your faith with your finances. If it’s your first time listening, welcome to our podcast, and if you’re a returning listener, welcome back.
[EPISODE]
Bob:
Ecclesiastes 11:2, “Send your grain across the seas and in time profit will flow back to you, but divide your investments among many places, for you do not know what risk might lie ahead.” You ready for another great show, Mary Jo?
Mary Jo:
I am. Today we’re going to be talking about the 25 things to consider when investing in stocks and bonds. There’s quite a few, and they take all kinds of different directions. That brings me to one of our favorite scriptures and I know our listeners, if they’ve been tuned in at a time or two, they’ve heard us use this one in the past, but I think it goes without saying. The earth and everything in it belongs to the Lord. When it comes to our investments, I think the overriding question is do you believe that God owns it all?
Bob:
And you know we’ve talked about biblically responsible investing a lot in our past podcasts, and looking at all of this, we really believe that God owns it all and what you invest in is extremely important, and that as a Christian we don’t go invest in companies that are blatantly violating biblical principles.
Mary Jo:
Exactly.
Bob:
All right. Let’s get into these 25 because it’s going to take awhile to get through these. If you’re driving in your car on the way to work or coming home or cooking in that kitchen, whatever you’re doing, you’ll find this is some great information. But before we get into talking about time periods and different categories like stocks, bonds, and money market accounts, I need to say that we’re using the Morningstar Index Chart as our reference for returns over the past 10, 20, and even 30 year rolling periods going all the way back to the 1920s. The first thing to consider is that over long periods, stocks have shown greater total returns than bonds. Now, how long a period we talking about Mary Jo?
Mary Jo:
20 to 30 years. I think when we get caught up with investments, we’re only talking about the here and now. You have to take a longterm approach in looking at some of these, and see what history has shown us.
Bob:
I think there’s ample evidence, including all those supporting charts that we have. Now, you can get your mind blown a little bit about that that too, because there’s so many different charts that we use, but over time these charts have demonstrated that stocks do perform better than bonds, but it’s over time. You’ve got to go through those market cycles.
Mary Jo:
It’s an economic principle and an expectation that when you have increased risk, you have an expectation of an increased return that would pay somebody to be willing to take that risk.
Bob:
We have a saying around here, too, that the cost of a good return is volatility. If you want a higher return, you’ve got to be able to put up with more volatility.
Mary Jo:
Yes, stocks have historically paid a premium and what we mean by that is the premium is the excess return or the extra that you get by investing in something that has more risk, but you typically would expect a higher return on stocks than you do on something that’s perceived safety, like bonds have been.
Bob:
Yeah, there’s risk and reward factor in there, which takes us to our second one of the 25. Over long periods, bonds have shown greater total return than money market instruments.
Mary Jo:
Again, 20 to 30 year time frame.
Bob:
Today, we are in a very low interest rate environment where interest rates are going up. For the first time in many years, people are watching their bond values possibly decline depending on how long a term their bonds are. We’re a big believer right now in being careful of those longterm bonds. There’s that formula. If you own a 30 year bond and interest rates go up by 1%, the value of those bonds can go down by 30% if that’s a 30 year bond.
Mary Jo:
Typically, during periods of rising interest rates, bond prices are going to come down. They work in reverse that way. We fully expect that, but you’re also looking at the total return of that bond, the income that you receive off of the bond payments, as well as the price that you’ve paid for that bond, so it’s kind of a complete package.
Bob:
The third one is when we’re saying 20 to 30 years, again, this is over a longterm period because this may not be the case right now, but over long periods, money market returns have slightly exceeded inflation.
Mary Jo:
Well, we’ve seen it when it quite hasn’t worked out that way in recent years, that’s for sure.
Bob:
The fourth one is, on average, stocks are much riskier than bonds. Now, that’s on average. We’re talking about high quality bonds. High yield bonds have many times as high a risk as stocks do.
Mary Jo:
We always think of bonds as the safety part of our portfolio, and we could talk about this, but the purpose of today’s podcast is not really to give an education so much on stocks and bonds, but I think there’s some things to think about. When you look at bonds, there are certainly all kinds of risk associated with the types of bonds. We invest in municipal bonds. We invest in corporate bonds, certain kinds of bonds that have some sort of revenue stream, whether it’s taxation or whether it’s a toll bond for example, on how they collect the money that they use to pay those bonds down.
Bob:
Number five, on average bonds are riskier than money market accounts.
Mary Jo:
When we talk about market funds, there’s a perceived safety that they’re like a dollar. They always have a $1 value. There have been times when that hasn’t always held true. So money markets invest in other things, most of which are very safe instruments, but there is a level of risk there. I don’t think we can say that it has always held its value.
Bob:
I remember when they went below that dollar, what we call par value.
Mary Jo:
Right. We called that breaking the dollar mark.
Bob:
So, this takes us to number seven. You will most certainly make investments that go down immediately after you buy.
Mary Jo:
Are you talking about my investment experience?
Bob:
I’ll tell ya. It seems like it happens every time. As soon as you buy it, it’s like, okay, how did they know? That’s why as soon as you buy it, if you’ve made a good decision, it’s based on longterm. You’ve done your research and it’s a good company to buy, but you just got to take your eyes off of it.
Mary Jo:
You do, and you can’t constantly watch. You just know that you’re going to commit to get in. I know that a lot of people like to pick a price target and try to wait for that dollar point that they want to get in. Say something’s trading at $25. They’ve been watching it and they want to get in. They think it’s going to go up to $30. They’re not going to sell until it gets to $30, or they’re not going to buy until it drops down to $20. I just think that that’s kind of a fool’s errand. You just have to make a commitment and get it.
Bob:
Like number seven said, you will most certainly make investments that go down after you buy.
Mary Jo:
Yes.
Bob:
Number eight is just the opposite. You will sell investments that continue to go up after you’ve sold.
Mary Jo:
That’s a tricky concept for investors to kind of get their hands around. The successful investor that’s taken the emotion out of investing, they are going to have a discipline. They know that they are going to rebalance and sell once they hit their total return target. Most people are looking for a 20-25% return. They know once they do that, they need to shave that off, but other people say that it might continue to go up. Well, but it might continue to not go up. Stick with your discipline. Don’t be tempted.
Bob:
This does take us to number 9 of the 25. You will stay in some holdings for too long. Even the greats like the “Warren Buffets” have done that.
Mary Jo:
Oh, I can’t tell you all the times in the tech boom. There were so many investors that held all these tech stocks in their portfolio. Some can do that with pharmaceuticals. They tend to get in and even bank stocks, they get emotionally attached and they keep thinking it’s going to come back. It’s going to come back. I know it is. They just hold on and hold on and hold on. Well, you’re leaving money on the table for something else that’s going to be of greater value while you’re holding on.
Bob:
Number 10, the value of the opportunities you miss will far exceed those you take.
Mary Jo:
I think that’s true in so many areas of life.
Bob:
Number 11 – someone, Oh gosh, this is so true. Someone or some group of people are always going to do better than you. That’s what we call the bragging rights. You’ll always hear people brag about that great stock they bought, but you never hear them talking about the one they bought that went down.
Mary Jo:
So often the routine on the golf course is everybody’s talking about their wins, but they don’t share their losses. That’s for sure.
Bob:
Let’s go to number 12 then – someone or some group of people will always do well as you with less risk. What does that one mean?
Mary Jo:
It sounds very similar to truth number 11, but it’s an important distinction. Money market investors and bond holders may be able to say that they deal as well as the stock market in periods when the markets went down. Well, I was in bonds. I didn’t take as much risk and I did better than you. It just all depends on what’s happening during that timeframe.
Bob:
Now we’re going to come to the middle one of our 25, so this is the 13th one. It’s interesting how it goes right behind these last two, which were someone or some group of people always do better than you or someone or some group of people always do as well as you with less risk. This is a big one. I think this one really comes out. Yours is the only relevant timeframe, not other investors. Hypothetical mountain charts, plotting past performance for example, are irrelevant to your performance. So true. Your timeframe is the one that counts.
Mary Jo:
It’s the only thing that’s relevant. You can always look back. Hindsight is always 20/20. You weren’t invested in it back in 1929, so you only have to look at your experience.
Bob:
I think that’s why so many people say, “Well, that fund’s been doing 10-12%. when I got in and all of a sudden it starts doing 4% or 3%, and then they’ll jump ship at two years when that fund’s just about to start doing good again.
Mary Jo:
investments go in and out of favor. One of the things you have to recognize is when you start reading about it and you see that fund on the cover of Forbes Magazine, then everybody else is seeing that same headline, so they’re all jumping in. That fund manager now has all kinds of new money flowing in, and he has to scramble to reinvest that. His performance probably is going to suffer because now there’s all this inflow of money. The same is true if there’s a sudden outflow of money. When you start seeing performance numbers, it’s pretty safe to say that those are going to change. We all follow the herd when it comes to investing.
Bob:
I really like how each one of these build on each other. Have you noticed that?
Mary Jo:
They do. They’re flowing.
Bob:
Let’s go to number 14. Boy, this is so true. The investment market is a rapidly adjusting environment where past performance is an extremely poor predictor of future success. Don’t always just go to the winners. I remember when we used to laugh a long time ago about a major magazine that would always post all the top funds for the year. Usually those were the worst ones the next year. 15th one – you’re not paying for information but for knowledge.
Mary Jo:
Experience.
Bob:
Yeah. Yes. You are. The experience of somebody who’s going to help you get through those very emotional times cause we live in such an informational age. If you’re watching that news every day, you can get very emotional, and it will drive you insane because there’s so many ups and downs.
Mary Jo:
Well, and it’s all conflicting information. You turn on one channel, they’re saying one thing, you turn on another channel and they’re saying the complete opposite. Who do you trust and what do you believe?
Bob:
And not only that, you just mentioned a couple of channels. Then you go to a couple of internet sites, and then you turn on your satellite radio. There’s so many different opinions out there.
Mary Jo:
It’s about ratings. They’re there to sensationalize, and they’re there to get listeners or readers for that matter. One of the things I always think, it’s funny, you notice how the market sores and crashes and tumbles, but where do they come up with those adjectives?
Bob:
I wonder that myself, so let’s take that to the 16th one of our 25 things to consider when investing in stocks and bonds.
Mary Jo:
Money can only be made in the future. It is impossible to buy past returns, and we’re always talking about what investments have done in the past. Bob, one of the things that we always have to say whenever we’re talking about any kind of investment is past performance is no indication of future success.
Bob:
Yes, we do. We mentioned that one a lot, don’t we?
Mary Jo:
We do.
Bob:
Number 17 – the principal calls of change and investment prices is change and consensus expectation. That could be a tongue twister.
Mary Jo:
Yes. Most investors, they don’t have a clear understanding of what causes the prices to move up and down throughout the day or as they own a stock. So Bob, why don’t we move into number 18 – get used to uncertainty.
Bob:
Yeah, get used to it because like it or not, every investment decision is based on multiple guesses about the future.
Mary Jo:
We are all just guessing. History can give us a bit of a roadmap to look at what the future might hold, but we’re all looking at new economic situations, new leadership, all kinds of things that are influencing companies now that weren’t there in the past. It’s not the same playing field.
Bob:
Funny that you talk about guessing, too. There’s an old adage that when all the economists start saying, everything is so great. Be careful of that because the economists are wrong many times.
Mary Jo:
Oh, they certainly are. It’s human nature, and they’re doing the best they can with the information at hand but information changes quickly.
Bob:
Yeah, I bet I can answer this next one. Number 19 – experienced advisors may increase your chance of investment success. Now why would we say that? Get the emotions out of it. I can see you’re looking there. Yeah, of course. It’s get the emotions out of it. Experienced advisors are going to help guide you through the turbulent waters, and boy are they turbulent. One market’s going to be better one time. Another market’s going to be better another, but an experienced advisor has been through all these markets and can help you get through them and come out on the other end of the tunnel, the light at the end of the tunnel.
Mary Jo:
They’re there for a discipline. They’re going to hold your hand. They’re going to remind you of what your goals and objectives were. They’re going to just hold you accountable. I think that’s the difference between success and failure a lot of times is those investors who think that they can do it themselves. They’re self directed and many of them are fine, but they really need that discipline. That’s what a trusted advisor can really do for you.
Bob:
Which takes us to number 20 – the biggest risk most investors face is actually their own emotions. Selling low and buying high and following the herd. We had that chart – ask for the chart that we have on emotions. You’ll be amazed that when the stock market and the bond markets, when they’re at their peak is when everybody wants to get in, but that’s the highest point of risk and when they’re at their lowest point, like back in ’08, everybody wanted out, and that was the best time to get in.
Mary Jo:
Bob, that brings us to something we were going to talk about towards the end of the show. That’s something called the Dow bar study. Most advisors would have that – to boil it down and make it simple. If you look at the average return of stocks, then you look at the average return of bonds, take any asset class, and the index that tracks them. Then you look at the average investor’s average return. The investor always does worse. The reason that is is because of their emotions. They’re always making knee jerk reactions, staying in too long, holding on, not selling when they said they were – those types of things.
Bob:
So, let’s get down to our last five. Number 21 – there is no such thing as a sure thing.
Mary Jo:
Bob. I think these last five are my favorite. I think that I’ve given a lot of thought to these as we’ve added them to the list. I just found that this is what most investors think. Stocks in general have historically provided gains over the long term, but it’s individual companies that are much riskier. If something seems too good to be true, it probably is. Diversification wins out over time.
Bob:
Think long term. No one can consistently time the market successfully. If they could, everyone would be doing it. If you’re concerned about hitting a price target, the best advice is the dollar cost average in and out of a discipline strategy. I love the dollar cost average thing. Now, that means putting in the same amount of money every single month. Let’s say you’re putting in $300 a month or $500 a month. It doesn’t matter where the markets are or what the price is. Dollar cost averaging automatically helps you buy less when the market’s high and to buy more when the market’s low.
Mary Jo:
Your 401k kind of works like that. Whenever your payday comes around, you get a contribution and it’s buying in on that day. It’s consistently month after month on the first and the 15th or the 15th and the 30th. It’s always buying in. It doesn’t care what the market is doing that day. It’s just going to buy in, and the same is true if you want to unwind a position. Let’s just say you have a concentrated position in a stock, maybe your company stock and you think, oh man, I just hate to sell. I know it’s going to keep going up. Well, you just say, okay, I’m going to sell 25% of it this month, 25% the next month, 25% the next month until it’s all unwound over a four month period. Then you’re out of it and you’re not trying to chase that price.
Bob:
And realize you can do that even over a 10 month period in 10% increments.
Mary Jo:
Absolutely.
Bob:
You could do it over a 12 month period and just divide that out. All right, so we’re down to our last 3 of the 25. Consider the tax impact of your investment decisions because taxes can easily eat into your returns. Short term gains are costly because you’re not paying the longterm capital gain tax.
Mary Jo:
I just love this next one, and this is one that I guess I’m pretty passionate about. Tune out the market noise. The only truth that we know about the stock market is it’s going to go up and it’s going to go down. I think I mentioned this earlier, the markets, the talking heads that are out there in the media, they’re just using sensationalism to get you to tune in. Don’t watch it every day. I think one of the best things you have to do for an investor is just get a longterm diversified plan in place. Trust the markets are gonna do their thing over time, and then when you need it in 10-20 years, it’s going to be just fine. You do occasionally, on an annual basis, have to look to rebalance and reallocate those funds.
Bob:
As I mentioned in the beginning, all our mamas were always saying, don’t put all your eggs in one basket. That’s an old saying.
Bob:
And all our mamas we’re doing, that’s a Southern boy me calling them mama. All they were doing was a quote in Ecclesiastes 11:2 that says, “Give your portions to seven or eight because you do not know what disaster may come upon the land.” That’s truly, when you’re talking about building a diversified, why it’s so important. You don’t know what is going to do well and what’s not going to do so well in the future because nobody knows the future. Again in Ecclesiastics, I was just reading this this morning, in the third chapter, “There’s a time for everything. There’s a time to grow. There’s a time to tear down, a time to heal. There’s all those different times.”
Mary Jo:
Absolutely, and that brings us to the last but not least. The best traders in the world are sometimes wrong. You can get lucky a time or two. I just encourage all investors to stay humble because your next pick, you might not be so lucky.
Bob:
So there you go. There’s the 25 things to consider when investing in stocks and bonds. If you’d like to get a copy of that, feel free to go to Christianfinancialpodcast.com. All our contact information is right there. You just call or email and say I’d like a copy of 25 things to consider when investing in stocks and bonds. There were some great scriptures you had here in closing.
Mary Jo:
When we talk about the stock market, I think investing, it’s much more than the stock market itself, if that makes sense. When you reduce the idea of a longterm investment strategy down to trading, like so many of the so called day traders do, it just makes me kind of think of greed, and there’s a lot about greed in the Bible. One of the scriptures that kind of stands out there for me is Matthew 6:24, “No one can serve two masters for you will hate one and love the other. You will be devoted to one and despise the other. You cannot serve with God and be enslaved to money.” We want to invest for a reason, but we can’t be a slave to our money
Bob:
I want to end up with this scripture too. Proverbs 15:22 which is one of my favorites, “Plans fail for lack of counsel, but with many advisors, they succeed.” We don’t know at all, and we believe in many advisors. We have sub advisors that we work with that help us put together our portfolios and what we’re going to invest in. We don’t believe that any person should be an island, but God’s word says we need one another. In Ecclesiastes, it talks about how a cord of three strands is not easily broken and pity the man that has nobody to watch his back and doesn’t have a friend. We base everything off that scripture that we need one another and we can help one another.
Mary Jo:
Bob, that’s so true. In our business, we are constantly being schooled. We are going back for continuing education every year. I have to do that for all my licensing and I know you have to do that. We go to business conferences. We get in publications that we’re constantly reading and we’re always looking at what the masterminds in our business are saying. We consult many advisors, and I think that that’s important for our listeners to do the same.
[CONCLUSION]
Mary Jo: You’ve been listening to Christian Financial Perspectives. Join us as we explore more about how to apply biblical wisdom to your financial situations.
Bob: To make sure you don’t miss any of our podcasts, you can subscribe to Christian Financial Perspectives on iTunes, Google Play, or Stitcher. To learn more about integrating your faith with your finances, visit out website at ciswealth.com or call 830-609-6986.
Mary Jo: That’s all for now.
[DISCLOSURES]
Comments from today’s show are for informational purposes only and not to be considered investment advice or recommendations to buy or sell any company that may have been mentioned or discussed. The opinions expressed are solely those of the hosts, Bob Barber and Mary Jo Lyons. Bob and Mary Jo do not provide tax advice and encourage you to seek guidance from a tax professional. Investment advisory services offered through Christian Investment Advisors Inc. DBA Christian Financial Advisors, a registered investment advisor. Keep in mind that the investor returns reflect investment selection as well as sales charges, fees, expenses, and transaction costs. Whereas the S & P 500 index returns do not. These factors also contribute to the difference in returns. Indexes are unmanaged. You cannot invest directly in an index. Performance illustrated is not indicative of future results. The return in principle value of bonds fluctuate with changes in market conditions. If bonds are not held to maturity, they may be worth more or less than their original value.
26 min
November 20, 2018 Episode 10 – Thanksgiving and Timely Reminders
With Black Friday and Cyber Monday looming around the corner, Bob and Mary Jo share tips for sticking to a budget when it comes to gift giving and money spending. They also touch on other year end topics including charitable gift giving, reviewing your tax situations, and maximizing your retirement plan contributions.
21 min
November 20, 2018 10 – Thanksgiving and Timely Reminders
Click below to listen to Episode 10 – Thanksgiving and Timely Reminders
Episode 10 – Thanksgiving and Timely Reminders

Wishing you a Happy Thanksgiving from Christian Financial Perspectives!

More episodes >>

As we approach the upcoming holidays and the end of the year, Bob and Mary Jo thought it would be good to share some timely reminders regarding your personal financial wellness. Thanksgiving is one of our favorite holidays. It is a wonderful time to reflect on the past year with family and friends over Thanksgiving dinner, and remind one another of everything that we are thankful for.
With Black Friday and Cyber Monday looming around the corner, Bob and Mary Jo share tips for sticking to a budget when it comes to gift giving and money spending. They also touch on other year end topics including charitable gift giving, reviewing your tax situations, and maximizing your retirement plan contributions.

HOSTED BY: Bob Barber, CWS® and Mary Jo Lyons, CFP®
Mentioned In This Episode

Christian Financial Advisors
Website

Bob Barber, CWS®, CKA®
Mary Jo Lyons, CFP®, CKA®

Want to ask a question about your specific situation? Schedule a complimentary 15 minute phone call.
SCHEDULE AN APPOINTMENTDid you enjoy this episode? Sign up for email updates and never miss an episode.
EPISODE TRANSCRIPT

[INTRODUCTION]
Bob: Welcome to Christian Financial Perspectives, a podcast where we talk about ways to integrate your faith with your finances. This is Bob Barber.
Mary Jo: And I’m Mary Jo Lyons.
Bob: Are you ready to learn how to apply biblical wisdom to everyday financial decisions?
Mary Jo: Join us as we look at integrating your faith with your finances. If it’s your first time listening, welcome to our podcast, and if you’re a returning listener, welcome back.
[EPISODE]
Bob:
Hello, Mary Jo. Can you believe that Thanksgiving’s just a few days away?
Mary Jo:
The time has flown by this year, but I guess they say that every year.
Bob:
It’s one of my favorite holidays of the year. Time to get together with friends and family and do a lot of eating. I get pecan pie on the brain.
Mary Jo:
You’ve already been talking about it.
Bob:
Yes. I love being able to bond over a great meal. I always say for Christians, food and fellowship go very well together, and we even have this old recipe that I always start thinking about it right about this time that my mom’s been making for years. It’s a pecan pie recipe that has been in the family, as far as we know, since 1830 when our family entered the state of Texas. And it’s where you take the pecans and instead of just layering them on top of the pie, you crush them all up and put them all throughout the pie so you really get that pecan flavor. And then you’ve got to make the crust from homemade and then you just drench it in whipped cream. I’m getting hungry. My mouth is watering thinking about it. Yeah.
Mary Jo:
So not vanilla ice cream, but whipped cream?
Bob:
Whipped cream, lots of whipped cream. My mom always laughs, she goes, so are you going to have a little bit of pie with whipped cream or whipped cream with pie? What’s your favorite dish?
Mary Jo:
God, that is so hard. I’m torn. I love me some cornbread stuffing if it’s made real savory. I also like cranberry chutney, and I like making it. It’s one of my husband’s favorite, so it’s a recipe that I experiment with all the time and I’ve shared it a time or two. But you can use it on the leftovers, because speaking of ice cream, they go great on vanilla ice cream, but you can also use it in appetizers, and it’s certainly so much better making homemade cranberry sauce than it is that jelly stuff out of the can. I think that’s probably my favorite.
Bob:
I’ve heard you say this, it’s called cranberry. What do you call this again? Chutney. Now I’m sure I’ve had that, but I’m not sure. I’ve never heard it called that.
Mary Jo:
It’s more like a spread. So it’s chunky. It’s got fruit in it. So I put an Apple, I put pears, I put raisins, and even some chopped nuts. So it’s got the juice and pulp of an orange. Well, it’s kind of thick and it’s got all kinds of goodness in there.
Bob:
Okay, well I think my mom makes that, but I just never knew it was called that. So, it just goes to show what I know.
Mary Jo:
You just want to eat it all. So before we get into this week’s topic of timely reminders, we’d like to start each episode with a scripture as you’ve heard us do in the past. Since it’s nearing Thanksgiving, we thought this one would be a good one to start off. I chose Psalm 100 and it’s actually called A Prayer of Thanksgiving. “Shout for joy to the Lord all the earth. Worship the Lord with gladness. Come before him with joyful songs. Know the Lord is God. It is he who made us and we are his. We are his people, the sheep of his pasture. Enter his gates with Thanksgiving and his courts with praise. Give thanks to him and praise his name for the Lord is good and his love endures forever. His faithfulness continues through all generations.” How was that for timeliness at Thanksgiving? I love the ending “through all generations”.
Bob:
I love as you were reading that give thanks to him and praise his name. Enter his gates with Thanksgiving. Being thankful is mentioned a lot of times in that scripture. Hopefully, some of our listeners can choose that one too. That is a very good scripture to read. Psalms 100 is what you reading that out of. As we get towards the end of the year and here it is Thanksgiving. And like I said, I just cannot believe, I don’t know how this thing happens. It comes on faster and faster every year and I know everybody says that. I don’t know if that’s a sign that I’m getting older.
Mary Jo:
I think it is.
Bob:
But I think we’re all aging, but what we’ll talk about some timely reminders for the end of the year concerning personal financial wellness during this Thanksgiving week. One of the things that we want to be careful of, being that it is Thanksgiving week and there’s the black Friday coming up, is being careful of spending money on things that are just going to rust, rot, and decay and not even remember the next year that you got the gifts. I really emphasize that here around this Thanksgiving time, Christmas time, that you create a list and spending budget for each person you want to give something to and really stick to it. Possibly even open a separate checking or debit account just for Christmas. Later, you could just use that same account for gifts during the year for birthday gifts, et cetera.
Mary Jo:
Bob, another thing you could do is the envelope system. Put what you’re going to spend for each person in an envelope. It’s just another way and makes it simple. I love that concept. Definitely want to stress to our listeners about watching out for Black Friday. Be so careful about buying things just because they’re on sale and you get caught up in the excitement and the enthusiasm of shopping, and everything looks like a deal. Well it’s not a deal if you don’t need it. And then Cyber Monday, it’s kinda the same thing all over again. If you don’t have a chance on Friday cause you’re busy cleaning up after Thanksgiving, you might get caught up in that Monday sale. Just only buy what’s on your list and try to ignore some of the noise. I always want to share a little something personal. We’re to looking to downsize now and I’m looking around my house, and all I see is all this stuff. When you’re in your twenties, thirties, forties, it’s all about accumulating stuff, and then as you get in your 50’s and and older, it’s all about getting rid of that stuff.
Bob:
Yeah, you’re right. I got to admit, you’re right
Mary Jo:
When it comes to stuff, you have to store it, you have to transport it, you have to insure it. All of those things cost money. I just think that life is about experiences and that’s something that you kind of learn as you move through life and with more experiences, and that’s where the good stuff is. It’s not in the stuff. Give some real thought before you buy things. Is it something you need? Is it something that’s really going to add value or is it just more stuff?
Bob:
Another thing as we’re coming into the end of the year and thinking about Thanksgiving and buying all that stuff, I’m sure today or the next day you’re getting all these flyers in the mail and in the newspaper, but think about giving because that’s really what it’s all about. What really brings significance is giving to others, giving to worthy causes. So, as we’re getting here at the end of the year, look at forming a year end giving plan and maxing out your charitable giving. Just remember the things that you may be giving to like Goodwill. You want to get a receipt for that and itemize all that. Now this year, your giving is going to have to total quite a bit to get over the threshold with the new tax laws, which for a couple was $24,000. So, if your itemized deductions are not going to total over $24,000. Itemized deductions are things like mortgage interest, property taxes, sales taxes, et cetera, if that’s not going to total over that amount, you really don’t necessarily need a receipt cause you’re not going to take a deduction for it. In the past for a couple, it was $12,000 that was your automatic deduction for each other. But now it’s $24,000. Does that make sense, Mary Jo?
Mary Jo:
Yes, and I think you’re so right. If you are able to maximize that and accumulate more than $24,000, it will be imperative to have a receipt. Before, you could go donate up to, I think it was $250 or $500 to Goodwill, for example, and you didn’t have to claim a receipt, but now you do and the IRS is going to be looking for that. If you’re going to itemize those deductions, definitely have receipts to back it up. As a small business owner, it’s also a great time to think about the small business retirement plans. What should our listeners be thinking about for that?
Bob:
Well, if they haven’t contributed all year long, it depends on are they working for a corporation or are they an individual business owner? As an individual business owner, you still have time to set up a SEP IRA plan or even a solo 401k, but most people don’t fall in that category. Most of our listeners fall into the category of probably working for a company that has a 401k or 403b or a thrift savings plan. It’s here at the end of the year where you can maximize those contributions to those plans. I’ve even had some clients in the past here at Christian Financial Advisors. We’ve talked about it, we’ve looked at it, and they still could put another $10,000 into their 401k, but that would mean forgoing their last paycheck if they did that. So, we look and see if they have enough savings to forego that last paycheck and put the entire last paycheck into the 401k to get that deduction. Those are some things that you can do that can save on taxes here at the end of the year.
Mary Jo:
Oh, that’s a great idea. Speaking of taxes, that’s a topic that we all love hearing about, isn’t it/
Bob:
Oh yeah, absolutely.
Mary Jo:
Oh, but we shouldn’t begrudge paying taxes. It’s just a sign of God’s provision, but as frustrating as it can be, it’s also important to be thinking about those taxes. We talk about year end tax planning, but you want to be thinking about your tax situation throughout the year, not just at the end of the year. You don’t want to be panicking at the very last minute. So, there are some strategic things you can do to plan ahead to help minimize the taxes. I think that’s something that we all probably want to do. Bob, we’ve already touched on some of the changes on the new tax laws. What else do our listeners need to be aware of?
Bob:
Well, let me re-emphasize those changes. The most important one is the itemized deductions must be over $12,000 for a single person or $24,000 for a couple for it to count. But medical expenses are another new thing this year. It used to be 10% of your medical expenses could count towards your deductions, but this year it’s 7.5% of adjusted gross income. And there’s those itemized deductions like home mortgage interests, charitable contributions, student loan interest, educator expenses, casualty, and theft losses. And Mary Jo, I know you have some more tax ideas.
Mary Jo:
Well, I think one of the things that is helpful to consider is since we have such a higher limit for those deductions, you want to give some thought to when you can strategically group those deductions. If it’s one year, if you can prepay expenses that you have for the following that you would normally pay in January such as property taxes. Maybe pay that in December and then that will help to get you to a higher level of deduction so you can deduct it this year. But then next year it’s probably going to be a lean year, so you’re going to have some fat years and some lean years. So be thinking about that if your state taxes are due January 15, maybe pay those in December. Also, you some of the itemized bills that you can think about from a healthcare perspective. Let’s be thinking ahead of it so you can plan out those bills if it’s going to be a year when you can deduct your expenses. And now with the cost of getting any kind of medical treatment or any kind of tests, you might be able to accumulate a large enough expense that’s going to total more than the 7.5% of your adjusted gross income. If you had a hospital stay, this might be the year to do that or emergency room care. Also, if you’ve had elective surgery. Last year, I had multifocal lens implants and that was a very large out-of-pocket expense. So if that’s the year that I’ve had that large expense, maybe I want to do some dental work that I was holding off on. Or, you might have other medical tests that are quite expensive. Try to pull those all together in one year and then avoid them the next year when you can’t deduct. Does that make sense, Bob?
Bob:
It does. And you know what else I was thinking of while you were saying that is not only for the tax purposes of medical expenses. I was also thinking of your deductible for your health insurance. So, by lumping your medical bills in one year, if you’re able to do that, you’re only going to have to pay that deductible one time. An example of this would be, let’s say your deductible is $4,000 and you just had $2,000 of medical expenses, then you’re not going to get to use your health insurance. But let’s say you have medical bills that are going to total over $10,000 both years in two different years. If you could put that all into one year, you won’t have to pay that deductible but one time.
Mary Jo:
That’s right.
Bob:
Does that make sense?
Mary Jo:
Yes, absolutely.
Bob:
And then also tax ideas are for the self employed like myself. If you can, you might want to think about delaying income, if this is a real high income year, until next year. Also, when you’re self employed, because of your expenses, you can sometimes pull those expenses this year or put them to next year. You’ve just gotta be careful about this, and I’ve noticed this in the past myself. If you’re going to be more profitable next year, then delay your expenses. But if you’re going to be about the same, go ahead and put those expenses towards this year.
Mary Jo:
That also applies to those fat and those lean years. If you have bundled your deductions for this year and you’re trying to get above that 7.5% of your adjusted gross income, you want to have less income this year and then next year if you’re not going to itemize those deductions, it’s okay to have a higher income next year. I think it all plays together.
Bob:
And then one last thing that I want to mention, tax loss harvesting is a big thing right now at this time of the year. It’s been a good year in some stocks. So, you might own some stocks that have a high gain to them and have been sold. You might have some other stocks that have a loss to them. You want to keep those stocks, but you could sell those stocks and then buy them back 31 days later and take a loss against your gains. We call that tax loss harvesting.
Mary Jo:
Yes. And you can carry those losses forward. And then $3,000 that you can gain that you can offset with losses from previous years. Did I say that right?
Bob:
Well, yeah, but I thought if you had gains of $15,000 and you have losses of $10,000, you could take the $10,000 of losses against the $15,000 of gains if you do it in the same year.
Mary Jo:
Yes, that’s true, but you have carry forward losses of $3,000.
Bob:
That’s right. Yes, you do.
Mary Jo:
Also, for our listeners that are approaching 70.5, If you are in the period when you are required to take a minimum distribution out of your retirement plans, don’t forget to do that because after the age of 70.5, There is a penalty if you forget to take out your required minimum distribution. That penalty can be up to about 50% or what the distribution should have been, so it’s quite costly if you miss that. Also, if you are one of those that has a flexible spending account with your employer benefit plan, make sure that you spend any leftover balances if your employer doesn’t offer a grace period. You don’t want to leave that money on the table. Think of things that you still need to buy that you can use your flexible spending account to do, like you can do it for your copays at the doctor. You can use it for prescriptions, over the counter medicines, and things along that line. In closing, we’d like to offer up another prayer for our listeners. I think that this is something special about this time of Thanksgiving. It’s a time to be with family and give thanks for our many blessings, but it also can be a difficult time for some people. I know Bob and I are extremely thankful for our listeners out there. We appreciate the fact that you’re spending your time with us, and we don’t forget that. We take that very seriously and we hope that you are finding value in our show and that it’s been a blessing to you. If it has been a blessing, we also would ask that you share it with those that you care about.
Bob:
Our Heavenly Father, creator of everything, all that is, and all that is to come. We thank you for the many blessings you’ve given us over this past year. Food to eat, clothes to wear, shelter from the storms, friends and family that love us. That is a reflection of your love. We acknowledge there are times in our lives that we ourselves feel unloved and unlovable. Give us the grace to love others, even when they are difficult. Almighty God, we trust in your faithfulness to carry us over the roughest times of life. We trust in your love to walk with us to the most difficult of days. We trust in your promise of eternal life and put all our hope and trust in you. Thank you Jesus for dying on the cross for our sins and given us eternal life through your atoning sacrifice.
Mary Jo:
Forgive us for our sins, the things you asked us to do and we fail to do, as well as the things you told us not to do but we did anyway. We are sorry and we ask that you will strengthen us so that we will always follow you. We pray that your Holy Spirit will be felt by people who are in pain in mind, body, or spirit. Help them to know that you are with them, and you are able to carry them through their trials. Bless our church family, bless our community, bless our nation, bless our world, and especially bless our listeners. Enable us to live so that your will might be made manifest in the world around us. We ask all these things in the name of Jesus, our Lord and Savior.
Bob:
We wish you a blessed Thanksgiving. Enjoy this time with family and friends. Take care and be safe.
[CONCLUSION]
Mary Jo: You’ve been listening to Christian Financial Perspectives. Join us as we explore more about how to apply biblical wisdom to your financial situations.
Bob: To make sure you don’t miss any of our podcasts, you can subscribe to Christian Financial Perspectives on iTunes, Google Play, or Stitcher. To learn more about integrating your faith with your finances, visit out website at ciswealth.com or call 830-609-6986.
Mary Jo: That’s all for now.
[DISCLOSURES]
Comments from today’s show are for informational purposes only and not to be considered investment advice or recommendations to buy or sell any company that may have been mentioned or discussed. The opinions expressed are solely those of the hosts, Bob Barber and Mary Jo Lyons. Bob and Mary Jo do not provide tax advice and encourage you to seek guidance from a tax professional. Investment advisory services offered through Christian Investment Advisors Inc. DBA Christian Financial Advisors, a registered investment advisor.
21 min
November 13, 2018 Episode 9 – Creating an Income Stream for Retirement
Have you created an income stream for retirement? This is something many of us worry about on a daily basis. In this episode, Bob and Mary Jo discuss different topics surrounding retirement income such as replacement income and how to avoid dipping into the principal of your investments early on, as well as the guidelines surrounding your Required Minimum Distribution (RMD).
38 min
November 13, 2018 9 – Creating an Income Stream for Retirement
Click below to listen to Episode 9 – Creating an Income Stream for Retirement
Episode 9 – Creating an Income Stream for Retirement

Learn about replacement retirement income and how to avoid dipping into the principal of your investments early on.

More episodes >>

Have you created an income stream for retirement? This is something many of us worry about on a daily basis. In this episode, Bob and Mary Jo discuss different topics surrounding retirement income such as replacement income and how to avoid dipping into the principal of your investments early on, as well as the guidelines surrounding your Required Minimum Distribution (RMD).
They also dive into the various forms of Passive and Non-Passive or Earned Income, Investment and Portfolio Income, and Creating an Income Stream using a “Bucket Strategy”. The Bucket Strategy is based on different Timeframes for needing retirement funds.

HOSTED BY: Bob Barber, CWS® and Mary Jo Lyons, CFP®
Mentioned In This Episode

Christian Financial Advisors
Website

Bob Barber, CWS®, CKA®
Mary Jo Lyons, CFP®, CKA®

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EPISODE TRANSCRIPT

[INTRODUCTION]
Bob: Welcome to Christian Financial Perspectives, a podcast where we talk about ways to integrate your faith with your finances. This is Bob Barber.
Mary Jo: And I’m Mary Jo Lyons.
Bob: Are you ready to learn how to apply biblical wisdom to everyday financial decisions?
Mary Jo: Join us as we look at integrating your faith with your finances. If it’s your first time listening, welcome to our podcast, and if you’re a returning listener, welcome back.
[EPISODE]
Bob:
Welcome to today’s podcast about creating an income stream for retirement. We’re going to discuss forms of passive and non-passive or what we call earned income, investment and portfolio income, creating an income stream, and using a bucket strategy. First, before we get to the main meat of the subject today, I always like to start off the podcast with a scripture. Numbers 8:24-26, “This is the rule the Levites must follow. They must begin serving in the tabernacle at the age of 25 and they must retire at the age of 50. After retirement, they may assist their fellow Levites by serving as guards at the tabernacle, but they may not officiate in the service. This is how you must assign duties to the Levites.” So Mary Jo, how about that scripture? It says we’re supposed to retire at 50.
Mary Jo:
Well that would be nice and we better get with it. We’ve said in the past that the Bible actually doesn’t address retirement very often, so this may be one of the few scriptures that actually touches on retirement.
Bob:
It actually is the only scripture that touches on retirement. One of the things that I want to point out here that they’re saying after retirement, they may assist their fellow Levites by serving as guards at the tabernacle. It’s really not retirement from the sense of you just quitting. I think a lot of times that’s the American idea of retirement. I’m not doing anything anymore. I’m just going to go play golf and fish the rest of my life.
Mary Jo:
But I think to have a real sense of purpose and joy that some form of service is going to be in there for most of us. And maybe not initially. Maybe your first few months after retiring, you do want to play golf and fish and relax. But I’m thinking you’re going to need something more to get up every day after some amount of time.
Bob:
Yeah. Fishing and golf only provides so much of, what I would call, a purpose in life.
Mary Jo:
Exactly.
Bob:
Yeah.
Mary Jo:
And , Bob, as we were preparing for today’s show, I came across another scripture that speaks to change. I think certainly retirement is all about change and actually reaching the end of the race and receiving the heavenly prize. So I kinda thought this spoke to our topic today. Pressing toward the goal from Philippians 3:12-16, “I don’t mean to say that I have already achieved these things or that I have already reached perfection, but I press on to possess that perfection for which Christ Jesus first possessed me. No dear brothers and sisters, I have not achieved it, but I focus on this one thing, forgetting the past and looking forward to what lies ahead. I press on to reach the end of the race and receive the heavenly prize for which God through Christ Jesus is calling us. Let all who are spiritually mature agree on these things. If you disagree on some point, I believe God will make it plain to you, but we must hold on to the progress we have already made.”
Bob:
One of my favorite scriptures. I love that one. Thank you for choosing that one, Mary Jo.
Mary Jo:
I think it’s great.
Bob:
I do too, and just because we’re retired doesn’t mean that we quit. I mean we can go into serving in missions and helping others, helping the poor. With all the hurricane, like y’all had a Rockport last year.
Mary Jo:
Yes. There’s so many ways to give back and serve, and it just feels good.
Bob:
It does. You spend your whole life saving for retirement, it seems like. I’ve been saving for retirement a long, long time and I’m not retired yet and I don’t plan on retiring for another 15 or 20 years. We’re going to be talking about if you spent that whole time in retirement, what do you do now? How do you start spending what you’ve saved?
Mary Jo:
Well, that’s exactly it, Bob, and I think the word that we look for is replacement income. Once that employer provided paycheck stops, how do you create your own paycheck in retirement? And maybe we do need a new label, so maybe it’s just after the employment stops. You need to create your own paycheck with others forms of income, forms of passive income. The idea is to generate income to cover your living expenses and so that you can avoid dipping into your principal, at least in the first years, the early years. I think it’s okay to dip into principal over time, and it depends on what your goals and objectives are. That’s very unique for each individual, but it is all about replacing that income.
Bob:
Well, I’ll tell you what I want to emphasize on that part that you just said, avoid dipping into principal. You gotta be careful, very, very careful on that. Just kind of that formula today, if you’re around 60 and you’re going to be retiring at that age, not taking more than about 3% or 4% out of your portfolio a year, but as you hit around 75 you can head more towards maybe a 4% or 5%. When you hit 80, you can do more like 5% or 6% because of the life expectancy and mortality tables. Man, you gotta be so careful about digging into that principal cause once that principal is gone, it’s gone.
Mary Jo:
Welll, and it depends on what your mindset is as far as your objectives. If your goal is to leave a substantial sum to the next generation, you want to be really careful about that, but if your goal is to have your last check bounce, then you might think it’s okay to dip into principal. I think we want to have a happy medium right there.
Bob:
There’s three main types of income that you have when you retire. I like how you broke this down cause I know you wrote this part here, so I’m going to let you share these three.
Mary Jo:
Well you’ve got earned income that comes from working. That requires some level of face time. You’ve got passive income that comes from stock dividends, interest from bonds, savings and CDs, certificates of deposits, oil and gas income from owning mineral rights, and real property income like rental income. Then you’ve got capital gains from your stocks, your real estate, and other investments that play a piece into this. Bob, I was just Googling income and you’ve got the strategy that all millionaires suggest. You should have seven sources of income. Now that a lot of self employed or stay at home moms, that kind of thing, everybody is looking for a way to have multiple streams of income, and I think that’s a good thing. There are many ways to generate passive income.
Bob:
We actually came up with nine different ones, didn’t we? Under the passive income examples.
Mary Jo:
We do. So, we’re going to review all of those.
Bob:
The first one would be social security. And this is something you’ve got to really have an expert, somebody that knows social security, because there’s so much confusion about when to take social security. Also, If you’re married, I emphasize the breadwinner to take social security at a later age because if that breadwinner passes first, then the spouse will receive that part of his or her social security.
Bob:
There’s just so many strategies, and everyone’s situation is different. Your ages are different. It definitely pays to talk with a professional regarding that so you don’t make a costly mistake.
Bob:
Well, the second one is the pension plan. That’s pretty much disappearing today. There’s few that still have pension plans, especially if you’re under 40 or under 45.
Mary Jo:
It’s going by the wayside. If you’re a teacher or there are still some professions where it’s fairly common, but they’re few and far between. The one thing that you have to be aware of is the huge risks with pension income. You have to look at the credit worthiness of the provider. Think of all those municipalities across the country. Maybe Detroit, for example, and how they’ve gotten into trouble with their tax flow and they’re not able to guarantee those pensions and pay those pensions to their policemen and their firefighters. You’ve got to be careful there. If you’re depending on that income, how secure is it?
Bob:
Yeah. Do you remember the GM debacle? And how that whole pension plan just went broke because it was so top heavy.
Mary Jo:
And here in Houston, remember Enron? That paints a whole visual.
Bob:
We’re located in New Braunfels, which is so close to San Antonio, which is a huge military area and retirees, so there’s the military pension. I’m not too worried about that because they have the full faith and power of the government backing that one up. You go North of New Braunfels and we’ve got our capital for the state of Texas. A lot of government pension there. The pension plans with the corporations, those are really disappearing because the corporations don’t want to take the risk of having a pension plan. They gotta guarantee yet.
Mary Jo:
That’s right, and it’s a huge obligation for the employer and it can be financially draining. So we also have interest and that’s interest off of your bonds. We used to do a lot of bond ladders, but now that interest rates are so low, that’s not such a huge component of a portfolio, but it certainly plays a part. We have a lot of people with certificates of deposits and they get their interest off those. If you are loaning money to others and there’s interest that comes from those, interest income is a big one.
Bob:
The CDs. We mentioned the ladders. You go and you look at a five year CD. The rate of return is going to be higher than a four year CD than a three year CD than a two year CD than a one year CD. We’re going to get into what’s called the bucket strategy later in the podcast today. That’s the first three: social security, pension, interest, and then we have the fourth one, which is dividends. That’s from stocks, corporations that are not necessarily growing as much now, but they’re able to pass back profits from the company to the stock holders.
Mary Jo:
We are in Texas and we have a lot of listeners that do have royalties that they get income from – mineral rights that are on their property that they own land. It’s actually out in the country, so that’s a big part of our market here and certainly a source of income. What is the next one?
Bob:
The next one is annuities. That’s where a lot of people will purchase an annuity. A lot of the annuities have what’s called a guaranteed income benefit or they can annuitize an annuity. Now, I just want you to understand that’s based on the strength of the annuity insurance company, so you want to make sure that you’re looking at an A rated company that can back that up with that guarantee, but that is definitely another form of passive income.
New Speaker:
Bob, I was meeting with a client yesterday and we were talking about annuities and they were kind of asking my opinion on it. They had a mishmash of one scattered around that they did after 2008 when the market was so volatile, and they were looking for some level of security. I think that it’s important for everyone to have some stream of income that they can’t outlive. For some people that social security, for some people that’s pension, and for some people, some of the time, annuities make sense. But those situations are fairly rare and you have to look at those. They are very expensive and the person making money on the annuities is generally person that sells it to you. That’s a whole other conversation and one we’re going to have on another podcast. I wanted to touch on that for just a minute.
Bob:
So be tuned for that. We’re going to do that podcast. Everybody always got so tickled at my article that I wrote on this called “The Good, The Bad, And The Ugly Of Annuities” for the old movie with Clint Eastwood in it.
Mary Jo:
There you go.
Bob:
That’s six of the passive income examples. Number seven is just savings. Very similar to CDs, but that’s just a savings account that’s generating some interest. Today’s savings accounts, though, pay so low.
Mary Jo:
Yes.
Bob:
You’re going to be eating into the principal
Mary Jo:
And then we’ve always got alimony. Some of our listeners benefit from alimony. That may or may not be a permanent situation, but sometimes it’s temporary so you want to give some thought to that as to how it plays into your income. And then finally, Bob, what’s the last one?
Bob:
The last one is rental real estate income. We had a podcast just on that recently. Before you go out and buy rental real estate, you definitely want to go back and listen to that podcast where we talked about the benefits, but there’s also cost associated with rental real estate income.
Mary Jo:
I want to back up just a minute. We’ve talked about all the various types of income, but I want to take a minute and clarify between unearned and earned income. I think there might be some questions out there on that. Unearned income, it includes things like annuity payments, pension income, distributions from your retirement accounts, capital gains, interest income, dividends, passive income generated from rental real estate, alimony, the stock dividends and the bond interest, all of which we were talking about, but earned income comes from the actual work that you perform. In order to fund an IRA or a Roth IRA, you have to have earned income and also to have an employer sponsored retirement plan such as a 401k or 4013b. That comes from earned income. So, little differentiation there, and I thought it was important to share that with our listeners
Bob:
As we’re talking about income in retirement, many people will go back into the workforce. I’ll raise my hand to say that if I were to retire, I think I’d want to go work over at Home Depot or Lowe’s because I’m always in it. It’s funny, Mary Jo, we actually have many clients that they’ve retired and they’ve got all these sources of passive income, but then they also have some earned income from that very thing. They work at Lowe’s or they work at Home Depot. I mean I have actual clients, several of them that work at Home Depot or Lowe’s. Then there’s others, sometimes, that will just go back into the marketplace. I know I have some clients that have retired from phone companies. They’ll go back as a part time consultant and have some earned income there.
Mary Jo:
Consulting is big because you become self employed. There’s all kinds of write-offs you can do, and it gives you some flexibility. A lot of professionals or engineers, those types, go back into consulting a lot. I know some nurse clients, they’ll go back to just nursing one or two days a week just to keep their fingers in it. The beauty of what we do, we can do this from anywhere with the miracle of technology today. I don’t look at myself as planning to retire.
Bob:
I’m noticing more and more people that are retiring plan on going back into the workforce but just not in the capacity that they were. They don’t want to be fighting that traffic. It’s going to be more of a part time type of scenario.
Mary Jo:
And when we talked earlier about active or earned income, we went through some of those examples. You’ve got wages, salaries, tips, other taxable employee pay, certainly net earnings from self-employment fall into this bucket if you will, if you own or operate a business, any of that income place. There is another interesting one that falls into this category, and that’s military combat pay. It’s tax exempt but it is considered earned income for the sake of the earned income tax credit. I know in San Antonio, as you mentioned, that’s a very big military community. I’m sure that some of our listeners do have combat pay.
Bob:
I don’t know about retirees, though.
Mary Jo:
No, probably not.
Bob:
All right so let’s keep going because we’ve got a lot more to cover. What’s next, Mary Jo?
Mary Jo:
We’re going to be talking about our bucket strategy, which is a great illustration and they can ask for a copy of that as well. We’re going to get into that in just a minute, but as we’ve been talking about income, there’s something from a scripture perspective that I think is important. You worked hard for this money, and so now it’s time for your money to work hard for you.
Mary Jo:
And this makes me think of the book of Numbers 6:24-26, “May the Lord bless you and protect you. May the Lord smile on you and be gracious to you. May the Lord show you his favor and give you his peace.” And I think having a plan for that income is a way to really have peace as you approach the years after your work life.
Bob:
So next we have investment in portfolio income. This refers to those assets are going to benefit you from what we call capital appreciation. This is like from equities and mutual funds and stocks. And this is going to be types of investments that you hold. You’re not bringing the income off of them right now, but you’re waiting for that capital appreciation for later. Real estate is another example of that – land and buildings – goodness land here in the Central Texas region where we are, Mary Jo – it seems to be increasing by 7-10% a year. Collectibles, precious metals, and even royalties can have capital appreciation in them.
Mary Jo:
Absolutely, and Bob, when it comes to creating an income stream, there are some, I guess best practicees that we to remind our listeners about. We touched on social security and how important it is to maximize your benefits when you are deciding on what strategies, when to start, and when to have your spouse start. You want to consider your life expectancy and any other sources of income you may have and when those start. So there’s a lot that plays into that. What’s another best practice?
Bob:
Oh, well this is considering your spending shifts. We call this the go-go years, the slow-go years, and then the no-go years. When you’re thinking about an income stream, it’s not necessarily just going to be the same amount every single year during your retirement. First, you’ve got to compensate for inflation, but right when you retire, usually we call that the go-go years. That’s going to be for the next 10 years or for sure, many times, the next five years. You’ve got pent up demand. You’re wanting to go on that European trip. You’re wanting to maybe go visit Israel. You’re wanting to do those cruises. That’s many times the most expensive time of your retirement. Then comes the slow-go years where you’re like, I’ve traveled all I need to. We’re happy being around our home and around familiar places.
Mary Jo:
You want to do more fishing.
Bob:
There you go, and then you have the no-go years, which can be an expensive time again. That’s usually just the last three to five years of your life, and that’s because of medical costs, so you’ll have the peak of spending. Then it goes down and then it will go back up. Does that make sense?
Mary Jo:
Totally does, Bob. I don’t think I want any of those no-go years.
Bob:
I don’t either. None of us do.
Mary Jo:
Another thing to be aware of is to be tax aware. You want to build tax efficiency into your strategy. I remind clients that those first few years when they separate from their employer, but before the age of 70.5 when they have to begin taking money out of their IRAs, these are generally the lowest tax bracket years, the lowest earning years that they’re ever going to have. So, you want to capitalize on that and take money from very tax efficient sources. That’s something we talk a lot about with our clients.
Bob:
Another thing is as you’re taking money out, you’ve got to be very careful about your spend down rate. Like we mentioned earlier, around 3-4% is considered doable, depending on your age. That can go higher, but when we say 3-4%, we’re talking if you retired around 60/65 – 3-4% all the way up to 70 – once you get above 70/75 you can go to a more like a 4% or 5% pay out. So, just think of it this way. If you retire with $500,000 and you’re 60 years old, you shouldn’t be taking out more than about $15,000 – $20,000 a year from that portfolio. Now, if you still have $500,000 and you’re 75, you can take more like the 5% or 6%, which is around $25,000 – $30,000 a year. But that needs to be looked at very closely on at least an annual basis, if not more, to make sure that you’re not spending down your savings cause you don’t want to end up with no savings with another 10 years to go in life.
Mary Jo:
That’s right. You don’t want any life after and no money.
Bob:
Right? Well no, wait a second. We don’t want to tell anybody if you don’t have any money, we still want you to be around.
Mary Jo:
And the next one is you’ve heard his talk about required minimum distributions and again that’s something you have to take out of your tax deferred accounts after the age of 70.5. A lot of our listeners don’t need the income from their required minimum distributions. You can do things with that, like give it directly to charity, and you’ll get a tax advantage for doing so. We’re going to talk a little bit more about that, but you certainly want to have a strategy in place, whether you need that income or not. It’s very important.
Bob:
Yeah. So, if you’re retired and you’re above 70.5, You definitely want to keep listening to the podcast because just in a few minutes we’re going to get into talking all about what we call RMDs or required minimum distribution. The next area is creating a laddered bond or CD portfolio. This is where you take out say a 10 year bond and an 8 year bond and a 7 year every two or three years all the way down to just a two year maturity. That’s what we call a bond ladder. You do the same thing with the CD and as these come due, then you roll them over. That works very well with a retirement income strategy.
Mary Jo:
Exactly, Bob. And then we also want to talk about risk tolerance and how that changes over time. So, when you’re talking about your investment portfolio and your savings, typically the of thought is that you want to become more conservative as you get closer to needing that money, and that probably used to be very true in life expectancy. We weren’t expected to live past 75, but that sure has changed when life expectancies now are 95. Retirement years could be 30 years, so you still need growth on your money. Being too conservative can cost you, so you need to think about that, and that needs to change over time.
Bob:
Oh, we’re just about to talk about the bucket strategy. We’ll get into that in just a minute here about how to utilize that risk tolerance. Then number 8 of this 9 areas of creating an income stream is you want to reallocate and rebalance your income stream portfolio on a consistent basis so that you don’t get overloaded in one area.
Mary Jo:
As the market does its thing and it moves depending on what’s happening in the economic cycle, certain types of investments will do better than others. For example, we’ve been in a period of tremendous growth. So, in your portfolios, your growth funds, your large cap growth funds, those who have doing pretty well, sometimes international investments do well. You want to continue to keep those rebalanced and reallocate so that you’re in line with your risk tolerance.
Bob:
Now, an experienced registered investment advisor like we are here at Christian Financial Advisors, we do that for you so you don’t have to worry about that so you can enjoy retirement.
Mary Jo:
That’s right. Let the professionals help you with that.
Bob:
And then the last one, I’m gonna let you share that one, Mary Jo
Mary Jo:
Separate needs from wants. And I think, Bob, you had an ulterior motive with that. So, are you telling me that shoes are needs or wants?
Bob:
It depends on if their tennis shoes or if it’s that 30th pair of dress shoes.
Mary Jo:
Ah, okay. So, we’ve talked about the various types of income and a lot of times it’s good to have your annuity income or that income stream that you can’t outlive. Have enough of that that’ll cover your fixed expenses. So that’s generating that income that you can’t outlive, and then you’ll use your other sources of income to cover your discretionary spending.
Bob:
Okay, so we’re going to be talking about a strategy now that we use here a lot at Christian Financial Advisors called the bucket strategy. The bucket strategy is something that we like to use here at Christian Financial Advisors because we look at a portfolio and divide it into four different buckets.
Mary Jo:
Bob, I always like to stop here. I think that this is a wonderful visual. I can’t think of a better visual to illustrate our point, but our clients work hard for their money, so I always want to apologize that we put it in a bucket, but bear with me.
Bob:
These are buckets that are growing. Let’s try to picture this in your mind. And Mary Jo, I’ve used this for so long, I don’t even have it in front of me because it’s just so natural to me from building this thing. Think of four different buckets, and one bucket is going to be a conservative bucket. This is the bucket that is going to be making the lowest return, but it’s also going to have the least risk and this is the bucket where you want to take your income from. You don’t want to take your income from a balanced bucket, a growth bucket, or an aggressive growth bucket because those are much more volatile. Look at it this way. Let’s say you have a $1 million portfolio. So, we have $1 million portfolio. We’re going to take off, like we mentioned earlier, 4% a year, so it’s going to be $40,000 a year. We take $40,000 we multiply that times 4 and we would take $160,000 and put it in that conservative bucket. Now, am I coming across clear on this? I want to make sure.
Mary Jo:
Oh, I think so. And you think of it that that’s the bucket you actually put the spicket on. So that’s where the income is going to come from.
Bob:
Because that’s your most conservative return. We don’t want to take everything in retirement because like Mary Jo said earlier, you could be living 25 or 30 years during retirement.
Bob:
We take that four or five years of income, put it there. We take another four or five years of income, put it in the balanced bucket. That’s going to be the money that you’re going to use after you use up the conservative bucket, and then we put the remaining amount of money in a growth and aggressive growth bucket that’s not going to be used for 9, 10, 12, 15 years ou. Now, during this time while you’re taking this money out, we shift these buckets around. We take profit off of the growth bucket in the aggressive growth bucket. Go put it in into the balance and put it into the conservative, so it’s not like you’ve got to completely run through your conservative bucket, but that’s the bucket that you want to be taking money from because you never want to be taking money from a growth or aggressive growth bucket because those are the most volatile. They are going to be the most up and they’re going to be the most down, and you don’t want to be taking money out when you’re down.
Mary Jo:
One thing I think that is important for us to add is this is a concept, but it’s very unique given every situation and every client is unique. They have their own preferences, their own risk tolerance, and their own financial situation. Someone who has more money than they’re going to need to live on, that aggressive bucket, that’s a great way to grow money for giving to charity or to pass on to the next generation, but if you’re going to need that money for your care, for example, I don’t think it always pays to swing for the fences. I’m a big fan of that balanced bucket for the majority of us. If you look at historical returns over a 30 year period, an aggressive allocation doesn’t always outperform. I think taking that middle of the road approach for the bulk of your portfolio makes sense for most of us. Most of the time.
Bob:
I want everyone to understand that none of these strategies that we’re talking about will necessarily apply to you. These are individual strategies in which you need to get with a qualified financial advisor, if not us, then someone else that has a lot of experience and has been around a while and is a fee based advisor. We like to emphasize that so they have a vested interest in you, because you’re the one paying them, not some big company paying them. Every one of you that are listening to this podcast, please understand that when we talk about these strategies, you can’t just take these strategies and apply them to you specifically because you may be different.
Mary Jo:
That’s right.
Bob:
Is that the way to say it? Is that the right way to say it? Cause we want everyone to understand it because everybody’s an individual.
Mary Jo:
Very much so. When you’re in this phase of life, seeking that professional advice is so important. And it reminds me of a scripture from Proverbs, “Listen to advice and accept instruction and in the end you too will be wise.”
Bob:
So we’re coming to the last part of the program. We’re going to be discussing a little bit about RMDs, required minimum distributions. Mary Jo, we serve a lot of retirees here at Christian Financial Advisors, and they’re always concerned so much about their RMDs. What am I going to do with that? Where’s that going to go? Because a lot of them are not taking money out of their IRAs. They have so many other sources, especially in our area. We have a lot of military retirees and a lot of retirees, actually, they retire from Houston and come over here to New Braunfels. A lot of them work for the larger oil companies, and they have that pension, so they have enough from their pension, enough from their social security, maybe outside investments. They don’t even need to touch their IRAs, but they get really concerned as they get towards that 70.5. What am I going to do with the RMDs?
Mary Jo:
And there’s all kinds of strategic things that you can do. When it comes to the IRS mandates, you take those required minimum distributions out of your traditional IRAs and your employer sponsored retirement accounts. But there’s all kinds of creative things you can do for it. That reminds me of one key point. If you are still working, you don’t have to take it out of your current employer’s plan, but you would have to take it out of other IRAs that you might have or other rollovers from other employer plans from in the past. But for your current plan, if you’re still working, you may be able to avoid an RMD on those accounts.
Bob:
RMDs offer a really great giving strategy in helping your church or helping those serving in missions. We emphasize instead of taking the RMD yourself, if you don’t need it, taking that RMD and actually using that as a tithing strategy to your church. So, here’s an example. Let’s say you’re going to tithe $10,000 next year to your church, and your RMD is maybe right at $10,000. You could take that RMD and give that from your IRA, give it directly to your church, therefore bypassing that happened to come to you and declaring that as income. We know now with the new tax laws that if you’re married and you have itemized deductions that are over $24,000, you’re not going to get to deduct that.
Bob:
It makes so much sense to go directly from your IRA, the RMD from your IRAs and qualified plans, to your church or to your mission that you care about, and instead of giving cash from on hand, because that may not be deductible.
Mary Jo:
You can certainly, as you said, Bob, mention it as part of your tithing, but you can put it as far as your planned giving strategies, whatever those may be. We’ve talked a lot about RMDs. What are some ways to take those distributions out of the accounts, Bob?
Bob:
Well, you can take it as a onetime distribution. That’s the way the majority of our clientele does, actually. They take it as a onetime distribution. You could take it as recurring distribution. If it was $3,000 a year, that’d be $250 a month. So you could take it like that in monthly distributions. That check can be directly sent to you or it can be electronically transferred to your bank. So, those are some ways to withdraw your RMD.
Mary Jo:
If your annuities are set up in a retirement account such as an IRA, you might’ve heard the term, are they RMD friendly? If you have a recurring payment coming, you’ve annuitized your annuity for example, and turn it into a lifetime stream of income. Those are often deemed to meet the required distribution amount. You certainly want to talk with your advisor and make sure that you’re in compliance there.
Bob:
And we make sure every single year if the RMDs not been taken, with today’s technology, our system tells us. If this person is above 70.5, they’ve got to take their RMD. We go through, and it tells us who’s not taken it. We’ll make sure and contact you before the end of the year so that RMD requirement is taken. By the way, I want to mention something else here that really confuses people about RMDs, Mary Jo. Some people will have two or three different IRAs. They think that they’ve got to take an RMD from each IRA. Well, you can add the total of those IRAs and take the RMD from just one, but it’s gotta be based on the total of their IRAs. Do you find confusion in that area too?
Mary Jo:
Absolutely. So, you do have to take it across the tax code. Roth IRAs do not require minimum distribution. So, don’t think about your Roth. All your traditional IRA, total that up, and you have to take a certain amount and it can come from any one or a combination of those IRAs. But if you have old employer plans, you also have to take it off. So, if you have 403b’s, 401k’s, those will require their own distribution. Before we wrap up on required minimum distributions, I think we owe it to our listeners to talk a little bit about some of those rules and remind them that they have to begin taking it out after the age of 70.5. So, you want to think about where your birthday falls and make sure that you space it so that you don’t have to necessarily take two distributions in one year. Sometimes that can impact people at the age of 71, so you might want to take it a little bit earlier and talk with your advisor about that situation. Also, you want to make sure that you do meet the deadline. You have until December 31st each year to take your required minimum distribution. But if you miss it, the penalty is very steep. If you take less than your required minimum distribution, it’s 50% of the amount that you haven’t taken on time. So that is a pretty steep penalty, but you want to make sure you’re in compliance. And also, Bob, we had some key takeaways on this that we wanted to remind clients of.
Bob:
I’d like to close today with Proverbs 15:22, “Plans fail for lack of counsel, but with many advisors, they succeed.” We’re calling this podcast income in retirement, and if you want a copy of our notes that has all of this information in it, feel free to give us a call or even go to our website at christianfinancialpodcast.com. As we come to the end of the program today, we want you to understand that there’s so much information that we’ve been giving, but we’re here to help you and not only just us, but we rely on counsel ourselves so that we’re making good decisions, and we’re all in this together
Mary Jo:
Very much so. I think it’s been a great show, Bob. If you have any questions, again, don’t hesitate to reach out to us.
[CONCLUSION]
Mary Jo: You’ve been listening to Christian Financial Perspectives. Join us as we explore more about how to apply biblical wisdom to your financial situations.
Bob: To make sure you don’t miss any of our podcasts, you can subscribe to Christian Financial Perspectives on iTunes, Google Play, or Stitcher. To learn more about integrating your faith with your finances, visit out website at ciswealth.com or call 830-609-6986.
Mary Jo: That’s all for now.
[DISCLOSURES]
Comments from today’s show are for informational purposes only and not to be considered investment advice or recommendations to buy or sell any company that may have been mentioned or discussed. The opinions expressed are solely those of the hosts, Bob Barber and Mary Jo Lyons. Bob and Mary Jo do not provide tax advice and encourage you to seek guidance from a tax professional. Investment advisory services offered through Christian Investment Advisors Inc. DBA Christian Financial Advisors, a registered investment advisor.
38 min
November 06, 2018 Episode 8 – The Real Yield of Residential Rental Real Estate
Join Bob and Mary Jo as they talk about residential rental real estate, its pros, and its cons. From maintenance of a rental property to seasonal and vacation rentals, they go in depth to the many facets surrounding this secondary source of income.
29 min
November 06, 2018 8 – The Real Yield of Residential Rental Real Estate
Click below to listen to Episode 8 – The Real Yield of Residential Rental Real Estate
Episode 8 – The Real Yield of Residential Rental Real Estate

Learn about the pros and cons of residential rental real estate.

More episodes >>

Join Bob and Mary Jo as they talk about residential rental real estate, its pros, and its cons. From maintenance of a rental property to seasonal and vacation rentals, they go in depth to the many facets surrounding this secondary source of income.
Many individuals are interested in residential rental real estate because of the extra income that may be earned. It is quite a popular thing to do and for some people, it works out! However, for many, the results from residential rental real estate (the good and the bad) can be not quite favorable.
Bob and Mary Jo take a deeper look at residential rental real estate property by taking you inside all of the many facets that encompass this topic, including the many risks associated and the comparison of investing in real estate property vs investing in the market.

HOSTED BY: Bob Barber, CWS® and Mary Jo Lyons, CFP®
Mentioned In This Episode

Christian Financial Advisors
Website

Bob Barber, CWS®, CKA®
Mary Jo Lyons, CFP®, CKA®

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EPISODE TRANSCRIPT

[INTRODUCTION]
Bob: Welcome to Christian Financial Perspectives, a podcast where we talk about ways to integrate your faith with your finances. This is Bob Barber.
Mary Jo: And I’m Mary Jo Lyons.
Bob: Are you ready to learn how to apply biblical wisdom to everyday financial decisions?
Mary Jo: Join us as we look at integrating your faith with your finances. If it’s your first time listening, welcome to our podcast, and if you’re a returning listener, welcome back.
[EPISODE]
Mary Jo:
I’m really excited about our show today on the real yield of rental real estate. It’s a topic that always generates a lot of interest in a lot of questions from clients.
Bob:
Yes, it does, Mary Jo. I’m excited about it, too, because I’ve been involved in real estate for so many years. I think I’ve told you about this before in the past. What is it now, 34 years of experience in real estate. So, I have a lot of experience in this subject that we’re going to be talking about today.
Mary Jo:
I know it’s kind of near and dear to your heart. You’ve been through this process for yourself personally and helped many friends and clients through this. I think we’ve got a lot of share that’ll be really interesting to our clients.
Bob:
You hit on that right, Mary Jo, and not only me personally, but my dad as well. My dad’s now gone to be with the Lord a couple of years ago, but he was involved in real estate for over 45 years, so you count my dad’s involvement and my involvement. You put that together. That’s a lot of years. I grew up in the real estate industry.
Mary Jo:
Why do you think that this is so popular with people that the idea, I don’t want to say the romance of it because it’s a lot of hard work, but the idea of using rental income as part of their replacement income in retirement, why is there such an appeal to that?
Bob:
I think there’s a lot of reasons for that. One is it’s tangible. It’s something you can touch. You can go see it. You can drive by it. There might be a little bit of prestige with it, also. Of course, all of us have many friends we know that are in the real estate business. What about you?
Mary Jo:
Well, I think that’s true. It’s definitely a popular thing to do, but I think what our point is, it does work out well for some, but a lot of times it doesn’t work quite so favorably. I think today one of the things we want to talk about and explore are some of the risks associated with rental property, but before we do that, I think it makes sense for us to look to the Bible for some wisdom as we always do as we start the show.
Bob:
That’s the best way. I am in total agreement with you. You want to share this scripture that you got out of Luke?
Mary Jo:
Yes, so counting the cost of future plans from Luke 14:28, “But don’t begin until you count the cost, for who would begin construction of a building without first calculating the cost to see if there is enough money to finish it.” I think that one definitely the tone, don’t you?
Bob:
It really does, Mary Jo, and I think that’s what today’s program is so good. This is a fantastic podcast that everyone’s going to enjoy once we get into the meat of it. Because I think with buying residential real estate, I think that’s the mistake that so many people make is they don’t count the cost going into it.
Mary Jo:
And we have a worksheet that we’re going to go over that kind of identifies those costs and does some of the math and kind of talks about the balance sheet if you will, but before we do that, I think it’s helpful for us to kind of go through some of the pros and cons. Interestingly, some of these are both pros and cons, but I think there’s a lot to consider. One of the most is sweat equity. If you’re not a skilled carpenter, if you’re not skilled in electrical and plumbing and all the repairs and maintenance that come with rental property, those repairs can be quite costly. I don’t know about you, but the last time I hired a plumber had to take out a loan.
Bob:
Just to show up, an electrician or a plumber or a roofer – I remember needing to get a small leak in our roof repaired about year and a half ago – and just for him to show up was $150 to $200 and then on top of that is cost for any additional materials and labor. So, it is quite expensive.
Mary Jo:
They are definitely, that’s true.
Bob:
And if you don’t have those skills – because as residential property, things are going to break and there’s going to be leaks and water heaters are going to go out.
Mary Jo:
Yeah. For some people it’s a hobby, kind of what they do to spend their time. They go from working to get a paycheck to building their rental income and repairing that, and they enjoy it. To them it’s not necessarily work. It’s more of a labor of love. But I know my husband is best without a hammer in his hand. I know he’s going to listen to this, but I hope he doesn’t take offense.
Bob:
It’s so funny you say that. Cause I remember when Rachael had to come up to Houston to visit MD Anderson for her cancer, and y’all came home and none of your doors were squeaking anymore. Just so y’all know, when Rachael and I, my wife and I, go to Houston, we’ll stay at Mary Jo and Mike’s house. So, y’all came home and I didn’t think that was a big a deal, but that was a big deal with y’all.
Mary Jo:
He noticed it immediately when he got home. Oh, Bob’s been here cause the door’s not squeaking.
Bob:
Well and I am one of those people. I mean I could take a dishwasher apart and fix it. I can take a washing machine apart and I like doing it, but a lot of people don’t. My dad, as involved as he was in real estate, he couldn’t fix anything either. So tell Mike not to feel bad.
Mary Jo:
Yes. Another big risk is geographical risk. And I know you’ve got a little bit of a story that you shared with me in the past about your dad and his experience with rental houses and income. So, why don’t you share that with our listeners?
Bob:
During the 1970s when we were growing up in Austin, most people probably have a hard time believing this, but the economy in Austin was really, really bad. We moved down to Lake Jackson, Texas, which is kind of around your area, and there’s DOW Chemical down there. My dad was in the real estate business in Austin and wanted to be in the real estate business in Lake Jackson. It was my uncle that lived down there that really spurred us to move our family, and by the way, it was a fantastic place to grow up during my junior and high school years. Just a great place. But during that time in real estate, Dad accumulated a lot of rental homes and dad liked to cumulate the kind of rental homes that the blue collar, hardworking guy that worked at DOW that was the welder and work at the plant could afford.
Mary Jo:
I think that’s what most people try to do.
Bob:
Exactly. He didn’t want to get the high price stuff, he wanted to get the normal two bedroom, two bath or three bedroom, two bath homes. So, he accumulated a lot of homes around the Lake Jackson and Freeport area. And for your listeners in this area, they know all about that area. He accumulated over 40 properties at one point. And what happened was in the late seventies, DOW Chemical had this huge layoff and many of their blue collar workers were laid off. Unemployment went up and his houses went vacant and he had made the mistake of leveraging them, meaning that he had borrowed some money on these homes. And you know what happened? He had to make those payments and he continued to have to pay taxes and maintenance and insurance. And this went on for a couple of years. I saw not just him, but I saw many friends, my dad’s friends and people I’d grown up with and come to know, I saw them get hurt by this dramatically. Not only did that happen, but also the economy was starting to go bad up here even in the Austin/San Antonio area where we’re from. In the mid eighties, I saw the whole thing collapse then. We had a boom up here, and of course we’re having that boom now, but I couldn’t believe that this whole thing crumbled when he had that many rental homes, but he had it all in one geographical location. And that’s what happened. And as you know, the same thing could happen with someone that’s in a high hurricane region or think about all the fires out in California, how you could just be destroyed if you are in one geographical location. So, there’s geographical risks in real estate.
Mary Jo:
What sounds good at first doesn’t always work out that way some of the times, and you want to make sure that you got the time and the physical resources, the financial resources, to handle those kinds of downturns. There’s a passage in Joshua 9:12-14 that I think speaks to this, “This bread of ours was warm when we packed it at home on the day we left to come to you, but now see how dry and moldy it is? And these wineskins that we filled were new, but see how cracked they are? And our clothes and sandals are worn out by the very long journey. The Israelites sampled their provisions but did not inquire of the Lord.” So they really didn’t ask the Lord for his blessings.
Bob:
This is a beautiful passage that you picked here, Mary Jo. I really like this because it really speaks to what we’re talking about today, and things can look real glossy and great upfront, but they didn’t see the cracks and there can be some cracks in this.
Mary Jo:
Right, and another risk that is inherent is tenant risk. What thoughts come to mind for you on that one?
Bob:
I’m looking at some of your notes here and it’s definitely true. No one’s going to care for that property the way that you would and boy that is a major risk. The risk of what kind of tenant. I would really want to look at their long term track record. Are they the kind of tenant that’s going to come in and at the end of six months walk away? You really need to do a background check on your tenants. Now today, I know they’ll do credit checks, but I would find out as much about that tenant as you possibly can and know their background.
Mary Jo:
Some of them can be really needy and demanding. They often pay late.
Bob:
Yeah, that’s the truth. Yeah.
Mary Jo:
Who knows what their friends and family are like and then not to mention their pets. Dogs can be pretty destructive on a property. A lot of them are diggers and chewers. So, you have to take all of those things in mind.
Bob:
Well, I tell you, Mary Jo, I can speak to this one too. As a kid growing up who had a dad that had so many rental homes, when somebody moved out and in between and I was like 14, 15, 16 years old, guess who got to go clean up those rental homes?
Mary Jo:
I can just imagine that crayon marks on the walls, the spill s on the carpet. You pretty much have to start over every time you move a renter in and out with carpet and paint.
Bob:
I can tell you, I saw some amazing things. The worst one was when somebody left some fish in the refrigerator.
Mary Jo:
Oh my. Yep.
Bob:
So I don’t want even want to go into that.
Mary Jo:
And I think that takes us into one of the other pros and cons. That’s if you’re buying in an area for seasonal rentals or a vacation home market. One of the things you have is weather risk. Certainly if you’ve got a lot of snow issues that can be an issue or certainly storms like we’re facing and have faced this last year in the coastal bend area. So, there could be a vacancy as you repair after weather events like that. But also the other thing you have to think about on vacation homes, if you’re buying a property and your intention is to use it as a vacation home yourself but then rent it out the rest of the time, you have to be really careful and you can only use it for two weeks without jeopardizing the deductibility of those expenses. Now, you can go down to do maintenance on it or go up, wherever it might happen to be, and you can justify it that way, but you have to be real careful with that. So, it’s not like you have an unlimited amount of opportunity to use it.
Bob:
Also, you can think about seasons of when your home is going to be rented and when could it go vacant. You don’t want a home going vacant in like October or November or February, March, or April. You want to make sure that you structure your leases around where they go vacant in the summertime or say around December because that’s when people were moving and that’s when people normally want to rent because of the school year.
Mary Jo:
Well, that makes sense. Another one is that real estate, it’s a liquid asset, so it’s not always easy to sell if you got in a bind and you did have to put it on the market to sell it. Depending on what’s going on in that local economy, you may or may not be able to get a quick sale. If there’s an issue with one of the local employers, that could be a problem. And that does happen in certain areas.
Bob:
And I want to emphasize this because the economy has been so good now for so long, especially in the Texas market. Now our podcast reaches across the world and across the United States, but here in the Texas market, when you put a home up for sale if it’s in the right price range, which is below 300, it’s going to sell very quickly. But that doesn’t make it liquid. You still have to have the realtor involved or the title company, the mortgage company. Most people don’t buy real estate with cash today. This is a very strong one.
Mary Jo:
It’s a process that you’ll have to go through, so if the question is, well, okay, whether I should take my money and buy real property and put it on the rental market or should I put it in the market and use it as an investment asset, investments are always liquid because you can sell those and get your money out of them in short order. Usually, your proceeds are available, depending on what kind of investment, within a day or possibly two, sometimes a week at the most, but that’s not always true with property.
Bob:
You’ve got an interesting one on this next one. Real interesting one is transitional neighborhoods. I have a thought about that one, but that is a really interesting one too.
Mary Jo:
Well that’s happening right here, right now in my neighborhood and they just recently rezoned some of the schools. There’s an unfavorable school with a bad reputation that they have now zoned a lot of the residents in my immediate area to go to that school. So, a lot of the parents are pretty unhappy with that. They bought in our neighborhood because of the schools, and now due to redistricting, that has changed. Houses used to sell very quick, but the last two that had been on the market have not been nearly as quick a turnaround. You can hear me sitting here snapping my fingers because I’m thinking quick turnaround, but they have kind of sat there and I’m a bit concerned about that.
Bob:
So let’s zip through these last 10 and then we’re going to get into this worksheet just a few minutes from now. The rental property also requires what we refer to as active management, and somebody is going to have to actively manage that. Either it’s going to be you or you’re going to hire a manager to do it. So, it does require a hands on approach
Mary Jo:
And if you’re a retiree and you want to be traveling and enjoying life and not spending it on things that are going to tie you down, if you don’t hire a management company, then that could be you that’s tied down. So, certainly something to consider. Another pros and cons – a lot of people view rental property as real property – we touched on this a little bit earlier – versus intangible assets like stocks and bonds. So, some people are more comfortable with one over the other. You got any thoughts on that, Bob?
Bob:
No, I don’t. I’m too zoned in to thinking about the next thing here. Well, don’t you just love this? That’s this transparency, isn’t it?
Mary Jo:
But I think it can be a hurdle for some and both have the potential for appreciation, but there is risk. And what about mortgage rates? Even though mortgage rates are rising, we’re still in a time of relatively low rates, but certainly if you finance a home and you don’t have the ability to pay cash, then that’s going to increase your cost. And we’re definitely gonna get into that more when we go through the worksheet.
Bob:
Oh, we go through this worksheet here in just a minute, which by the way, we’re going to have this worksheet available for you. If you’re thinking about buying a rental home, you’ll be able to email us or give us a call. We’ll get a copy of that to you, but when we talk about mortgage rates and mortgage in general, when we put the cost of a mortgage into the math of this, it kills the yield, and most of the times a negative cashflow situation.
Mary Jo:
Not to mention the Bible always cautions us against the use of debt, and in Proverbs 22:27, “Can you do it without borrowing the funds? If you can’t pay it, even your bed will be snatched from under you.” I know that’s one of your favorites.
Bob:
It really is, and debt is always assuming that the future is always going to be bright to pay it back. That is assuming upon the future. We are not saying that debt is a sin. The Bible does not say that debt is evil, but it just warns us that if we don’t have the means to pay, our very beds could be snatched out from under us, and that’s what happened back when we were talking about my dad earlier. He leveraged these properties too much. When they went vacant, he still had to continue to make those payments. I know with you, we’ve talked about how y’all are debt free on your property you had in Rockport.
Mary Jo:
Yes.
Bob:
But those around you, a lot of them weren’t.
Mary Jo:
Well, and that’s exactly right Bob. A lot of those were dependent on rental income, and then the storm came. We’re rebuilding but it’s taking over a year, a year and a half, for that process to unfold. I know now they’re not even going to get back into them probably until January. Those people that were dependent on that rental flow, that has been snatched away from them and some of them are in a world of hurt.
Bob:
I’m ready to get over to this worksheet. How about you?
Mary Jo:
Yes. Why don’t we take a deeper look at those numbers.
Bob:
You might’ve noticed, I just put a number in here on the cost of the property. Here’s what we’re going to do for all of you listening to our podcast. We’re going to go to this worksheet, and this worksheet is one that I built from years of experience. I’ve been using this rental worksheet for 20 plus years. This is something that if you’re looking at buying a rental home, you really want to give us a call and get a copy of this. I’ll tell you, it will really open your eyes as to what the true yield of residential real estate is. We’re going to start off with assuming that you’re looking at a property in the $200-250,000 range and assume that you can rent that property for $1,500 a month or $18,000 a year. We call that our annual gross rental proceeds. So here we’re going to say, you’re going to this $200-250,000 property. $18,000 is going to be your gross, but there’s so much now that we’ve got to take away from that gross proceeds number because you’re just not collecting the $18,000. There’s a lot that comes out of that that really goes into your actual bottom line net yield.
Mary Jo:
It makes me realize maintenance costs and what a big chunk that is. So, you got to talk about painting, roof repairs, plumbing, electrical, heat, and air. Well, if you don’t have heat and air in a house, especially air conditioning here in Texas, you’re gonna have a hard problem renting that house and then flooring and just overall maintenance gutters, that type of thing. So, I think we’ve estimated $2,000 on maintenance.
Bob:
Yeah, we did. And I will say, a lot of you that are listening to the podcast, maybe you’re thinking, well, I’m going to go buy a brand new home. So you may not have that cost for five or six years, but at the end of five or six or seven years, you’re going to have something like that occur. And it can quickly be a $10,000 or $12,000 repair. And there’s your average of $2,000 a year. So, immediately off that $18,000 gross proceeds, take $2,000 out. So, now you’re down to $16,000.
Mary Jo:
Well, and again, if you have that destructive tenant, that could be sooner than 10 years.
Bob:
It most certainly could.
Mary Jo:
And you’ve got to be insured against liability. So, that comes at a cost. We’ve estimated $250 for that annually, and property taxes, that’s a big one.
Bob:
That’s a big chunk. Yeah, and I went out and did my research on this for $200-250,000 home. That’s going to be about $4,500.
Mary Jo:
You also have to have a homeowners insurance, your property and casualty insurance policy on that property. Wouldn’t you say that’s about $1,200, Bob?
Bob:
Yeah, I think that’s very reasonable.
Mary Jo:
And then what about those months when it might sit vacant? You’ve got a tenant change over, somebody moved out unexpectedly due to a job transfer or divorce or something like that, and then you’re stuck with a vacant property for a month or two. So, we’ve just kind of come up with $800 as a potential for that cost.
Bob:
We’re renting this home that we’re assuming for about $1,500 a month, and you are going to have that happen every year or two. You’re going to lose either a whole month or at least half a month while that one renter moves out and another one moves in. So I think this is actually a very conservative number that we’re using. Probably should be higher, but we’re going to put $800 in there to be on the fair side.
Mary Jo:
Even if you have noticed that your tenant is moving out, there is going to be a period of vacancy.
Bob:
Now, don’t worry, I don’t expect all of you, as you’re listening to our podcast, to be adding these numbers up in your head. We’re going to tell you what this final number adds up to here in a minute.
Mary Jo:
There is a lack of diversification, which comes at a cost. So, geographical diversification on your home, typically that’s a single occurrence risk. That’s my insurance talk.
Bob:
Yeah, yeah.
Mary Jo:
Don’t mean to use that lingo.
Bob:
Well, it’s actually in the worksheet, so that’s okay.
Mary Jo:
You got one renter, one market, one location, but if there is a natural disaster of any kind or a local employment situation, there could be a cost with that, but we’re not factoring that in. We’re just putting it out there for discussion’s sake.
Bob:
Exactly right, and then there’s the annual marketing cost of finding a renter. If that renter moves out, we didn’t put that cost very high at all because we’re assuming that you can rent for one or two year period, maybe in a three year period without having to find another renter, but we did put a couple of hundred dollars in there on an annual basis on average.
Mary Jo:
And if you are going to be hiring a property manager or you’re taking on that task yourself, your time is worth something as you go through that and you’re going to incur certain expenses. So, we’ve estimated that to be $1,200.
Bob:
There were two more costs that we didn’t put in here. They’re on the worksheet, but we’re not talking about them today, but you would add another cost if you have a mortgage and you go borrow money to buy the rental property. There’s going to be that annual cost. People don’t think about this one, Mary Jo, whatever down payment you put on rental property, which usually is a requirement of 20% down. So you got to think on a $250,000 house, that’s $50,000 that you’ve put down that’s no longer making you say a 4% or 5% return. You’ve got to put that number in there, too, because that money’s not making you money any longer, but we didn’t put those two elements in there at all. Mary Jo, you’ve got to think about what your time is worth for the management of the property. A lot of people, they’ll hire a property manager to do that, but your time is worth something, and if you’re going to spend an hour or two or even five hours a month, you’ve got to pay yourself something. Your time is worth at least $20/25 an hour. That can add up over a year, and we’ve put $1,200 for the annual cost of what your time is worth for management or what you would pay to a manager.
Mary Jo:
And we’ve talked a lot about the use of that money, whether you take money from a down payment to put on it and you finance the remainder of the balance in a mortgage, or if you pull out the entire cost of the property out of your investment portfolio. That’s coming at a cost because you could have been investing those assets. So, whether it’s the down payment or the entire principle of the mortgage, you’ve got to factor that in.
Bob:
Now are we ready for the drum roll?
Mary Jo:
Let’s do it.
Bob:
Of the annual total expenses for this house that you paid around $200-250,000 for, you have an annual gross rental proceeds of $18,000 the annual total expenses,
Mary Jo:
$10,150
Bob:
$10,150
Mary Jo:
So what does that make our net profit?
Bob:
Again that expenses total $10,150. That makes our annual net profit $7,850 on that $200-250,000 rental home, giving us an average annual rate of return of 3.14%.
Mary Jo:
You know you’re doing a lot of work for 3.14%, and I think if you look historically, the market’s done a little bit better than that.
Bob:
I think so too, and when you look at the liquidity of the investment, especially if you’re having to borrow money, this is what we talked about earlier in the beginning of the program. The things you’ve got to consider is that if you have a mortgage on top of this that’s coming out of that, that yield is less than 3, it’s probably a negative yield when you count all the cost.
Mary Jo:
I think that there are some serious costs to consider, and we want to remind our listeners that if they want to get a copy of this worksheet, they can reach us at Christian Financial Advisors where they’ll find it on our website. You can also give us a call at 877-71-TRUTH or (877) 718-7884 to request your free copy. I was just going to also mention the podcast website. That is christianfinancialpodcast.com you can request it there as well.
Bob:
And I want to say right here at the end of the program, I’m not against buying residential rental real estate. You may think that after hearing today’s show, but I’m just wanting you to count the cost. Back to that scripture that we started from that was in Luke 14:28, “But don’t begin until you count the cost.”
Mary Jo:
I’m just playing devil’s advocate, and you’ve heard that old saying many times, feast or famine. What have we seen happen after periods of prosperity in many communities? You just look around the countryside and in our own towns and cities, and there are lots of them where things have deteriorated over time. So, you’re making a pretty longterm commitment when you buy property.
Bob:
That’s going to do it for today. I want to thank you for listening to our Christian financial podcast for this week.
[CONCLUSION]
Mary Jo: You’ve been listening to Christian Financial Perspectives. Join us as we explore more about how to apply biblical wisdom to your financial situations.
Bob: To make sure you don’t miss any of our podcasts, you can subscribe to Christian Financial Perspectives on iTunes, Google Play, or Stitcher. To learn more about integrating your faith with your finances, visit out website at ciswealth.com or call 830-609-6986.
Mary Jo: That’s all for now.
[DISCLOSURES]
Comments from today’s show are for informational purposes only and not to be considered investment advice or recommendations to buy or sell any company that may have been mentioned or discussed. The opinions expressed are solely those of the hosts, Bob Barber and Mary Jo Lyons. Bob and Mary Jo do not provide tax advice and encourage you to seek guidance from a tax professional. Investment advisory services offered through Christian Investment Advisors Inc. DBA Christian Financial Advisors, a registered investment advisor. Past performance is no guarantee of future returns and returns or losses will fluctuate over time.
29 min
October 30, 2018 7 – What is Christian Wealth Management?
Click below to listen to Episode 7 – What is Christian Wealth Management?
Episode 7 – What is Christian Wealth Management

Learn about Christian Wealth Management from Bob and Mary Jo.

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What is wealth management? Wealth management is a process and does not happen in one meeting but over the course of time. It is a particularly meaty topic, and Christian wealth management is even meatier. Many times, clients and prospects will come to Bob or Mary Jo and ask them, “What exactly is wealth management?”
The term “wealth” in wealth management can be deceiving because many individuals do not consider themselves as having wealth. However, wealth is a term for finances, and it is a concept advisors use to articulate the financial principles and strategies they use as they work with clients.
Join Bob and Mary Jo as they discuss 15 wealth management issues that are critical to the financial well being of most successful families. Not all of them will apply to every situation because every financial circumstance is unique! Each situation is based on individual financial, social, and/or emotional needs.

HOSTED BY: Bob Barber, CWS® and Mary Jo Lyons, CFP®
Mentioned In This Episode

Christian Financial Advisors
Website

Bob Barber, CWS®, CKA®
Mary Jo Lyons, CFP®, CKA®

Want to ask a question about your specific situation? Schedule a complimentary 15 minute phone call.
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EPISODE TRANSCRIPT

[INTRODUCTION]
Bob: Welcome to Christian Financial Perspectives, a podcast where we talk about ways to integrate your faith with your finances. This is Bob Barber.
Mary Jo: And I’m Mary Jo Lyons.
Bob: Are you ready to learn how to apply biblical wisdom to everyday financial decisions?
Mary Jo: Join us as we look at integrating your faith with your finances. If it’s your first time listening, welcome to our podcast, and if you’re a returning listener, welcome back.
[EPISODE]
Bob:
Bob:
Hello, Mary Jo. You doing all right today?
Mary Jo:
I’m doing great. Bob, how are you doing?
Bob:
Well, we’ve had some more rain here in Central Texas, so I’m really excited about that, and I’m really excited about today’s program because we’re going to be talking about wealth management, but we’re definitely going to be talking about it from a different perspective.
Mary Jo:
Yes. Before we get into today’s discussion, there is something that I wanted to talk to you about and I just wanted to get your perspective on something before we go too deep. We know that the Bible, it’s an authority on many subjects, but what about money and investments? How can teachings from thousands of years ago apply to today’s sophisticated economy? How can the Bible compare to all the noise we hear 24/7 on all the financial news outlets?
Bob:
You’re asking me that.
Mary Jo:
You’re the voice of wisdom, aren’t you?
Bob:
I’m like a loaded gun when you ask that kind of question because I believe the Bible is so full of wisdom, and it has so much to say about money management and wealth management. I mean the Bible is just full of scriptures, hundreds and hundreds of them. And matter of fact, there’s a couple of thousand of them. But let me share a few scriptures that I really just want to take to heart today. Like Proverbs 15:22 is one that speaks in the Bible that, “Plans fail from lack of counsel, but with many advisors they succeed.” Hey, this is one of my favorite scriptures when it comes to wealth management and applying that scripture to wealth management. None of us is an Island. We need one another, and the Bible speaks about how we need one another. We had a whole show on how to seek wise counsel. Now, I’m a big Proverbs guy, so I’m sharing some of these scriptures from Proverbs like Proverbs 13:11, “Wealth from get rich quick schemes disappears quickly, but wealth from hard work grows over time.”
Mary Jo:
I think I heard my dad tell me that a time or two.
Bob:
Yup. Yeah, I think I did the same thing. That is a wealth management scripture. It says it right in there, wealth from get rich quick schemes disappears quickly. Then there’s Proverbs 21:5, “Good planning and hard work leads to prosperity but hasty shortcuts lead to poverty.” And then we’ve got Hebrews 4:12-13 that just really speaks about the word of God and that the word of God is alive and powerful. “It’s sharper than any two edged sword cutting between soul and spirit, between joy and marrow. It exposes our innermost thoughts and desires and nothing in all creation is hidden from God,” including our finances. It doesn’t say that in there, but I kind of added that part, “And everything is exposed before his eyes and he is the one who we are accountable for.” So when it comes to wealth management and how we handle everything that God’s given us, we’re accountable to God, how we’re handling that.
Mary Jo:
Most of the scriptures that you read for us, they all mentioned hard work and that kind of ties well into wealth management because most of us have accumulated wealth through our hard work. I mean not always, but for most of us it’s come from our earnings over the years. We’re going to kind of tie those together. Wealth management generally by itself, it’s a meaty topic, but when you throw in Christian wealth management, it’s even meatier. And I hear clients, they ask me all the time, “Exactly what is wealth management?” So most don’t think of themselves as having wealth. Wealth managements is a concept that we as advisors use to articulate the financial principles and strategies that we use as we work with our clients. It’s very much a process and it doesn’t happen in one meeting, but it happens and develops over the course of time. Wealth management is a discipline that incorporates financial planning, investment management, tax planning, and financial goal setting. We look at it as a very holistic approach where we’re coordinating all the moving pieces and parts of your financial life. And from there, we’re able to provide solutions that will help you achieve your objectives. Those solutions are both suitable for the situation and in our case, they’re in your best interest always. And in other words, we are looking at the whole enchilada.
Bob:
You sound like a South Texas girl when you say that.
Mary Jo:
I always look forward to my Mexican food on Friday nights.
Bob:
So wealth management is not just the enchilada, and it’s not just the taco and it’s not just the beans and it’s not just the rice and it’s not just the guacamole, it’s all of it.
Mary Jo:
It’s the Mexican plate.
Bob:
Today, we’re going to be talking about 15 of those wealth management issues, but Christian wealth management adds another layer on top of that because as we look at all these issues, Christian wealth management is doing all of that in a way that brings glory to God and that is grounded in his word that allows us to integrate our faith with our finances. You and I have said that many times and that’s what we’re all about is integrating our faith with our finances.
Mary Jo:
Absolutely. And in a true wealth management approach, which is what we offer at Christian Financial Advisors, our clients develop a deep and trusting relationship with us as their advisor. We work with them to understand their entire financial picture, their goals, their priorities, what matters most to them, what their feelings are about money. And then we lay out options and we discuss the pros and cons of each of the options with our clients and what those approaches mean. So, we serve as a financial advocate and most importantly a trusted fiduciary. You were talking a lot about Proverbs earlier, Bob in Proverbs 15:27, “A man of understanding will acquire wise counsel.” I think you shared that earlier.
Bob:
Another thing about wealth management as we talk about this, Mary Jo, is that every person is different. So every situation is unique and we’ve got to customize the approach to the way we look at wealth management to fit that particular person or family’s individual needs. Because financial advice is really about communicating and digging deeper, and we like to ask a lot of questions to cover a particular family’s financial, their emotional, and their social needs so that we can understand how to lead them on this wealth management journey. And truly, as a trusted financial advisor, it’s about developing a clear and compelling financial vision for that family. And when necessary, we look to bring in other experts as a wealth management process, like an attorney, a CPA, an insurance specialist, and many times even a planned giving specialist. I know we had a program on giving and that’s an example. Maybe somebody needs a donor advised fund or a charitable remainder trust or a charitable gift annuity. So, we can bring in a specialist that can integrate that with the full wealth management picture.
Mary Jo:
They call this a deep discovery process and that’s what we hope to do with our clients is discover everything we can about them so that we can make the most appropriate recommendations for them. And at Christian Financial Advisors, we work with our clients on what we described as the 15 wealth management issues, so we’re going to run through those shortly, but you can also find these on our website ciswealth.com or you can get a free copy by calling us at 877-71-TRUTH. That number again is (877) 718-7884 and these wealth management issues are key issues that are critical to the financial wellbeing of most successful families, not all of them apply to everyone in every situation. As we mentioned earlier, we take a very disciplined approach to addressing these. We can’t cover them all in one meeting, but over the course of the relationship and as the clients give us their priorities, we’ll begin addressing them throughout that relationship and as you move forward in your quarterly meetings, annual reviews, that sort of thing.
Mary Jo:
One of the things as a financial planner, I have the opportunity to give clients a vision of what they can become financially. So money becomes a tool. My purpose in going through the financial planning process is that by working towards these goals, the clients become a better steward of their God given resources. So when it comes to finances, there are many areas that aren’t black and white in scripture, but there are a lot of principles that we can we follow. We’ve shared a lot from Proverbs already and in Proverbs 21:5, “The plans of the diligent lead to profit as surely as haste leads to property.” It’s another good one.
Bob:
Good financial advice always has its roots in biblical wisdom, and financial decisions can have a lot of emotional traps attached to them if we’re not careful, but a trusted financial advisor can help you navigate those and avoid those emotional drivers that get in the way. So, think about it this way. When you think emotionally, it’s hard to think rationally. Really, you can’t think rationally if you’re just thinking emotionally. Life really is about decisions, and decisions determine our destiny. Everything we do while living here on earth can have eternal consequences. We should always ask ourselves, what would God have me do in this wealth management decision? Or as the old saying goes from a long time ago, WWJD, I remember when we used to wear the WWJD bracelets. Really pray and seek God’s word in financial decisions. For a Christian, a financial decision is a spiritual decision and a spiritual decision is a financial decision. There’s a good scripture here from James 1:5-6 out of the NIV, “If any of you lacks wisdom, he should ask God who gives generously to all those without finding fault, it will be given to him. But when he asks, he must believe and not doubt because he who doubts is like a wave of the sea blown and tossed by the wind.” I will say this many times. I’ve just had to stop and say, Lord, I need your wisdom here because I don’t understand what this is trying to tell me, but give me your wisdom.
Mary Jo:
Every time we do take a moment to stop and pray when we find ourselves in a complex situation or somewhere where we’re unsure, I think we always find a little bit more clarity. Your use of money reflects your goals, your values, your priorities, and of course your spiritual convictions. By making good financial decisions, you can bring balance into your life. This allows you more time for what matters most, and I think that’s relationships. Purposeful planning helps us become accountable, which leads us to peace of mind. That is true wealth. So Bob, we’ve been talking a lot about wealth management as a whole. Why don’t we just kind of begin to run through those 15 specific wealth management issues and how they relate to biblical principles.
Bob:
Now, that was quite an introduction to get to the 15 wealth management issues. So here we go. All right, we’re going to go through these pretty quickly. But the nice thing about as we talk about these wealth management issues is that we’re going to have different programs on nearly each one of these on the podcast. The first wealth management issue that we’ve had an entire program about is estate planning. And if you remember, we’ve made that podcast called “Estate Planning: The Wrong Way, The Right Way”. And that might be something you might want to go back and listen to. Proverbs 20:21 says, “An inheritance gained quickly at the beginning will not be blessed in the end.” So ask yourself this question. Have you created a wise plan for handing off your wealth to your heirs and ministries you care about after you’re gone?
Mary Jo:
Another thing we touched on in that episode was multigenerational planning. One of the things that families need to think about in the wealth transfer process – are your heirs qualified to handle that inheritance wisely and from a biblical perspective. In Deuteronomy 4:9, “But watch out. Be careful never to forget what you yourself has seen. Do not let these memories escape from your mind as long as you live and be sure to pass them on to your children and grandchildren.” So as you think about your family, your situation, and your heirs, are all of them prepared for it? Are all of them the best choice to receive that inheritance? So, there’s ways you can plan and spread it out. You don’t have to give it to them all at once, but there’s all kinds of unique things you can do to better prepare the next generation.
Bob:
And that’s what we help you do. Okay. The third strategy that we look at of the wealth management issues is tax planning. So you have to look at this as part of it. An example, is your tax burden really high, like more than $50,000 a year? And if it is, we can do a lot of planning that can many times save you $1,000, $5,000, maybe even $10,000 in good tax strategies. But I do want to emphasize on this wealth management issue is where I like to bring a well qualified CPA in, and if you don’t have a CPA then we can help you get one. But if you do have one, we’ll work with that CPA as well. Mary Jo, I think we both want to say here, too, that we’re not CPA’s and that you need to seek the advice of a CPA with complex tax planning issues.
Mary Jo:
Because we do not give tax advice.
Bob:
That’s exactly right.
Mary Jo:
And I know that our compliance folks want to hear us say that. We’re staying out of jail.
Bob:
A scripture we like to use that goes with tax planning is from Romans 13, “For the authorities do not strike fear in people who are doing right, but in those who are doing wrong, would you like to live without fear of the authorities? Do what is right and they will honor you.” That’s a great scripture that goes with tax planning because we want to be totally honest with our tax planning. Of the 10 commandments about stealing and lying, 9 and 10 of the 10 commandments – that goes kind of under tax planning because we want to do everything above board.
Mary Jo:
We’re talking about legal tax planning.
Bob:
Yeah, legal. Exactly. Totally. Totally legal. Not illegal. Matthew 22:21 it’s interesting when they were trying to trap Jesus and they said, should we pay taxes? And he took that coin and he said, who’s picture is on this coin? And they said, Caesar. And he said, then give to Caesar what belongs to Caesar and give to God what belongs to God.
Mary Jo:
We are going to be doing a special podcast on tax planning, but it’s also something that should be thought about throughout the year, not just in April as you’re preparing this year’s taxes. You want to be thinking about the year to come. Towards the end of the year, make sure that you are doing everything you can so that you’re well set up for the following tax year as you prepare your return. Also, many of our listeners are small business owners and they are doing tax planning on a quarterly basis. It’s something that we need to think about continually.
Bob:
So many people come to me with two weeks to go in the year or like you say, two weeks before April 15th, and they want to do all of their tax planning. And it’s like you say, you’ve got to do this way in advance all year long and it can result in thousands of dollars in tax savings.
Mary Jo:
That can be big over time, for sure. So our next one is planning for risk and liabilities. Do you have a plan in place to shield you, your family, and your business interest from major liabilities and lawsuits. In 1 Peter 5:8, it reads, “Stay alert. Watch out for your great enemy, the devil. He prowls around like a roaring lion looking for someone to devour.” I think I shared with you, Bob, one of my little stories. Last year, around Christmas time, I was coming home into the neighborhood and I came around the corner and I looked up and I saw our neighbor. This is the same neighbor that has a pool in their backyard and they have dogs so they should be having a liability policy just for those reasons. But I looked up and he had another neighbor and they were both on the roof on ladders, installing Christmas lights. So I roll down the window and I said, Jeremy, do you have a liability plan in place? And he had one the next day.
Bob:
It is amazing,
Mary Jo:
We’re always wearing those hats.
Bob:
I have Ron First from Christian Insurance Services help us so much and it’s amazing when he looks at homeowner’s policies and automobile policies and we even had in one of our newsletters “are you assured that you have the right insurance” and it’s amazing what he finds all the time cause people buy insurance just based on price and you should never do that. By the way, you didn’t say in 1 Peter 5:8 to paraphrase to today’s – watch out for the great lawyer. He prowls around looking for that lawsuit looking for someone to sue.
Mary Jo:
Sharks, they’re out there.
Bob:
You gotta watch them. The fifth element that we look at of the 15 wealth management issues is planning for incapacity like a death, disability, longterm care. This is where you look at disability policies. You look at your life insurance. You look at longterm care policies to assure that you’re taken care of. Mary Jo, you can really attest to this with your mom, can’t you?
Mary Jo:
Absolutely. November is Alzheimer’s awareness month, so we’re definitely going to be exploring that topic in more detail, but it’s something I’m very passionate about. A lot people don’t realize disability and how important that is because if you’re a surgeon and you get a tremor in your hand, you can no longer do surgery. I have one neighbos who’s an artist, so you have to protect that and that’s where that disability insurance comes in. We probably don’t talk about that enough.
Bob:
Well, I can tell you just last year with the cancer that Rachael has been going through – my wife for those of you that don’t know my wife – last year because she worked in the business a lot and she’s not been able to work in the business near as much with her cancer. Now, that’s gone now and that’s been taken out, but we have a disability policy and we filed for disability during that time that she was having all that chemo and radiation. A question you’ve got to ask here is do you and your family have a plan in place that if you were incapacitated and lost your income, you’re going to be taken care of. And a scripture that I like to go with that is from 1 Timothy 5:8, “If anyone does not provide for his relatives, and especially for his immediate family, he is denied the faith and is worse than an unbeliever.” Pretty tough scripture, but it talks about how we are to provide and not be a burden on those that we love .
Mary Jo:
In Ecclesiastes 11:2, “But divide your investments among many places, for you do not know what risks might lie ahead.” Another good one.
Bob:
Why don’t you go on to number six and then I’ll get into number seven.
Mary Jo:
Number six, budgeting and debt elimination. Do you need to create and implement a budget strategy to eliminate debt and create positive cashflow? Proverbs 27:23-24, “Be sure you know the condition of your flocks. Give careful attention to your herds, for riches so not endure forever and a crown is not secure for all generations.” So we’ve talked about debt in the past, and we’ll talk about that in more detail, but certainly debt, as you always say, Bob, it preys on the future.
Bob:
It really does. When you take out a lot of debt, you’re assuming that you’re going to have a really bright future – when none of us know the future – that you can pay that back and the budgeting. I’m just amazed at how many people really don’t know what their budget is and how many retirees we start to work with. That’s the first thing you got to know is what is your budget. Like he said there, know the condition of your flocks. Number 7 out of the 15 is doing charitable giving and planned giving and do you really have a heart for giving? Would you like to create a legacy that shares your values with your family and others both now and after you’re gone? And this is where we can use things like a donor advised fund. I really liked the scripture from Matthew 25:35-40. It talks about, “When someone was hungry and you gave him something to eat and they were thirsty and you gave them something to drink and they were a stranger and you invited them in, they needed clothes and you clothed them. They were sick and you looked after them. They were in prison and you came to visit them. They’ll look at that and say, Lord, when did we see you hungry and feed you or thirsty or give you something to drink? When did we see you a stranger and invite you in? He looks back, says whenever you did something for the least of these brothers and sisters of mine, you did for me.” So, when you think about charitable giving and when we’re helping to feed the poor and the downtrodden and the helpless, we’re serving God.
Mary Jo:
Absolutely. And Bob, I like to share that we can plan for that during life and at death. It’s just kind of another way to say now and in the future. So that brings us to investment planning. Do you have investment strategies to meet your goals like retirement, maybe a second home for your family, your longterm care needs, miscellaneous major expenditures, maybe a new car in the future, and any other specific goals like maybe caring for elderly parents whenever that may be. And when we talk about investment planning, we want to make sure that we’re coordinating that over all the various buckets, all the various types of accounts, types of investments, types of managers, and types of funds. We want to make sure those are all working together so we make sure your entire portfolio is balanced, not just each little account. We have to correlate that as a whole. From Ecclesiastes 5:19, “Moreover, when God gives someone wealth and possessions and the ability to enjoy them to accept their lot and be happy in their toil, this is a gift of God.” And here’s another one from Proverbs 13:11, “Wealth from get rich quick schemes quickly disappears. Wealth from hard work grows over time.” I think we shared that earlier, but it definitely implies to investment planning as well.
Bob:
You know what’s interesting, Mary Jo, is that we had seven wealth management issues before we even got to investment planning. Yet, most people think of wealth management as just the investment planning piece of the puzzle.
Mary Jo:
Well, there are advisors that only look at that, but we look at your entire financial background and your entire financial picture, not just your investments. That’s only a piece of it.
Bob:
So I want to say before we go into 9, 10, 11, 12, 13, 14, and 15, that as you’re hearing all these, we know that this can just be nearly information overload. It’s like, man, y’all are bringing an elephant to the podcast today and asking me to eat this whole thing. No, we’re not. We just want you to hear all the different issues of wealth management, and we do want you to know that you can go to CISwealth.com on our website and you can look up wealth management and see all of these issues right there. It’s very simple to see, and we have a lot of information on all of these wealth management issues. So, let’s go into the ninth issue. It’s what we call education and family support. Would you like to be able to fund your children or grandchildren’s college education or create future funding for others with special needs? That’s the question behind that one that we like to ask because many of you may have a niece or a nephew or granddaughter or grandson that may have some special needs, and that’s where this issue comes into play.
Mary Jo:
Yes, absolutely and you want to make sure that, as you’re looking at that family support, do you have in writing successor custodian for your children if something were to happen to you. They want to make sure that you’re in control of that decision and not the state.
Bob:
And I must say here, before we go on the next one, this is what I like about using a corporate trustee program too. This 9th wealth management issue goes with possibly estate planning. I mean maybe not the children or grandchildren’s college education, but actually it does because then you can have a corporate trustee come in and help you on that and that’s a whole other subject. We’ll do another podcast on that.
Mary Jo:
Absolutely. That brings us to titling and beneficiary designations. Are all of your accounts titled properly to follow your estate plan? When the attorneys drop the paper, they typically will give you direction as to what to put on your beneficiaries, on your individual retirement accounts, on your 401k at work, but all your various financial accounts. But what happens is people bring those documents home, they stick them in a drawer, and they forget that step. I can’t tell you how many times I have reviewed those for clients and the ex spouse is still the beneficiary and the current spouse and the current children are not taking care of. We just encourage everybody to make sure those are current.
Bob:
It’s just like estate planning. It needs to be looked at every three to five years and updated with your estate plan. The 11th wealth management issue that is a very, very popular one is retirement planning. Are you sure that you have enough funds for retirement? Mary Jo, we just had someone come in today and they’ve been saving for 25 or 30 years and thought that they could retire right now, but it’s hard to retire on just a hundred thousand dollars.
Mary Jo:
Ooh, so how much is enough?
Bob:
To me, $100,000 is only going to generate, safely, about $4,000 a year or around 300 $350 a month. If you’re retiring at 60 or 65, so you need more funds than just a hundred thousand dollars in retirement if you don’t have a pension plan that’s going to be supplementing you. This person’s really not ready to retire like they thought they were.
Mary Jo:
I was just going to add if you want to live on more than what social security provides you, and not everybody’s eligible for social security. So, you have to be thinking about that and time to save.
Bob:
When it comes into retirement planning, too, I do want to mention this. As a Christian, and this is a Christian financial podcast, retirement only appears in the Bible actually just one time. Work appears in the Bible – if you just put like in Bible Gateway – you’re going to see it appears over 400-500 times. So, the Bible doesn’t speak much about retirement, and I think we’re going to really look at retirement differently over the next 10 to 15 to 20 years as people, quite frankly, don’t have enough to retire on. Retirement kind of came about from the Great Depression and trying to get older people out of the work system so younger people could come in. In the Bible where it does appear, in Numbers 8:25-26, “But at the age of 50, the priest shall retire from their service in work and not working longer. They may, however though, assist their brothers in the tent of the meeting.” Some versions say they shall teach their brothers. It’s really about taking that wisdom and helping others at a certain age.
Mary Jo:
I think you’re right, Bob. We’re going to see this label change in years to come, and we’ve been pointing our listeners to our website. They can also find some previous newsletters that we’ve had there. I know I recently wrote an article in that regard that talked a lot about what you were mentioning and the fact that the Bible really refers to work and God intended for us to work and work in joy. Retiring to a life of leisure was not really in the cards. We’re in a different place now. Some food for thought and some things to think about.
Bob:
So we’re down to just the last three or four of the wealth management issues and we’re going to get through these pretty quick. Number 12 of the 15 wealth management issues, which is another big one we see that people are not doing, is essential document and account integration. When you ask somebody, can you instantly access all of your financial information, like your insurance policies, your wills, your trusts quickly, usually they cannot. They have got to go home and try to find it. Or maybe someone has a box at home that has all of that information in it. Today, what’s so great about technologies, you can scan these kinds of documents and put them into a cloud. We have a system here with an app on your iPhone. And I remember when my wife was going through surgery for her cancer a few months back, when we needed a medical power of attorney, all I had to do is hit my app and pull up that medical power of attorney and it was right there ready to go. And that’s what we’re referring to when we talk about essential document and account integration and how important is is to be a part of one of your wealth management issues.
Mary Jo:
And we make that secure portal available to our clients as a benefit for working with Christian Financial Advisors. And that brings us to executive compensation. Are you an executive with incentive plans including stock options, supplemental executive retirement plans, and non-qualified compensation? Again, this probably doesn’t apply to everyone, but my husband has gotten deferred compensation, for example. And in the past we’ve both had access to stock options. That requires a whole level of expertise and certainly something we’re prepared to help clients with.
Bob:
And the 14th one is business succession planning. Again, this will not apply most people, but you’re a business owner, have you created the plan for the transition of your business interest someday? I can really help you here. I’ve owned my own business for many, many years and we do have a business succession plan in place and I know the right attorneys to bring on board as part of the wealth management team. If you do own a business, how to hand that off to the following generation or how you could sell that business.
Mary Jo:
And last but not least, that brings us to holistic financial planning. And would you need a holistic financial plan that integrates all the wealth management issues that pertain to you that we’ve been talking about? This is something that we can look at as a whole. Some people have a very complex situation and they may need a comprehensive financial plan, but some people really may just have a couple of these issues that apply to them. As a Certified Financial Planner, part of our financial planning offer at Christian Financial Advisors, we can do an hourly consultation where it’s a minimum of three hours, but we can touch on say two to three of these issues and really dig deep on those and do it over for just an hourly fee. That is separate and above for somebody that maybe doesn’t need investment management, but they do have a few planning needs that they want to cover. Give us a call if that pertains to you, and I’d be happy to share more details with you
Bob:
As we’re coming to the very end of our program, you’ve heard us talk about all these different wealth management issues. I’m going to pop through them real quick, just one by one, and this shows the importance of why you need a good financial advisor that’s going to look at all of these issues. Estate planning, multigenerational planning, tax planning, planning for risk and liabilities, planning for incapacity, budget and debt elimination, planned and charitable giving, investment planning, education and family support, titling and beneficiary designation, retirement planning, essential document and account integration, executive compensation, business succession planning, and holistic financial planning. Those are all the areas of wealth management and we do that from a Christian perspective and helping you to understand how to put this all together as a really nice puzzle. Then, it’s monitored on an annual basis. Anything you want to say here at the end, Mary Jo?
Mary Jo:
They can find more about this on our website ciswealth.com. You can get a free copy by just giving us a call at 877-71-TRUTH or (877) 718-7884.
[CONCLUSION]
Mary Jo: You’ve been listening to Christian Financial Perspectives. Join us as we explore more about how to apply biblical wisdom to your financial situations.
Bob: To make sure you don’t miss any of our podcasts, you can subscribe to Christian Financial Perspectives on iTunes, Google Play, or Stitcher. To learn more about integrating your faith with your finances, visit out website at ciswealth.com or call 830-609-6986.
Mary Jo: That’s all for now.
[DISCLOSURES]
Comments from today’s show are for informational purposes only and not to be considered investment advice or recommendations to buy or sell any company that may have been mentioned or discussed. The opinions expressed are solely those of the hosts, Bob Barber and Mary Jo Lyons. Bob and Mary Jo do not provide tax advice and encourage you to seek guidance from a tax professional. Investment advisory services offered through Christian Investment Advisors Inc. DBA Christian Financial Advisors, a registered investment advisor.
34 min
October 30, 2018 Episode 7 – What is Christian Wealth Management?
Join us as we discuss 15 wealth management issues that are critical to the financial well being of most successful families. Not all of them will apply to every situation since every financial situation is unique and based on financial, social, and/or emotional needs.
34 min
October 23, 2018 Episode 6 – 18 Income Tax Strategies
In this episode of Christian Financial Perspectives, Bob and Mary Jo discuss “18 Income Tax Strategies for 2018” that may help lower your income taxes. They also supply a variety of Bible verses supporting paying your taxes, as well as verses on finance in general.
44 min

About Christian Financial Perspectives

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Biblical wisdom for financial decisions and goals. Conversations about managing money according to Christian principles, featuring expert insights on budgeting, investing, giving, and building wealth…