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Faith-based investing has been around for decades, but many still wonder, does aligning your investments with your values mean sacrificing performance or diversification? Hi, I'm Rob West. It's a question more investors are asking as they seek to steward their money in a way that reflects their convictions. Today, Brian Mumber joins us to clear up some of the most common misconceptions about faith-based investing and how it really works. And then we'll take your calls at 800-525-7000.
This is Faith in Finance, biblical wisdom for your financial journey.
Well, it's always a joy to welcome back Brian Mumbert. He serves as president of Timothy Plan, a trailblazer in faith-based mutual funds and a valued underwriter of this program. Brian, great to have you with us. Thanks, Rob. Always great to be with you.
Brian, faith-based investing has been around for decades, yet many people still aren't quite sure how it works.
So we want to begin with a common misconception that these funds always come with higher expenses. Is that actually true?
Well, Rob, people often assume that once you start screening companies out, the costs automatically go up. But faith-based funds are managed much like other mutual funds. And with professional research and portfolio management, and in many cases, the expense ratios can be comparable to those of traditional funds, especially with the addition of ETFs as a lower cost option. But I'd like to add also, you know, the expenses can be higher at times. You know, it's based on size of a company, and a lot of our companies are smaller.
But in many cases, I use the analogy that I often will pay a little bit more for something that I truly want. And then the case of investing, if I want to match my values with my investing, I'm absolutely willing to do a little bit more to get exactly what I want to achieve. Yeah, that's well said. Another misconception we hear is that faith-based investing is largely symbolic, more about making a statement than building a strong portfolio, and that prioritizing values must come at the expense of performance.
So I'd love for you to respond to that concern. Yeah, Rob. You know, values-based screening doesn't replace sound investment analysis. Professional portfolio managers are still looking very carefully at all the fundamentals and the risks and the long-term opportunities. And in fact, many faith-based funds produce competitive returns over time, and at other times can even outperform unscreened funds.
Really the goal here is to combine wise stewardship with disciplined investing. Yeah, the data says you just don't have to sacrifice returns to invest in a way that aligns with your convictions. All right, Brian, here's one that can sound a bit technical, but it comes up often.
Some critics argue that faith-based investing doesn't really create impact since shares are simply traded on the secondary market, meaning someone else will own the stock anyway. How do you respond to that? We hear this one pretty frequently at Timothy Plan, and I imagine other firms hear something similar. And it's true that most stock trading happens in the secondary market.
So we're passing an investment along from one person to the next. And if you're not buying the IPO or the initial public offering of a company, they don't necessarily see this money. But investment is ownership at the end of the day. And I use the example a lot. If I own a tobacco stock, even though I purchased it on the secondary market, I need that business to be successful.
If the industry or the business that I'm purchasing is tobacco, Then the only ultimate success there is for them to be more profitable, is to sell more product, and to cause more people to be addicted to their product. Um and shareholders really do have a voice as well. We vote proxies here at Timothy Plan, and you can engage with companies. And for many believers, the goal is really faithful stewardship, not profiting from businesses that conflict with their convictions. Yeah, excellent.
Now another concern, Brian, we often hear is that screening companies could limit diversification, leaving investors with a smaller pool to choose from. Is that something investors should be concerned about? Quite honestly, no, even with the strictest of screening interpretations, which I would put Timothy Plan in that category. We still have approximately 90% of the investible universe available to be invested in. And with good fund management and sound fundamentals, you may lose some of the biggest names that are out there, but there are plenty to choose from and you can really diversify across asset classes and truly achieve the returns you're looking for.
Excellent.
Well, thanks for clearing those up. You all have been at this a long time at Timothy Plan, haven't you? Yeah, Rob, you know, at the end of the day, with 32 years of doing this, Timothy Plan has proven that this is more than just a nice concept. It is the way to invest and increasingly so. Brian, thanks for your time today.
Thank you, Rob. Our guest today has been Brian Mumber, president of Timothy Plan. To learn more about their faith-based investment funds, visit TimothyPlan.com. That's TimothyPlan.com. All right, your calls are next: 800-525-7000.
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Let's take phone calls here. We do have a few lines open. If you've got a question, you can call right now, 800-525-7000. Let's go to Chicago. Linda, go ahead.
Hi there, Rob. I am deep in the number weeds of figuring IRS right now, and I have done our family IRS Um taxes for years.
So it might be partly just a control freak issue, too. But what has got me scratching my head is annuities. And I know you're not partial to starting them, but we've had one now for a number of years. We took our first disbursement in last December And as I'm working through either the ten forty forms or the various publications that seem to have information about it, I am very confused. I think I figured out the start date, which would be the first distribution, which, as I said, was in November excuse me, December.
But I am very confused. Your cost is generally your net investment in the plan of the annuity starting date.
So we started this in twenty eleven for roughly six thousand something. from what the website says. And every quarter thereof, I've been seeing fees going out, which I assume has gone to our financial guy, whom I dearly love and trust. He is a brother in the Lord. But that actually, all those fees come up to more than our.
financial starting Amount.
So either one are these online resources that you can point me to or some other insights. How to handle it. Yeah. Well, it's a great question, and there's a lot of pieces to this. And it gets into how the IRS taxes annuities.
And the terms can be confusing for sure.
So the annuity starting date, you're correct, is the date you begin receiving payments from the annuity. That's when you switch from what's called the accumulation phase where it's growing to the payout phase when you're receiving income. It's also when the IRS begins applying the tax rules on the distributions. Your cost or your net investment in the contract, those are the same idea. That's the total amount of after-tax money you paid into the annuity.
And so if you funded it with after tax dollars, that entire amount is your cost basis. If it was inside a tax deferred account, well, then your cost basis is zero because it's not been taxed yet. And so once the payments start, the IRS uses something called the exclusion ratio.
So they look at what portion of each payment is tax-free as a return of your principal and what portion is taxable.
Now, if you started years ago, you would check your original contract or you could call the insurance company or review the IRS form 1099R once the payments have started. That usually shows the taxable versus the non-taxable portion. Um and as long as you know kind of what your cost basis is, you know, then uh you would be able to determine uh you know how much of your payment is taxable uh with each payout. Does that make sense? Um yes and no.
So the cost basis in 2011, let's just for round numbers say was $6,000.
Now the annuity supposedly has a worth of $205,000. But somewhere I read that, that cost basis is also affected by the fees through the years that have been taken from the annuity. Yeah, where are you getting that cost basis from?
Well, I went online for the particular company. And I tiptoed through nine pages of Oh, I forget what they call him, but I could see when our guy had had changed. Had bought or sold for us within the annuity. But then every quarter, there was. a fee amount taken out, which I assume is his part of doing business for us.
Yeah, yeah. And you're saying what's the value of it today?
Well, I know what the company says the value of it is today, but for IRS purposes at the form, when it says the cost basis, do I go back to that fixed grand? back from twenty eleven. Yeah, I mean, you would go back to so the cost basis would be the total amount you put into the annuity. the sum of all of those payments going in. Do you know how much your net investment is, the amount you put in?
Well, that six thousand dollars according to the website. But is that right though? Because I mean, did you pay in to this for many years? Oh, Rob, it's been so long and I admit my financial records are just for this kind of stuff, just not in good shape at all. Yeah, yeah, okay.
Well, is do you know if this is a non-qualified annuity or a qualified annuity? Inside the middle of the middle. Yeah, well, so I'd recommend. I mean, you can ask the money for the investment in the contract, and that's your cost basis. And then you can also ask them whether it's qualified or non-qualified.
Or you could review a 1099. But I'd recommend you get with a CPA to avoid surprises here and just have this person look at it and see what it is, in fact, you originally put in, if it's the $6,000. And if the $100,000 today represents years of growth, the key question would be: was it funded with after-tax dollars or pre-tax retirement money? Because that determines how it's taxed when you pay it out. But that's also going to affect this ratio that speaks to how much of each withdrawal is going to be taxable and how much is just a return of your premium.
So I think at this point, I would probably get a CPA involved. And as much as I know you have been doing it yourself and you'd probably like to, you certainly don't want to get this one wrong. you trust is the rest of the issue. Say that again. Oh, can you trust somebody?
A good one that you trust. Yeah. Well, I'd head to a certified kingdom advisor there in Chicago and ask for a referral.
So, you know, I would have high trust just because of the high standards that the CKAs go through, and they'd all have a godly CPA that they work with.
So head to findacka.com. And if you can't find a CKA in the tax area, Any CKA could give you a referral. Findacka.com. Linda, thanks for your call. You'll get there.
But, folks, we're going to take a quick break and we come back to our final segment just around the corner. We'll be right back. Every day on Faith and Finance, we hear from believers who want to follow Jesus faithfully with their finances. Because of Faithful Partners, Faith By reaches millions through radio, books, and the Faith By app, helping people see that money issues are really heart issues. Become a FaithFi partner today with a gift of $35 a month or $400 a year, and you'll not only help sustain this ministry, but also receive our latest resources too.
Visit faithby.com/slash give today. We are grateful for support from Timothy Plan. Since 1994, Timothy Plan has shared good news with investors and advisors by offering faith-honoring mutual funds and exchange-traded funds. More information is at TimothyPlan.com. The investment objectives, risks, charges, and expenses are contained in the prospectus and summary prospectus available at TimothyPlan.com.
Mutual funds distributed by Timothy Partners Limited and ETFs distributed by Forside Funds Services LLC. Investing involves risks, including possible loss of principal. Thanks for joining us today on Faith and Finance. Quickly to the phones, we'll try to sneak in one, maybe two more questions. Denise is in Illinois.
Go ahead. Hi, Rob. Thanks for taking the call. I have questions with regard to T bills. We have about twenty thousand dollars that we'd like to invest.
I was looking at a C D, high rate C D, but there are usually about four 4%. But I'm really wanting to get some T-bills. I know right now they're about for one month, it's about 3.73%, but I don't know anything about them.
So that's why I was calling. I kind of needed a little direction: like what's a good investment with this money?
So you can buy them directly from the U.S. government without any fees. And that's really best for beginners, I think. You just go to treasurydirect.gov.
So that's the treasury's website, specifically for treasury bills, bonds, and notes. And you can buy them there. And it's very easy to do. You set up an account, you can purchase them, hold to maturity, and it's pretty self-explanatory. The other approach would be through a brokerage account, which if you have other investments, it's easier to manage through a brokerage account alongside the other investments.
So you could go to Fidelity or Schwab and you could buy the T-bills there. The other option is banks or exchange traded funds, but those are indirect. You're not buying the actual bonds, you're buying an investment. It holds them. T-bills can be purchased in increments as little as $100.
And it's fairly straightforward to do. And they're a pretty good investment. I mean, to your point, short-term T-bills are yielding around 4%, backed by the U.S. government. They're short-term, which means they're flexible.
It's a great place to park cash, lower return than stocks or other long-term investments. And the reinvestment risk is there, meaning as you go to roll it over, you know, the rates can be lower if rates start coming down. But for a conservative investor with a short-term goal and wanting safety and liquidity for $20,000, I think that could be great.
Okay. Do you have any other suggestions for that, the twenty thousand? Um what is the purpose of it and the time horizon? It's just to actually gain some interest. We want to keep it liquid.
Okay. Yeah, I mean, you could look at just a straight money market. You know, for instance, our friends at Christian Community Credit Union, which would be the largest Christian banking institution in the country, they're doing 4% right now on money market and up to $100,000. And for FaithFi listeners, there's even $100 bonus up to as you open a new account.
So that could be an option, something like that that's insured, that's paying a great yield, but also has total liquidity, I think, could be something to look at alongside this and maybe a little simpler as well. If you wanted to explore that, you go to faithfy.com/slash banking. But really, anything in that money market, high-yield savings, CD or T-bill category is going to either be privately insured or backed by the full faith and credit of the United States government with still reasonable either immediate liquidity or short-term liquidity, safety, and a decent yield. I think any of those. could work for you.
Okay. So if I do go to the U. S. Treasury website that you told me, treasury direct. gov, and I open up an account and I do this myself, so I can just roll those over if I wanted to or I could just cash them in and then take the money.
I just take care of it. But if I use a brokerage, then I'll have to pay for them to do it correct. Yeah, there's a very small amount there, but you can still do it yourself. If you're on the retail side of Fidelity or Schwab, you could place that order. But yes, there are zero fees if you do it directly through TreasuryDirect.gov.
There would be a small fee if you did it through Fidelity or Schwab. And what exactly would you do if it was you had $20,000 in this situation? Would you just a fairly short-term thing, like a year or less, I would probably not fool with the T-bills. I'd probably just do a high-yield savings or money market like I described, because then you can add more money to it. You could pull it out.
You know, you could electronically transfer it. You don't have to wait for it to come due. You know, I think that's a better, longer-term solution that's just a little simpler. But, you know, I don't think there's anything wrong with T-bills. And to your point, there's pretty attractive yields right now.
But that would be my preference. Denise, I hope that helps. Thanks for your call. We appreciate it. Let's tackle an email.
This comes to us from Stephen, and he writes: Our son is struggling to pay the bills for his business, and he's taking out several payday loans to make ends meet. He needs to connect with someone who can give him some business financial guidance or possibly look into debt consolidation. Do you have any suggestions? And I would say. Yes, we absolutely need to get him to break that cycle of that payday loan borrowing.
I would say if he has credit card debt, a great place to start would be with Christian Credit Counselors. Our friends there at CCC have worked with hundreds, if not thousands, of our listeners. They could get him on a spending plan, which is going to be key to breaking this cycle of the payday loan borrowing. We need to get him moving toward paying this debt off once and for all, and they can do that through reduced interest rates and a level monthly payment. You know, these payday loans, while often marketed as a quick solution for an immediate financial need, have major problems, starting with the interest rates.
I mean, understand that a payday loan typically carries with it an annual percentage rate if you run it out over a year, often exceeding 400%. I mean, these are just atrocious. You've got that on top of a cycle. Cycle of debt.
So the structure of the payday loans usually leads to a cycle where borrowers can't afford to pay off the loan without taking another. And this means you pay far more in fees than the original amount borrowed on top of this astronomical interest rate.
So you end up getting trapped in debt. Put that on top of predatory lending practices.
So many of these payday loan lenders operate with practices that are considered predatory. They're targeting individuals who are in a desperate financial situation. Often this includes, you know, not properly assessing their ability to repay. It could lead to a loan that borrowers can't realistically pay back. It has major impact on their credit.
It gets them into overdraft and other bank fees. You've got that on top of the fact that there's significant emotional and psychological stress here. And then there's just the community impact, you know, on a broader scale. Scale, the prevalence of payday loan outlets in lower-income neighborhoods really often exacerbates the poverty. As these communities become disproportionately reliant on these high-cost.
Credit options draining money that could be used for community development or personal savings.
So it's really just a scourge, I think, of many of these communities where they exist. I would stay far from them and let's look for healthy ways to lean into financial challenges. Get assistance, perhaps with the body of Christ, somebody who can come alongside you to provide some financial assistance, using an organization like Christian Credit Counselors to actually put you on a plan to pay the debt off once and for all, not just get you trapped in a cycle of debt, is obviously key.
So, Stephen, I know that's a long answer to a short question, but hopefully that helps you and gives you some further incentive to get your son out of this cycle once and for all. Thanks for writing to us. By the way, if you have a question you'd like to send along in addition to calling, just send that to askrob at faithvi.com. Thank you to Tahira, Amy, Omar, Taylor, and Rihanna. We'll see you tomorrow.
Faith in Finance is provided by FaithFy and listeners like you. Yeah.
