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Marrying Bank Accounts

Posted on by Shepherd Wealth Partners

A recent study out of Indiana University has shed light on an intriguing connection between combined finances and the longevity and happiness of marriages.  There’s now scientific research that supports the merging of financial resources and bank accounts in a marriage. The study recruited and followed 230 couples over their first two years of marriage and tracked their marriages over time.  The researchers found that those who shared their bank accounts to be generally happier and with stronger marriages.  On the other hand, they even found that there was “a significant percentage of those who separated after not merging bank accounts”.

Money is a particularly sensitive topic, something that is seldom discussed even amongst close friends.  It’s one of the primary sources of conflict in marriages, so there can be a temptation to want to keep some separation.  After all, shouldn’t that lead to fewer conflicts, not more?  On the contrary, the research lines up with biblical wisdom that sharing really is caring!

The Perils of Separate Accounts

Separate bank accounts seem to make sense to some.  We tend to see it more often among younger couples, who desire freedom to spend their incomes without needing permission, as well as among blended families and second marriages that occur later in life. The latter scenario is a bit understandable, as it can involve protecting the interests of children from previous relationships as well as a fear of going down the same path again.

However, separate finances can easily become a transactional mess of who pays which bill, who paid for something last time, and what’s “fair”. If ones spouse earns substantially more than the other, should things be split evenly, or by income levels?  Does the person who pays more get more say? Determining the amount to properly split can be exhausting, and lead to conflict and hurt feelings.

Maintaining separate accounts can also lead to temptations of financial secrecy, creating an environment prone to distrust and brokenness. This opens the door to being able to hide purchases or participate in self-indulgence.

The Power of Shared Finances

Conversely, combining finances is powerful, practical, and biblical.  When we combine our finances with our spouse, it sends a profound message of trust and unity, aligning with the meaning of marriage, two becoming one.  Our money is important, and what communicates trust more than giving someone access to all of your money as well as the records of how you spend it?

What the research shows (and experience can attest to) is that by pooling financial resources, couples develop a deeper connection that fosters mutual support and a shared sense of purpose. Rather than approaching finances as a transactional give-and-take, combining resources promotes a mindset of working together towards shared goals and aspirations.

On top of all of these reasons, you are now creating accountability and honesty with each other.  There’s no place to hide secret spending, and that fact alone can help us curb some spending that would otherwise be harmful.  And we’re forced to actually talk about some of our spending decisions, as every decision affects not just you, but your spouse.

As if this wasn’t enough reason, shared finances take out the need to do separate accountings, make sure things are “equal”, and just simplifies the entire situation

Lessons from the Early Church

The Bible takes shared finances a stop further.  Beyond just a husband and wife (which there would have been no thought to the contrary), the early church promoted all believers as sharing their finances.  Believers in the early Christian community willingly shared all their belongings and did not claim anything as their own.

“All the believers were one in heart and mind. No one claimed that any of their possessions was their own, but they shared everything they had.” -Acts 4:32

This emphasis on communal ownership highlights the significance placed on trust and a spirit of oneness, even in the realm of finances.

We also have warnings of what can happen when we don’t do this. When Ananias and Sapphira sold a piece of land in Acts 4, they tried to deceive the apostles by holding some of their proceeds back for themselves.  What happened?  The Lord ended up striking them dead! Now I don’t think that’s going to happen should you choose to not combine your finances, but the message rings loud and clear that God values sharing, trust, and a spirit of oneness with our finances.

In This Together

Please know that in advocating for combined finance I’m not trying to promote communism or socialism. After all, forced sharing is never really sharing.  When we focus on equality and self-protection, it becomes challenging to truly demonstrate love through our financial decisions. Rather, the biblical teachings encourage us to love one another through our financial actions, prioritizing trust and a willingness to support each other.

Likewise, in our marriages, sharing our checkbooks is an act of love and trust.  It says, “I love you enough to trust you to with our money.  I love you more than our money.  I’d rather have your heart than all the money in the world!”

In line with biblical teachings, the concept of two becoming one is perfectly exemplified through shared finances. The notion of maintaining separate bank accounts after joining one another contradicts the whole point of this union. If spouses have become one flesh, it seems a bit odd to keep their financial matters separate.  So if you haven’t already, go ahead and combine those bank accounts!  We think you’ll be glad you did!

Debt Ceiling Crisis

Posted on by Shepherd Wealth Partners

We’ve all heard about the country’s debt ceiling, and how we’re coming up to a potential breaking point in a few weeks if Congress can’t figure out a solution.  But what exactly is the debt ceiling, what are the potential consequences, and how should we as Christians view all of this?

What is the debt ceiling?

For starters, a debt ceiling is just a pre-approved borrowing limit that the government has to keep under – currently a cool $31 trillion.  That’s enough to stack dollar bills and wrap them around the Earth over 84 times!  Currently, the government is spending 29% more this year than it will earn in revenue, and the measured share of the economy – spending, revenue and the deficit – are larger now than they’ve been on average for the last 50 years.  Washington has made financial promises that it has no way of keeping other than going further in to debt.  If they were a family, I’d have them cut up all their credit cards and go through bankruptcy counseling and a spending freeze.  Unfortunately, they’re like that bad family member that you’re stuck with and have to learn to deal with best you can.

Government deficits have been a continuous issue for virtually every country as long as money has been printed.  Governments want to print more to carry out their agendas, so they can get reelected and remain in power.  It’s pretty simple really – they promise us more money, and in exchange they get to keep power.  Two very powerful forces at work.

Few countries in the world have debt ceiling laws (I suppose we can be thankful that at least we’re one of them!), and Congress’ periodic increase of the borrowing limit merely allows it to pay for spending the House has already authorized.  Of course, whenever there’s money involved, both Republicans and Democrats take the opportunity to fight for their agenda, prove to their constituents what a great job they’re doing, and put on a bit of political theater in the process.  Solutions to the debt limit usually include compromise and negotiations from each side.  This go round, it seems that Republicans want to cut spending while Biden wants to spend more. Biden’s plan involves raising taxes to make up for increased spending, which you can guess is particularly aimed at the wealthy.

Politicians also have a few tricks up their sleeve if they can’t reach a compromise. There’s been mention of Biden potentially invoking the 14th amendment (which he said is unlikely), which says the validity of the public debt of the United States “shall not be questioned.” Another possibility is for the Fed to mint a $1 trillion platinum coin, because, why not!?  In the end, a compromise will likely be reach, and most likely at the 11th hour.

What are the consequences?

If the government fails to reach a solution and can’t its debt obligations, people will lose faith in the government’s capacity to repay its debt, thereby leading to greater borrowing costs, higher interest rates, and a negative impact on the economy.

Specifically, it could send the dollar spiraling downward, government employees to be temporarily unemployed, and could cause Treasuries to lose some of their value.  A default of interest payments is pretty unlikely, but plausible if it goes on long enough.

It seems like we go through this every couple of years, and we end up at the same place – just keep on raising the debt limit so we can keep printing money like it’s going out of style.  The only other solutions to this basic math problem are to reduce spending which no politician wants to do, or to raise taxes which is what every politician campaigns against.  So we just kick the can down the road and hope that we don’t inflate our grandkids’ futures away.

What are we to do in light of this?

As believers, we – unlike the government – are called to not presume upon the future.  We’re told that money and wealth are uncertain at best. Debt isn’t evil or outlawed in scripture, but we shouldn’t use it like a blank check, with no practical plan of repayment.

Suppose one of you wants to build a tower. Won’t you first sit down and estimate the cost to see if you have enough money to complete it? For if you lay the foundation and are not able to finish it, everyone who sees it will ridicule you, saying, ‘This person began to build and wasn’t able to finish.’ – Luke 14:26-28

Now listen, you who say, “Today or tomorrow we will go to this or that city, spend a year there, carry on business and make money.” Why, you do not even know what will happen tomorrow. What is your life? You are a mist that appears for a little while and then vanishes. – James 4:13-14

It’s important to count the cost before committing to any endeavor. Just as a builder would not begin constructing a tower without first estimating the necessary resources and cost, we too should exercise prudence in our financial decisions. By doing so, we can avoid the embarrassment of starting something we cannot finish.

As we consider the ongoing debate surrounding the debt ceiling, it is important to remember that as believers, we are called to approach financial matters with wisdom and discernment. While debt is not inherently evil or outlawed in scripture, it is important to avoid using it recklessly and without a practical plan for repayment. We’re also called to not worry about anything, especially the things we can’t control.

Therefore I tell you, do not worry about your life, what you will eat or drink; or about your body, what you will wear. Is not life more than food, and the body more than clothes? Look at the birds of the air; they do not sow or reap or store away in barns, and yet your heavenly Father feeds them. Are you not much more valuable than they? Can any one of you by worrying add a single hour to your life? – Matthew 6:25-27

In fact, that’s not just a suggestion or feel-good promise, it’s a command!

As we navigate the current economic climate, let’s be intentional about placing our trust in God’s provision rather than becoming consumed by worry or fear. So while it’s good to be informed as a citizen about the decisions that our government is making and the crisis they’re facing, let’s not let it cause our own crisis.

Instead, we should remain calm, trusting in God’s provision and exercising wisdom in our financial decisions. As we continue to seek His guidance and direction, we can navigate these uncertain times with grace and confidence.

Risks and Rewards of Credit Cards

Posted on by Shepherd Wealth Partners

The reality of credit cards is something that many people fail to truly comprehend. This reality is that they can be a huge advantage when utilized appropriately and a huge liability when used poorly.

The level of credit card-related household debt in the United States is at an all-time high. Americans have more than $925 billion of credit card debt, or an average of $5,474 per borrower.

Americans pay $120 billion in credit card interest and fees each year, or around $1,000 per year per household.

If you haven’t noticed, we’re slightly addicted to credit cards due to the convenience and ability to “buy now and pay later”. Banks don’t mind one bit – they’re able to charge interest rates that range on average from 16% – 24% for the privilege of going into debt!

Credit cards can both help and hurt your credit very easily, as well as make or break your budget. While we’re not fans of going into debt, credit cards aren’t all bad and can be used as a weapon if you wield them carefully.

With that in mind, we’ve put together a few rules of combat to follow that can help you maximize their benefits as well as avoid some of the pitfalls…

Treat it Like a Debit Card – Not Free Money

Credit cards are super-convenient, which is precisely what makes it easy to overspend and regret it later.  Credit cards don’t elicit the same emotional response that comes from using cash or a debit card, as we don’t see our wallets or bank accounts diminish immediately.

To avoid this natural tendency to over-spend using credit, we always recommend a few ground rules:

  1. Use them in concert with a budget.  Budgets are just pre-determined spending plans, so as long as you’re living within your means via a balanced budget, credit cards tend not to lead to overspending.
  2. Always pay off the full balance at the end of each month.  This helps keep your spending in check by seeing what you spend each month, and it also avoids interest and penalties since those are only incurred when you don’t pay them off each month.
  3. Don’t allow the rewards to accelerate your spending. They should only be viewed as an additional bonus for the regular spending you would typically make. This includes necessities such as groceries, gas, and eating out. Spending more just to receive rewards from your credit card is a fool’s errand.

Keeping these simple rules will keep you from 99% of the problems that are associated with credit cards!  If credit cards are so fraught with problems, then why even bother?  There are two main benefits – to build credit and to get rewards keeping the above-mentioned rules.

Maximizing Rewards

Most credit cards offer a reward of 1-2% back per dollar spent, whether it’s in the form of cash, airline miles, hotel points, etc.  Certain cards provide boosted rewards ranging from 3-10% if you hit certain criteria or spend on certain categories.  Ultimately, if you were going to be spending the money anyway, you might as well receive cash back while doing so. If you use your credit card like a debit card, focus all your spending on the credit card, and pay off the balance in full every month, you’ll accumulate rewards over time for this small shift in the card you use to spend your money on.

Credit card companies offer introductory offers or sign-up bonuses to entice new users. These can be lucrative, as they may offer free cash back or rewards just for signing up for the card. For example, a card may offer 70,000 points or $700 in cash back rewards when you spend $3,000 in the first three months of using the card. If your day-to-day spending exceeds this amount, you could be essentially getting paid $700 for your regular expenses.

In addition to sign-up bonuses, credit card users can also benefit from boosted cash back rewards on certain spending categories. Two great resources for finding the best credit card(s) can be found at this link or at this link. While one card may offer a flat 2% cash back on all purchases, another card may offer 4% cash back on dining and groceries, 3% cash back on gas, and 6% cash back on travel. By using different cards for different categories of spending, cardholders can maximize their rewards without changing their spending habits.  If you’re willing to keep track of multiple cards and diligently pay them off, you can enhance the rewards benefits substantially.

For business owners, using a business credit card for expenses can also offer rewards benefits. By using a business credit card for all business expenses and accumulating points, business owners can redeem those points for cash back or travel. In some cases, they may even be able to combine their personal and business credit card points for even greater rewards.

Travelers can also benefit from credit card rewards programs. Many credit cards offer high rewards for purchasing travel with the card, and some offer bonuses for redeeming rewards points for travel. Additionally, some credit cards allow users to transfer rewards points to travel partners for even greater rewards. These rewards are increased as often you can get 4 to 6x the points if you take your credit card points and transfer them to a travel partner to redeem. So, if you had 70,000 as in the above scenario, those points might be worth $700 (1% back) in cash, your card may offer the option to transfer them to a travel partner where you could redeem them for a $2,000 plane ticket with those same points.

Every situation is different, and everyone’s spending and rewards preferences are different.  The key is to figure out where you tend to spend money consistently, and lining up the card to accumulate the most points as well as make the redemptions the most lucrative. It’s also important to remember that responsible credit card usage is key to maximizing rewards. Cardholders should never spend more than they can afford to pay off each month and should always pay on time to avoid interest charges and fees.

Building and boosting your credit score

Having a solid credit score is critical for obtaining favorable interest rates on everything from vehicles to homes, and even for renting a property. Using a credit card can be one of the most important and easiest ways to establish and build credit starting out. A credit score serves as a gauge for lending companies, determining whether you are a credible borrower. The most widely used credit score is the FICO score, which is comprised of five main components:

  1. Payment history, which represents 35% of your FICO score and indicates whether you consistently pay your bills on time
  2. Credit utilization, which accounts for 30% of your score and compares the amount of credit you use to your total credit limit, with lower percentages indicating greater creditworthiness
  3. Length of credit history, comprising 15% of your score, measures how long you have used credit, with longer histories indicating more credibility
  4. New credit, worth 10% of your score, evaluates how frequently you apply for new credit and the amount of credit derived from recently opened accounts
  5. Credit mix, which  accounts for 10% of your score, with lenders preferring borrowers who have a variety of credit types.

Maintaining a strong credit score requires effort and attention, but it can pay dividends in the form of favorable interest rates and other financial opportunities. By understanding the factors that comprise a credit score and taking proactive steps to build and protect it, you can position yourself for success in the long run by using a credit card. With this in mind, here are a few tactics to consider:

  1. Avoid canceling credit cards if they’re not causing problems.  The more available credit you have, the higher your score will be.
  2. Ask for credit limit increases as the lower amount of your total balance you carry on the card carries weight to your score.
  3. Always want to pay off all credit cards before the statement closing date so that it is not reported that you carry an open balance.
  4. Don’t open a bunch of cards at once, as this will negatively impact your score.

What to do if you get yourself in trouble…

In addition to building and protecting a strong credit score, it is important to manage credit card debt responsibly. If you find yourself in debt with a credit card, the first thing to do is to stop using credit cards!  Perform plastic surgery by cutting them up.  Give yourself a credit freeze by putting them in the freezer. Reverting back to just a debit card can reinforce the strategy of only spending what one has. While credit cards can be a useful tool when used responsibly, it is important to evaluate personal spending habits to determine if a credit card is right for individual circumstances. If a credit card is likely to cause overspending and debt, it may be best to avoid using them altogether.

Another option that you have is to look into some of the 0% APR credit cards that are out there. These cards will have sign up bonuses where you do not pay any interest for anywhere from 12-18 months. This can be a great option for you as you can transfer your balance from one credit card to another and allows you to focus on paying it off during that time period while you get your spending back under control. Keep in mind that these transfers fees that can be anywhere from 1-3%.

After that, the best approach to paying it off is the “snowball” method. This involves paying off the lowest balances first, which allow you to pay them off quicker since they are smaller amounts. This then frees up the money from those payments to then be allocated to the credit cards with the higher balances, creating a larger and larger “snowball”.

Credit cards can be a double-edged sword – on one hand, they provide a convenient way to receive rewards and benefits. However, it’s all too easy to fall into the trap of overspending and accumulating debt that can be difficult to pay off. As Proverbs 22:7 says, “The rich rules over the poor, and the borrower is the slave of the lender.” the Bible doesn’t prohibit the use of debt, but it gives us a lot of “use with caution” warnings!

By using credit cards like debit cards and only spending within our means, we can avoid falling into the trap of being a slave to our lenders. Remember, credit cards can be a useful tool if used correctly, but if we’re not careful we can become a slave to the lender!

Overcoming Uncertainty

Posted on by Shepherd Wealth Partners

They say that there’s only two certainties to life – death and taxes, neither of which are particularly pleasant to think about!  As investors, and humans, we desire certainty. We want to know that there is a clear path to follow with our investments to so that our financial plan works out and we reach our long-term goals.  Strategy A leads to Result B, which then leads to Outcome C. Yet as the Preacher of Ecclesiastes reminds us:

“If the clouds are full of rain, They empty themselves upon the earth; And if a tree falls to the south or the north, In the place where the tree falls, there it shall lie. He who observes the wind will not sow, And he who regards the clouds will not reap. As you do not know what is the way of the wind, Or how the bones grow in the womb of her who is with child, So you do not know the works of God who makes everything.” Ecclesiastes 11:3-5

Often its tempting to want to wait for the perfect time to invest, for when the stars align and the coast is clear.  Conversely, uncertainty feels dangerous, risky, and even costly at times.  And we can’t avoid it – it’s a part of life.  It’s why we (rightly) buy insurance, why we have emergency funds, and why we have generators.

Investing is a great case study in the area of uncertainty.  Investing is by nature giving up some money now in expectation of a higher future return later.  And it’s because of all of the unknown things that can happen between now and “later” that offer us a reward for that investment.

There will always be something that makes us hesitant and uncertain when investing into stocks, bonds, commodities, etc. (rain-filled clouds). However, uncertainty is precisely the part of investing that allows for our successes. We’re firm believers that you cannot separate risk from return.  If you want to be rewarded, you have to take on some level of risk.  And the more risk you take on, you will almost always experience 1) higher short-term volatility and 2) higher long-term returns.

In other words, stock investors (company owners) have many things to be uncertain about – company profits, market conditions, inflation, and competition.  Bond investors, on the other hand, are really only concerned whether a company can stay solvent enough to pay back their bond debts (which doesn’t always happen, e.g. SVB Bank).

In the investing world, we refer to this as the “risk premium” of an investment, or the amount by which the return of a risky asset is expected to outperform the known return on a risk-free asset. Right now, it can be tempting to pile up the risk-free assets of cash and Treasury bonds, since they’re paying around 4-5%, an incredible amount more than they were paying just last year.  At first glance stocks don’t look very compelling in comparison given the large amounts of volatility we’ve experienced.

However, it’s important to keep in mind a few things.  One is that this risk-free return still isn’t keeping up with inflation and so you’re losing purchasing power even though you’re getting a handsome return on your cash.  The other is that with prices being depressed on stocks, there’s statistically a lot of opportunity you could be giving up.

What will the market do for the rest of 2023?

Of course, as you’ve probably guessed by now, these returns are…uncertain!  There are no guarantees out there once you leave the certainty of cash and other risk-free investments.

While we have very little knowledge as to what will happen to stocks or bonds this year, this isn’t any different than any other year!

The Policy Uncertainty Index, a group who develops indices of economic policy uncertainty for countries around the world, has tracked the amounts of perceived uncertainty in the markets over time based on headlines, tax provisions, and professional economic forecasters.  When you look at data from the past several decades, the lowest recorded measure of uncertainty (i.e. the highest amount of certainty recorded) took place in July of 2007, right before the Global Financial Crisis of 2008.

On the other hand, the American Association of Individual Investors has tracked weekly investor sentiment since 1987.  Can you guess the week that it hit the lowest level on history as measured by % of Bearish investors?  Yep, it was March 5, 2009, the same week the S&P 500 dipped to its lowest level of the Great Recession.

What do we do with all of this?

Since we can’t control or eliminate uncertainty, what should we do with all of this?  Bury our head in the sand?  Set it and forget it?

For starters, let’s not make certainty an idol.  It’s not a bad thing to desire predictability or stability, but when we allow our need for certainty to color our decisions too much, we can be like the servant who buried his talent in the sand.  He acted out of fear, and that almost always leads to disobedience and bad decision making.

Second, let’s allow uncertainty to work for us.  Tragedy will continue to strike, jobs will be lost, markets will go crazy.  But as Warren Buffet has said, it is wise for investors to be “fearful when others are greedy, and greedy when others are fearful.”  It’s precisely in times like March of 2009 when we have the most opportunity to grow our investments, much more than the 4-5% we could achieve in risk-free investments.

In fact, since March 5, 2009, the S&P500 has a cumulative return of 533.33%, or an average of 14.00% per year!  If you had invested in 3 month Treasury Bills (the standard for risk-free returns), you would have ended up with a cumulative return of only 8.36% through the end of last year! As humans, we’re much more prone to remember negative experiences compared to positive ones.  But let’s be intentional about remembering the rewards that all of the uncertainty of investing has brought consistently over time.

Lastly, in this battle of optimism vs pessimism, we need to remember who is ultimately in control.  Proverbs 16:9 instructs us that “a man’s heart devised his way: but the LORD directed his steps.” There’s nothing wrong with planning (we are, after all, financial planners!), but we have hold our plans with open hands.  Write your plans in pencil, knowing that God holds the eraser!  Our ultimate trust has to be in the One who is sovereign.  He is the only one who knows the future.  He is the only One who is certain.  God isn’t wringing His hands, wondering how the markets are going to play out in the next year or two.  And mostly, He loves us.  Instead of controlling the uncontrollable, let us keep our trust in Him and what He has in store for us.

The Truth About Dividends

Posted on by Shepherd Wealth Partners

The idea of “dividend investing” appears to be extremely simple at first glance. Invest in businesses that provide dividends (share their profits), reinvest the earnings frequently, and gradually build up your wealth over time through compounding interest. But is implementing a passive income plan for your portfolio as simple as that? While it can be tempting to chase after dividends, it’s always smart to try to peel back the layers and understand how dividends work as well as the pros and cons of what they do for our returns.

What Exactly Is A Dividend?

The goal of every business is to make a profit.  For those that do, they have three main options – pay the employees/executives a bonus, reinvest those profits back into the growth of the business, or disperse a portion of them to its shareholders as a reward for their investment.

A good analogy of this would be to think about the process of McDonald’s selling the Big Mac. When McDonald’s sells a Big Mac, it doesn’t keep all the money. It needs to pay for wages and rent. They also need to cover the cost of the ingredients for the Big Mac. After it’s paid for all the expenses then the money left is the PROFIT. McDonalds then needs to decide what to do with this left over money. There are generally three things McDonalds can do with their profit:

  1. Pay everyone who works there a bit extra – BONUS.
  2. They could use the money to open new restaurants or create new burgers to make even more money – REINVEST.
  3. Give money to the investors as a thank you for supporting the business –  DIVIDEND.

For dividends, the “yield”, or dividend amount, will be paid out to investors as a fixed dollar amount per share of stock owned.

Dividends are typically paid on a quarterly basis and can be taken as a cash payment  or reinvested into more shares of the company. A company is not required to pay dividends, and in a down year financially they can choose to reduce or suspend the payment of dividends.

Pros

Investors commonly see dividends a way to reduce risk as you are generating a return on your investment that is separate of the capital appreciation you receive from the stock. Dividends benefit investors because they create passive income, and allow them to receive profits of the business.

Often investors will attempt to compound their returns by purchasing more shares of stocks slowly over time with the earned dividends, which will then earn even more dividends as a result (compound interest!). Most, but not all of the time, companies who pay regular dividends tend to be consistently profitable, and many are longer-standing companies who have made it through various economic seasons.

Cons

While this may all seem like the “cheat code” to investing (who wouldn’t want to invest in companies that consistently are profitable and pay out bonuses to shareholders?), this isn’t the entirety of the story. Dividends aren’t simply free money after all. Receiving the dividend may seem lucrative but there are some downsides to it as well.

The return of the stock you own is independent of the dividend payment. Remember McDonald’s options?  Profits that they paid out to their investors means that there’s less money to reinvest in the company.  Also, if a company pays out a percentage of its profits, the company actually becomes less valuable.

Example

If XYZ stock is trading at $100/share, and pays out a $1 dividend to its shareholders, then the stock price will automatically be reduced to $99, since it dispersed 1% of the company’s value to shareholders.  Of course, if you had reinvested your dividend, then you would still end up with $100 worth of XYZ stock, but the same thing would have resulted if XYZ had just reinvested the profits into the company themselves.

Without a dividend, investors could also do the same thing, generating their own “passive income”, by simply selling a few shares at their discretion instead of relying on the company’s quarterly payouts.

Something else to keep in mind is that receiving a stock dividend means that investors will need to pay taxes on that dividend, even if they reinvest it.  So if you’re reinvesting your dividends, you’re likely ending up with less all other things equal because you’ll have to pay taxes along the way.

Their Proper Place

Please don’t hear us say that dividend-paying stocks are bad.  Again, companies that pay dividends are often resilient, consistently profitable, and have a proper place in a diversified portfolio.  They can be a great way to generate consistent income, and can provide stability especially during volatile markets.

While dividend investing may be very reliable and seem like an easy way to generate extra returns, be careful as investing solely focused on dividends can cause over-exposure to one stock or sector. The main takeaway is that dividends aren’t a driver for higher returns in and of themselves. Keep your focus on total return with dividends being one component.  Remember, there aren’t any free lunches, er, dividends, when it comes to investing.

Update on Silicon Valley Bank Crisis

Posted on by Shepherd Wealth Partners

What Happened to Silicon Valley Bank?

The collapse of Silicon Valley Bank has been the huge news story over the past week, driving many into a frenzy of panic. Silicon Valley Bank (SVB), which is based in California, was the top bank for tech companies and venture capital organizations. As a “partner for the innovation economy,” Silicon Valley Bank claimed to work with up to 65,000 tech start-ups and 2,500 venture capital organizations as clients. While formerly being near the top of the banking sector, that position was quickly lost when a “run on the bank” ensued from poor risk management.

Much of the funds acquired by the Silicon Valley Bank were from high-risk startups. Initially, this didn’t pose a significant threat to the bank, but it complicated matters when they started to lend the funds out. As a bank, they needed to generate revenue and had two options: lend the money out to clients seeking loans or invest in government-backed securities. The bank chose to invest in long-term, low-yield treasury bonds, which were adversely affected by the fluctuating interest rates. This created a “perfect storm”, as the bank’s tech-start up clients were facing economic hardships and needed to withdraw funds while the bank’s bond holdings were losing value due to rising rates.  The Silicon Valley Bank was forced to sell off its risky investments, leading to a loss and triggering a bank run. Consequently, the FDIC had to take over the bank’s operations when clients withdrew 42 billion dollars in a single day.

What is the Risk of Contagion?

Can the SVB incident happen again to other banks?  Possibly, but not likely. SVB had a high concentration of uninsured deposits due to its tech industry customer base, making it an outlier.  To mitigate the risk of another bank run, the Federal Reserve created the Bank Term Funding Program (BTFP) as a safety net for banks and financial institutions. This program allows banks to lean on the Deposit Insurance Fund, which has enough money to back up the entire banking system. The BTFP was created to break the psychological “doom loop” that could occur across the regional banking sector and provide security for investors. This means that banks no longer have to worry about sudden withdrawals and customers can be assured that their bank accounts will remain whole.

Something else to consider is that this “non-bailout” is a bit of a two-edged sword.  On one hand, this back-stop provided by the Federal Reserve will certainly calm some fears of both depositors and the markets as a whole.  But how much does this end up incentivizing poor conduct by allowing banks to take bigger risks in order to obtain higher profits?

It is helpful to recall how President Franklin Delano Roosevelt felt about establishing the FDIC during the Great Depression. Roosevelt agreed that deposit insurance would prevent bank runs in the United States, but he argued that it would also create moral hazard among depositors, who would lose interest in whether bank executives managed institutions safely or not because they would know their money was safe no matter what happened.

This is indeed what played out in the 1980 financial crisis, where many unstable and insolvent banks remained open due to the FDIC, despite their high-risk, high-reward gains that didn’t pay off.

While this may be a short-term worry reliever for what might be a long-term problem, monetary policy and financial regulation must be taken more seriously to prevent banks from exploiting this. But at least for now it has helped customers and investors feeling a bit of assurance that the system isn’t on the brink of collapse.

What do we do now?

First and foremost it’s important to remain calm and not let fear and anxiety take over. Remember the wise words of Philippians 4:6-7, which tell us “Do not be anxious about anything, but in every situation, by prayer and petition, with thanksgiving, present your requests to God. And the peace of God, which transcends all understanding, will guard your hearts and your minds in Christ Jesus.”

The next step you can take to ensure your financial security is to make sure your deposits are under the FDIC insured amount of $250,000. That’s the maximum amount (or is it!?) that you can have insured in any one account per institution (link to FDIC limits here).  In this way, even if your bank were to totally fail, the government would be insuring that you get your deposits back without any risk of loss.  There are some other great alternatives for your excess cash if you’re not so certain about the stability of your bank (no, not cryptos!).

Finally, it’s crucial to be shrewd in choosing who you entrust with your money. This means doing proper due diligence on the bank or financial institution you plan to use to protect your nest egg. You can research Systemically Important Banks, which are deemed safe and secure by the Federal Reserve, or you can investigate the background of the individuals who run the bank and what they stand for. By taking these steps, you can protect your financial well-being and sleep a little easier at night.

4 Great Ways to Earn More on Your Savings

Posted on by Shepherd Wealth Partners

The financial markets have been stormy lately to say the least.  It seems like there’s a never-ending supply of bad news related to inflation, interest rates, layoffs and recession.  It’s like a worry-wart’s paradise!  However, while I don’t believe in blind optimism, I do believe that there are plenty of silver linings to be found.

Philippians 4:8 charges us “Finally, brothers, whatever is true, whatever is honorable, whatever is just, whatever is pure, whatever is lovely, whatever is commendable, if there is any excellence, if there is anything worthy of praise, think about these things.” So I wanted to take the opportunity to point out one of those silver linings – the return of rewarding the saver!

Due to rising interest rates, your assets may potentially provide a greater return. You no longer have to tolerate the insulting 0.01% return on your traditional bank savings account or ignore a bank’s 1099 because the annual interest payment fell short of the IRS’s $10 threshold. Continue reading to uncover our top recommendations for where to deposit your money so it doesn’t start accumulating dust, whether you are weary about the erratic markets or want peace of mind knowing you always have access to your cash!

High Yield Savings Account

While large banks like Bank of America, Wells Fargo, and credit unions offer savings accounts, opening a HYSA at an online bank can return far higher interest rates since they don’t have to spend as much on brick and mortar, marketing, and so on.  This is not restricted to your personal account; if you own and manage a business or organization that stores substantial quantities of cash, it is a terrific way to keep cash accessible while also allowing it to work for you.  You can scan sites like NerdWallet to find some of these options that are paying 4% interest or higher!

The benefits of High Yield Savings Accounts are that they:

  • Are fully FDIC insured (up to certain dollar limits)
  • Can be linked directly to your checking/savings accounts to quickly send funds back and forth, or in many cases can automate the transfers on a monthly basis.
  • Will typically automatically increase the rate if interest rates continue to rise

The downsides to High Yield Savings Accounts are that they:

  • Can decrease in rate if interest rates drop
  • Sometimes can show rates that are temporarily high to attract new customers and then lower them down
  • Can have less known brand names
  • Can have minimum balance amounts, require you to open a checking account with the bank, or set up direct deposit

Money Market Funds

While similar in name to money market accounts , a money market fund is more like a mutual fund than a bank account. These are what we use in our clients’ investment accounts to hold the portions of non-invested cash.  While not FDIC insured, just about every money market fund to ever exist has never lost value, and almost all are invested in Treasury bonds.  Similar to Money Market Accounts, their interest rate will fluctuate up and down with prevailing rates.  These rates tend to be slightly higher than  High Yield Savings Accounts.

The benefits of Money Market Funds are that they:

  • Are easy to access and if you have an investment account then you don’t need to open any other accounts
  • They have some of the highest available interest rates on fully liquid investments (Fidelity’s Government Cash Reserves Fund has a current compound yield of 4.31% as of 3/2/23)
  • The rates will increase as interest rates go up

The downsides to Money Market Funds are that they:

  • Are not FDIC insured (although in our opinion this isn’t a significant risk)
  • The rates can drop if interest rates go down
  • Require a brokerage account to access these funds

CDs

Certificates of Deposit are familiar to most of us.  They offer a guaranteed rate of return in order for locking up your funds over a certain period of time.  Rates for these tend to be even higher than Money Market Funds, as they come with the risk of illiquidity – the chance of needing your funds before the ending duration of the CD.  However, if you know you won’t need your funds for a specific period of time (e.g. upcoming college tuition or a wedding next year).

The benefits of CDs are that they:

  • Offer some of the highest rates available (currently around 5% for 18-month CD)
  • Can be laddered to spread out larger sums of cash into several buckets maturing at different times
  • Can be bought at your local bank, credit union, or online

The downsides to CDs are that they:

  • Are somewhat illiquid (most will charge a penalty such as 3 months of interest if you withdraw funds prematurely
  • Cannot reinvest the earnings in the same CD
  • If rates go up, you’ve locked in your money at previous rates

iBonds

iBonds are inflation-linked savings bonds issued from the Treasury department.  They became quite the rage over the past 12-18 months, with rates at one point at 9.62%!  While they have dropped down from those highs, they are still paying a whopping 6.89%.  The rate gets reset semi-annually, so if inflation comes down over the next couple of years, the rates on these could drop substantially as well.  In the meantime, they offer a very impressive return that is guaranteed by the government.

The benefits of iBonds are that they:

  • Offer the highest guaranteed rate of any of the comparable alternatives
  • Should help fight off the effects of inflation if that is one of your chief concerns

The downsides to iBonds are that they:

  • Cannot be redeemed within 12 months of issue, and have a penalty of 3 months interest if redeemed within 5 years.
  • Have a limit of $10,000 per person per calendar year
  • Are only issued through www.treasurydirect.gov which is one of the clunkiest sites I’ve had to deal with in recent memory.

As you can see, there are several great options for your extra savings.   We recommend keeping at least one month’s operational cash flow needs in your checking account, and then using a High Yield Savings Account or Money Market Fund for your Emergency Fund and those “not sure what to do with” sums. When you don’t expect you’ll need the cash for a while or have a specific time horizon for the funds, CDs and iBonds are excellent choices.

No matter which option you choose, we believe that part of stewardship is being intentional with the funds that God has entrusted to you.  No one knows what’s going to happen to interest rates from here, and God’s not expecting you to have a crystal ball into your own life, let alone what the Fed decides to do!  Regardless, it’s time to stop hiding wads of cash in your sock drawer and allow your money to work for you without increasing your level of risk!

If you’re not sure which choice is best for you or if you find any of this material beneficial, we’d be happy to help you think through your options and take you through the implementation process.  Simply respond to this email, or schedule a meeting at this link.

Hit a reply a let us know what your go-to option for your extra cash is!

Welcome to Cambell Conard!

Posted on by Shepherd Wealth Partners

Please join me in welcoming Cambell Conard to the team at Shepherd Wealth Partners.  Cambell will be serving as a Financial Planning Associate – helping in the building and maintaining of our clients’ financial plans, assisting with operational areas of the firm, and doing a bit of everything to make our service more excellent!

A native of the Asheville area, Cambell spent his time in college playing baseball and studying finance.  After winning a National Championship with North Greenville University, he transferred to Liberty University to finish up his bachelor’s degree in Financial Planning.  He’s currently studying for both the Certified Financial Planner™ and Certified Kingdom Advisor’s designations. Outside of serving clients, Cambell enjoys golf, snowboarding, spending time with his fiancée Allie and their dog Leo, and being around family and friends.

Cambell will be your go-to for anything related to technical needs – transferring funds to or from your account, updating addresses, accessing your planning/investment info, and everything in between.  He’ll be reaching out from time to time to set up meetings, gather updates for your plan, follow up from meetings, etc.  Charles will still be your primary contact for talking over your investments, wisdom-related questions, and the deeper-level items related to money and life.  Not sure who to reach out to?  Just copy us both when in doubt!

We’re really excited to have Cambell as part of the team, and I know you’ll enjoy getting to know him over the years to come.  Please join me in welcoming him to the family!  Cambell can be reached directly at [email protected] or by calling our main line at 704-443-8455.

Great Estate Planning Opportunity

Posted on by Shepherd Wealth Partners

According to recent survey from senior living referral service Caring.com, there are still only 33% of Americans that have an estate plan in place.  While the fact of death shouldn’t surprise any of us, we generally fail to plan for this certainty.  For most of us, we simply just don’t get around to doing it.  Estate planning falls into the classic “important but not urgent” quadrant of life, and so it gets squeezed out by the more pressing matters such as getting outraged at the news headlines or scrolling through the available streaming movies on Netflix.

But fear not friends, for we’re taking some action to help you get your estate plan into some potentially much needed TLC.  We’ve started a new partnership with MyAdvocate, a team of estate planning attorneys using technology to create affordable, high-quality estate plans and documents.  That’s right, with MyAdvocate, you can get your estate plan updated while wearing your pajamas.  Even better, we can do it together!

If you’re in need of updating (or doing for the first time!) your estate documents, we’d be glad to get together with you, walk through some estate planning questions, and help you get your estate documents quickly and painlessly.  Not only that, but the cost is around 80% less than what it costs to have them drafted in an attorney’s office.  You could choose to do this on your own, but we’d be glad to go through it with you and you can save 20% off the price by using our partner discount.

So if you’ve never had your estate documents drafted, or if it’s been a long time since you’ve reviewed them, this couldn’t be a better time to revisit things.  It’s one of the best things you can do to give your loved ones the peace of mind that things will be taken care of at the end of your life.  As I often say, estate planning isn’t hard – you just have to do it before you die!

A “Christian” response to ChatGPT

Posted on by Shepherd Wealth Partners

As technology continues to advance, the latest addition to the field is ChatGPT, an AI language model developed by OpenAI. While this innovation has the potential to bring about significant benefits to various industries, it is important to consider the impact it may have on the economy from a Christian perspective.

From a positive standpoint, ChatGPT has the potential to increase efficiency and productivity. This technology can automate tasks that are time-consuming or repetitive, freeing up human workers to focus on more complex or creative projects. By doing so, it can lead to increased innovation and growth in the economy, leading to increased prosperity and job opportunities.

However, it is also important to consider the potential downsides of this technology. Automation has a tendency to lead to job loss, especially for lower-skilled workers who are at risk of being replaced by AI-powered machines. This can lead to increased poverty and inequality, which goes against the teachings of Christianity to care for the poor and vulnerable.

Additionally, the rise of AI technology like ChatGPT raises ethical concerns about the future of work and the role of humans in society. Christians believe in the value of human life and the importance of work as a means of serving God and contributing to the common good. AI-powered machines may be able to perform certain tasks more efficiently, but they lack the creativity, compassion, and empathy that make human work unique and valuable.

In conclusion, the impact of ChatGPT on the economy must be considered from a holistic perspective that takes into account both the benefits and the potential downsides. Christians must strive to ensure that the benefits of this technology are distributed fairly, and that its implementation does not lead to increased poverty and inequality. They must also work to preserve the value and dignity of human work in the face of technological advancements.

You may have noticed that I put “Christian” in quotes in the title of this post.  That’s because I didn’t actually write it, I had ChatGPT write a post from a Christian perspective on ChatGPT’s effect on the economy.  It took it all of about 10 seconds to do so, and was pretty well written I must say.  No, I won’t be farming out my blog writing to AI anytime soon, but be sure that this new computer thinking is going to have huge effects on our futures, and I do want us thinking about what are the moral implications and how we can use it for the greatest good while striving to love people (who may have thier jobs replaced by a computer at some point soon!).

Bad Assumptions

Posted on by Shepherd Wealth Partners

Have you ever noticed how small mistakes tend to get worse over time?  Cracks tend to spread, gaps often widen.  I recently built a brick paver pathway around the side of my house.  It was an extension of a pathway the previous homeowners installed, and it’s lined by wood beams on either side.  I measured the pavers in the pathway which were 8″ x 4″, making for some decently easy math.  I excavated, laid down a base of gravel, compacted the base, and installed my wood beams with rebar which would allow for 5 bricks laid length-wise (40″ pathway).

I then ordered some brick pavers from the nice folks at Carolina Brick & Materials so I could install the pathway. I was so excited to lay the pathway after spending so much time working on the foundation.  Sadly, the “modern” 8×4 pavers that manufacturers produce are in reality 7.75″ x 3.88″ (unlike the originals), so when I laid out my first row it meant that I needed an extra sliver of a brick on each and every row in order to fill in the gap.  This not only meant several hours of cutting on the wet saw, but now I didn’t have enough pavers and had to order more!

Obviously in hindsight, I had just totally assumed that the new pavers would be the same size as the old.  I wasn’t off by much (0.25″), but that little bit on each paver compounded and caused a lot of headache, time, and extra money.

Assumptions and Financial Planning

Financial planning is a lot of the same.  The output is only as good as the variables we enter.  If our assumptions are wrong, then it makes the entire financial plan not worth the paper it gets printed on!

This is quite a challenge, because you can’t just measure all of your financial inputs like a simple rectangular brick.  For starters, we don’t know what will happen tomorrow let alone 20 years down the road.  The stock market is semi-knowable the further down the road we get, but our lives are just the opposite.  We don’t know what will happen to our income streams, expenses, inflation, taxes, homes, healthcare, children, parents, country, etc.  We make assumptions and best guesses, knowing that our best laid plans are written in pencil with God holding the eraser and permanent marker.

Not only that, but being just slightly off has huge effects over a long period of time.  If we assume that stocks earn 8% annually, $100,000 will grow to $1,006,266 over 30 years.  However just 0.5% more annual growth will grow to $1,155,825 over that same time period.  Even little differences have a compounding effect!

The Illusion of Control

The real kicker of it all is that there are very few parts of our lives and finances that we can actually control.  Most of the things in the list above that we can’t know are also things that are completely out of our control.  That fact alone can have the power to either completely wreck us or increase our faith in a Sovereign God.  If you tend to be a control freak like me, it can be a battle not to let it be the former.  I like to plan things out on spreadsheets; I like right answers.

Unfortunately, right answers can be pretty hard to come by much of the time.  Life can’t be lived on a spreadsheet.  When I try to, others around me suffer and so do I.  The tighter I try to hold on to things, the more frustrated I get when I find things slipping through my grasp.

Good News

There’s a couple of pieces of good news I have for us today.  One is that not everything is beyond our control.  We can control whether we buy the fancy coffee or the new power tool or how much we tip the waiter.  Sometimes the pipes in our old home burst and we have to spend way more than we want on something we can’t even see!  But a lot of our expenses are choices, and as Ron Blue used to say, “every spending decision is a spiritual decision” because it all belongs to God.

We can also control how we handle this uncertain world.  We can decide our attitudes, reactions and outlooks, our work ethic and when we choose to retire.  As out of control as this world seems, we are totally in control of our inner worlds.  And the choices we’re making today will bear fruit later in life.

“Old age is the harvest of all the years that have gone before…We are each, in our earlier years, building the house in which we shall have to live when we grow old.  And we may make it a prison or a palace.”1  To me, how we react to the uncertainties that surround us is much more important than the uncertainties themselves.

Faithful Stewardship

So what do we do with this dichotomy?  What does faithful stewardship and well thought out financial planning look like?

To me, the best course of action is to 1) not focus too much on the wrong things (the uncontrollable), and 2) to not make assumptions that are presuming upon the future.  Will everything need to work out just right for your nest egg to last beyond your life expectancy?  Are we counting on bonus income in order to pay for our expenses?  Will we need multiple incomes to afford the mortgage payment?

Focus on the controllables (you!), and leave yourself margin.  That doesn’t mean that you tear down your barns to build bigger ones, planning God out of the picture.  But it does mean that you leave room for God to change your best laid plans.

1 from Living Life Backward, David Gibson, 2017

Hidden in Plain Sight

Posted on by Shepherd Wealth Partners

It’s not unusual for me to misplace things, which is why God gave me Amy as my wife.  She always seems to have a sixth sense of where my car keys are and she’s got a great memory for the little things.  Which is why it was so odd yesterday when she was panicked over not being able to find a certain credit card that she had laid out on the counter earlier.

Work and school both got interrupted so the two of us could scour the house for the card.  We checked the normal obvious places like the “mail/to do” basket, counters and dressers; then we went for my office, under furniture, in our cars, etc.  Finally we went out and were opening and sorting through bags of garbage!

After an hour or so, Amy had the bright idea of bribing our children with five dollars to whomever could find the missing card, at which point our 14-year-old looked in that same “mail/to do” basket and found it literally within 10 seconds!  We were in a bit of disbelief as the two of us had checked that basket no less than five times.  It felt like some sort of sorcery or cruel joke; like it appeared out of thin air. I still have no idea how we didn’t see it, it’s almost hard to believe.

The Benefit of Hindsight

It’s tempting to feel that way about the markets in 2022.  Hindsight is always 20/20.  The truth is obvious when you can look back at it.  It’s also tempting to wonder why you didn’t make certain decisions, financial or otherwise, in preparation or response.

Similarly, there’s going to be a point we look back on that was the beginning of the true rebound (which may or may not have already come!).  We’ll look back at hindsight on that and know that we should have seen the signs and made some different decisions.  Of course it’s almost always obvious looking back as we have the benefit of additional information.  We also have had all of the other potential outcomes eliminated at that point and we forget that there are numerous ways that situations could have played themselves out.

Stewardship, not prophecy

My hope for us all is that we can take that pressure of reading the tea leaves off of ourselves.  That’s not what God has in mind when it comes to faithful stewardship.  A steward isn’t responsible for having a crystal ball or divine inspiration.  Nor is a steward supposed to be able to control global events or never make a mistake.

Rather, a steward is called to be faithful – full of faith.  Faith that the One who provided the resources in the beginning is good, and has limitless resources at His disposal.  Faith that our actual worth isn’t defined by a net worth statement.  And faith that one day God is going to redeem everything that is broken and that we were made for an eternal home in heaven.

The spirit of the pilgrim greatly facilitates praying.  An earth-bound, earth-satisfied spirit cannot pray.  In such a heart, the flame of spiritual desire is either gone out or smouldering in faintest glow.  The wings of its faith are clipped, its eyes are filmed, its tongue silenced.  – E.M. Bounds The Necessity of Prayer

It feels to me like when I keep my mind and heart on the things of earth, it’s a lot like rummaging through garbage in the hopes of finding what’s missing.  The reality is that 1) that’s not where I’ll find it and 2) it’s a miserable experience in general.

So, fellow steward, let’s keep our focus on what we can control, namely where our ultimate hope is and how we will respond to those situations in life that go awry.  When we focus on those, we’ll be a people more filled with joy, less bothered by a crumbling culture, and able to offer hope to those around us.

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