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From My Point of View | Thoughtful Investor Newsletter

 

FROM MY POINT OF VIEW

December 21, 2008 - HOW LOW CAN IT GO?

November 21, 2008 - DON'T BLINK

October 20, 2008-CAPITULATION

September 18, 2008-significant client account gains.

August 4, 2008-If you can't stand the heat, go jump into the lake

March 24, 2008-THE GREATEST FIGHT OF THE GENERATION

March 4, 2008 Morning-PROCESS, PATIENCE, AND PERFORMANCE

March 4, 2008 Afternoon-The stock markets are not the only thing changing dramatically on short notice.

January 10, 2008 - CALMING CONCERNS

January 2, 2008 - HAPPY OLD YEAR?  Happy new year?

 

2009 PERSPECTIVES

2007 PERSPECTIVES

 

 

 

 

FROM MY POINT OF VIEW Heritage Bay, December 21, 2008

HOW LOW CAN IT GO?
The water level of Beaver Lake is controlled by a dam several miles downstream. The lake was created in the 1960’s by damming up the White River. The objective was flood control of farmlands. Earlier this year, because of heavy spring rains, the lake level was at its highest ever. In the past two weeks the flood gates have been opened and the lake level lowered. How low can it go? Another five feet. Enough so that the trees in the picture will be on dry ground.

The final lake level is predetermined and has been announced in local newspapers for a couple of weeks. Authorities want boat slip owners to know they will need to adjust their boat docks and not be left high and dry on land.

UNFORTUNATELY, the situation does not apply to the stock markets.

How Low Can The Markets Go?
There is no definitive answer. No one knows in advance the specific date when the direction will change. That does not mean we cannot observe trends and changes in trends.

For Example: Two weeks ago I visually reviewed over two thousand stocks and mutual funds. I brought each up on my computer screen, along with technical indicators measuring momentum and relative strength. About 75% of the issues viewed showed a four to six week pattern of fairly level up and down short term movements. Imagine looking at a side view of a saw (held level) and seeing the “teeth” alternated by spaces. The previous pattern was like looking at the saw, held (angled) with the progression of “teeth” lower and lower.

This study, alone, does not mean it is time to declare the end of the bear market and beginning of a bull market. It offers hope for possible limited gains for a short period of time.

Recent portfolio action. Our gains in a rising dollar fund, expected to continue, was quickly erased as a result of action taken by the Federal Reserve Board and Treasury. It was replaced with a falling dollar fund.

A long/short commodity fund was recently added to accounts. It can invest in various commodities either to make money by buying or selling depending on the management assessment of each commodity area.

Two positions were added this week. One in a medical services fund and another in consumer necessities. These are areas that offer cautious possibilities in the event of market gains during the next few weeks.

Each position is limited to 5% of the account value.
Along with Autopilot Fund, we have owned for about five months, this give us a 30% invested and 70% money market allocation in accounts.

Our performance continues to significantly exceed the average market results.

LISTENING TO OTHER VOICES

(1.) Protecting your account.
By now you have probably heard about the $50 billion Ponzi scheme perpetrated by Bernard Madoff, a New York broker who is a former NASDAQ stock market chairman. He allegedly collected money from investors, falsified account statements and used new client money to pay interest and provide withdrawals to earlier clients. It is a tragic story of foundations now finding they have no money to distribute and individuals losing millions of dollars. The amounts of losses in some accounts are unimaginable.

A lot of very financially sophisticated people overlooked basic “no-no’s”. Do not ever write checks or wire money to investment managers who are the custodians of the account, maintain the account records, create the reports, and act as keepers of the money.

As you know, when you do business with me, all client accounts are opened in your name with Fidelity Investments. All deposits to accounts are made to Fidelity and you receive a confirmation directly from them. Monthly statements showing every detail of transactions in the accounts are prepared by Fidelity and mailed to you by them. My authority is limited to making investment changes in accounts. The only times money can be removed from your account and sent anywhere except to you are the quarterly investment management fees paid FSA. The fees are reported on your next monthly statement.

(2). % of New York Stock Exchange Stocks above Their 200 Day Average.
A reliable measure of the market’s strength or weakness can be found in the % of NYSE stocks trading above their 200 day averages. The 200 day moving average measures a market’s long term trend. (A 50 day moving average measures short to intermediate market trends.)

Currently 96% of the NYSE stocks are trading below their 200 day moving average. 60% of NYSE stocks trading above their 200 day average is needed to signal a new bull market. (John Murphy, The Market Message)

(3). Why Buy and Hold Does Not Work.
As of Friday’s close: We have 6422 equity oriented funds in our database. If you do not already understand the magnitude of the recent market decline these stats will help explain why we do not believe in Buy and Hold investing. There are only 108 funds (1.68% of the funds in our database) down less than -20% this year. The cutoff for the top 25% of all funds in our database is down -38%. The median and average fund is down -43% this year and the bottom 25% of all funds is down more than-48% this year.

(4.) Why Traditional Asset Allocation Does Not Work.
Investing according to preset percentages of stocks, bonds, cash, real estate and commodities with periodic rebalancing is the most common approach to asset allocation.

In examining all the major asset classes over the past 52 weeks, only US Treasury Bonds provided a positive return. The projected benefits of adding small cap and international stocks to a diversified portfolio have vanished during this market decline. With the collapse of real estate, REIT’s have not helped. Commodities and precious metals have also suffered dramatic depreciation. According to experts, these asset classes were supposed to zig when the others zagged. (Timothy J. McIntosh, Investment Advisor magazine, December, 2008)

IN ALMOST CONCLUSION:
The following page is intended to make it easy to print it and share it with friends and associates. If you think it is too strong or direct (any critique) let me know. I want to start mailing it to business owners next month.

If you have an investment account that has lost more than 12% this past year you need to consider using a different investment manager.

Let me get straight to the point!

Anyone can make money in an up market. Successful investing requires significantly limiting losses in down markets.

That is what we do.

Our risk management techniques are designed to provide protection in losing markets. We are successfully accomplishing this objective in current market conditions. And, we were successful in the market decline of 2000-2002.

I apologize for the abruptness of this letter, but with 30+ years of investment experience, I really get upset when investors lose money unnecessarily.

If current account losses have made you uncomfortable then why continue relying on existing investment management? If you had a physical ailment that continued to get worse would you not, at least, get a second medical opinion? Call me for an alternative investment management strategy.

It is never too late to make a better financial decision.

FSA is a fee only registered investment advisor. We do not sell insurance or financial products. We focus on only one thing�.. managing client investment accounts.

Morris Vickers, President fsamev@aol.com 479-925-2939

NOW IN CONCLUSION.
Twyla and I will stay close to home this Christmas. The family gathering will take place in Ft Smith, only about an hour and a half drive from home.

Conference Time. I know it will be difficult to leave home for a conference Jan. 10-13, 2009. I mean, our temperature today is a high of 19 degrees. It may be even lower in January, with snow. So, where is the conference: Boca Raton, FL. Yes, Twyla will go with me. She can “sun and shop” while I learn more about Electronically Traded Funds.

Regulatory Close

NOTE:
**FSA performance figures are actual results as calculated by taking an average of client accounts that have not added to or withdrawn from in the time period specified. Documentation is available.

If you know of other persons who may wish to be added to our email list send us the name and email address. Secure their permission first.

This email may be considered advertisement by regulatory authorities.

 

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FROM MY POINT OF VIEW, NOVEMBER 21, 2008

Do you see the heron, standing in the water, near the bank, with a fish in its beak? YOU DON’T!!! It was there when I started to take the picture. My, how quickly things change.

Don’t Blink, you will miss seeing the market change.

Gary Kaltbaum, an investment advisor, provides us with this play by play description of recent market prestidigitation.

“The DOW closed on Friday, November 7th at 8944. By Monday (11/10) at 9:50am. ET, it was up 200 points to 9144. Don’t blink! At 3:30pm ET, the DOW had dropped to 8761, an almost 400 point drop. Of course, you had to have a 110 point romp in the last 10 minutes on Monday, with a close of 8871."

" The market gapped down on Tuesday (11/11) hitting an 8561 low, down 210 points at 1:50pm ET, the DOW stood at 8616 by 2:40PM ET, the DOW was at 8868 aa 252 point romp in an hour by 3:40pm ET, back to 8600, a 268 point drop in the next hour rallied 141 points in the next 10 minutes before closinsing at 8694.

"Wednesday (11/12) was trend down with the DOW down 412 points with only a 100 point rally midday closing at 8283. Dizzy yet? Don’t blink!

"By 10:30am ET Thursday (11/13), the DOW hit 8411 up about 128 points. Don’t blink! By 1:00pm ET, the Dow had plunged to 7966, a 445 point drop in 150 minutes. Don’t blink. In another over the top romp, the DOW soared 904 points to 8870 before settling at 8835 at the close.

"The DOW plunged on Friday 363 points up to 12:20pm ET. For the next hour, the DOW traded in a “small” 100 point range with 8494 being hit at 1:30pm ET. Don’t blink! By 3:00pm ET, the DOW rallied all the way up to 8922, a measly 426 points…which caused many to get lathered up for another good reversal day. Don’t blink! In a final amazing cap to the week, the DOW dropped from 8919 at 3:20pm ET to 8470, a 449 point drop before closing at 8497; 219 of those points occurred in 7 minutes.”

So endith the lesson. This is not a time for speculation but for capital preservation.

Don’t Blink, you will miss where $700 billion is going. Do you remember “the sky is falling” urgency of Congress passing a $700 billion piece of legislation to permit the Secretary of the Treasury to provide liquidity to banks to lend money? Or, was it to buy up bad mortgage debt? No, it was to invest in banks! Wait, let’s recognize that consumers have credit card and student loan debt that needs to be accommodated. But then the auto industry and its related suppliers are “the backbone of American manufacturing”. Don’t over look that American Express is converting to a bank so they can ask for money. And GMAC, that has been the financing arm for General Motors, has applied to become a bank. They are not the only financial service firms to get religion and convert.

I have a bargain deal for Treasury. I don’t want billions. Just give me $5 million and I’ll sell them (or you) 49% of my company. Just think of how much good I could do with the money (for my clients naturally). The pigs are jostling each other at the trough. And, some legislators want to hand out Christmas candy to everyone they owe a favor.

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PERFORMANCE UPDATE

Average of 14 Broad market Indexes:
September 1, 2008 to November 20, 2008 Minus 43.82%
November 1, 2008 to November 20, 2008 Minus 23.67%

Financial Security Advisors, Managed Accounts
**Timeless Strategies and Timeless Strategies Expanded:
September 1, 2008 to November 20, 2008 Minus 1.45%
November 1, 2008 to November 20, 2008 Minus 0.07%

Our risk management strategies are working.

THERE IS NEVER A WRONG TIME TO MAKE THE RIGHT DECISION

Have you been listening to your friends tell their tragic experiences of losing significantly in the stock markets? Do they need to defer retirement for another year or more? Are they working fewer hours for less pay? Or, do they no longer have a job? There is plenty of pain going around.

They may feel it is too late to do anything about investment losses that have seriously reduced their account values. “Might as well stay with what we have and wait for the same managers who lost it to regain it”, is a common expression of resignation. “Is the brokerage firm that has my money still in business?” is another good question.

Quite frankly, I don’t understand investors who trust the management of their investments to the same people and companies that have demonstrated they cannot manage either client accounts or their own business. Make a list of the financial firms that are in trouble, or have been bought out, or rescued by the government. Then ask, “If they could not see what was happening in the country and their own business management practices, why should I expect them to be careful about managing my account”?

If you know of friends, co-workers, or relatives who need pain relief tell them you know the doctor they need to get in touch with. I’ll not tell them to take two aspirin and wait for the market to go back up. What they need is better risk management, not someone who will passively sit by and watch values collapse.

THE FINAL WORD Belongs to Thomas Jefferson.

(Thanks to LA for sending me this) Reported quotes from Thomas Jefferson.

“The democracy will cease to exist when you take away from those who are willing to work and give to those who would not.

It is incumbent on every generation to pay its own debts as it goes. A principle which if acted on would save one-half the wars of the world.

I predict future happiness for Americans if they can prevent the government from wasting the labors of the people under the pretense of taking care of them.

My reading of history convinces me that most bad government results from too much government.

No free man shall ever be debarred the use of arms.

The strongest reason for the people to retain the right to keep and bear arms is, as a last resort, to protect themselves against tyranny in government.

To compel a man to subsidize with his taxes the propagation of ideas which he disbelieves and abhors is sinful and tyrannical”.

In 1802 he wrote “I believe banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of currency, first by inflation, then by deflation, the banks and corporations that will grow up around the banks will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered”.

I’LL LEAVE IT AT THAT.

MORRIS

I’M WRONG. THE FINAL WORD BELONGS TO REGULATORY AUTHORITIES:

NOTE: **FSA performance figures are actual results as calculated by taking an average of client accounts that have not added to or withdrawn from in the time period specified. Documentation is available. This email is for financial educational purposes. It is not to provide investment services. If you do not wish to receive future email from Financial Security Advisors, Inc, use the reply button or send an email to fsamev@aol.com and say something to the effect of “stop” or “thanks but no thanks” and you will be immediately deleted (not personally but from the email list). If you know of other persons who may wish to be added to our email list send us their name and email address. Secure their permission first. This email may be considered advertisement by regulatory authorities.

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FROM MY POINT OF VIEW, OCTOBER 20, 2008

“CAPITULATION”
The American Heritage Dictionary definition of the word is, “The act of surrendering; to give up all resistance”.

If the definition is applied to the trees in the picture it might be said they have surrendered or given up their leaves. The winds have blown so hard they could not hold on any longer. The bottom right hand corner shows the top of a tree that has capitulated completely, its roots now lie exposed. Not only has it lost leaves it has lost itself.

Capitulation is also a word that is applied to the stock markets. It is that time when investors, having lost value in accounts, give up and say “sell everything, I cannot take any more of this”. It is one indicator of a market bottom. Market bottoms occur from the accumulation of fear, panic, despair and exhaustion.

The first eight market trading days of October suggest that capitulation is occurring. Since October 1st. the markets have recorded the following percentage losses:
Dow Jones Industrial Average -19.94%
NASDAQ -20.79%
Standard & Poor’s 500 -22.90%
Russell 2000 (Small Company) -23.12%
Wilshire 5000 (Broad Company)-21.04%
(During these same market days, Timeless Strategies and TS Expanded accounts are down -1.21%)

During capitulation the stocks of even the best companies are sold. Examples of losses since October 1st of a few companies in the Dow Jones Industrial Index (DJIA)are:

...Alcoa -50.18%; ....American Express -34.33%; ....Caterpillar -27.63%
...Boeing -27.11% ....Honeywell -26.35.

Among the best performing DJIA stocks are:

...Altria -13.51% ....McDonalds -13.53% ....Proctor & Gamble -14.54%
...Wal-Mart -14.93 ....General Electric -15.69

DOES THIS MEAN WE ARE AT A MARKET BOTTOM?
It is too early to tell. An observation but not a prediction: 8 of the last 13 bear market bottoms have occurred in October.

Several concerns surfaced last year that produced uncertainty and encouraged markets to decline: (1) Increasing fuel oil prices, (2) sub-prime mortgages, and (3) a contested national election.

Now, (1) oil prices have significantly declined, (2) the US and foreign countries are taking steps (however controversial) to address the broader credit market difficulties, and (3) in another three weeks national elections will have concluded. (4) This does not mean the end of difficulties. Investors must also consider the impact on business and personal finances of: Recession.

IN RETROSPECT.
The Broad Market Indexes indicate October 8, 2007 as the most recent high point in value. Using the dates of October 1, 2007 through October 10, 2008 the markets have seen losses of:

DJIA -37.41% .......NASDAQ -39.82% .......S&P 500 -41.87%

Russell 2000 -36.63% .......Wilshire 5000 -40.62%

If invested equally among these indexes the loss would be -39.27%. This would be a very aggressive buy and hold account. The account would have 60.73% of its investment value intact.

During this same time period, because of our risk management techniques, Timeless Strategies and TS Expanded accounts are down an average of 7.56%. Clients in these managed accounts have 92.44% of investment value intact and available for use when appropriate.

(TS & TSE averages are calculated using the account values, for the time period specified, of accounts where no withdrawals and no additions have been made to the accounts.)

BACK HOME.
Twyla and I enjoyed our two weeks in Texas. We visited historical sites and museums in Austin and San Antonio. We also visited the Admiral Nimitz WW 2 Museum in (Guess where: Galveston?, Port Arthur?, or Corpus Christi?, none of the three) Fredericksburg in the Hill Country. There is hardly enough water in the area to float a raft. It is a must see museum in a town with a German history. Nimitz grew up in the area. Gerune (pronounced green), a suburb of New Braunfels also was fascinating. We also toured several homes costing almost two million dollars each. WAY out of our price range but fun to look at.

It was good to be away but good to be back home.

MORRIS

NOTE:
If you know of other persons who may wish to be added to our email list send us the name and email address. Secure their permission first.

This email may be considered advertisement by regulatory authorities.

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FROM MY POINT OF VIEW, SEPTEMBER 18, 2008

MID MONTH MARKET UPDATE:
A couple of days ago I wrote a quick email to clients telling them the effect of the previous day’s more than 500 point drop in the Dow Jones Industrial Average and related market losses. The message was “markets down 4%, client accounts up .40%.” I am pleased to report that yesterday’s significant market losses resulted again in significant client account gains.

Here is the box score for September: Broad Market Index decline -9.01%. Average client gains in Timeless Strategies and TS Expanded accounts +2.00%. How bad has September been? For the year the Broad Market Index is down -18.32%. Almost one-half the amount occurred this month.

Don’t miss this!!!!
Every time a major financial institution acknowledges its problems and begins to resolve them through bankruptcy, being sold to another company, or given backing by the Treasury, brings us closer to a conclusion this drama. After a period of time with no additional major disruptions the markets will be ready to begin a period of gaining value. The initial rally may well be an explosion one to the upside with 10% to 15% gains before a correction takes place. There is a lot of money sitting on the sidelines waiting for the moment to come when it can, with a reasonable degree of safety, be committed to the markets.

(Theologically speaking, this process is called confession of sin, repentance, and acceptance of the sacrifice of another to satisfy the result of sin). When the Treasury Department puts up the money for the bail out, the sacrifice is provided by the American taxpayer.

For the sum of $85 million dollars, you and I are now the proud owners of 79.9% of AIG Financial Disaster Incorporated. What is the company worth? VALUE UNKNOWN. How is that for a sound investment decision?

THE LONG AND SHORT OF IT
When investing, “long” refers to buying a position with expectation of making money when it goes up in value. “Short” refers to a position where money is made when what has been bought goes down in value.

The objective of using both long and short positions in an investment mix is (1). To reduce losses and/or (2).to make gains, even in declining markets. If Long positions lose value and Short positions gain value the investment mix stays close to neutral. The ideal result is to have long positions gain in value while short positions are also gaining because those investments are losing value.

Getting the exact combination of positions is difficult, especially in volatile markets such as we are experiencing. Our goal is not to eliminate risk but to manage it. To eliminate risk you must also eliminate the potential of making any gains. Using long and short positions is one approach to accomplishing our goal.

THE ELUSIVE BOTTOM
This is the name of an eleven page article written by David A. Rosenberg and communicated in an email from John Mauldin’s “Outside the Box”, August 18, 2008.

Rosenberg’s analysis leads him to believe we aren’t even past the halfway point in this recession, the credit losses, or the housing deflation.

He views the several recent 300 point days on the Dow Johns Industrial Average as verification we are still in a declining market environment. “My main message is that 300 point rallies in the Dow don’t happen in bull markets. In fact, they never happened in the bull markets from October’02 to October “07, but they have happened 6 times in this bear market and happened 12 times in the last bear market”. (Make that 7 times to include today).

He further states, “If you’re looking for the fundamental bottom, I don’t think you can expect to see it before February or March of next year”.

SO, WHEN WILL ALL THIS BE OVER?
No one knows. We will continue to be careful with your investments, patiently waiting for the appropriate time when an “all (or significantly all or almost all) clear signal sounds.

IN CONCLUSION.
This past Monday I sold ½ of the positions in two “long” funds and this morning (Thursday) sold ½ of the positions in two “short” funds. This will give us a cash position of about 60% in all TS and TSE portfolios.

Personal Word.
This Saturday I will fly to Birmingham, AL to then meet clients/friends for morning worship in Tuscaloosa on Sunday. After lunch and discussion time I will be off to Atlanta, GA for meetings on Monday and Tuesday. I’ll be part of a study group learning more about the uses of ETF’s (electronically traded funds). I’ll be back home Wednesday late afternoon. Thursday morning Twyla and I leave to drive to the Austin/San Antonio, TX area for two weeks. It is time for some Texas roadhouse country music and dancing. Of course a few museums and other more highly cultural events are on the list.

On the first Saturday in TX we will be in Houston for a one day meeting. It will be a market update discussion by one of the research companies that provides information daily. The hotel where the meeting will be held did not sustain any damage and say they are functioning 100%.

Thanks for your confidence!!!

Morris

Now is a good time to add to accounts, open new accounts, and refer others to our investment management service. Be ready for gains when the time comes and reduce the potential for loss until then.

Regulatory Message.
References to investment performance are for past accomplishments and are not guarantees of future results. Financial Security Advisors, Inc. is a Registered Investment Advisor. Owner and President is Morris Vickers.

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FROM MY POINT OF VIEW, AUGUST 4, 2008

LOOK CLOSELY: Neighbor child playing with raft.
Temperature in mid to high 90’s

INVESTMENT REVIEW.
Here is the understatement: This is a difficult market. But you know the old adage, If you can’t stand the heat, go jump in the lake!. (Twyla and I went swimming yesterday but it was in the pool, not the lake).

The markets are in a period of changing emphasis. The word is “rotation” as areas move in and out of favor. In order to lose less than the markets and have possibility of experiencing gains, a tight control must be kept on what is owned. There are a few opportunities for long term holdings: very few. Here is the current strategy with Timeless Strategies and TS Expanded accounts.

30% of account value is in three funds:
(1). CIHDX, Cullen International Dividend Fund, 10%.
Bought August 27, 2007 it is currently down -2.33%. The broad market index in the same time period is down -10.24%. The fund invests in large to medium size international companies paying above average dividends. It has been gaining more than the markets in upswings and declining less in downturns.

(2). PRPFX, Permanent Portfolio Fund, 10%.
Bought October, 9, 2007 it is currently up +6.41%. The broad market index in the same time period is down -16.08%. The fund invests in gold, silver, Swiss Francs, natural resources, and bonds of the US and Swiss governments. From 10/09/2007 to 04/17/08 the fund did better than the broad market indexes; then until 06/20/08 it did slightly less; and since has again exceeded market averages.

(3). AUTOX, Autopilot Growth Fund, 10%.
Bought first on 02/26/08 with more added 05/02/08. The first purchase is up +1.18% during a time of market loss of -4.52%. The second block bought is up +2.38% while the markets are down -7.24%. The fund invests in US traded companies of any size, with above average potential for gains. It may invest in foreign companies that trade on US markets.

(4). FYI. We are still 35%-40% in money market funds.

RECENT CHANGES.
If all the recent buys and sells had produced gains I would be on my way to “investment sainthood”. Alas, I am still a poor struggling sinner with gains and losses. This is a market where much of what has looked favorable has quickly turned. Clients will see recent changes on confirmation and monthly account statements.

RECENT ANALYSIS.
Ten days ago I began a comprehensive analysis of the markets using 41 country indexes and 236 industry areas. NONE showed favorable trends.

I also investigated 36 sectors in the economy for encouraging investments and found only three: Biotechnology, health care, and pharmaceuticals.

Of the five market capitalizations (Size of companies); microcap, small, middle, large and macrocap; the most favorable was small companies followed by microcap.

And I visually looked at the chart patterns of about 1200 mutual funds, and ETF’s.

Changes in client accounts reflect the results of the study.
No new investment represents more than 5% of the value of an account. I expect to be very prompt with the selling of any fund that begins to decline in value.

LET’S CHANGE TO OTHERS SUBJECTS. The following material is taken from various sources. They are ideas that caught my attention. Now I am passing them along to you.

The Difference Between Women and Men.
A popular relationships book from the early 1990’s suggested that men and women are so different they seem to come from separate planets. That may have stretched their differences a bit, but a recent study from Allianz Life Insurance Company, found than men and women are definitely coming from different places when it comes to financial matters. A U.S. News & World Report story about the study and similar research pointed out that women are much more fearful of ending up in poverty; they place a high value on financial security; many believe that financial ads speak down to women and that financial professionals do not give women enough respect; and they prefer to receive financial information in person rather than from the internet. (From a Kingdom Advisors email.)

How about it ladies? Does this speak to your observations? (Here is the dangerous question: how am I doing?)

An Antidote to Greed.
The English architect John Foster once remarked that the loudest laugh in hell is reserved for the man who dies rich. (presumably because the decedent had neither the enjoyment of spending it nor the pleasure of giving it away.)

According to the medieval philosopher Moses Maimonides, for instance, there are eight grades of charity:
(1). To give reluctantly.
(2). To give cheerfully, but not adequately.
(3). To give cheerfully, adequately, but only after being asked.
(4). To give cheerfully, adequately, and of your own free will, but to put it in the recipient’s hand in such a way to make him feel the lesser.
(5). To let the recipient know who the donor is but not the reverse.
(6). To know who is receiving your charity but to remain anonymous to him.
(7). To have neither the donor nor the recipient be aware of the other’s identity.
(8). To dispense with charity altogether, by enabling your fellow humans to have the wherewithal to earn their own living.

Like studying or exercising, giving only becomes ingrained when we engage in it regularly. If you aren’t charitably disposed now, becoming rich isn’t likely to make you so. That makes it imperative to give along the way. (From Spiritual Wealth)

It Makes a Difference.
One difference between a registered investment advisor and a stock broker.

RIAs are regulated by the Securities and Exchange Commission and state regulators, and are held to a higher fiduciary standard than brokers because they are required to provide more disclosure and act in their client’s best interest. Brokers, on the other hand, are required to recommend investments that are suitable for their customers and to obtain the best execution when buying or selling shares for them. (Financial Advisor magazine, May, 2008). The difference is one of understanding the responsibility of a “fiduciary” (best interest of a client) as compared to one who provides what is “suitable”. An investment may be suitable but not in the best interest of the investor. In the event of a dispute, “suitability” is a lesser standard of defense for the broker than “fiduciary” is for the advisor.

WELL, THAT IS ENOUGH FOR ONE POINT OF VIEW.
This past week, on July 30th, Twyla and I celebrated our 31st. wedding anniversary. What a patient woman!!!!!

PS. Feel free to share this From My Point of View with others. With their permission, send me an email address and I’ll add them to the list. I will also send the quarterly, professionally done “Thoughtful Investor” newsletter.

PS Also, I have an opening for another client if you have someone to refer to me.

MORRIS

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March 24, 2008 - THE GREATEST FIGHT OF THE GENERATION

“How high’s the water momma?” “Six feet high and rising”
(Words from a song by the late Johnny Cash)

After two/three days of heavy rain we were asking the question.  At one time the water was over the top rail of the fence in the picture. We do not worry about it flooding the house. The water would flow over the top of Beaver Lake Dam before reaching our house. This was not a record high for the lake but close to it.
 
THE GREATEST FIGHT OF THE GENERATION
 
Imagine two huge men in a boxing ring. Each one is a professional with years of experience. They each are determined to be “King of the Ring”.
 
Round One. Without hesitation they rush to the center of the ring and begin to pound away at each other. First one of them has the advantage but then the other takes the offensive. Minutes go by with no let up in activity. The bell rings and judges determine which of the fighters has won the round.
 
Round Two. The same scene as round one.
 
And so it goes, round after round. Each fighter trying to put away the opponent. Two huge, hulking masses seeking to dominate the other.
 
Question: If you are not one of the fighters, what is the best thing you can do?
Answer: Stay out of the ring.
 
What is the greatest fight of the generation? Terrorism?  The Democratic  party presidential nominating process?  The debate over global warming?
 
My vote is for the current national financial debacle. Our problems have accelerated well beyond what was considered a few months ago as a limited “sub prime” mortgage situation. 
 
As reflected by the stock markets, each day is a “knock down drag out” battle between the bulls and the bears. Those investors who are bullish are pounding away and making the market rise. Those who are bearish are equally active in making it go down. Some market days the bell rings to close business for the day and the bulls win with triple digit gains. The next day the bears prevail with triple digit losses.
 
WHERE ARE WE WITH CLIENT ACCOUNTS?
We are not in the ring but have been on the apron around it with Timeless Strategies and Timeless Strategies Expanded. Those accounts have been 50%-55% in money market funds for more than a month. As of today that amount will increase by another 10%-15%.

 
Using Nov. 1, 2007 as a base for looking at market actions and Timeless Strategies funds shows the following representation as to values.  The Timeless Strategies values are based on a representative group of client accounts for the time period. The Broad Index line is the average of fourteen indexes measuring different areas of the markets. Timeless Balance is our balanced program that stays essentially 100% invested at all times. 
 
 
November 1, 2007 to March 20, 2008

Timeless Strategies Funds
Timeless Balance Funds
14 Broad Market Indexes
 
The 14 market indexes show losses from -8.89% (Dow Jones Industrial Average) to -21.75% (NASDAQ 100 Index).  The average decline for all fourteen is -15.73%.
 
We are presently in the third day of a strong market advance. Does this mean we have reached the bottom? Probably not.  We are in a position where if the markets make certain benchmarks we can commit more for growth. If the benchmarks are not reached then any new decline will have very little effect on our positions.
 
MORRIS

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March 4, 2008 - PROCESS, PATIENCE, AND PERFORMANCE

 

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November 8, 2007 - LIKE AUTUMN LEAVES

What difference do you see in the above picture from the same scene in previous months? One answer is, the boat dock is more visible. But, why? The answer is, there is not as much foliage on the trees to obstruct the view. It is autumn and the leaves have fallen.

To notice the change requires comparing this month’s picture to the October and September and perhaps the August pictures. At first, comparing the August to the September picture very little change (if any) may be seen. As the months progress and increasingly individual leafs drop the observation becomes clearer that change has taken place.

The same observation can be made with regard to the stock markets in the past few months. Without getting into a lot of technical language here is what has happened. The number of companies whose stock prices have reached new highs in the past 52 weeks has been declining since mid February 2007. This means that an increasing number of stocks are rolling over into their own bear (declining) market. 38.2% of the operating companies listed on the New York Stock Exchange are already down more than 20% in price during this time.

LIKE AUTUMN LEAVES they have been dropping almost unnoticed. First it was small company stocks. Since then it has expanded into middle and large companies. The process has gone unnoticed because the popular market indexes quoted in the news are indexes of large companies. And those indexes (the Standard & Poor’s 500 and Dow Jones Industrial Average) are “capitalization” weighted. In other words, even if the majority of stocks in the index decline and a few of the largest companies increase the index will still show favorable results.

Imagine a teeter-totter with three 500 pound gorillas on one end and nine 100 pound monkeys on the other. The gorillas are still going to determine which end of the board sits securely on the ground.

The stock markets have been deteriorating much more than are reflected in the capitalization weighted indexes. The markets have been propped up by a declining number of high profile large company stocks in a few industries.

What has now happened is that due to adverse problems in the credit markets, plus oil prices escalating, and unfavorable earnings by companies, a couple of the gorillas have fallen off the board. Those events eventually get noticed when it is realized the monkeys are now at ground level.

Yesterday’s markets got everyone’s attention. All the usual market indexes fell significantly.  For the third day in the past three weeks the number of shares offered for sale represented 90% of the volume on the New York Stock Exchange. Frequently 90% down days are followed by rebound rallies lasting 2-7 days. If there is no 90% UP day then it is more likely that additional down days will follow.

HOW DID YOUR ACCOUNT FARE YESTERDAY? The average of 15 indexes measuring different areas of the markets lost -2.74% of value. Timeless Strategies accounts declined -0.32% and Timeless Balance accounts dropped -1.26%.

ON A PERSONAL NOTE:

(1). A couple of weeks ago Twyla and I drove to Branson, MO and spent  several nights. It happened that the Oak Ridge Boys were performing at the Grand Palace. I have listed to country music since age 6 or 7 (then know as Hillbilly) but was reluctant to spend $35.00 each on tickets to hear the “Oaks”. After all, they have been performing together since the early 1970’s. I figured that by now their voices would be creaking and groaning. Well I was wrong. They may be seniors but they can still sing.

The last week of this month we are returning to Branson (only 2 ¼ hours away) for another three night stay. This time we will see and hear the group “Mannheim Steamroller”. I expect it to be just as enjoyable.

(2). Forty years ago one of my best college friends was a guy by the name of Bob. After college we went our separate ways and lost track of each other. About twenty years ago while I was living in Maryland I learned that Bob was pastoring a church in Oklahoma (his home state) and I called him. Our conversation was brief but we both got busy so there were no follow up calls. Again, we lost track of each other.  A couple of months ago I discovered that Bob lives in Ft. Smith, AR. just 1 ½ hours south of Rogers.  Yesterday I had a meeting in Van Buren (an adjoining town) and after it was over I visited him.  It was the first time for us to see each other in 40 years. We had a great time talking and getting reacquainted.  Friendship is something to be treasured and not set aside, forgotten, in the pressures of daily living.

Morris  

October 31, 2007 - TRICK OR TREAT?

FIRST THE TREAT.

Based upon an analysis of client accounts, with no additional deposits or withdrawals, using the Timeless Strategies investment program, account values increased between 8% and 8.5% during the past quarter (August 1st. through October 31st)

This past couple of months the investment allocation was 70% in equities (stock mutual funds) and 30% in fixed income (money market funds). On Oct. 29th one mutual fund position was sold changing the allocation to 60%/40%. And, on Nov. 1st another sale changed the allocation to 50%/50%.

Given the market actions of Nov. 1st I think it is prudent to exercise more caution for the time being. We are now in a position to better protect against the downside.

Several more favorable market areas are: foreign companies, large international dividend paying companies, and natural resources funds. Investments are allocated to these areas.

NOW THE TRICK.

Yesterday, on my way into town, I passed our local gas station with middle grade gas advertised at $2.87 per gallon. On the way home less than two hours later the sign said $2.95 per gallon. Twyla and I went to dinner last night at one of our favorite Mexican restaurants, passed the same gas station where the mid level gas price read $3.05.

THAT IS INFLATION. 6.27% IN 5 HOURS.

Any questions why the Federal Reserve Board's lowering of interest rates has the dollar referred to a "the Bernake Peso"? (As in what we once referred to as "third world, banana republic currency")

WHAT DOES FED ACTION HAVE TO DO WITH THE PRICE OF OIL? Let me try this over.over.over simplification.

First imagine you are a foreign oil producer. You sell 10000 gallons of crude for $90 a gallon, meaning you get paid $90,000 US. Using today as the benchmark $90,000 buys you $90,000 worth of goods and services.

The Federal Reserve Board lowers interest rates making the dollar less attractive for the amount of interest it may earn, relative to other national currencies. The dollar is now worth less making it more expensive to buy things in other countries.

You, the oil producer no longer have $90,000 worth of buying power. The same goods and services you previously received in return for $90,000 cost more. So, what do you do to protect your buying power and have it continue to make the purchases? You raise the price of a gallon of oil to $91.00. Now your 10,000 gallons brings you $91,000 which buys you the goods and services previously costing $90,000.

WHO PAYS THE ADDITIONAL $1,000? Yesterday at our neighborhood gas station the price of a gallon went from $2.87 to $2.95 to $3.05.

That is not the entire answer but I hope you get the concept.

ON A PERSONAL NOTE.

Twyla asked that I tell you how much she appreciates the e-mails and cards of sympathy she received from you at the death of her father last month. She shared them with her mother, Frances, who is doing well in grieving the loss of her husband of 62 years.

The two of them plus a sister and her son, and another brother and his wife, left for a town in Louisiana about an hour ago. They are going to observe the baptism of a college age nephew this coming Sunday.

Gratefully, life goes on.

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September 21, 2007 - THE FEDERAL RESERVE BOARD HAS ACTED. WHAT NOW?

Since the initial market rally following the Federal Reserve Board's lowering of certain interest rates this past week the number of stocks traded (volume) has stayed about the same but increases in value have, in comparison, been far less. When greater effort (volume) that produces less results (points gained), and when it follows a substantial rally, it typically indicates increased resistance to higher prices.

Today's close showed good gains in the major market averages but nothing spectacular. The market index highs were reached earlier in the day but selling brought the closing numbers down.

There is reason to expect the markets to pull back from the gains of this past week. Not all the way back, but 25%-50% back. All of which means we may have it happen in time to report lower account balances at the end of this week (which also means the end of this month).

I still vote that we record account values on the highest day of each month, no matter what day that is.

Here are today's actions taken in Timeless Strategies accounts. Exposure to the markets was slightly expanded. Merger Fund, which we have held for about a 1 ½ years was sold. It represented approximately 10% of the account values.

Two new funds were purchased; Fidelity South East Asia Fund (8% position) and US Global Emerging Europe Fund (7% position) The net effect is the increase of invested funds to 65% and the addition of funds representing areas of the world that are growing strongly. In addition, the areas represented by these funds are not in position to be adversely affected by our credit problems.

Timeless Strategies accounts now are invested 25% in international funds, 30% in US funds in specific industry areas, and 35% in money market funds.

If the markets continue to behave themselves this coming week, meaning a reasonable pull back, then additional commitments will be made. I am analyzing funds defined by capitalization (small, medium and large) and orientation to value and growth. I am using the time period of July 20th to the present so that the sharp decline in July and August is considered. Then I am using the time period of August 16th to the present to see the effects of the recovery of values by funds to this day.

COMING TRIP.

As indicated previously, I will be in Maryland October 6th. to the 14th. AND TWYLA IS COMING WITH ME. If you want to meet with us (socially, business, or both) during those days let me know by email with a couple of suggested times. If you think you may need money from your account while we are there let me know so I can bring forms with me.

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September 15, 2007 - CAUTION IS STILL THE BEST STRATEGY

Sources that are interested in selling stocks are still dominant over sources that feel inclined to buy. The recent rally does not follow the usual pattern of a healthy growing market. The Federal Reserve Board still has yet to meet (tomorrow) and decide if they will reduce interest rates and if so by how much. There is so much expectation for it to be 50 basis points (1/2 of 1 percent) that anything less may send the markets lower. There is no certainty that if the FRB meets expectations the markets will gain in value. The markets may already reflect the expectation of an interest rate reduction.

The chart above shows the relative strength of Timeless Strategies accounts (Red line), Timeless Balance accounts (Purple line), and Average Market Indexes (Green line). The period of time is Aug. 27th to Sept. 6th, 2007.

The picture demonstrates how volatile the markets have been during this time.

Timeless Strategies accounts remain 60% invested and 40% in a money market fund.

That's it for now.

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September 4, 2007 - A SELLER'S MARKET

From mid July to mid August selling initiated trading volume in the markets was like a rocket that had run out of fuel and was headed back to earth. There was very little change in the "I want to buy" side of the equation that makes a stable market. A lot of "I want to sell" and not much "I want to buy" means sellers had to continue to reduce their prices to entice someone else to accept their offer. Any buying has come in quick but infrequent bursts.

Buyers had little enthusiasm or motivation because they could not be certain of the value of what was being offered by the sellers. What is referred to in the press as a "credit crunch" is actually a "confidence crunch". Questions such as: (1) Can I really believe the credit reporting agencies when they say AAA rated debt is safe? OR, (2) Have all those people who bought homes, on programs by banks and mortgage lending companies that did not require verification of income and expenses, told the truth? AND, (3) Are investments held by banks, stock brokerage firms, and other financial institutions worth what they say they are?

It is that age old question of "Who do/can you trust"? And when the answer is "I don't know" the uncertainty becomes a problem in knowing how to react. It translates into "don't take any chances by buying".

HERE IS WHAT IT LOOKS LIKE FOR THE PAST THREE MONTHS. The Broad Market, reflecting the averages of various indexes measuring different areas, has declined 10.06% during this period.

Timeless Strategies accounts are down 6% to 6.5%. The largest drop in value during this time period is 7% to 7.5%.

Timeless Balance accounts are down 3%. Their largest drop in value during this time period is 8% to 8.5%.

These figures are taken from looking at client accounts where there have been no withdrawals or contributions during the time period involved.

What is expected if the broad markets decline 15% or 20%? Timeless Strategies accounts should show little additional loss from the 7.5%. Timeless Balance should continue to lose, into double digits, but not as much as the broad market.

What is expected when the broad markets begin to advance in value? Timeless Strategies will lag the markets, at least initially, because we are going to require a high degree of evidence that the gains will continue and not abruptly turn back down. Timeless Balance, because it stays 100% invested, will respond quickly to market gains.

IN CONCLUSION I hope you had an enjoyable Labor Day weekend. Twyla and I stayed close to home, venturing out (other than for church Sunday) only for dinner with a niece and her husband yesterday. We prefer holiday's to be peaceful and restful.

I'll be back on the East Coast in the Maryland area from October 5th to 15th. If you want me to stop in, and just visit and/or discuss some thing specific, let me know.

Thats my point of view.

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August 26, 2007 - POSSIBLE DISASTER, UNCERTAINTY, AND HOPE

In rapid succession the markets have moved from potential disaster to uncertainty. News about credit problems have resulted in the closure of many mortgage companies, pressures on banks with non-performing loans, and massive losses in some investment companies.

As a result Timeless Strategies accounts were allocated to reflect the possibility of additional declines by positioning approximately 40% in a money market fund and 15% in three funds that gain when various areas of the markets lose.

Recent action by the Federal Reserve Board, even though not directly a solution to the problem, infused new hope for averting a worldwide calamity. Recent market actions have been mixed with several days experiencing gains and others showing losses.

Following action by the Federal Reserve Board the funds that protect against loss were sold and the value added to the money market funds. Timeless Strategies accounts are now 55%-60% in money markets and the balance in four funds representing specific sectors of the markets.

There is not enough convincing evidence to determine that the bottom has been reached and it is time to become fully invested. Favorable market actions this coming week will provide additional encouragement to reduce money market funds.

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August 15, 2007 - MID MONTH UPDATE

Another down day for the Dow yesterday...over 200 points.

So, what is the damage to your account?

General market decline (average of eleven indexes): minus 1.88%

Timeless Strategies accounts declined: minus 0.15%
1/2 Timeless Strategies & 1/2 Timeless Balance accounts declined: minus 0.65%
Timeless Balance accounts declined: minus 1.18%

Hope this helps ease your blood pressure.

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August 10, 2007 – FROM MY POINT OF VIEW
MARKETS UNSTABLE…CLIENT ACCOUNTS STABILIZING

Yesterday’s news focused on the very strong decline in the Dow Jones Industrial Average (DJIA or ‘Dow”). The loss as measured by the average of eleven indexes measuring the total stock market performance was a loss of -2.37%.  The markets have opened strongly down today (9:35 AM Eastern Time)

Client Timeless Strategies accounts yesterday declined 0.71%.
Client Timeless Balance accounts yesterday declined -1.73%.

Timeless Strategy accounts are now positioned as follows:
          40% Money Market Funds
          15% in mutual funds that increase in value when markets lose.
          45% in selected area stock mutual funds.

MAJOR POINT: THIS IS AN EMOTIONALLY INITIATED CORRECTION.
IT HAS BECOME A MECHANICAL, PROGRAM DRIVEN CORRECTION.

This is not a correction based on poor US or foreign economic conditions.

What do I mean? Ask the question….what is the difference to the markets between July 18th and July 19th? ON July 18th there were concerns about the price of oil, real estate credit, and anything else someone could be worried about. Those concerns were not new and the markets were responding favorably. ON July 19th there began the sudden reversal with which we are still contending. Nothing changed economically overnight.
What changed was a perception of the concerns, especially credit risks related to the mortgage market. What had been dismissed in importance became highlighted as a significant problem. And the selling began.
SELLING RESULTS IN MORE SELLING. Electronic programs in stock brokerage houses, pension fund managers, mutual funds, hedge funds, banks, and insurance companies began to respond. They are programmed (by humans) to automatically sell if certain conditions are met.  This is the period from July 19th to August 3rd.

A point is reached where other opinions view the markets as oversold, with stocks valued to make them good investments. Buying starts and the markets begin to gain in value. Again, buying encourages more buying. A point is reached where about 50% of the previous losses have been recovered. This is the period of August 4th to August 9th.

Is the correction over? Is it now safe to be fully invested and take advantage of the market gains being made?

Yesterday, with its strong reversal down, says, “It ain’t over till it’s over and it likely ain’t over yet”.

THAT IS WHY, IN TIMELESS STRATEGIES, WE ARE POSITIONED TO RESIST ADDITIONAL DOWN DAYS. We will safeguard capital better than non-actively managed systems.

When will it be over? I don’t have any idea. It will be over when the markets give indication we can interpret that says, “the probability is that it is over”.

I realize this is a simplistic accounting, not even talking about foreign markets, but I hope it helps.

PS. June and July the price of a barrel of oil increased and the markets gained. Lately the price of oil declined from $78.00 a barrel to $ 71.00 and the markets declined. I thought it was supposed to work the other way. Is this a crazy world?

 

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August 2, 2007 – Market Volatility

Chart Courtesy of Investors Fasttrack….July 1, 2007-July 31, 2007

LEGEND:
          Green Line: Average of fourteen market indexes
          Red Line: Timeless Strategies Program    (TS)
          Purple Line: Timeless Balance Program  (TB)

STATISTICS:

Index	July 1	July 19	% Change	July 31	% Change
DJIA	13,408.62	14,000.41	+4.41%	13,211.99	-5.63%
S&P 500	1,503.35	1,553.08	+3.31%	1,455.27	-3.20%
OTC	2,603.23	2,720.04	+4.49%	2,546.27	-6.39%
RUT-I	833.70	851.85	+2.18%	776.12	-8.89%
Wil-5	15,210.65	15,695.74	+3.19%	14,682.66	-6.45%
VLE-I	2,431.47	2,502.86	+2.94%	2,315.93	-7.47%
Avg Index	724,889.75	751,740.44	+3.70%	700,648.69	-6.80%
FSA-TS	590,829.94	615,620	+4.20%	575,465.13	-6.52%
FSA-TB	939,790	962.421	+2.41%	917,126	-4.71%

HEADLINE ONE: Friday, July 13, 2007
Dow Jones and S&P 500 Indexes Reach New High for 2007

HEADLINE TWO: Friday, July 13, 2007
FSA Client Accounts Reach New High for 2007

HEADLINE THREE: Monday, July 16, 2007
Morris Vickers Declares the Month of July Closed

News Article:
          Interviewed in his office today, Morris Vickers, President of Financial Security Advisors, Inc. declared that the month of July 2007 has now ended as of July 15, 2007. Additional days in July will become part of August.  Asked about why the declaration has been issued he said, “I have had enough of markets that do well for the first two or three weeks of a month, only to decline during the last week. As a result, the monthly reports received by clients show little or no gain from the previous period. Therefore, from this time forward each month will end on whatever day shows the best gain in an account. Instead of picking the arbitrary date, the 1st of each month, we will pick whatever date provides the most encouragement”.                   End of Article

OK, that is out of my system, for the moment.

LOOK FOR CHANGES IN A FEW TIMELESS STRATEGIES FUNDS.
Confirmation and monthly statements will soon reflect a lower emphasis in fixed income and large value companies. Additional exposure is in areas of technology and industrial equipment. The most recent time when we were in technology was when we sold our holdings in April 2000. Then the tech bubble burst and it has taken this long to again become favorable.   

Industrial equipment is strong because of the number of construction projects under way in various parts of the world.

RECENT READING��ARTICLES I FIND INTERESTING
From the Employee Benefit Research Institute:
33% of workers ages 45 to 55 have less than $25,000 saved for retirement.
17% of workers have had retirement benefits for themselves or their spouse reduced.

From Business Week:
90 is the number of designations, degrees, titles, certifications, and accreditations available in the financial services business.

From Fidelity Investments:
It looks like couples need to talk a bit more about retirement. Questioned individually, spouses approaching retirement differ on when they’ll actually retire, their retirement lifestyles, and who might work during retirement,

According to a survey by Fidelity Investments:

• 35% of the couples (especially the husbands) differed on when they thought their spouse would retire.
• 37% differed in their optimism of whether their nest egg would allow them to retire comfortably or less comfortably (the men were more optimistic).
• 41% disagreed about whether either or both of them would work during retirement.
• Only 38% said they worked together on retirement planning. It’s little wonder they differ.

Northern Trust Company, Chicago:
A survey of millionaires (1$ million in investable assets) found that those who can afford to retire don’t seem inclined to do so.  The survey found that 17% of the millionaires over age 70 are still working.  While boredom and the desire to work keep many from retirement, about half are worried about health care costs wrecking their nest egg.

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November 2006 – Ministers, Employees or Self-Employed?

THE CONFUSION CONTINUES

I recently attended a meeting of ministers where the primary subject was retirement planning. However, it did not take long for questions to arise on the subject of minister’s responsibilities for the payment of taxes related to income and Social Security.

My first encounter with these questions was in 1968/1969 when President of the United States, Lyndon Johnson, signed legislation changing the Social Security system with regard to ministers.

The confusion exists because of the failure to understand that two separate tax systems are involved. One system collects taxes based on the individual’s earnings from salary, capital gains, interest and dividend income. The second system determines the amount to be paid into “SECA” (Self-Employment Contributions Act) for self employed persons or “FICA” (Federal Insurance Contributions Act) for employees by their employers. This second system is generally referred to as “Social Security”.

Why is this important?  Two different tax systems mean it is possible to be self employed in one system and an employee in the other.

SOCIAL SECURITY
What we call “Social Security” is more than a program to provide income for retirement. A 15.3% tax is paid either as a shared amount between employer and employee or the entire amount by the self-employed. Of the total amount paid, 2.9% is used to fund Medicare hospital insurance. The additional 12.4% provides benefits to fund old-age (retirement income), survivor and disability benefits.

Ministers are considered self-employed for “Social Security” purposes. Does this make sense? The question is immaterial. Tax policy does not need to make sense. It just needs to generate income.  Unfortunately most church compensation does not take into account the financial responsibility ministers face in having to pay both the employer (7.65%) and employee (7.65%) tax. Many churches provide additional income, paid as salary, to offset what usually is the employer’s tax responsibility.   

Because both systems require payments to be made to the Internal Revenue Service, as agent for the Federal government, it is easy to overlook the payments as amounts divided between two responsibilities.

THE INCOME TAX SYSTEM.
Are ministers self employed for federal and state income tax purposes?  It is virtually impossible for a minister to justify a self employment status. The status of whether the minister is an employee or self employed independent contractor can be determined by several tests.

The crux of the question has to do with the nature of the relationship between the minister and the church served. The degree of control and independence is evaluated using three categories: behavioral control, financial control, and the type of relationship.

Behavioral Control focuses on the question of how much instruction is the worker given by the church served. The issue is not whether instructions are actually given but that there is authority or expectation concerning the work to be done.

Does the church provide a place for you to do ministry?
Are you provided equipment with which to work? (Pulpit, desk, etc)
Are you provided supplies?
Are workers provided to assist in ministry?

Financial Control relates to issues such as:

Are business expenses reimbursed by the church?
Are you required to invest your own financial resources in the work?
To what extent is most of your income derived from one source?
Are you paid a guaranteed amount on a specific schedule?
Due to your efforts can you make a profit or experience a loss of income?

Type of Relationship looks at arrangements such as:

What is stipulated in a written contract with the church?
Church provision for paid sick leave, vacation time, and retirement plan.
The permanency of the relationship; a short time project or open ended?
It is not necessary that all questions point in one direction: Employee or Self Employed. It is the overall picture of the relationship that matters. The entire context of the ministers’ work and relationship with the church presents an almost insurmountable barrier to self employment.

As employees, ministers should receive a W-2 Form, from the church, showing the amount of income paid them for the year.  The self employed, or independent contractor, receives income paid them on a 1099 Form. It is important that the minister, filing as an employee, receive a W-2 Form from the church.

There are other significant tax implications for ministers focusing on accountable and unaccountable reimbursed business expenses; housing expenses relative to earned income credits; and, the taxability of housing allowances by SECA but not for income taxes. Those are subjects beyond the focus of this article.

Written by Morris Vickers, D.Min, CFP, Accredited Asset Management Specialist.

My brief biography: Ordained Southern Baptist minister with 30 years full time service as a Pastor and Associational Missions Director. I am the owner of Financial Security Advisors, Inc., a registered investment advisor incorporated in Maryland, November 1984. My doctoral thesis from Eastern Baptist Theological Seminary, Philadelphia, PA is “Developing Materials to Enable Ministers to Evaluate Their Retirement Planning Alternatives”.

I am available, at no cost, to consult with ministers and churches concerning issues such as addressed by this article.

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I may be contacted at:
479-925-2939 Office Telephone
MVMinistry@aol.com Email
Or
Financial Security Advisors, Inc
P.O. Box 909
Rogers, AR 72757

This article does not contain investment advice. It is intended to be educational about the subject of the article. This is not a solicitation or recommendation of any investment program.