Unexpected Market Volatility

In the last week or so, stock markets have seen significant volatility, or change, and it has folks worried.  Stocks dropped about 6% early in the week.  Does a bad week make Chicken Little correct, maybe people wonder.

The chart above is a great illustration for times such as these.  It was provided to me by Wespath Investment Management, our investment partner, based on data from Morningstar, a firm that does research in this area.  You can see a full-sized version of the chart here.

The blue bar for each year shows the annual change in the S&P 500, which tracks 500  of the largest domestic stocks.  For 2017 it shows an increase of 21.8% and in 2016 an increase of 12%.

But then look at the gold triangle for each year.  This compares the largest drawdown, the highest peak to the lowest point, of the S&P 500 during the year.  In 2017, the largest decline was just 2.6%, compared to 2016 when the index declined 10.3%.

I think it’s extraordinary that in a year of such significant growth as we saw last year, that the downside volatility was so low, in fact the lowest in 20 years or more.

And when you compare the 6% or so that we saw the market drop this week to previous years, we are well within reasonable ranges.  The average for those 22 years is an intra-year decline of 15%.  Further, among the years that the Average finished on the positive side the intra-year decline is still more than 11%.

Please do not take this as a promise that the we will not see another drop this year or even that the drop will be significant.  These are the realities of investing.

But I am saying to you that volatility is a very natural part of the investment process, one that lulled us to sleep last year only to wake us up with enthusiasm within the last week.

 

Did your investments work for you?

For the year, 2017 was remarkable in the investment markets, with both stocks and bonds performing well.

The Foundation’s investment options as of December 31, 2017 are summarized below:

COMPARISON OF RATES OF RETURN AS OF DECEMBER 31, 2017

1 year 3 year 5 year 10 year
BALANCED

FUND

17.18% 6.82% 7.92% 5.38%
FIXED INCOME

 FUND

5.34% 2.34% 1.47% 4.24%
EQUITY

FUND

21.25% 9.16% 12.46% 6.25%

If your church is still living off of CDs this may be a great illustration to get a new conversation going.  What we offer certainly has risks associated with it and may not be right for every church.

But regular readers of this blog know that I’m not concerned with the amount of money in a fund but rather how effective it is as a tool for ministry.  Simply put, a fund that made 21.25% last year provides ministry options that a CD under 1% doesn’t.

I generally recommend a 5% spending policy, which can be calculated a number of ways.  But any of our options provide that 5% with plenty of extra growth to absorb periodic losses.

If this is a conversation you’d like to have, contact the Foundation Office to set up a time for us to meet with the leaders of your church.

And now for the fine print:

  • All returns are net of all fees and, other than month and YTD, are annualized
  • Historical performance does not guarantee future results
  • The East Ohio United Methodist Foundation invested with Wespath in December, 2011.  Historical information prior to that time represents actual Wespath returns, net of hypothetical EOUMF fees.

 

 

Information to share this week

First, let me acknowledge that this is horrible timing.  The last week of Advent is probably the worst time of the year to discuss tax-wise giving, but I strongly encourage you to share the information below with your congregation this week.  I don’t suggest re-writing your Christmas Eve sermon to discuss end of the year tax strategies (but if you do, send me a copy; I’d love to read it), but perhaps you can put the following in your bulletin, email it to your members or put it on your church social media page.

Please don’t mess with the technical information, but certainly feel free to adjust the third and fifth paragraphs to discuss the various options for generosity in your particular congregation.

 

New Tax Laws Provide an Opportunity

New Tax Reform Legislation raises the standard deduction for income taxes beginning in 2018.  The Congressional Joint Committee on Taxation estimates that the number of taxpayers who will itemize their deductions in 2018 (and thereby get tax savings from charitable gifts) will fall from 40 million under current law to just 9 million under the new legislation.

If you currently itemize, and are financially able to do so, consider giving some or all of next year’s gifts to the church before the end of this year. You can claim your gifts on your 2017 taxes (due April of 2018) and give the church a boost.

This can be done for regular offering, or for special gifts such as for a capital campaign or endowment.

To qualify, the gift must be made by the end of this year, given in worship on or before December 31 or postmarked no later than December 30.  The check should be dated in 2017 and indicate on the memo line “2018 offering” or other designation.

When in doubt, reach out to the church office to clarify your intentions.

Responding to Harvey

They say the greater the need the greater response.  Right now the need in and around Houston is beyond comprehension and is matched only by the desire for folks to respond.  Here are some ways to help:

Pray.  Pray for those who are no longer in their homes.  Pray for those who are home with no way of getting out.  Pray for the police, the firefighters, the National Guard soldiers, the volunteers who are helping.  Pray for the government officials who are tasked with prioritizing many urgent options.  Really, just pray.

Give.  The United Methodist Committee on Relief (UMCOR) is a remarkably efficient.  Two of the things I love about UMCOR is that all overhead is covered through One Great Hour of Sharing.  That means every nickel you designate for Harvey Relief will be spent directly on this cause.  The second is that UMCOR stays around.  The CNN trucks will be gone from Houston in just a couple of weeks, but UMCOR will have a United Methodist presence for the long term.  After Katrina the group was there for seven years, working well beyond most other organizations.  Use this link to give directly to UMCOR for Disaster Response in the U.S.

Refill supplies.  United Methodists are known for our flood buckets.  I had the opportunity to be in Bay Saint Louis, Mississippi shortly after Katrina hit.  I saw UMCOR at work and I saw flood buckets (now called cleaning kits) being distributed to very grateful residents.  Fortunately flood buckets are already on the way to Houston from the UMCOR Sager-Brown Depot in Louisiana.  This can be a great time to get your church packing flood buckets to replenish the warehouse in anticipation of the next time they are needed.  You’ll find more information about flood buckets here.

Come and help, but not right now.  I know there are those of you just itching to strap on your tool belt and start helping to demo then rebuild all the houses you can.  That’s a great idea, but this isn’t the time.  Save those plans for the first part of 2018, once things are organized and safe.  The next few weeks or even months will be far more about caring for people than it will be about fixing homes.  The best way to keep up with what is needed is by following the Rio Texas Annual Conference on Facebook.

Train for the future.  If you want to be better prepared to lead a group, consider attending Volunteers in Mission (VIM) Team Leader Training September 23 or November 4.  You’ll find details on the East Ohio Conference Website.

But there are a couple of things not to do.  Don’t send stuff.  Donations of things like clothing, stuffed animals, toys or building materials require someone on the other end to receive it, catalog it, store it and distribute it.  There may come a time when they ask for things like this, but that will be a while.  Even things that are needed, such as bottled water, are better off being purchased through UMCOR and distributed.  By the time you buy it and ship it, the effectiveness of your dollar is greatly diminished.

Finally, share this post.  UMCOR is a great system but is often over shadowed by organization with better PR functions.  Let folks in your circle understand that your church is at work in this area and that anyone can support the cause, no matter what they do on Sunday mornings.

One of the great advantages of our connective denomination is that we have structures and systems in place for folks to help from thousands of miles away.  Whatever your abilities, plug in as you are able and help be the hands and feet of God in an area where that help is so desperately needed.

 

 

 

What’s in your wallet (or checking account)

Politician Everett Dirksen is often quoted, “A billion here, a billion there, pretty soon, you’re talking real money.”   But what about trillions?  Like $10.7 trillion?  That’s $10,700,000,000,000.  Americans had $10.7 trillion in their checking accounts at the end of last year, an average of about $3,600 per account, an increase of about $1,000 over the last ten years.  All of this according to the Federal Deposit Insurance Corporation study released last week.

All of this totals 77% of all bank assets.  More than three-quarters of what is in the bank is is in checking accounts, providing great liquidity but not doing much of anything to grow through interest.

I got a call from a pastor last week telling me that he discovered his new church has $86,000 in the checking account.  He thought that seemed kind of high.  I agreed with him.

How much is in your church’s checking account?  A while back I wrote about how to best guess how much you needed to have available.  But today let’s look at the opportunity cost of having that much in your checking account.

So we’ll start with the assumption that the church needs something in the checking account on an ongoing basis, say $30,000, one month’s expenses for this particular church.  That leaves $56,000 to invest.  What will that mean for this church?

Year to date our equity fund has returned 18.7% net of all fees.  It would be a great advertisement for me to show how consistent returns at that level can help a church’s bottom line but the reality is that although I am grateful for those kinds of income they’re really not sustainable.  Instead we’ll go with the five-year average on our balanced fund, 7.7%.

If we take that $56,000 and earn 7.7% each year, that’s $4,300 per year.  Some years that will be more, some will be less, but that is an average.  For a church with a budget of $360,000 this doesn’t seem like a huge amount.  It won’t add a bunch of staff or replace the aging boiler, but I wonder how many members of this church give more than $4,300 per year.  Simply by investing and taking a reasonable payout, this church just added another top donor to its rolls.

That $4,300 could provide seed money for a new outreach ministry, paint the walls in the Fellowship Hall where the youth group meets every week, send kids to camp or provide seed money for a mission trip.

With the benefit of being able to expect a comparable return year after year.

I often hear that the church “can’t be too careful with money that isn’t ours.”  I agree but you need to not only consider the investment risk but also the lost opportunity.  Would you really tell a donor who offered you $4,300 that you don’t need the money?  If not, why would you tell that to your checking account?

Four thousand here, four thousand there, pretty soon, you’re talking real money.

Be The Good When the World Desperately Needs It

I had one of those weekends when apparently divergent messages come together and it all just kind of clicks.  On Saturday my daughter Emily was wearing a t-shirt with the graphic above, the one that encourages us to Believe There is Good in the World and at the same time to Be The Good.

Then on Sunday I read an article in USA Today about the State of Hate in America.  The article talked about a KKK rally Charlottesville, Virginia, where about 50 Klansmen came from out of state to protest the removal of a Civil War era statue of Robert E. Lee.

Be The Good vs. Be The Hate seems to be a common thread in our society these days.

I read a bit further into the USA Today story and learned that along with the 50 protesters that day were about 1,000 counter protesters.  While it’s impossible to know the motivations behind everyone there, it would appear that in the face of hate 20 times as many people chose to be the good.

By my estimation good won.

Groups like the Southern Poverty Law Center and the Anti-Defamation League suggest that hate crimes are up about 6 percent over a year ago.  I wish that wasn’t so, but neither or nor the Church can stop these from happening.  Just as no one could stop the Klan from coming to Charlottesville.

But we can decide how we are going to witness in such a time.  How do we as a church respond in such troubled times?

Especially when so much of that same division is happening under our own tent?

The answer, according to that t-shirt is to be the good.  Cause you know what, we should be doing that anyway.

When is the last time your community saw your church Being The Good outside your building?  I think this summer is the perfect time for you to feed people, help people, encourage people.  Whether you’re counter protesting hate or handing out a cold bottle of water along your town’s parade route, go out there and be good.  Go out there and Be The Church.

Call the Urban Mission in Steubenville, the Nehemiah Mission in Cleveland or the United Methodist Community Center in Youngstown and ask them if they have people that your church can show some love to.  I bet the answer is in the affirmative.

Read Matthew and figure out who in your community is the Canaanite Woman, the Boy With the Demon, the thousands who needed feeding.

Then go be the good, the good that these individuals need, the good that your community needs to be and, quite frankly that you need yourselves to be to truly call yourselves Disciples of Christ.

I’d love to read in the USA Today an article about the State of Love in America.

 

 

 

Why 25 may be better than 5

When I work with churches to set up or revise their endowment funds, I usually suggest a 5% spending policy:  take the value of the fund on September 30 each year and make 5% of that available for the following year, or some similar formula.

I think this is the best approach, except when it isn’t.

You may want to consider a 25% spending policy sometimes.

The 5% rule works because long-term you should expect to make a bit more than 5% on your endowment fund, so if the market is good and you make 8%, spend just five.  But in a bad year if it makes 3%, still spend five and know that it will all even out.

The good news is that this way the fund should last forever, as all good endowment funds should do.  The problem, of course, is that if you have $1,000, you only get $50 each year.  Spending 25% can be far more fruitful than spending a fifth of that.

Clearly this is best done with something other than a formal endowment fund.  If you have a fund that allows the principal to be used for new programs, or special priorities in the church, it can be  far more effective if it is used heavily, but for a shorter term.

I’ve always been hung up on the phrase “A ship in harbor is safe, but that is not what ships are built for.”  Too often we are more concerned with a fund lasting forever while the church around it is failing.

If you can spend a fund a bit more aggressively and have it positively impact the future of your congregation and its ability to reach the community as a mission outpost, then I say that money is well-spent.

And I always go back to the best marketing for your fund is for people to see it in use, let them understand its role in your ministry.  By showing that a special fund invests 25% of itself in Kingdom Work every can help foster donations from those who want to see that ship leave the harbor.

But a couple key points:

  • First, everyone needs to know that this is the rule.  Raising an endowment fund with the promise of it lasting forever, then spending it in just a few years violates the trust of those who contributed.  If you are going to start a fund for new ministries and plan to spend 25% each year this must be clearly communicated to those whom you are asking to support it.
  • Second, makes sure you’re not just spending it, but investing it.  By investing I don’t mean buying stocks and bonds I mean investing it in the future of your church.  Things like reaching out in mission, welcoming your community in, adjusting staffing or purchasing equipment to make you more effective missionaries are great examples.  But please don’t read this and use it as a reason to spend long term funds to pay the utilities in an effort to prop up your church for another year.
  • Third, expect results.  What do you think your ROI will be, your Return on Investment?  Too often we in the church spend money with no real hope that things will get better.  Sometimes this is not a surprise like not expecting the choir to sing twice as well if we replace their robes.

As always, if you want to talk such a program through, please let me know.

A Book You Really Must Read

I recently read a book that should be required reading for any good Methonerd like myself.  Reverend Will Cantrell has written Unafraid and Unashamed:  Facing the Future of United Methodism.  It’s a really, really good book discussing the human sexuality issue in the church.

At just 150 or so pages it’s a fairly quick read and brings in what I assume are accurate discussions of scripture, the history of the issue in the church and an honest, accurate summation of the three key sides in the conversation:  traditionalists, progressives and centrists.

He speaks of Nineveh, a broken communion chalice in Pittsburgh, and Moses taking advice from Jethro.

My favorite quote:

if we approach diversity with fear, we will reach a predictable outcome.  We will continue to accuse those who see things differently as ruining our denomination.  We will befriend and dialogue with only those who agree with us.  We will think of those with different viewpoints as something less than Christian, and less than intelligent. We will approach all denomination decisions with the intent to acquire the maximum amount of power for those who share our point of view.  With fear guiding us, a schism is not only probable, it is assured.

Maybe you read that and thought, “Yes, he clearly agrees with my side.”  But in this masterfully written book you will notice that he takes no sides, offers no fodder for proving that WE are right on this issue and THEY are wrong.

Instead he challenges to see through the issue and focus on us remaining united.  You know, like A Way Forward.

At a time in our society when two sides can’t talk about anything Rev. Cantrell calls us to be above that, to be people of faith and courage, to exemplify scriptural holiness.

The battle for the soul of United Methodism will not be fought against other United Methodists of differing perspectives…  It will be a struggle between the power of fear and the power of faith.

You can pick up a copy from Amazon for about $17.  Spend a few hours with it, then a few more discussing with others in your circle.  I ordered it thinking it would be great for a church-wide study but instead think it’s a great conversation starter for those already aware of the issues facing our church.

Reasons to have a capital campaign

I had a call from a pastor friend last week.  He thought we were going to talk about bequests and endowments.  We ended up talking about a capital campaign.  That was my fault.

He called me excited that a member of his church had left a six-figure gift in her will.  This is a church with attendance in the 150 range and up until a few years ago consistently finished the year in the red.  This was a big gift for them.

He said they intended to add most of it to their permanent endowment fund that I had made many trips to his church to help them establish.  He explained that they would need to take about a third of the total to spend on capital improvements.  I often hear this and don’t necessarily think its a horrible idea.   And the he said it:

“We won’t have to have that capital campaign we were planning.”

You know that sound of a needle suddenly being yanked off of a record?  That was my response.

His position was that if they had the money from another source, they need not have the campaign.  Why would they go through that if they didn’t need to.

As we talked I began to develop a list of 3 reasons to have a capital campaign.

  • A capital campaign is a great way to challenge your congregation for their giving to grow.  I have no doubt that many of your members are still giving the same number of dollars they were five years ago, maybe ten or more.  The good news is that they are giving.  The bad news is they are in a rut.  A capital campaign rooted in vision and presented authentically can help your people get out of that rut and, in most cases, have a very visible, tangible benefit of their giving.
  • A capital campaign gift provides a tangible buy-in to the vision.  Church meetings and post meetings in the parking lot are full of folk saying that the church should do this or that. But there is a difference between saying that someone should do something and actually stepping up to the plate and paying for it.  Good stewardship says that if it isn’t important enough for the congregation to pay for, it isn’t important enough for other church funds to be used.
  • A successful capital campaign will preserve the bequest for future ministries.  The bequest the pastor had called about could support the church’s ministry ad infinitum.  It would have been between five and ten thousand dollars each year, if the church used a 5% spending policy.  Under current giving patters, it would been the largest single contribution to the church each year.  But if you lop a third or a half off of the principal that annual gift shrinks along with it.

Unfortunately many churches avoid capital campaigns like the plague.  Lay folk are afraid they’ll be expected to give and many pastors don’t know much about campaigns.  Taking money out of the endowment or using other sources of “found money” is certainly the path of least resistance.

In a capital campaign one goal is certainly enough money to refurbish the bathrooms or fix the roof.  But the three goals above are, in my opinion, far more important.  New carpet and drapes are good things, disciples who have moved further along their journeys are far better.

By the way, if you’re considering a capital campaign in your church but aren’t sure of the details the book,  Extraordinary Money:  Understanding the Church Capital Campaign by Michael Reeves is a great resource.  I have a bunch of copies in my office and I’d be happy to send one your way, just email me.  

Photo credit:  Diocese of Paterson, NJ.

Of Methodists, hurricanes and you

As I watch the news about the impending invasion of Hurricane Matthew on the southeast United States, two memory tracks come to mind.

The earlier of the two was in August of 1995 when we were vacationing in North Carolina and Hurricane Felix was a threat.  We were highly encouraged to evacuate and had every intention of doing so, once the huge traffic jams trying to leave the island waned.  The good news is that Felix headed back out to sea and we were able to stay put, giving us the unusual experience of empty beaches and amazing surf.

The second was far different.  In October of 2005 I led a team of about a dozen of us to Mississippi after Katrina.  We worked well north of the coast, cleaning up downed trees and such.  But we had the chance one day to go to Bay Saint Louis and nearby Waveland, where the eye came ashore.  The destruction was amazing.  But more amazing was to see UMCOR set up in the yard of Main Street  UMC in Bay Saint Louis.  The church was next to the massive county courthouse, which sheltered the church from the wind and largely protected it from damage.

The church was a refuge, a place where volunteers were housed and dispatched; food, water and flood buckets were distributed; prayers were offered and tears were shed.  It was a powerful experience, one that I doubt I shall forget.  You can read more about that experience in this post from a few years ago.

That church was a mission outpost because of the people in the pews across United Methodism.  They donated flood buckets for the clean up.  They donated money to buy food and water.  They offered up prayers that came back down to that community.

Because of that generosity the United Methodist Church offered to hope to a hopeless situation.

It was church.

My prayer for Hurricane Matthew is that it takes a hard right, goes out to sea and leaves those communities on the Atlantic with a Hurricane Felix experience.  Telling stories about evacuating for no good reason.  My second choice is that what I saw in Bay Saint Louis is repeated again and again and again up and down that coastline, that with your support UMCOR is able to minister those facing this disaster.

Matthew, of course is a Biblical name.  The Gospel of Matthew shows us how the early church was grown.  Time after time Jesus reaches out to those in need, ministers to them, they go back and tell their friends and a crowd grows to hear Jesus preach.  Sounds to me like Hurricane Matthew could be a great chance for some Gospel of Matthew experiences.

If you want to help, the good folks in East Ohio Communications make these suggestions:

You may support ongoing training, response, and relief by making a donation payable to your local church. Those donations will be passed from your church treasurer to the annual conference treasurer and then onto the fund of your choosing.

Please include on the memo line of your check the number of the fund below to which you wish to make your donation:

Fund EOC9046 – East Ohio United Methodist Volunteers in Mission (UMVIM)

Fund 901375 – North Central Jurisdiction UMVIM

Fund 901670 – UMCOR U.S. Disaster Response

Fund 982450 – UMCOR International Disaster Response

We can’t make the hurricane head back out to sea, but we can make sure that the great folks at UMCOR have what they need to be the hands and feet of God.  Please be part of that.

 

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