As Christians, we know that our relationship with Christ isn’t just supposed to affect our Sunday mornings – it’s supposed to affect our entire lives. From the conversations we have to the movies we watch, God desires for every aspect of our lives to conform to His will.
One aspect that is easy to overlook is our investment portfolio. Whether people don’t know their available options or haven’t explored their investment accounts in detail, this can lead to Christians who are invested in a way that does not align with Biblical values. At Demand Wealth, we see this problem and our ‘Demand Christian’ portfolio serves as a solution to help Christians invest in a godly way without necessarily sacrificing returns.
Imagine a friend asks you for money. She says, “I need to borrow $10 and tomorrow I’ll pay you back $11.” If you trust that this friend will stay true to her word and repay the $11, you’ll probably ask one more question before proceeding with the loan – “What will you do with the money?”
What if she told you she was going to do someting that directly opposed your values? Most likely, you wouldn’t feel right doing through with the loan. Even if you were to receive a great return, you wouldn’t want the profit at the expense of your convictions. As Christians, if we view an action as immoral, we wouldn’t necessarily want to fund it with money or time. On the other hand, if a friend needed something along the lines of medicine for a sick family member or a car loan, then we are more likely to invest.
The problem is that most people do not take this approach when it comes to their investments. You may not think about where your money is going while it sits in your portfolio, but rather view it as a faceless account that delivers returns. However, if you’re invested in the stock market (whether through stocks, mutual funds, or ETFs), then your money is going to real people supporting real time business decisions. That leaves one question remaining: What are companies doing with your money?
Everyone’s investment portfolio is unique depending on their choices. For example, let’s say your retirement plan has $100,000 invested in the US stock market. Based on the average of the two largest funds that cover the Total US Stock Index, here is where your money is going1
• $40,340 is going to companies who are engaged in theabortion industry (either through manufacturing, distribution, insurance, or philanthropy).
• $21,445 is going to companies engaged in the promotion of violence, language, sex,ordrugs through the entertainment industry.
• $18,385 is going to companies engaged in the promotion of pornography.
• $2,080 is going to companies in the alcohol industry.
• $2,105 is going to companies involved the tobacco and/or cannabis industry.
• $1,120 is going to companies involved in the gambling industry.
1 Data taken from Evalueator at https://www.christianinvestingtool.com/ and is based on an average of the two largest Total Market Index ETFs.
Taken all together, you would have $64,000 (64%) of your plan going towards companies who are engaged in one or more unbiblical practices. While we recognize that not all Christians agree that each of the above issues would be considered morally wrong, there are better options for your portfolio that wouldn’t support any of the causes listed above.
Ignorance is Not Bliss
The Bible makes it clear that Christians have a responsibility to avoid knowingly taking part in unbiblical practices. Ephesians 5:11 calls Christians to “Take no part in the unfruitful works of darkness, but instead expose them.” (ESV)
The ‘Demand Christian’ portfolio gives Christians access to a diversified portfolio that avoids investing in companies engaged in unbiblical practices.
Twenty years ago, it would be very difficult to invest in a biblically pure and fully diversified portfolio. In recent years, the number of Biblical investment options has increased significantly. Organizations like Thrivent, Ramsey, and Kingdom Advisors offer a platform that connects Christians with like minded advisors; however, many of these same portfolios aren’t screened for biblical standards. One way to check your own portfolio is through afree biblical screener. It is now possible to have a fully diversified, biblically screened portfolio with a Christian financial advisor at Demand Wealth.
The ‘Demand Christian’ Portfolio
The ‘Demand Christian’ portfolio screens out companies that violate the principles laid out by the Biblically Responsible Investing Institute. This doesn’t mean your options are limited – your portfolio isn’t comprised of 50% Hobby Lobby and 50% Chick-Fil-A, but rather includes the thousands of companies who simply don’t violate those Biblical screens.
Each ‘Demand Christian’ portfolio contains Mutual Funds and ETFs from Inspire Investing, Timothy Plan, GuideStone Funds, Vanguard, and BlackRock. The first 3 are committed to investing only in companies which abide by biblically responsible investing principles. The Vanguard and BlackRock funds included in the portfolio are treasury and mortgage-backed bond funds and therefore pass the screens as well. Investing in this wide array of fund providers allows us to maintain a fully diversified portfolio that not only aligns with Christian values, but is also customized to your situation with over 10 different risk models.
A good way to measure an investment’s sustainability is its MSCI ESG rating. Morgan Stanley Capital International (MSCI) rates investments based on three criteria: their environmental impact (how the company treats the planet), social responsibility (how the company treats people), and corporate governance (how the company makes decisions). The more responsible a company is in those three areas, the higher their score will be.
Each of our Christian portfolios has an average “A” MSCI ESG rating2 , so you can rest assured that your portfolio has a positive impact.
Even in the universe of biblical investing, there are still many options. The ‘Demand Christian’ portfolio includes funds with low fees, solid managers, low tracking error, and high Sharpe ratios.
Low Expense Ratios
Past performance of an investment does not always indicate future performance.There is significant uncertainty in the investment world, but through that uncertainty, there is one constant: fees. Every fund has an expense ratio: this is the fee that a manager collects for managing each fund and is expressed as a percentage of the money that you have invested. The average expense ratio for Christian mutual funds is 1.08%3 . While this may seem negligible, if your nest egg grows to $100,000, you end up paying $1,080 per year.
That’s why we choose funds with lower expense ratio. On average, our ‘Demand Christian’ portfolios have an expense ratio of 0.54%, so less of your money is going to managers and more of it is staying invested.
2MSCI ESG rating taken from ETF.com as a weighted average of all funds included in the portfolio. “A” rated funds have an ESG rating above 5.70.
3The average expense ratio for all funds offered by Eventide, GuideStone, Timothy Plan, and Inspire Investing is 1.08%.
Even though past performance can’t predict future returns, fund managers can serve as a clue to a fund’s quality. We sort through thousands of funds and carefully select those with reputable managers.
Low Tracking Error
While Demand Wealth provides an actively managed overlay, most of the funds that are included in our portfolios are “passive funds.” Passive funds that follow an index, such as the S&P 500, generally have lower expense ratios and have historically outperformed actively managed funds. However, some passive funds track their underlying index more closely than others. The further away passive funds get from tracking the index, the more likely they are to deviate from that index. We account for this by selecting funds that historically have low tracking errors.
High Sharpe Ratio
Imagine you are deciding between two different funds: Fund A and Fund B. One has an expected return of 10%, while the other has an expected return of 7%. At first glance, Fund A would seem to be the much better option. However, if Fund A took on significantly more risk than Fund B, then Fund B could have a better risk-adjusted return. That’s why it’s so important to consider risk as well return when looking at investment options.
The Sharpe ratio gives insight into this characteristic. An investment’s Sharpe ratio helps quantify how much return you’re getting compared to the amount of risk that you’re taking. Our portfolios are managed to contain funds that have yielded solid returns while taking on less relative risk.
Portfolio Management Strategies
Your Portfolio is continually being monitored by our team of financial professionals. We are constantly looking for opportunities to optimize your portfolio via Tax Loss Harvesting and Rebalancing strategies.
Tax Loss Harvesting
If you have a taxable account with multiple holdings, there is a good chance there will be some positions down, even in a year when your total portfolio is net positive. Tax loss harvesting is the process of selling funds at losses, which can provide a tax deduction (for 2020 up to a -$3000/ year loss can be written off against your annual income).
Each year, we will analyze the positions in your (non retirement) accounts, sell those at losses, and repurchase your positions after the 31 day wash sale rule has been satisfied. In the 31 day interim period, those funds will be invested in a placeholder similar to the sold fund so that your money stays invested.
Portfolio rebalancing is a staple of effective investment management. Demand Wealth sets your portfolio to an optimal allocation of stocks, bonds and real estate. This allocation will change over time as market conditions and investment performance evolve. Rebalancing is the discipline of resetting your portfolio back to its original optimal allocation. For example, if a 50% stock/50% bond portfolio evolves to be 57% stocks/43% bonds after a period of time. Rebalancing involves selling enough stocks and buying enough bonds to reset your portfolio back to its appropriate 50%/50% allocation. Of course, as your financial situation changes, Demand Wealth works to ensure that your portfolio stays properly diversified, optimized and in sync with your financial goals.
The Demand Wealth rebalancing process is performed by our skilled team. Unlike many of the robo-strategies, which only rebalance at a defined interval (e.g. +/-10%), a Demand Wealth portfolio manager rebalances when it makes optimal sense. We also incorporate macroeconomic factors which may evolve over years, rather than months, that current computing models simply aren’t able to perform.