As a money manager, I spend a lot of time researching trends and watching for problems I feel will pop up for investors in the near future. One large problem that has been creeping up on seniors and other income investors is the drop in interest rates. Although many investors may like the effects lower interest rates have on the market, for what I call the “CD Senior” they can be detrimental. A “CD Senior” is an investor who depends on the interest they are receiving from their fixed investments to pay the bills. They know they cannot take the risk of losing large amounts of principal in the stock market. As a result they turn to investments like CDs to create the income. The drop in interest rates has cut their income. I have had several new clients in my office over the last few months with these concerns. In my last article I introduced a little known investment tool known as church mortgage bonds. I will revisit this concept in more detail. In many cases we turn to church mortgage bonds to help clients solve their income needs. In the next few paragraphs I will discuss the history and merits of church mortgage bonds.
The first church bonds were issued in the early 1900’s by individual churches looking to suppliant capital campaigns by offering an investment option to their congregation. For decades church bonds were sold almost exclusively to the members of the issuing church. Now the market for the bonds has become much larger. Hundreds of mega churches and Christian universities sell the bonds as registered securities. For churches, offering mortgage bonds gives them fixed rates on debt with the opportunity to become self-financing. The benefit therefore is twofold as we look at it in a Christian investor’s point of view. “So it is with you. Since you are eager to have spiritual gifts, try to excel in gifts that build up the church.” (1 Corinthians 14:12) What an honor to play a part in the expansion of the Kingdom.
Although kingdom building is wonderful, as an advisor I must also way the profitability of any investment I recommend to my clients. For the investor, the bonds offer an interest rate usually higher than your typical corporate bond. Most bonds pay the interest semi-annually with the principal or original amount, paid at maturity. The maturities can range from six months to 25 years. Interest rates for different maturities are commensurate to the term of the bond, with longer maturities paying higher rates than shorter maturities. This is good news for those depending on interest payments for stable income. Although the bonds are not risk free, the larger firms who issue the bonds have produced an almost spot free record much better than the world of corporate bonds.
Strongtower Financial, one of the leading issuers of the bonds states, “Industry research suggests that the church finance marketplace will experience a 40 percent growth rate during the next five years. That pace would catapult the $28 billion church finance marketplace to $40 billion in 2010. This robust, yet relatively unknown, sector presents an opportunity for investors, while helping the churches multiply their impact.” In layman’s terms, the opportunity for long term stable income should only increase in the coming years. This will make it much easier for the CD Seniors and any other investor to meet their income needs for the future.
Terry W. Morgan, Jr. is the President and Chief Investment Officer of Morrow Wealth Management. He manages the Liberty and Freedom portfolios for the firm. Terry offers a free consultation and you may reach Terry by calling 832-455-5550. Check his ad for current mortgage bond rates. Past performance of any investment or suggestion mentioned may not be indicative of future results.