We started offering our Cornerstone Portfolios in 2020. Over the last few years, we've received a lot of questions and objections to these biblically responsible investments (including push-back from Christians). After years of rebutting the objections we receive for Cornerstone, we decided to start a series going through the common objections we've received and how we respond to them. The first, and most common question we receive is centered around performance. Will I have to sacrifice performance if I switch to a BRI portfolio?
For our Christian investors, the main point we always like to make is, seeking better performance should not be the focus or the goal when deciding to switch to a BRI portfolio. While this is the case, we understand that it is a big obstacle for investors when making the decision to switch (mostly due to false or misleading information regarding BRI investing).
We've written several different blog posts about the heart behind the Cornerstone Portfolios (I've shared some links below if you're interested in more about what goes into BRI); however, the goal of this blog is to demonstrate that you do NOT have to sacrifice performance when you have a BRI portfolio.
Today, I'm just going to be sharing data for just our "Growth" and "Bond" models. [Note: just like with SEM's other models, there are several Cornerstone models which allow clients to customize their portfolio to meet their needs/investing personality. More on that in another part of this objection series.]
[Additional Note: Any performance shown here is for informational purposes only to show the differences between a Biblical Responsible Investment approach and a more traditional approach. They are shown to illustrate the research and process we used in deciding to create our Biblical Responsible Investment models we named Cornerstone. They are not a guarantee of future returns and we can make no assurance that the past performance will continue in the future. The models were put together with the benefit of hindsight using currently available mutual funds and ETFs. Therefore and funds that may have failed were not included, which could have changed the results.]
[One More Note: This is not an offer to sell investment advisory services, but instead a research report studying our findings when comparing Biblically Responsible Investment (BRI) options to non-BRI (standard) portfolios. Investors should consult with a financial advisor before making any decisions based on this research. ]
BRI Growth
Long-term Model Returns
When we first studied whether or not to create Biblically Responsible Models we started with a basic portfolio designed to track the overall index. When we saw you did not give up performance we then overlaid our AmeriGuard Growth model on the BRI investment set and came to the same conclusion – over the long-term it does not appear that you would give up performance. (The "Standard Growth" model on the charts below is the AmeriGuard-Growth model).
This is not an offer to sell investment advisory services, but instead a research report studying our findings when comparing Biblically Responsible Investment (BRI) options to non-BRI (standard) portfolios. Investors should consult with a financial advisor before making any decisions based on this research. SEM Model Portfolio performance is the result of the quantitative model allocations currently utilized in each portfolio and are net of the maximum management fee of 1.62%. SEM did not start managing BRI Portfolios [Cornerstone] until the beginning of 2020. The model used in the above illustration is a combination of various SEM models designed and developed from 2002-2017 and therefore were not available over the period illustrated above. It should not be assumed future performance will be the same as the illustration above. The Vanguard LifeStrategy Portfolio does not include any fees. Past performance is not a guarantee of future results. | Data Source: Morningstar Direct | For more click here: Privacy and disclaimers (semwealth.com)
20 Year Model Returns
The 20-year returns, which eliminate the 2000-2002 Bear Market still show the same – historically you would not have sacrificed performance by overlaying a Biblically Responsible Investment approach.
This is not an offer to sell investment advisory services, but instead a research report studying our findings when comparing Biblically Responsible Investment (BRI) options to non-BRI (standard) portfolios. Investors should consult with a financial advisor before making any decisions based on this research. SEM Model Portfolio performance is the result of the quantitative model allocations currently utilized in each portfolio and are net of the maximum management fee of 1.62%. SEM did not start managing BRI Portfolios [Cornerstone] until the beginning of 2020. The model used in the above illustration is a combination of various SEM models designed and developed from 2002-2017 and therefore were not available over the period illustrated above. It should not be assumed future performance will be the same as the illustration above. The Vanguard LifeStrategy Portfolio does not include any fees. Past performance is not a guarantee of future results. | Data Source: Morningstar Direct | For more click here: Privacy and disclaimers (semwealth.com)
10 Year Model Returns
Looking at just 10-year results, which eliminates the financial crisis, you begin to see the gap close, but the original conclusion remains the same – over the long-term you would have not sacrificed performance by using a Biblically Responsible Investment approach.
This is not an offer to sell investment advisory services, but instead a research report studying our findings when comparing Biblically Responsible Investment (BRI) options to non-BRI (standard) portfolios. Investors should consult with a financial advisor before making any decisions based on this research. SEM Model Portfolio performance is the result of the quantitative model allocations currently utilized in each portfolio and are net of the maximum management fee of 1.62%. SEM did not start managing BRI Portfolios [Cornerstone] until the beginning of 2020. The model used in the above illustration is a combination of various SEM models designed and developed from 2002-2017 and therefore were not available over the period illustrated above. It should not be assumed future performance will be the same as the illustration above. The Vanguard LifeStrategy Portfolio does not include any fees. Past performance is not a guarantee of future results. | Data Source: Morningstar Direct | For more click here: Privacy and disclaimers (semwealth.com)
5 Year Model Returns
Zooming into just the last 5 years you see the same conclusion. Note these results are now 'real-time' and thus far have confirmed our testing results.
This is not an offer to sell investment advisory services, but instead a research report studying our findings when comparing Biblically Responsible Investment (BRI) options to non-BRI (standard) portfolios. Investors should consult with a financial advisor before making any decisions based on this research. SEM Model Portfolio performance is the result of the quantitative model allocations currently utilized in each portfolio and are net of the maximum management fee of 1.62%. SEM did not start managing BRI Portfolios [Cornerstone] until the beginning of 2020. The model used in the above illustration is a combination of various SEM models designed and developed from 2002-2017. It should not be assumed future performance will be the same as the illustration above. The Vanguard LifeStrategy Portfolio does not include any fees. Past performance is not a guarantee of future results. | Data Source: Morningstar Direct | For more click here: Privacy and disclaimers (semwealth.com)
3 Year Model Returns
Looking at just the last 3-years we can see one important thing to understand about using a Biblically Responsible Investment approach – while you do not appear to sacrifice performance over the long-term, there will be shorter periods of time where this approach will hurt performance.
This is not an offer to sell investment advisory services, but instead a research report studying our findings when comparing Biblically Responsible Investment (BRI) options to non-BRI (standard) portfolios. Investors should consult with a financial advisor before making any decisions based on this research. SEM Model Portfolio performance is the result of the quantitative model allocations currently utilized in each portfolio and are net of the maximum management fee of 1.62%. SEM did not start managing BRI Portfolios [Cornerstone] until the beginning of 2020. The model used in the above illustration is a combination of various SEM models designed and developed from 2002-2017. It should not be assumed future performance will be the same as the illustration above. The Vanguard LifeStrategy Portfolio does not include any fees. Past performance is not a guarantee of future results. | Data Source: Morningstar Direct | For more click here: Privacy and disclaimers (semwealth.com)
The reason for the short-term underperformance is simple:
Mega-cap stocks have driven the gains for the stock market
Most mega-cap (and large cap) stocks tend to have values which DO NOT align with the Bible, especially the biggest companies in the stock market (Apple, Microsoft, Google, Netflix, Amazon, and Facebook)
A pure Biblically Responsible Investment portfolio will exclude those companies and thus be more of a mid-cap portfolio
A simple way to think of this – smaller companies do not have the time or money to play 'politics' with their shareholders' income. They are too busy growing their businesses. As they get larger the combination of excess profits, excess time, and pressure from the various advocacy groups leads companies to pursue 'worldly' goals.
These charts from Morningstar illustrate the difference in the investment allocations. Note the "Standard" SEM Growth portfolio nearly matches the overall allocation of the Total Stock Market Index and the BRI portfolio is more of a mid cap portfolio.
As we illustrated above, over the long-run, a more mid-cap (Biblically Responsible) centered portfolio has tended to outperform the market. Yes, over the short-term large (mega) cap companies can dominate performance, but that also increases the downside risks in the portfolio as illustrated here:
This is not an offer to sell investment advisory services, but instead a research report studying our findings when comparing Biblically Responsible Investment (BRI) options to non-BRI (standard) portfolios. Investors should consult with a financial advisor before making any decisions based on this research. SEM Model Portfolio performance is the result of the quantitative model allocations currently utilized in each portfolio and are net of the maximum management fee of 1.62%. SEM did not start managing BRI Portfolios [Cornerstone] until the beginning of 2020. The model used in the above illustration is a combination of various SEM models designed and developed from 2002-2017. It should not be assumed future performance will be the same as the illustration above. The Vanguard LifeStrategy Portfolio does not include any fees. Past performance is not a guarantee of future results. | Data Source: Morningstar Direct | For more click here: Privacy and disclaimers (semwealth.com)
Our conclusion based on our research and real-time experience is this: over the long-term you do not appear to have sacrificed any performance by following a Biblically Responsible Approach (and in fact historically would have achieved slightly higher returns), although over shorter periods of time you may fail to track the large-cap heavy stock indexes.
We linked this above, but if you are concerned about short-term underperformance from the BRI investment options, check out this article:
I'm also going to share the same charts I did above, but for our Biblically Responsible 'Bond' model. This model was much more simple to apply as it is the same model as our Tactical Bond model. To create these charts we simply used the real-time allocations/trade signals of our Tactical Bond model, which began in its current iteration way back in 2001, but instead of investing in 'secular' high yield bond funds, we utilized Biblically Responsible high yield bond funds.
As you will see, the same conclusion can be drawn for bonds as you can from stocks– you don't have to sacrifice performance with BRI.
Long-term Model Returns
SEM is well known for our ability to manage fixed income investments. We've often said, due to inefficiencies in the bond market, there is a significant opportunity to add value by actively trading bonds. We were excited to learn there are Biblically Responsible Investment Bond funds out there so we could take the same strategies we are known for and offer a BRI option.
As you look at these charts, keep in mind there are FEWER BRI Bond funds, which means our investment set is smaller than our 'standard' models. This CAN lead to higher returns, but it also CAN lead to higher risks (less diversification0n.)
This is not an offer to sell investment advisory services, but instead a research report studying our findings when comparing Biblically Responsible Investment (BRI) options to non-BRI (standard) portfolios. Investors should consult with a financial advisor before making any decisions based on this research. SEM Model Portfolio performance is the result of the quantitative model allocations currently utilized in each portfolio and are net of the maximum management fee of 2.24%. SEM did not start managing BRI Portfolios [Cornerstone] until the beginning of 2020. The model used in the above illustration is the result of applying SEM's Tactical Bond buy/sell decisions on a BRI bond investment set. The Tactical Bond model began in its current iteration in June 2001. It should not be assumed future performance will be the same as the illustration above. The Vanguard LifeStrategy Portfolio does not include any fees. Past performance is not a guarantee of future results. | Data Source: Morningstar Direct | For more click here: Privacy and disclaimers (semwealth.com)
20 Year Model Returns
This is not an offer to sell investment advisory services, but instead a research report studying our findings when comparing Biblically Responsible Investment (BRI) options to non-BRI (standard) portfolios. Investors should consult with a financial advisor before making any decisions based on this research. SEM Model Portfolio performance is the result of the quantitative model allocations currently utilized in each portfolio and are net of the maximum management fee of 2.24%. SEM did not start managing BRI Portfolios [Cornerstone] until the beginning of 2020. The model used in the above illustration is the result of applying SEM's Tactical Bond buy/sell decisions on a BRI bond investment set. The Tactical Bond model began in its current iteration in June 2001. It should not be assumed future performance will be the same as the illustration above. The Vanguard LifeStrategy Portfolio does not include any fees. Past performance is not a guarantee of future results. | Data Source: Morningstar Direct | For more click here: Privacy and disclaimers (semwealth.com)
10 Year Model Returns
This is not an offer to sell investment advisory services, but instead a research report studying our findings when comparing Biblically Responsible Investment (BRI) options to non-BRI (standard) portfolios. Investors should consult with a financial advisor before making any decisions based on this research. SEM Model Portfolio performance is the result of the quantitative model allocations currently utilized in each portfolio and are net of the maximum management fee of 2.24%. SEM did not start managing BRI Portfolios [Cornerstone] until the beginning of 2020. The model used in the above illustration is the result of applying SEM's Tactical Bond buy/sell decisions on a BRI bond investment set. The Tactical Bond model began in its current iteration in June 2001. It should not be assumed future performance will be the same as the illustration above. The Vanguard LifeStrategy Portfolio does not include any fees. Past performance is not a guarantee of future results. | Data Source: Morningstar Direct | For more click here: Privacy and disclaimers (semwealth.com)
5-Year Model Returns
This is not an offer to sell investment advisory services, but instead a research report studying our findings when comparing Biblically Responsible Investment (BRI) options to non-BRI (standard) portfolios. Investors should consult with a financial advisor before making any decisions based on this research. SEM Model Portfolio performance is the result of the quantitative model allocations currently utilized in each portfolio and are net of the maximum management fee of 2.24%. SEM did not start managing BRI Portfolios [Cornerstone] until the beginning of 2020. The model used in the above illustration is the result of applying SEM's Tactical Bond buy/sell decisions on a BRI bond investment set. The Tactical Bond model began in its current iteration in June 2001. It should not be assumed future performance will be the same as the illustration above. The Vanguard LifeStrategy Portfolio does not include any fees. Past performance is not a guarantee of future results. | Data Source: Morningstar Direct | For more click here: Privacy and disclaimers (semwealth.com)
3-Year Model Returns
This is not an offer to sell investment advisory services, but instead a research report studying our findings when comparing Biblically Responsible Investment (BRI) options to non-BRI (standard) portfolios. Investors should consult with a financial advisor before making any decisions based on this research. SEM Model Portfolio performance is the result of the quantitative model allocations currently utilized in each portfolio and are net of the maximum management fee of 2.24%. SEM did not start managing BRI Portfolios [Cornerstone] until the beginning of 2020. The model used in the above illustration is the result of applying SEM's Tactical Bond buy/sell decisions on a BRI bond investment set. The Tactical Bond model began in its current iteration in June 2001. It should not be assumed future performance will be the same as the illustration above. The Vanguard LifeStrategy Portfolio does not include any fees. Past performance is not a guarantee of future results. | Data Source: Morningstar Direct | For more click here: Privacy and disclaimers (semwealth.com)
Downside Model Risk
This is not an offer to sell investment advisory services, but instead a research report studying our findings when comparing Biblically Responsible Investment (BRI) options to non-BRI (standard) portfolios. Investors should consult with a financial advisor before making any decisions based on this research. SEM Model Portfolio performance is the result of the quantitative model allocations currently utilized in each portfolio and are net of the maximum management fee of 2.24%. SEM did not start managing BRI Portfolios [Cornerstone] until the beginning of 2020. The model used in the above illustration is the result of applying SEM's Tactical Bond buy/sell decisions on a BRI bond investment set. The Tactical Bond model began in its current iteration in June 2001. It should not be assumed future performance will be the same as the illustration above. The Vanguard LifeStrategy Portfolio does not include any fees. Past performance is not a guarantee of future results. | Data Source: Morningstar Direct | For more click here: Privacy and disclaimers (semwealth.com)
You might have noticed the Sample BRI Tactical Bond Model performance was above the 'Standard" SEM model performance. Keep in mind, the RISK of the BRI Tactical Bond model is higher due to fewer available funds which leads to lower diversification. Please understand two things:
1.) You should not invest in Biblically Responsible Investment models simply because the performance was better.
2.) You should not invest in Biblically Responsible Investment models if your goal is to beat the stock/bond markets.
For Christians we believe the WHY behind your investments is more important than performance. If you are not driven by the "Why", you are probably better off investing in the 'Standard" portfolios as they are designed to track the 'Standard' benchmarks. BRI investments WILL underperform those benchmarks at times, which if you did not invest because of the "Why" could lead you to be disappointed in those (short-term) results.
Why choose BRI / Cornerstone?
Source of profit matters
"Treasures gained by wickedness do not profit, but righteousness delivers from death." - Proverbs 10:2
As Christians, we are called to use the resources God provides for us in ways that will honor God – one of those resources being money. It's important for us to not be profiting (investing) in companies that promote sinful and immoral activities – even if it means not making as much money.
Our Cornerstone (BRI) Portfolios have three mandates to follow: Avoid, Embrace, Engage. We want to avoid the companies that do NOT align with our values, embrace the companies that DO align with our values, and engage with companies to advocate for positive change.
Align your values with your money
"So, whether you eat or drink, or whatever you do, do all to the glory of God." - 1 Corinthians 10:31
Investing in companies is ownership. You don't want to own companies that don't align with your values. As Christians, our values should align with God's and support His work. Stay tuned for an article on the embrace mandate that will cover more on aligning your values with your money.
Be a good steward of your money
"The prudent see danger and take refuge, but the simple keep going and pay the penalty." - Proverbs 27:12
Everything we have is God's, that includes the money you have. Therefore, you want to steward your money well. With SEM's Cornerstone Portfolios, there are over 70+ investment options, on-going due diligence, and customization to your needs. We will help you steward the money you're putting towards investments well!