Ask Chuck: How to Start Investing?
The stock market has been in the news a LOT recently. I don’t know much about it, but seeing all the headlines has made me more interested and I’ve been thinking a lot about starting to invest. Is investing a good idea for Christians? Could you help me know what the first steps to take are? Like a beginner’s course?
Baby Step Investor
Dear Baby Step Investor,
The U.S. stock market has grabbed everyone’s attention since volatility began to increase after a full year of uninterrupted month over month growth in 2017. With so many people having some stake in the market, it is no wonder that it has been making the financial headlines lately.
Recent surveys indicate that about 45% of Americans own a mutual fund, 52% say they have investments in stocks, and about 32% invest via a 401(k) through their employer. The average balance for all Americans that have money socked away in a 401(k) is $96,288, though that number varies greatly by age group.
Investing is a great idea for Christians with the right motive and the right approach.
It is a wrong motive to invest simply for the sake of just making money. Greed or a “get rich quick” motive is condemned in Scripture. Proverbs 21:5 teaches us that, “Steady plodding brings prosperity; hasty speculation brings poverty.” The recent bitcoin frenzy is an example of hasty speculation.
Making money is the byproduct of doing what God has called you to do. We are to make financial decisions as a manager (steward) of His property seeking to multiply what He provides to serve Him more fully.
A legitimate purpose of any investment program is to help your family. This may include investing to provide funds for your children’s education, to provide a family inheritance, to fund retirement, to provide income in the event of job loss or mission work. Another reason is to use the funds to give charitably.
Establish Giving Goals
The best weapon to protect yourself against greed and pride is to have a specific plan for giving to God’s work. This requires an eternal perspective. Once a commitment has been made to live a generous lifestyle, regardless of the available income, greed and self-indulgence is drastically reduced.
Next, determine how you want to invest. Some prefer the DIY method which can save you broker fees. Or you may want to pay a professional to manage the process for you. Rusty Leonard at Stewardship Partners has a video on Biblical investing along with helpful information. And the National Christian Foundation, NCF, helps investors with charitable giving.
Education is key to investing. Learn all you can so you make knowledgeable, prudent decisions.
Don’t invest simply based on the word of somebody else. It must be something you understand, so do your research first before investing one dollar.
Be careful not to allow your emotions to control your investing. There will be swings in price, sometimes meteoric rises and drastic falls. Stick to your long-term goals and panic can be limited if not completely avoided. Determine ahead of time what you’re willing to invest, at what price, and at what point you will sell if it drops. This will help limit your risk and enable you to make a well thought out trade.
Mutual Funds or Stocks?
For most people, investing in stocks means choosing between these two investment types:
Stock (or equity) mutual funds or exchange-traded funds (ETF’s). These are small pieces of different stocks sold together in a single transaction. This allows you to build a diversified portfolio. A Standard & Poor’s 500 fund offers stock of those companies, so your investment grants ownership in small pieces of each one. You can build diversity by investing in several different funds which lessens your risk. They may not increase as quickly as stocks but may also not fall as dramatically either. These are good for long-term goals like retirement or college.
Individual stocks. You can buy a share or a few shares of specific companies as a way to begin in stock-trading. Research and diversification are required more with this route. If you invest in a variety of individual stocks, a few good picks can pay off well. But, that doesn’t always happen. If you are young and can afford loss, this is an acceptable way to go. But, if you’re investing for retirement, your portfolio should also include mutual funds and investments outside the market to reduce your risk.
A 401(k) participation through work is a great way to invest in stocks or mutual funds. Max out this option if you can. If you are self-employed, there are ways to save for retirement as well.
Software can now manage your finances. Acorns.com, Stashinvest.com, Weathsimple.com are a few robo-advisors that make investing easy and low cost. (Please note: I do not endorse any of these services, companies or strategies. I am providing this information for educational purposes only.) This blog outlines some of the pros and cons of apps like this.
General Investing Guidelines:
Avoid paying too much in fees or commissions. Know the cost on transaction fees, because these can add up if you buy and sell frequently.
Keep it simple. A simple portfolio spread across several different asset classes of mutual funds, stocks, cash, real estate, etc. Values will fluctuate in the short run, but hopefully produce good results long-term.
Establish an automatic investment plan and review regularly. You may need to periodically adjust your automatic investments to keep your portfolio in balance.
Pay attention. Know well the condition of your flocks, and give attention to your herds, for riches do not last forever; and does a crown endure to all generations? (Proverbs 27:23-24)
Start small. Learn all you can and make bigger investments as your knowledge increases. Baby steps are a great way to think about investing. First you crawl, then you walk, and then you run. Before you think about investing, make sure you’ve reached these financial goals first:
- Pay off all your debt (except a mortgage). If you need help getting out of credit card debt, contact Christian Credit Counselors.
- Save 3-6 months of living expenses in an easily-accessible account.
- Give generously and regularly.
- Follow a written monthly budget.
Lastly, don’t worry too much about all the headlines. As Warren Buffett famously says, “Only buy something (a company stock) that you’d be perfectly happy to hold if the market shut down for 10 years.”
Originally published on the Christian Post, March 9, 2018