Practical Steps to Start Investing
Are you an investor?
The U.S. stock market has grabbed everyone’s attention since volatility began to increase after a full year of uninterrupted 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 avenue for Christians to increase wealth and potential for the Kingdom of God. Yet so many never start! They are afraid, misinformed, or uninformed altogether and miss out on potential opportunities. More money is not a bad thing, but it is not the source of peace. True peace comes only from God. Peace I leave with you; my peace I give you. I do not give to you as the world gives. Do not let your hearts be troubled and do not be afraid. (John 14:27)
We should distinguish between investment performance and investment purpose. Investment purpose, however is not a matter of skill; it is a matter of intent.
Investing is a great idea for Christians with the right motive and the right approach.
Some of the right motives to start investing are:
- to help your family
- provide funds for your children’s education
- provide a family inheritance
- to fund retirement
- to provide income in the event of job loss or mission work
- to give generously
The Bible never says that it is wrong to be wealthy or to invest. In fact, the Parable of the Talents is rather “pro-investing”. But the Bible is clear that using any amount of money for the wrong purposes, with the wrong motives is sinful. It also differentiates between gambling and investing.
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 may be 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, or steward, of His property, seeking to multiply what He provides to serve Him more fully.
When it comes to investing, the language and the breadth of options can be intimidating, so educate yourself. You can start by learning these 25 vocab words.
And while there are many (maybe an infinite) number of options and combinations and ways you can invest, just start simple. As a beginning investor, you don’t want to get too complicated anyway. Let’s look at 4 main types of investments (none of these include retirement accounts. If you want to learn more about investing for retirement, go here.).
An individual stock is a share in a single company. This is probably not the best option for a beginner investor because it takes a lot of knowledge and maintenance. It can be more complicated and volatile than other forms of investments. Buying individual stocks means you run the chance of earning or losing a lot because all your money is riding on a single company.
A bond is a loan that you make to the government or corporation and they pay you back with interest. It’s a fairly safe form of investing if you don’t need liquidity (instant access to your money) because your initial investment will grow at the fixed or variable interest rate you agree on. But on the same token, it won’t make you as much money since that interest rate won’t increase.
Equity Mutual Funds
As this blog explains, equity mutual funds are an alternative to individual stocks and bonds, and they are an “easy” way to start investing. A mutual fund works by several people all investing in a portfolio of diversified stocks, bonds, etc. that is managed by a professional.
Let’s say investment X costs $1,000 a share. With a mutual fund, 100 people invest $10 each instead of one person investing $1,000. A professional broker manages the investment, and you’ll typically get a diverse portfolio (meaning your collective investment is put into several different kinds of investments).
Exchange Traded Funds (ETF’s)
ETF’s are like a combination between individual stocks and mutual funds. They are similar to mutual funds because they are made up of lots of other stocks, bonds, or commodities. They are different, however, because they are traded like individual stocks. They tend to have higher liquidity so they appeal to a different kind of investor. When you purchase an ETF, you aren’t actually purchasing the stocks/bonds/commodities that make up the ETF. You are purchasing the share of those stocks/bonds/commodities.
Those are some of the most common, basic forms of investments. I’d encourage you to read more and do your research before actually purchasing anything. Here are some important “do’s” and “don’ts” to follow as you begin this process.
- Wait to invest until you have: 6 months’ of living expenses saved, all your debt (except a mortgage) paid off, and a solid budget in place.
- Stay Involved. You would not purchase a flock of livestock, place them in a pasture then leave them to fend for themselves. It would be wise to arrange for their food, shelter and protection. Proverbs 27:23-24 advises you to “know the condition of your flocks…”
- Diversify. “Invest in seven ventures, yes, in eight; you do not know what disaster may come upon the land.” (Ecclesiastes 11:2)
- Know the cost of your transaction fees so you don’t end up overpaying
- Keep it simple. A simple portfolio spread across several different asset classes of mutual funds, stocks, cash, real estate, etc.
- Be Patient. Values may fluctuate in the short run, but hopefully produce good results long-term.
- Consider starting small, with investment apps. You can read more about if they’re right for you here.
- Worry too much about the headlines. Investing is kind of like raising a teenager. They’ll have ups and downs, but you can’t get rid of them on the days they’re driving you crazy. You have to hang on to them until they’ve matured.
- Make emotional decisions.
- Get greedy.
Hopefully this is helpful to you as you consider your future in investing! If you have any advice on how you got started, or have more questions, ask us on Facebook!