The big news this past week was the initial public offering by Facebook. There was great speculation about what would happen. How high might it go. (Turns out it was a bit of a dud closing up just 23 cents). One of the most popular commercial campaigns in recent years is the E*Trade baby campaign. They definitely have created some cute commercials. E*Trade is basically a company that allows you to buy and sell stocks as an individual. Is this a good idea?
Does the Bible have anything to say about investing? Well, actually it has quite a bit to say.
Not a get rich quick scheme
Good planning and hard work lead to prosperity, but hasty shortcuts lead to poverty. Proverbs 21:5 NLT
13 There is another serious problem I have seen under the sun. Hoarding riches harms the saver. 14 Money is put into risky investments that turn sour, and everything is lost. In the end, there is nothing left to pass on to one’s children. Ecclesiastes 5:13-14 NLT.
Is the stock market a good investment? Doesn’t the stock market tend to swing up and down pretty wildly? The last few years have been pretty rocky. At least that’s what I keep hearing on the news. Stocks seem a bit risky.
First, of all investing is always a long-term proposition. If you need your money soon, then you should be putting your money in a savings account and not investing it. Investing should only be a consideration for money that you can leave alone for at least 5 years and preferably 10 or more years. If you consider the 10 year track record of the S&P 500 over the last 70 years only the market down turn in 2008 has yielded a 10 year period where the market did not make money, and the market has recovered significantly since then.
The key to investing is patience. If you are looking for get rich quick schemes, Proverbs tells us hasty shortcuts lead to poverty. Day trading, the process of buying and selling stocks even within the same day, is a recipe for disaster. Of course you hear an occasional story of someone who hit it big doing this. But for every one of those there are thousands of stories of people who lost it all doing this. Those stories don’t tend to make the front page though so you don’t hear about them.
In the short-term the market is always extremely volatile and a bit schizophrenic. From day to day it can swing radically based on some minor news from the other side of the world. But over the long-haul the market consistently makes money. If you are patient and looking at long periods of time then the stock market is a terrific place to invest your money.
Invest in seven ventures, yes, in eight; you do not know what disaster may come upon the land. Ecclesiastes 11:2 NIV
One of the keys to investing is you want to have your investments spread out across as many things as possible. This is called diversification. You want your investments to be diversified in as many ways as possible. Be invested in the stocks of many different companies. Be invested across many different types of industries. Have some money invested in small growing companies and other invested in large stable companies. Some money invested in US companies. Some money invested in internationally based companies.
This is exactly what Solomon is recommending in the book of Ecclesiastes. Spread your investments out as much as you can because you just don’t know what the future holds. Anyone ever hear of Enron? Enron was a darling of the market. Looked like a strong company. Great returns. That is until it all came crashing down due to some “fancy” accounting. Many people lost their life savings by not being diversified. Buying energy stocks because oil prices are high and the big energy companies are making big profits? But then global conditions change and oil prices along with energy profits drop precipitously. Own some stock in a promising up and coming Japanese company? Then a tsunami nearly wipes them out. These things happen. As Solomon says you don’t know what disaster may befall the land.
But if you are spread out well, then while maybe the oil industry is going down, at the same time perhaps the pharmaceutical industries are doing great. That Japanese company is going under, but that promising little company in Brazil is growing by leaps and bounds. If you are well diversified these things even out.
The real key to this is the use of mutual funds. Unless you are a multi-millionaire it is very difficult to be invested in hundreds of different companies. Plus, unless you are a professional investment advisor, you don’t have the time to do the research to understand hundreds of markets and hundreds of companies.
This is where mutual funds come in. What is a “mutual fund”? It is really very simple. It is just a fund where hundreds or more likely thousands of people have agreed to put in a little money each for the purpose of investing in stocks. Thus they have a “mutually” “funded” “stock” account. The benefits of this are three-fold. First since there are a large number of people investing their money together any given fund generally has millions of dollars to be invested. This means it can easily be invested over hundreds of companies. Second, these funds are managed by teams of professional investors who can focus all their attention on understanding the various segments of the market and ensuring that the funds are invested wisely. Lastly since you are invested over so many companies in the mix if there is an occassional “Enron”in the mix, you haven’t lost all your money because there was probably also a company that did significantly better than the average for the market. You have spread your risk over 7 or 8. (Or more likely over 700 or 800.)
The way of fools seems right to them, but the wise listen to advice. Proverbs 12:15 NIV
Lastly, unless you work as a financial advisor, you will likely not have the time to acquire the knowledge to invest wisely.
Proverbs says the wise listen to advice. Find a good financial advisor to help you make sure your money is invested well. There are two kinds of investment advisors, sales people and teachers. You need to find a teacher.
The truth is some types of investments earn much more in the way of commissions for the sales people than others. Therefore some financial advisors will try to guide you to the investments that will make them the most money. This may be unscrupulous behavior or it may well be that they are heavily pressured by their company to guide people to certain kinds of investments. In either case what you don’t want is an advisor who tells you to invest this way because I told you so. If they are unwilling or unable to do whatever it takes to make sure you understand how and why you are buying a particular investment, then run as quickly as you can in the opposite direction.
You want to find someone who has the heart of a teacher. They will spend as much time with you as necessary. Explain things as many times and in as many different ways as necessary for you to understand what you are buying. You should never buy something that you can’t explain to someone else. People lose their life savings when they are invested in things that they don’t understand, and they only bought because someone told them they should.
If you don’t have an investor you trust and that has the heart of a teacher, a great place to start looking is Dave Ramsey’s Endorsed Local Providers. These are people who have been carefully examined. They have long track records as advisors and have that teaching mind-set that you want.
Lastly, you should not be looking at investing until you are debt free and have at least 3-6 months of expenses in your emergency fund. When you have reached this point you are then on solid ground financially and are in a position to really make progress in your investing.
There are many, many more scriptures that relate to investing. These are just a few that build a solid foundation on which to begin to look at our investments.
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