By Medi-Share member, Colin Keeler
My uncle was a prosperous entrepreneur and investor. After I graduated college, I asked him the secret to his success. He gave me the most important piece of financial advice I have ever received:
“Let your strong Christian values be reflected in all of your investment decisions.”
Here is an example of my uncle’s principle in action: By joining Medi-Share, you have made (or will be making) a sound financial decision as a direct result of your faith. My topic today is how to continue making wise Christian investing and financial decisions part of your life.
Christian Investing Concept #1: Invest Your Own Way
It can be tempting to hire others to make our investment decisions, believing it better to rely on their superior knowledge of the financial markets. Let us instead, however, be inspired by the words of Philippians 4:13:
“I can do all things through Him who gives me strength.”
Self-reliance is a virtue in investing just as in life. Professional money managers and wealth advisers may know all the ins and outs of Wall Street. Yet you will still do better making your own decisions. One reason for this is that money managers will charge you a percentage of the amount of money you invest with them. Over time, these annual fees will add up significantly and lower your performance.
Additionally, money managers are incentivized both to have shorter time horizons and get you to invest in complicated products. The reasons for this are simple. Most investors are fickle, and will withdraw their funds after one or two quarters of under-performance. And few investors would choose a money manager who uses a transparent and simple strategy for building wealth, as they could do this themselves for free.
While there are certainly many dedicated money managers and wealth advisers, you will do better making your own investment decisions that allow you to focus on the long-term with simple strategies that work well.
Christian Investing Concept #2: Don’t Borrow to Invest
There is an excellent post in the Medi-Share blog on the topic of money scriptures that all Christians should know. In this post, the author quotes Proverbs 22:7:
“The rich rule over the poor, and the borrower is the servant of the lender.”
The clearest lesson is that it’s always a mistake to borrow money to invest. As an example, most will agree that it would be foolish to take out a loan and invest the borrowed money in high-risk strategies.
However, this admonition against borrowing from the Book of Proverbs applies equally to all forms of investing that require one to borrow. In particular, you should always avoid margin trading or any use of leverage in investing. While many will tell you that the large potential gains from such activities justify the risk, be prudent and stick with investing only those funds that you currently have.
One reason it is better to avoid margin trading is that you will pay significant fees to borrow the money from your broker. If your position purchased on margin moves sufficiently against you, your broker can and will liquidate your position – potentially resulting in a significant loss. And even if you manage to avoid this event, it will still be a great psychological burden knowing that relatively small adverse price movements can cause you to lose much of your hard-earned money.
It is, therefore, wise to avoid the high fees, frequent stress, and potential for large losses inherent in margin trading and leveraged investing. More importantly, always avoid the sin of greed. Invest only what you have and do not borrow money as part of your investing strategy.
Christian Investing Concept #3: Focus on the Long Term
It is a human tendency to be overly-focused on short term results. In investing, however, we must remember the lesson of Proverbs 14:29:
“He who is impulsive exalts folly.”
There are three primary reasons to heed these words and adapt a long time horizon measured in years rather than months.
The first is that frequent changes to an investing strategy are expensive. You pay a commission on each trade that you make. Additionally, the profits from any position held for less than one year are subject to the higher short-term capital gains tax rate.
The second reason for a long time horizon is that our natural instincts lead to results-oriented decisions. Most investors want to sell when an investment has performed poorly recently, and buy when an investment has done well. This practice will often lead to selling stocks, funds, and other assets when they are at their lows and most undervalued. Similarly, many investors purchase assets when they’re at all-time highs and most likely to fall to a normal valuation.
The last reason to have a longer-term focus is that it allows you more time to spend with family, church, and career pursuits rather than at a computer monitor stressing about short-term price movements. Let your money work for you by making prudent and long-term investments that do not require your frequent involvement.
Now let’s talk about more specific details on the best types of investments to make.
Christian Investing Concept #4: Diversify Your Investments
Future price performance is always uncertain in the financial markets. Never count on a single investment or asset class to perform well in a given time period. Instead, heed the words of Ecclesiastes 11:2:
“Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the Earth.”
If you purchase one or several stocks, for example, it is entirely possible that each company you own will underperform at the same time. If you buy many companies instead, however, then you will minimize company-specific risk.
Of course, the stock market itself can have low or negative returns in a given period. Therefore, the best approach is to diversify into other asset classes such as bonds and real estate. For any asset class, strongly consider purchasing a reputable, broad, and low-fee fund known as an ETF.
For example, Vanguard’s Total Stock Market ETF (ticker symbol: VTI) is a prudent option as it gives you exposure to over 3000 US companies for an annual fee of 0.04%. By contrast, many money managers will charge you 1% or more of the amount you invest with them – and, statistically, most will achieve the same or lower returns compared to a broad stock fund.
You can use this same ETF approach for almost any asset class. For example, a reasonable method of making a diversified real estate investment in your portfolio is to purchase the Vanguard Real Estate ETF (ticker: VNQ). There are similar ETFs available for making diversified investments in government or corporate bonds, international stocks, as well as gold and commodities.
(Please note that I don’t benefit in any way when people buy VTI, VNQ, or other Vanguard funds. I only give the example of Vanguard because they are the primary fund provider I use in my own portfolio. I suggest doing your own research to choose the particular fund provider that best meets your individual needs.)
What percentage of your portfolio should you allocate to each of these different asset classes?
That is a decision you must make based on your own investment goals. Historically, stocks have been the best-performing, long-term asset class, but even the US stock market can have longer periods of relative under-performance (as can gold, real estate, or any other asset, of course).
For that reason, there are many good strategies for combining asset classes to minimize the risk you take relative to your expected returns. For example, the Permanent Portfolio is a straightforward method of combining several asset classes with the goal of generating consistent returns.
Before moving on to the last section, let us suppose you particularly want to invest in art, a 3D printing company, bitcoin, or any other specific asset. So long as it is moral and does not require borrowing money, by all means proceed as your portfolio is your own. As we have said, it is best to make low-fee ETFs giving broad exposure to stocks and the major asset classes the core of your portfolio. But it is fine to take a small position in a speculative asset you wish to own so long as you understand the risks and do not rely on its performance for your family’s future.
Christian Investing Concept #5: Plan Ahead
Our final concept of planning ahead is the single most important one to follow. We should always remember the often-cited words of Genesis 41:29:
“Seven years of great abundance are coming throughout the land of Egypt, but seven years of famine will follow them.”
The reason why we invest is to build wealth for our future and our families. The way to accomplish this goal is to save more than you spend and wisely invest these extra savings. Do not take your years of abundance for granted; always strive to continually save and invest while you are able.
Any amount that you invest will add up significantly over the course of many years. As an example, suppose that you manage to save and invest an extra $100. Compounding at a conservative 5% per year, you will have turned this hundred dollars into $128 after five years. After a period of 20 years, your $100 will have turned into $265. And after 50 years, you will have an extra $1147 in your investment account compared to if you hadn’t saved and invested this initial $100.
The simplest path to building wealth is to save money and allow it to compound with a long-term investment horizon. Therefore, the best way to care for your family and your financial future is to prioritize good saving and investing habits and always plan ahead.
I hope one day soon to teach this lesson to my daughter as part of her Christian values, just as my uncle taught me the greatest lesson of my investing career many years ago.
Colin Keeler is a stock market value investor who focuses on simple, high-performing strategies for building wealth. He also runs a Medi-Share reviews site highlighting information and stories about how Medi-Share has helped his family and so many others. He lives in Port St Lucie, FL with his wife and daughter.