What is an investment? It is when you put your money to work for you. Savings accounts and CDs are generally safer; however, their return is usually less. An investment will have increased risk and volatility—but will generally provide increased earnings. You need both—savings and investments.
Most investments fluctuate in value
Fear and greed often determine short term values of stocks. This is very evident in the recent stock market volatility. An important maxim to remember about the investment world: fear inevitably returns to greed and greed inevitably returns to fear. Don’t be overly concerned about the short term “ups and downs.” Invest for the long term.
Use time, not timing
Even the experts rarely time the market correctly. Just as they agree on the direction of the market, it often moves the opposite way. Those trying to time the market often do the wrong thing at the wrong time. However, those who keep time on their side by investing for the long term generally profit. Be patient. Do not overreact.
Bank CDs and savings accounts will not make you rich
It happens too often. A person puts their money in CDs or savings accounts to reduce their risk. After taxes and inflation, they end up with a dollar amount that is lower in terms of real buying power. For the long term, it is generally better to invest for growth to offset the effects of taxes and inflation.
Your “portfolio” is more important than any single investment
No one can expect every investment to grow dramatically. But, you expect reasonable growth from a total mix of investments (portfolio).
It pays to diversify
“Don’t put all your eggs in one basket.” Use a mix of investments with differing levels of risk. This reduces the volatility of one’s total portfolio. People often know this reality but ignore it. The classic example is when someone sees an investment that did extremely well last year and they move all or a high percentage of their total portfolio to that one investment, only to have invested too late and ride the values back down. Staying diversified softens this negative impact.
Christians should invest their money
Many of Jesus’ parables deal with stewardship. Appropriate investing is part of a Christian’s total stewardship. (Matt. 25:14-30)
Don Spencer is Kentucky Baptist Convention Church Financial Benefits Consultant.