Proverbs 21:20 tells us, “Precious treasure remains in the house of the wise, but the fool consumes it.”
When you invest in order to take care of your future needs you are keeping precious treasure in your house, which is a good thing. BUT investing with the simple goal of accumulating more and more wealth in a never-ending quest to have more and more is not a godly goal.
The best place to start investing is with an employer-sponsored retirement account, if one is available to you. Most employers offer some sort of matching money up to a certain limit, so take advantage of any contribution matches up to the limit as soon as you are qualified to contribute.
For example, if your employer offers a fifty percent match on the money you contribute to your IRA, and you contribute $1,500, your employer will deposit an additional $750 in tax-free money into your retirement account. Employers offer different options, which may include a cap on the amount they’ll contribute, the percentage they’ll match or any combination of those, so be sure to read the details about your options.
Employer-sponsored retirement plans usually have a default option for the type of investment. Review your options and choose the option that makes the most sense for your future needs—you can afford more risk early in your career, moving to less risky options as you near retirement,
In addition to an employer-sponsored plan, fund a Roth IRA up to the maximum contribution limits available to you. The maximum contribution to a Roth IRA varies based on your salary, and the total income for married couples filing jointly. The maximum contribution increases when you are older than a certain age. Be sure to check the current tax year rules.
After you are totally debt free (including the mortgage), AND you have your retirement savings maxed out AND you have two years of income in a liquid savings account, you can think about investing in more sophisticated products such as brokerage accounts, direct stock purchase plans, real estate, and other opportunities.
First, consider your tolerance for risk. Scripture warns against risky investments, yet how many times have you heard about people losing their life savings through some sort of scam? Be aware of your appetite for risk. If an investment opportunity sounds too good to be true, it probably is!
To avoid risk, diversify your funds across several types of investments— stocks, bonds, mutual funds, real estate, etc. “Make seven or eight portions; you know not what misfortune may come upon the earth” (Ecclesiastes 11:2.)
Once you understand your tolerance for risk, you can begin investigating the types of assets you want to own. The fastest way to make your money grow is through productive assets and the three most common types are stocks, bonds and real estate. Each one has different pros and cons, tax situations and legal implications, which may vary by state.
Usually, when people talk about investing in stocks, they mean buying stock in a specific business. Basically, when you own stock you have a share in the profits or losses generated by that business. There are two types of businesses you can invest in—privately held and publicly traded. Privately held businesses may be a business you start alone or with a partner.
You come up with an idea, establish and run the business so your expenses are less than your revenues, and over time the business grows and profits increase. Starting a business is not easy, but a well-run business can put food on your table, send your children to college, afford you a few nice things and allow you to retire in comfort.
There are also publically held businesses, which sell shares of stock. When you buy a share of stock, you are actually purchasing a small part of the business. Publicly traded businesses include everything from large corporations which have proven growth and stability to start-up businesses which offer their initial stock sale opportunity.
When buying stock, consider the type of business that interests you. You don’t want to buy stock in businesses which are contrary to your values. This may include businesses which derive their profit from tobacco, alcohol, abortion or other activities that you do not choose to support. You may want to buy stock in businesses that promote the environment, sustainable resources or support causes which are close to your heart.
The second type of productive investment is a bond. When you buy a bond, you are really lending money to the bond issuer in exchange for interest income. There are many types of bonds, from corporate bonds, tax-free municipal bonds, to U.S. savings bonds.
Real estate is the third type of productive investment. Typically investing in real estate comes in two forms. Either developing something and selling it for a profit, which can be as simple as buying a house, fixing it up and selling it for a profit, or something as complicated as buying a parcel of land and developing a shopping center on it.
For a lot of investors, real estate has been a path to wealth because it is easy to buy real estate using leverage (getting a mortgage on the property). Buying property using a mortgage can be bad if the investment turns out to be a poor one, or good if it’s the right investment, at the right price, on the right terms, at the right time.
As your investments grow over time, and your net worth increases, keep in mind this verse from 1 Timothy: 16-19 which gives us good advice about our attitude toward gathering riches: “Tell the rich in the present age not to be proud and not to rely on so uncertain a thing as wealth but rather on God, who richly provides us with all things for our enjoyment. Tell them to do good, to be rich in good works, to be generous, ready to share, thus accumulating as treasure a good foundation for the future, so as to win the life that is true life.”
Join us on the Compass Catholic podcast to get started with an investment strategy that will help you have a secure financial future.