Faith Based Investing

Common Mistakes

Where do you go for financial advice? More specifically, where do you go to implement a faith-based financial plan? The key to plan­ning is to minimize mistakes and have an end goal in mind. The majority of the common mistakes I see being made could have been prevented by having a solid plan in place.

There are many common mistakes made because of insufficient preparation. If you took an exam and did not study, would you pass? If cities did not have emer­gency plans and there was a natu­ral disaster, would evacuations remain orderly? Proper planning can help prevent common mistakes. People often make critical errors that could have been avoided with a little planning. Here are some of the most common mistakes that I see on a day-to-day basis:

1. Making investment decisions based on emotions (greed or fear) rather than the facts.

2. Choosing investments that are not suited to personal goals or investment time horizon. Often people invest in assets that are too aggressive or too conservative based on when they will need to withdraw from their investments.

3. Failing to diversify assets by putting all the eggs in one basket. I of­ten see people who hold all of their wealth in a few individual stocks or they have mutual funds that do not provide enough variety.

4. Reacting to short-term events and not to long-term trends.

5. Trying to “time the market”–deciding when to be in or out of the stock market.

6. Buying “hot” investments with no sound basis for the decision.

7. Allowing fees, expenses, and/or commissions to become the major factors in making an investment decision.

To Save or Invest?

Both saving and investing have a place in your finances, but don’t confuse the two. With savings, your principal normally remains con­stant and earns interest or dividends. Savings are typically kept in cer­tificates of deposit (CDs), checking accounts, money market accounts, and savings accounts. By comparison, investments can go up or down in value and may or may not pay interest or dividends. Examples of investments include stocks, bonds, mutual funds, collectibles, precious metals, and real estate.

You should invest for the future, and this should come as no sur­prise: The future is expensive. For example, college expenses are in­creasing at double the rate of inflation, and people are retiring earlier and living longer. You have to take responsibility for your own finances; nobody else is going to. Government programs like Social Security will probably play a less-significant role in your life than they did for previ­ous generations. Corporations are switching from guaranteed pensions to plans that require you to make contributions and choose invest­ments. The better you manage your dollars, the more likely it is that you will have the money you need to reach your goals.

Everyone has different goals and expectations, and everyone has different reasons for investing. However, it simply comes down to man­aging your money to provide a more meaningful life and financial secu­rity for you and your family.

The Magic

The purpose of a magic trick is to amuse and create a feeling of wonder; the audience is generally aware that the magic is performed using trickery, and derives enjoyment from the magician’s skill and cun­ning. Traditionally, magicians refuse to reveal the secrets to the audi­ence. They even take an oath to never reveal these secrets:

The Magician’s Oath: As a magician I promise never to reveal the secret of any illusion to a non-magician, unless that one swears to uphold the Magician’s Oath in turn. I promise never to perform any illusion for any non-magician without first practicing the effect until I can perform it well enough to maintain the illusion of magic.1

In the world of investing, compound interest is one of the greatest magic tricks. The key is for you to understand the secret. The more you know about how compound interest works, the more excited you will be to save. As your money mysteriously multiplies over time, you see the fruits of your labor. Like a snowball that starts slowly rolling downhill and builds to a gigantic boulder, investing small today can turn into mil­lions in the future. The key is consistency, discipline, and having an end goal in mind. If you haven’t yet discovered the magic of compound inter­est, you are truly missing an amazing force at work. When you start, even if it is small, your investments can grow large over time.

Find More Money

How do you find more money to invest? For most people there are two solutions: you either grow your income or reduce your expenses. Aside from inheriting or coming into additional money or selling something, there really is no other way. One thing to keep in mind is that your income can grow only to the extent that you do. If you are not constantly improving yourself and your skills, you will find it difficult to increase your income.

Think big! You will be paid in direct proportion to the value you deliver to your company. Focus on opportunities and go beyond your job description. Making a higher income is often correlated to the level of commitment you have toward your job. If you love what you do, it is easier to be successful. If you have others around you who are successful, learn from them. Partner and mentor with someone wealthier and more successful than you. Leaders earn a heck of a lot more than followers.

You are bigger than your problems. Grow yourself above your problems. Grow beyond your internal ceiling. Get paid based on re­sults. Earn what you’re worth. Focus more on your net worth than your income. Even if you are not earning much now, manage money well. Until you show you can handle what you’ve got, you won’t get any more. Develop good money-management habits and look for more money to invest. Good money-management skills are more important than the amount of money you have.

There are people who always seem to live crisis to crisis. They tend to also live paycheck to paycheck. Do you see where I am going with this? They end up digging themselves a pretty deep hole. They find a way out, and then boom!–they are back in the hole. Crisis after crisis tends to drain the bank account or, worse, max out the credit cards. Like a rat trapped on a wheel, the cycle continues. A new perspective and a new set of rules are required to break the cycle.

The God we serve is so full of mercy, grace and love.  He is there for us in times of plenty and times of need – through feast and famine.  I had lunch the other day with a good friend of mine who is going through a difficult struggle.  Prayer is neccessary during these times of heartache, but motion is nearly as important.

I am reminded of a scene from the movie Facing the Giants.  Coach Taylor is considering quitting. He feels he has done everything he can for his school’s football team and that he has failed. His team seems destined to lose every game. The parents are upset with him. He is on the verge of losing his job. He is at the end of himself. Then a janitor named Mr. Bridges walks into his office and provides a glimmer of hope with a passage from Revelation 3:7-8: “What he opens no one can shut, and what he shuts no one can open. I know your deeds. See, I have placed before you an open door that no one can shut. I know that you have little strength, yet you have kept my word and have not denied my name” (niv).

Mr. Bridges then tells Coach Taylor a powerful story about two farmers who were in a drought. Both desperately needed rain and prayed for it. But only one of them went out and prepared his field for rain. He then asks a revealing question, “Which one do you think trusted God to send the rain?”

Your financial life is the same way. You can sit around and wait for God to do something, or you can take the necessary steps needed to prepare your financial life for God to work. He cannot bless savings or investments you never make. Go and prepare your life for financial stability, take steps, and He will direct your path. The first step is preparing for Him to work!

Even in baseball you can place principles ahead of profits and still make millions of dollars!  Take Albert Pujols, for example.  In a day and age where steroids run rampant, he clings to his faith in Christ and love of his family as reasons not to cheat.  He plays the game to bring glory to God and support his family.  He plays an A game and does it naturally!

From McGwire and Bonds to Conseco and Sosa to Clemens and Palmeiro: on and on…  Recently there was A-Rod and now Manny and hundreds of others.  Baseball has been tainted by cheaters!

It brings a smile to my face when I watch a video like the one below – where a professional athlete acknowledges his God-given skills, publicly declares he is playing for God’s glory, says he cares less about pleasing others, and more about keeping his promises to do his job with the highest of principles…and did I mention he’s making millions.

Stewardship

The term stewardship is tossed around like a buzzword. Because it is used so often, the word’s true meaning has lost a lot of its relevance. Let’s look at Merriam Webster’s definition of stewardship:

1. the office, duties, and obligations of a steward

2. the conducting, supervising, or managing of something; especially: the careful and responsible management of something entrusted to one’s care.

Stewardship is one of the most common themes in the Bible. I refer to stewardship as being a faithful manager of the time, skills, and financial resources that God has provided you. How you manage these three elements of your life affects every other area. When you apply God’s principles regarding stewardship, you will begin to enjoy freedom and fulfillment that can be found nowhere other than in Christ.

What we possess is not ours. The Bible tells us God created everything between heaven and earth. He owns everything. We are responsible for managing our lives, our money, and our possessions on God’s behalf. Because everything we possess is ultimately His, we are essentially God’s managers. Many believe that only the first 10 percent belongs to God (a tithe), but in reality, He owns the other 90 percent as well. He graciously loans us resources based on our ability to manage. Will you become a faithful manager?

The parable of the talents (see Matthew 25:14-30) illustrates the power of being a faithful manager. With each level of responsibility, the amounts given to the servants differed, but each was entrusted with something. The rewards were not based on the amounts given, but rather on the increase that resulted from the amount given. God gives you responsibility based on what you can handle. You have been given something that is important to God; you can please Him through being faithful with what He has provided and called you to do.

Being a faithful manager encompasses more than money. It involves management of every single area of our daily lives. Do you believe you or God is the owner of everything? Your belief is illustrated each time you make a decision. Are you in control or is God? Either we attempt to take God out of the picture (the reason for the fall of Adam in the garden), or we seek to move closer to God (the triumph of Jesus).

Just read this from Richard Russell, a legendary publisher in the investment newsletter business. This applies to almost any business! Thought I would share:

(1) The ideal business sells the world, rather than a single neighborhood or even a single city or state. In other words, it has an unlimited global market (and today this is more important than ever, since world markets have now opened up to an extent unparalleled in my lifetime). By the way, how many times have you seen a retail store that has been doing well for years — then another bigger and better retail store moves nearby, and it’s kaput for the first store.

(2) The ideal business offers a product which enjoys an “inelastic” demand. Inelastic refers to a product that people need or desire — almost regardless of price.

(3) The ideal business sells a product which cannot be easily substituted or copied. This means that the product is an original or at least it’s something that can be copyrighted or patented.

(4) The ideal business has minimal labor requirements (the fewer personnel, the better). Today’s example of this is the much-talked about “virtual corporation.” The virtual corporation may consist of an office with three executives, where literally all manufacturing and services are farmed out to other companies.

(5) The ideal business enjoys low overhead. It does not need an expensive location; it does not need large amounts of electricity, advertising, legal advice, high-priced employees, large inventory, etc.

(6) The ideal business does not require big cash outlays or major investments in equipment. In other words, it does not tie up your capital (incidentally, one of the major reasons for new-business failure is under-capitalization).

(7) The ideal business enjoys cash billings. In other words, it does not tie up your capital with lengthy or complex credit terms.

(8) The ideal business is relatively free of all kinds of government and industry regulations and strictures (and if you’re now in your own business, you most definitely know what I mean with this one).

(9) The ideal business is portable or easily moveable. This means that you can take your business (and yourself) anywhere you want — Nevada, Florida, Texas, Washington, S. Dakota (none have state income taxes) or hey, maybe even Monte Carlo or Switzerland or the south of France.

(10) Here’s a crucial one that’s often overlooked; the ideal business satisfies your intellectual (and often emotional) needs. There’s nothing like being fascinated with what you’re doing. When that happens, you’re not working, you’re having fun.

(11) The ideal business leaves you with free time. In other words, it doesn’t require your labor and attention 12, 16 or 18 hours a day (my lawyer wife, who leaves the house at 6:30 AM and comes home at 6:30 PM and often later, has been well aware of this one).

(12) Super-important: the ideal business is one in which your income is not limited by your personal output (lawyers and doctors have this problem). No, in the ideal business you can sell 10,000 customers as easily as you sell one (publishing is an example).

Now how ideal is the business you run or work for? How many of these 12 traits are in your mix?