The Old Covenant book of the Bible, Ecclesiastes 3:1-8, tells us there is a time for everything under the sun; book-ended with a time to be born and a time to die. This same book of the Bible, chapter one verse nine, reminds us there is nothing new under the sun. Recall these two passages to understand three key investing fundamentals before and while you invest in the Stock Market:
>>There is a time to save and a time to invest
>>There is nothing new in Stock Market results
>>Nobody can predict the timing of future Stock Market values
There is a time to save and a time to invest
Undoubtedly, the Stock Market is sizzling and is due for a correction. When? Nobody knows; but for months, many people, including me, have been predicting a fall. Meanwhile, what should you do with your investments? Get out of the market and put everything in savings accounts or equivalents? Do nothing? Do something in the middle?
The best answer to every financial question is, it depends. What’s your personal situation? Do you have debt? Do you have savings for big ticket and emergency items? Your time to invest is after you have cleared your debts, including your mortgage, saved for major predictable buys such as paying cash for your next car, and for emergencies. Before you invest, clear non-mortgage debts, save for major predictable purchases, and emergencies, and then pay off your mortgage.
If you are investing and you do not fulfill these conditions, develop a strategy to exit the market; but only after you understand potential effects of that decision. Don’t do this alone; seek advice from a fee only investment advisor. But please understand that this professional investment advisor will not necessarily do better at investing than you selecting investments with limited knowledge. That’s why you must get to know the rationale for her advice, ponder it, pray about it, and then choose the path ahead.
Most of all, know your precise reasons for investing and your investment time horizon. If your investment goal is to “make money,” you have a real problem. Do you want to make money? Print it! Doing anything with a goal to make money is gambling and speculating.
When your attitude is money-making, your only strategy, usually unconsciously, is to do whatever it takes to get more. If you have a plan, it has no substance; your emotions fluctuate regularly depending on the state of the market; you take this emotional instability into your relationships, and generally, you live a highly strung, stressful life. This leads to greed-driven, speculative, short-term, high risk decisions that create panic and end in disaster.
No wonder after a sharp fall in the Stock Market many people complain they lost money, although a fall in stock prices does not in itself create losses. Often, nothing but fear or greed drove prices up and caused them to fall.
There is nothing new in Stock Market performances
When your investment goal is other than making money, your approach is different. Normally, you do not gamble, you don’t panic when the market falls, you know the market cycles over time, fluctuates wildly, sometimes daily, and you know often you must ignore short-term variations. Besides, you are confident you lose nothing when stock prices fall unless you sell your holdings.
With an attitude to invest and not gamble, and you invest when you fulfill the prerequisites, you won’t feel pressured to sell your investments because you will have a goal and plan supporting your investment decisions. Your investment goal will be the destination that might change over time as your circumstances change. Your investing activity will be the journey to reach those goals systematically, methodically, and consistently.
Contrast the gambling approach with a focussed investment-goal attitude where you identify a long-term, carefully crafted goal and plan, and you are investing funds not needed in today’s household budget. You identify your risk profile, surrender the process to the Lord, and understand the Stock Market will rise and fall for inexplicable reasons such as fear and greed. Then your approach is to try to understand investing, not to become an expert, but to gain a general knowledge of the process, players, and products.
Before you invest, you must study: zoom in on the details of the specific investment, then zoom out to look at the bigger picture. As you journey, review your investments, compare them with your goals and plans, and depending on the result, act (do nothing, sell, buy, or a combination) based on information gleaned from the review.
Nobody can predict the timing of future Stock Market values
That said, the most important investment basic to grasp is, God alone knows the future. No matter how qualified your investment advisor, TV investment guru, university investment professor, she does not know future results of the Stock Market. This is an indisputable fact you must accept before and when you invest.
So-called experts will tell you a market correction is due. I agree; but not one of us knows when. Your best approach is to understand you are investing God’s money, work with a fee only investment advisor, inform yourself generally, and know your informed opinion is as good and reliable as your advisor’s or any other person’s.
© 2014, Michel A. Bell
Michel A. Bell is an author of five books, speaker, founder and president of Managing God’s Money, and adjunct professor of business administration at Briercrest College and Seminary. For information on managing God’s money, visit Managing God’s Money.
*First published on Managing God's Money blog on November 29th, 2014.