Should Christians invest in stocks? I’ve heard preachers, pastors, and teachers belittle the process. Investing has been compared to gambling.
Is that an accurate assessment, though?
What does the bible say about investing?
Jesus used investing as a way to teach in the Parable of the Talents. The owner gave his servants some money to invest. Two invested and doubled their money. The third person hid the money and ended up in hot water.
Yes, Christians should invest in stocks! As Christians, we’re stewards of God’s resources. It’s vital that we proceed cautiously with the goal of properly managing the resources entrusted to us. If you can answer yes to these seven questions then proceed with gusto! If not, stick with mutual funds.
- IS FAMILY FIRST? (I Timothy 5:8)
- HAVE YOU MAXED OUT YOUR 401(K) OR IRA?
- WILL YOU DILIGENTLY RESEARCH STOCKS? (PROVERBS 21:5)
- DO YOU HAVE A VISION? (Habakkuk 2:2)
- ARE YOU PRACTICING RADICAL GENEROSITY? (2 CORINTHIANS 8:2)
- CAN YOU REMAIN SINGLE-MINDED? (JAMES 1:8)
- WILL YOU DIVERSIFY? (ECCLESIASTES 11:2)
My friend Dave loathes the idea of investing in individual stocks. He’s brilliant and rich and yet still can be occasionally wrong (article I wrote about disagreeing with Dave).
Should Christians Invest in Stocks — Is Your Family First
Investing in individual stocks is not easy to do correctly. Many intelligent people have lost billions of dollars chasing the next big thing (does anyone remember Enron?). Even professional “investors” come up short on a regular basis.
If you still would like to take a stab at investing in stocks please think through the process. Honestly answer these seven questions. If you are unable to answer “YES” to all seven then walk away or better yet RUN AWAY!
Anyone who does not provide for their relatives, and especially for their own household, has denied the faith and is worse than an unbeliever.
I Timothy 5:8 (NIV)
Provision is a loaded word. Are you truly providing for your family? The odds are not in your favor.
Do you have adequate term life insurance for your family? Adequate is about ten times your current annual salary. Your life insurance policy should be portable. Meaning, that it should not be tied to your employer.
About 60% of Americans have some type of life insurance in place. Of those, half are underinsured. Which camp are you currently in?
Do you have an up-to-date and state-specific last will and testament? If not, get one before buying any individual stocks.
Should Christians Invest in Stocks— 401(K) or IRA Maxed?
Investing in individual stocks is riskier than investing in mutual funds. Mutual funds provide automatic diversity. Many mutual funds are inexpensive. Plus, they are super convenient.
If your employer offers a 401(k) you really should begin with that option. If your employer doesn’t offer a 401(k) then look into a traditional or Roth IRA.
These options are simple and automatic. Your employer simply removes the money from your paycheck and then invests it how you direct. Employers often match a certain percentage as well. Always take the match when it’s offered ( link to my article on ALWAYS taking the match).
There are 401(k) and IRA contribution limits. Congress reviews them annually and they typically go up each year. Few families are able to reach these contribution amounts. If you can reach these limits (congrats) then you are one step closer to investing in individual stocks.
Until you can max out your 401(k) or IRA steer clear of individual stocks. The risk is too great.
Should Christians Invest In Stocks — Are You Diligent?
By the time you see that crazy guy on CNBC touting the next great stock, it’s too late. The system is not designed to get regular people rich. The market, according to the late, great Benjamin Graham, is a maniac swinging from moods of unbridled optimism to bouts of deep depression.
If you simply pick whatever the talking heads on CNBC, Bloomberg, or Fox Business recommend then you’re going to lose.
Individual stock picking is tough work. Before you ever make a trade for an individual stock you need to pull at least one 10k.
No, not a 6.2-mile run.
A 10k is an annual report filed by publicly traded companies about their financial performance.
The plans of the diligent lead to profit as
surely as haste leads to poverty.
Proverbs 21:5 (NIV)
Pull it and start reading it. Analyze the financials. Read the notes on the financials.
Is the P/E ratio out of whack? Is the dividend yield solid and consistent? How many years of positive free cash flow does your next Microsoft report? Is positive cash a result of operations or some other gimmick?
If you are unwilling to spend the requisite time reading a 10k just stick with a total market index fund.
If you’re unable to analyze financial statements then you are truly behind the 8-ball.
Should Christians Invest In Stocks— Do You Have A Vision?
What is your financial vision? The desire to “get rich” is not a vision.
Are you looking down the road into the future? What do you see? Are you helping your children pay for college? Is your house paid off and are you sipping sweet tea on the front porch? Are you dropping a check in your grandchild’s hand for graduation? Did you just fund a missionary family for an entire year?!?!
The Lord answered me: Write down this vision; clearly inscribe it on tablets so one may easily read it.
Habakkuk 2:2 (CSB)
Mike Tyson famously said, “Everyone has a plan until they get punched in the mouth!” A solid plan or vision is vital when investing in individual stocks.
Why do you want to do this? To prove that you’re smarter than your neighbor? If that’s the case prepare to lose your shirt.
Surely there’s something deeper than that!
Design a simple plan that can be easily executed. Determine how much you plan to invest each month. Remain consistent and then do it.
Are you buying value stocks? Or are you leaning towards dividend stocks? Before throwing money at this beast you need to know these answers.
When will you sell? Are you going to have these stocks wrapped up in an IRA (traditional or Roth) to simplify taxes?
Write the vision and make it plain. Then do it!
If this is too difficult stick with index funds.
You’re welcome!
Should Christians Invest in Stocks — Generosity?
It’s better to give than to receive. Some pretty famous guy said that once (hint: he was a carpenter).
There will be times in our lives when we must invest for our future. How much? The Bible is silent on that point.
Proverbs 13:22 (NASB) A good person leaves an inheritance to his grandchildren, and the wealth of a sinner is stored up for the righteous.
Every dollar that we earn has many responsibilities. Investing is one of them. Giving is one too.
Some Christians claim that they are “living by faith” but are they? What does that even mean? They spend and give but don’t save and invest. That’s not really living by faith.
Investing and giving are not mutually exclusive. Both can and should be practiced.
Don’t become hyperfocused on investing at the expense of giving. Before you open a brokerage account, hotshot, make sure that you’re making friends in high places (Luke 16:9).
Can You Remain Single-Minded?
You’ve spent 3 or 4 hours reading the annual report and 10k for the next big stock. Its P/E ratio is less than 10 and it’s paying a dividend of 3.95%. The company is throwing off free cash flow like a boss! Everything looks hunky-dory.
You make the investment and put $2,500 into this next star. You happen to turn on Mad Money and some ya-ya is screaming about widget hysteria and your stock begins to plummet!
The company is still making money. It’s still cash flow positive. Nothing has changed but the stock price. You’re down to $1,500 already!
Panic set in!
You’ve decided to invest $6,000 per year in individual stocks. That means transferring $250 every two weeks into this account.
A friend is selling his fishing boat for $5,000 and is offering to sell it to you — on a payment plan to boot!
What do you do?
That person should not expect to receive anything from the Lord. Such a person is double-minded and unstable in all they do.
James 1:7-8 (NIV)
Should Christians Invest In Stocks— Will You Diversify?
Mutual funds are instantly diversified. Most mutual funds are comprised of hundreds of individual stocks. Do you want Apple, Microsoft, Amazon, Beta, Kroger, Honda, and Starbucks? You get them in a mutual fund.
Diversifying with individual stocks is not as simple. Regularly reading dozens of annual reports is time-consuming. Do you have the extra time and necessary analytical skills?
Invest in seven ventures, yes, in eight; you do not know what disaster may come upon the land.
Ecclesiastes 11:2 (NIV)
The writer of Ecclesiastes recommends seven or eight companies. That’s still a ton of work!
Why diversify? We don’t know what disaster will come upon the land.
Let’s say you’re main stock of choice is Starbucks. Some super beetle begins destroying coffee crops and beans become prohibitively expensive — even for coffee nerds. The market begins to retract and the stock sinks.
If you had shares in Starbucks and seven unrelated sectors you’d probably be in better financial shape.
Enron employees kept all of the eggs in that basket. Billions were lost in that fiasco.
If you fall in love with a single stock be prepared to lose.
Stocks vs. Mutual Funds
Mutual funds will get you to retirement safely. Stocks, for an intelligent investor, can also.
Until you can say “YES” to all seven of these questions stick with mutual funds. It might not be as fun to talk about at a party but there’s more to life than pride.
I dare you to profit!