3 Objectives for Successful Investing

This faith and finance podcast is underwritten in part by Soundmind Investing. For more than 30 years, do it yourself investors have relied on SMI for proven strategies and trustworthy guidance. SMI helps people build wealth so they can provide for their families, prepare for the future and give generously. Learn more at soundmindinvesting.org. 20th century humorist Will Rogers once said, I'm not so much interested in the return on my money as I am in the return of my money.

Hi, I'm Rob West. It's a funny line but also something every investor should keep in mind. What are the objectives you should consider when risking your money? I'll give you three of them today and then it's on to your calls at 800-525-7000.

That's 800-525-7000. This is faith and finance biblical wisdom for your financial journey. We use one or more objectives to reach a goal and that's certainly the case with investing. New investing options seem to pop up every day and it can get pretty confusing. So it's good to know there are only three clear objectives in successful investing. They're safety, income and growth. Every investing option you choose incorporates a combination of those three objectives but the more you have of one, the less you'll have of the other two. So for example, if you choose an investment that's 100% safe or as close to that as possible, you'll get correspondingly less income or growth from that investment. The more growth you get from an investment, the less safe it will be and so on. All three of these objectives are good but as an investor, you have to decide the right balance to meet your needs.

So let's look at each one. Safety is first and it's something investors always want to maximize when possible. In reality, there's no such thing as a completely safe investment although some things come pretty close. Government issued bonds are at the very top of the list. Backed by the full faith and credit of the US government, it would take something truly catastrophic for you to lose your money. Almost as safe would be AAA rated corporate bonds issued by large stable companies. They're a great way to preserve your principal while receiving a guaranteed rate of interest. The risks are only a little greater than those of government bonds. Do you see companies like Apple or Amazon going bankrupt anytime soon?

Probably not. There's more safety to be found in what's called the money market. This includes, and each one gets slightly riskier, treasury bills, CDs, commercial paper or banker's acceptance lips.

There's something like IOUs from banks. Now, keep in mind that safety is great but it isn't free. There's something called an opportunity cost. You might be making say 5% interest with a CD, but what are you potentially losing by not putting that money into a mutual fund or index fund?

That's the price of safety. You could be giving up much bigger returns. The longer you keep those funds invested in safe securities, the more likely they are to cost you greater earnings elsewhere.

That makes short term investments like 3 and 6 month CDs the safest of all, but they also yield much less in interest. Okay, our second investing objective is income. Investors interested in income may choose some of the same fixed income securities we just went over, but with an emphasis on a guaranteed stream of income.

To get that, they'll accept a bit more risk. These folks are most often retirees who want a steady monthly income while at the same time keeping up with inflation. They'll choose government and corporate bonds with triple A ratings, but some may purchase double A or even triple B rated bonds, each carrying slightly greater degrees of risk but also generating greater amounts of income. Some income investors willing to take a bit more risk will purchase preferred stock shares or common stocks with a track record of paying good dividends. And that brings us to our third and final investment objective, capital growth.

We might call it delayed gratification. You only get capital growth when you sell the asset. As you might expect, a lot of things fall into our growth category. These include stocks, mutual funds, index funds and exchange traded funds, precious metals and real estate, just to name a handful. These investments are more speculative than those in our safety and income categories, but they also come with the potential for greater gains. And the longer you hold them, the more likely you are to achieve those gains. With greater risk comes the potential for greater reward. Okay, so those are the three objectives of successful investing, safety, income and growth. Now you just have to decide how much of each you want in your investing choices. All right, your calls are next, 800-525-7000.

Stick around. And interact with the community of like minded believers where you can ask questions, get answers and share what you're learning. Go to faithfi.com and click the word app to get started. We are grateful for support from Lightpoint Portfolios, which seeks out family and faith friendly investments for 401k and 403b plans, integrating faith values and fiduciary duty. Lightpoint Portfolios offers retirement plans for a variety of organizations such as businesses, nonprofits and churches, and we're grateful for their sponsorship of the faith and finance program.

More information is available at lightpointportfolios.com Welcome back. This is Faith and Finance. I'm Rob West. We're taking your calls today 800-525-7000. That's 800-525-7000. By the way, you don't have to call, just send an email. Ask Rob at faithfi.com. That's ask Rob at faith, the letters fi.com. All right, let's take your calls today.

We're going to start in Florida. And Giovanni, thank you for calling. Go ahead. I don't have a question, but I have a comment regarding clarification of both ministries that provide health care coverage. And the comment that I have is, because I've used both, they don't cover pre-existing conditions. And I believe that has to be spelled out and people need to understand it. And the way it's advertised is not clear.

It was not clear to me. So when I find out that it was pre-existing conditions did not cover, I was shocked. And because at some point in your life, depending on the timing, you are going to have a pre-existing condition. And if you recall a long time ago with traditional insurance, that became a real issue because people were not being able to get coverage because of that clause. Yeah, well, pre-existing conditions absolutely are a factor. And you need to be aware of that. With these health cost sharing ministries, like Christian Health Care Ministries, you do have to understand how a pre-existing condition would play into that.

And so you need to have that conversation with them. I'll tell you, though, we've got so many of our listeners, including some of our own team members here at Faith and Finance that have used Christian Health Care Ministries for a long time and have just been incredibly blessed by it. But you make a great point, Giovanni. So if you have a condition that you think would be classified as pre-existing, make sure you talk to the folks at Christian Health Care Ministries about that.

You can find them on the web at chministries.org. And Giovanni, we appreciate you bringing that to our attention. Let's head to beautiful Fort Lauderdale, Florida. Hi, Donna. Thanks for calling. Go ahead. Oh, I've listened to you for so long. It's just nice to talk to you. Thank you for taking my call. Thank you. Of course. You spoke a little while ago about REITs, R-E-I-T, REITs.

Just a little background. We own the property in Ohio. We sold the property, so we have like $70,000 from that. It was in a business buying sold properties. So it's the Lord's money, and we understand we have a couple of months, like six months, to reinvest it before we have to do something. We're getting ideas.

I keep hearing about REITs, and I've wondered if this is a place we want to invest some or all of the money, which is where the Lord wants us. We don't know. How do you pick a good group or person? How do you investigate them? Oftentimes, they're a group of people. Do you have any idea on that, how to know whether they're reliable or not to put the money there?

Yeah. So just help me understand kind of how this particular money fits into your overall investment strategy. So how much do you have available that you're wanting to invest? Well, there's $70,000 from in the business itself, so we don't know if that's enough. Maybe they require $100,000.

We don't know. No, not necessarily. No, not at all. So you've got $70,000.

This is from a home sale, and is this money you're going to put to some other use in the foreseeable future, or are you just wanting to grow it over time? No, it's just in the business that the Lord gave us. But you don't think you need it potentially for reserves or something like that? No. Okay. And do you have other investments? Nothing in the business.

This is totally separate for the business. In our own personal life, we have money in some other investments, but not a lot of retirement. Okay. All right.

Yeah. The only concern I have is I'd rather you be a little bit more diversified with this money. Yes, REITs can provide a great return. If you buy and hold, they can be income generating.

There's both tradable REITs that are on the stock exchange, and then there's non-traded REITs that are not traded on the stock exchange, and they often have less liquidity, meaning it's a little harder to get your money back. And they have a variety of returns. I mean, some could fail altogether, so there is risk there. Others might do very well. And in addition to the income, you could get some appreciation in the investments. So I think as you look at it, in recessions, normally interest rates fall, which is typically bullish or positive for real estate investment trusts, as they're a second level kind of bond investment.

And this could be a great option for you. I would probably not put all of it in REITs, and I would use more of the publicly traded REITs, which is where you can do a little bit more due diligence. I mean, you can know the management company and their track record and see how they're compensated, and you can see how they've done with other investments and that type of thing. Just to take this $70,000 and drop it in a REIT or a couple of REITs without really being able to analyze it, do your due diligence, and knowing a lot more about which ones, because they're not all created equal, I would have some concern if this is a new area of investing for you, Donna.

So I think what would probably be better is to go find an advisor who could advise you on how best to invest this $70,000 to protect it, but also to grow it where you're not taking unnecessary risk by being too highly concentrated in one asset class or one particular investment or pool of investments. In order to do that, if you were going to connect with an advisor, there's some great CKAs there in Fort Lauderdale, I would go to our website, faithfi.com, and click find a CKA, but I would probably advise you away from just dropping all of this in a REIT or a couple of REITs if you don't have experience in them, just because there are such wide differences and you really need to be able to analyze what you're getting yourself into before you would want to make that investment. I hope that's helpful to you.

I'm sorry I couldn't give you a bit more definitive on that, but I think an advisor would be a better option for you. Let's head to Charleston, South Carolina. Hey, Kevin, go right ahead.

I have a question. I've got more than three months of income in an emergency fund account, and I'm considering using the excess in that account to cover a portion of the purchase of a used vehicle. I just wanted to see what your thoughts were on using those funds that way.

Yeah, I like that a lot. I think you could consider your savings account for that vehicle, and I think any time we can go in and buy with cash, or at least as much cash as possible, so long as we don't erode that emergency fund that really needs to be there in the event of the unexpected, which by definition we don't know when that's going to come, I think that makes a lot of sense. You could get the amount you're borrowing down, help you pay it off quicker, especially with interest rates up. That would cut the total interest cost by you borrowing less, and as long as you don't go below three months, I think that's a good plan, so I'm on board with that, Kevin. Okay, great.

Yeah, I wasn't sure. I contribute to the emergency fund every month anyway. I wasn't sure if I should wait for it to build up to six months before I did something like that, or if I should just go for the vehicle with the excess. Yeah, no, I think that's a good plan. Unless you knew of something that was kind of looming on the horizon that may cause a disruption in your pay, or have an unexpected expense come in that you think may be possible, something like that, then obviously you'd want to hold off, but everything looks pretty stable, and you've got a minimum of three months after you put this money down, I would say you go for it.

You should be in pretty good shape. Thanks for your call today, sir. We appreciate it. We'll be right back.

Stay with us. We are grateful for support from Soundmind Investing in the Faith and Finance Program. For more than 30 years, they've been helping Christians reach their financial goals with step-by-step guidance for investors at every stage, from those just getting started to those getting ready for retirement. Through scriptural principles and practical suggestions, SMI offers financial wisdom for living well. More information, including the short video webinar on profit and peace of mind, no matter what's happening in the market, is available at soundmindinvesting.org. As the leading advocate for the Christian financial industry, Kingdom Advisors serves the public by promoting the integration of a biblical worldview across every aspect of the financial services industry, and we serve a growing network of thousands of Christian financial professionals, equipping and empowering them to carry biblical financial wisdom to their clients, peers, and community. For more information, visit kingdomadvisors.com.

That's kingdomadvisors.com. We're back. I'm Rob West, and this is Faith and Finance. Thanks for listening today. Thanks for taking the time. As we head into our calls and questions, I want to take a moment to ask you if you've downloaded the FaithFi app.

You can use it on your desktop or your mobile device. All right, let's head to the phones. By the way, if you have a question, just call 800-525-7000. That's 800-525-7000. To Chicago, hi Paul. Thanks for calling. Go ahead.

Hi, Rob. I have a question right now. I am shopping for life insurance, and I just want to know what is the difference between term and whole life, because I'm shopping around, and everyone that I talk to, they're saying that they're the better. I heard in the past that we should buy term and invest the rest. It looks like a whole life insurance policy that you're actually investing in and can pull money out down the road for retirement.

Which vehicle would you recommend that's best? Yeah, I'm a term insurance guy. I like the idea that you just pay for what's called pure insurance, where you're literally just paying the mortality expense based on your age and health and death benefit, and you're going to pay what it actually costs just to have that insurance coverage to protect you for a period of time during your working years while you're, as a separate activity, saving in a company-sponsored retirement plan, you know, perhaps plus an IRA.

Or other vehicles. And when you stop working, ideally, you have saved enough such that you no longer need the life insurance. You're no longer working at that point, so you don't have the risk that a dependent or a loved one, namely a spouse, would have a hardship at your death because they're no longer counting on your income. You've built up your retirement assets and Social Security, and that's what you're using to pay your bills. I like that option because whole life insurance is expensive.

It does get complicated. Yes, you can borrow against it. Yes, it's kind of a savings vehicle, but not without its downsides. And I'd rather you just buy the pure insurance, get the proper amount of coverage at a minimum 10 to 12 times your income. Plus, on top of that, you may want to go beyond your income replacement, maybe enough to pay off the mortgage, maybe enough to cover college education.

College education for the kids, you know, whatever that might be. But by buying the term insurance, you're going to get it at the most affordable price possible, which means you can truly get enough death benefit to cover that risk that exists for a loved one. And then, you know, do your saving at 10 to 15% of your pay in retirement accounts.

I think that's a better option than using an expensive whole life policy. Okay. Thank you so much for that. I appreciate your program. God bless you all. Well, thank you, Paul. I appreciate that. Thanks for being on the program today. Let's head to Wheaton, Illinois. Hi, Michelle. Go ahead.

Hi, thank you so much for taking my question. I've got about $20,000 worth of debt spread through about six or seven loan sources. And I'm considering, I've been listening to the ads for Trinity debt consolidation, so I've been considering doing that. However, the lease on my car is due come January, so it's time to turn it in. And get a new car. I'm a single mom on full time disability. And I don't want to gain my credit by having the consolidation process, possibly, you know, close cards or close things and make them look like I'm, I'm afraid that that will affect negatively my credit. Can you help me understand how the consolidation works? I'd be happy to, Michelle.

Yeah, I sure can. So with regard to debt management, not debt consolidation, where you take out a new loan, but debt management or credit counseling, we happen to recommend Christian credit counselors, just the one we work with here at Faith and Finance Live. You mentioned Trinity, I have nothing bad to say about that organization at all.

I've just never worked with them. A lot of our listeners have used Christian credit counselors, either one I think would probably be a great option for you. But the idea behind debt management, which is my preferred way for you to get out from under this credit card debt, is that the accounts will be closed. They're placed in a debt management program. The idea is you get a lower interest rate, you send a level monthly payment through the credit counseling agency, which should help you get out of debt on average 80% faster.

So that's all good. How does that affect your credit score? Well, it doesn't directly affect your credit score. The fact that you're in debt management is not a part of the credit scoring algorithm. So it will not affect your score one bit. Now, where will it affect you?

Well, a couple of ways. Number one is, often the credit company will put a notation on your credit report, like literally a printed notation that you're in a debt management program. And that comment would be available to a lender who was running a credit check. Again, it won't directly impact your score, but they could see that and decide what to do with that information. They may or may not, that may or may not affect you.

Again, the score is the primary thing. Now, how could your score directly be impacted? Well, you mentioned probably the only way and that is that any accounts that go into debt management are closed. So when they're closed, that reduces your available credit, which affects your credit utilization. So you could see a minor dip in your credit score, just depending on the impact of the closing. That is not, I mean, what I'm much more concerned in is the fact that you get out of debt once and for all. And I love debt management to do that. Through debt management, you're going to be paying off these cards faster. So those balances are going to be dropping much quicker on debt management, which I think will put you in a position to pay it off quicker and have very minimal, if any, impact to your credit score. Now, if you're right there on the bubble between the top tier credit where you get a better interest rate and the next level down, you know, could it result in you still having a score a few points lower come next January?

Possibly. I wouldn't expect that to be the case. But I think my primary concern is you getting out of debt.

But give me your thoughts on all that. Well, it all sounds good hearing that they're going to close the lines of credit. That was my concern is that I have had my credit cards closed in the past and that that has negatively impacted my ability to get a loan.

And occasionally, because of my circumstances, I have needed loans to get me through. Yeah. Well, it may be different, though. This this would be the same as you calling a credit card that you're no longer using and just say, close it. It's not like the creditors closing it for nonpayment. This is as if you're closing it when you go into the debt management program. So it's a very minimal impact. Really, the only impact you're going to see as a result of that being closed is related to credit utilization.

It's not the closing itself is not a negative thing. It's not like you failed to pay. And the lender came in and closed the line down, which may have been what happened to you in the past, but it is absolutely going to be closed any accounts that you put in and you don't have to put them all in. So what may be a good next step is just to reach out to Christian credit counselors.org and talk through it with them.

But at the end of the day, if you decide it's not, you know, worth it because of a potential impact to the credit score, then I would pass. Hey, we're almost out of time, but I wanted to let you know that you don't ever have to miss a program. Just download our FaithFi app for your mobile device and take us with you anywhere. Thanks for joining us today. I look forward to talking with you again next time on Faith and Finance. Faith and Finance is provided by FaithFi and listeners like you.