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Six Lessons for Financial Literacy

MoneyWise / Rob West and Steve Moore
The Truth Network Radio
March 29, 2023 6:12 pm

Six Lessons for Financial Literacy

MoneyWise / Rob West and Steve Moore

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March 29, 2023 6:12 pm

Financial literacy is just as important as learning to read and write, because if you don’t know some basic principles about managing money, you’re certain to run into all sorts of trouble. On today's Faith & Finance Live, host Rob West will share six lessons for financial literacy. Then he’ll answer your calls on various financial topics. 

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Rob West and Steve Moore

April is just 72 hours away, and it's one of my favorite months of the year. That's because April is Financial Literacy Month.

Hi, I'm Rob West. This event began some two decades ago to raise awareness about the critical need for financial literacy. It's just as important as learning to read and write. I'll talk about it first today, and then it's on to your calls at 800-525-7000.

That's 800-525-7000. This is Faith and Finance Live, biblical wisdom for your financial journey. Well, I know it's not quite April yet, but we want to give you a head start on gaining financial literacy. It's important because if you don't know how to set up a budget, handle credit cards responsibly, or figure out how much car or house you can afford, well, you'll run into all sorts of trouble.

And guess what? Financial literacy is just another way of knowing and following God's financial principles for earning and saving money. Now, a recent article in the Wall Street Journal laid out six practical things you need to know to be financially literate.

So why don't we go over each of them one by one? The first is knowing the power of compound interest and how it works and that it can work for you or against you. When you save, your interest is compounded.

That means at some point it's added to your principle, making it larger. Then you're paid more interest on your larger balance, and so on. The earlier you start saving, the more time your balance has to grow at an ever-accelerating rate.

Here's an example. Let's say you're 20 and you invest $5,000 a year for 10 years and then stop. Over the next 30 years, at an annual return of 7%, your balance will be $600,000. But if you wait until age 30 to start and invest the same $5,000 a year for the next 30 years, do you think you'll have more?

Nope. Your balance will only be $540,000. So the earlier you start, clearly the better off you'll be. By the way, I said compound interest can work against you, too. If you use a credit card and don't pay it off each month, the interest is added to your balance, meaning you'll owe even more. That leads us to the next lesson for financial literacy, so-called good debt. This is debt you take on with a reasonable expectation that the return you'll get will be more than what you have to pay in principle and interest. Some examples would be borrowing to start a business if you expect that your revenues for the business will be enough to cover the loan and give you enough to live on. Buying a house would fall into the category of good debt because in most years, homes appreciate in value. A student loan also because if you finish with a degree that gives you marketable skills, you can reasonably expect to earn more than the loan will cost you, but be careful to borrow as little as possible for education.

Far better to save for it ahead of time, again using compound interest in your favor, like with a 529 education savings plan. On the outside edge of good debt could be a car loan if you need it for transportation to get a job, but make as big a down payment as possible and continue to save when the loan is paid off so you can eventually buy a car with all cash. Okay, our next financial literacy lesson is about your credit utilization rate. That's how much credit you have versus what you owe, as spelled out in your credit report, which affects your credit score.

You should never owe more than 30% of your available credit because it will lower your score, resulting in having to pay a higher interest rate if you need another loan. The next lesson is called pay yourself first. This simply means that you should put something into savings each pay period before you spend any money.

Set up an automatic transfer from your checking account into savings and let the bank do the work for you. The next is diversification, another of God's financial principles. Ecclesiastes 11 two says, give a portion to seven or even to eight for, you know, not what disaster may happen on the earth. It simply means to divide your investments among different stocks, mutual funds, bonds, and other securities. Don't put all your eggs in one basket. You can also diversify your assets for tax purposes. For example, contribute to your employer's 401k or 403b with pre-tax money, but also open a Roth IRA and invest after tax money in it. It's great to have something in each bucket if you can do it.

Okay. Our last financial literacy lesson is something called liquidity. And all that means is that you can get to your money when you need it. If that sounds like an emergency fund, you're exactly right. Your retirement accounts and even CDs and money markets are not the place to keep funds that you may need at a moment's notice.

Keep three to six months living expenses and a savings account and an online bank to get the best interest rate possible. So those are your six lessons. We hope you'll use April, financial literacy month to start putting them into practice. I'm Rob West and your calls are next 800-525-7000. This is Faith and Finance Live, biblical wisdom for your financial decisions. We'll be right back. Great to have you with us today on Faith and Finance Live. I'm Rob West, your host.

All right. It's time to take your calls and questions today on anything financial. We'd love to hear from you. The number to call is 800-525-7000. We've got some lines open today, perhaps one for your question. Again, 800-525-7000.

By the way, if you'd like to explore the opening topic today a bit further, six lessons for financial literacy, we wrote an article on it that really highlights each of these six important lessons and what you need to know. You'll find it at our website. Just go to forward slash content.

That's forward slash content. You'll see it as our featured article there for you. Again, those six steps detailed for you today and hopefully that'll be a great resource for you. All right, to the phones we go. We're going to begin today in Zeeland, Michigan. Hey Brian, how can I help you?

Hello. Hey, question is, you often speak about having three to six months living expenses for a family. Just wondering and curious what your thoughts were for a church. Should there be any reserve for a church to have? Yeah, there absolutely should be and the Evangelical Council for Financial Accountability has a great article on this that I would check out to do some reading on. If you just Google ECFA, that stands for Evangelical Council for Financial Accountability, and the article is called Church Cash Reserves, How Much is Enough?

And I think that'd be some great reading for you. Basically, they make the case and I would agree that cash reserves are a critical part of faithful administration of church resources. We build them in good times, we lean on them in leaner times, and it should be a line item in the budget, additions to cash reserves. But there really should be a philosophy, a cash reserve target or goal that the church adopts as a part of its policies. And so this would be, you know, beyond, you know, designated gifts and debt service targets. This would be for the operations of the church in the event of income, you know, disruption of gifts or some unforeseen event.

You know, typically, I would say that, you know, would be somewhere around six months, they will make the case in the article that no reserves is inadequate. Anything greater than 12 months, they would say, is excessive because, keep in mind, the whole purpose of the gifts to the church is to be used for the church to do the ministry that it's called to do. And so we don't want to build up a lot of excess cash. I certainly don't advocate taking gifts from church members coming into the congregation and investing those. We want to be investing them in the kingdom by doing the work of the church. But it's prudent to have some sort of reserve amount between nothing and 12 months.

And I think most folks end up landing in that three to six months range as an appropriate amount. But there needs to be a process that the finance committee alongside the pastor and the church leadership go through to establish kind of that cap and that floor for those operating reserves. I would say communicate that to the church. Again, it's not a matter of demonstrating a lack of faith, but it just reflects a tentativeness to good stewardship.

And the same applies to a church as would, you know, an individual or family managing God's money as well. Is that helpful? Yes, very much so. Okay, great. Check out that article again. Just Google ECFA and church cash reserves.

How much is enough? I think it'll be some great reading for you. Thanks for your call, Brian.

800-525-7000 is the number to call. To Grand Rapids. Hey, Matt. Go right ahead, sir. Hi, Rob. Long-time listener first. Oh, Matt, did we lose you? All right, I think we did.

Yeah, Matt was a first-time caller. Are you back with us? Yes, sir. Oh, great. Yeah, I heard the first few words and then you went away. But you said you're a first-time caller. Go ahead.

Yeah, long-time listener. I'm just seeing if it's still a good time to buy the I-bonds. Yeah, it's a great question. I think it really depends upon what bucket of money we're talking about.

And here's what I mean by that. If we were to put our cash in various buckets based on the time horizon, and then we would assign an investment strategy and risk, commensurate risk to each of those buckets, that would help us determine whether I-bonds make sense. So not to overcomplicate it, but for that money that you need immediately available, I would call that your emergency fund doesn't qualify for I-bonds because I-bonds have a minimum duration of one year. You can't touch it for 12 months. So I would eliminate that bucket. Let's jump over the next bucket, which would be maybe a one to three year time horizon and say money that I have that I can invest for pretty much three years plus, certainly five years plus, I think you're better off not going into the I-bonds because I'd rather you take advantage of the stock market that's down, take advantage of the long-term appreciation.

And I think the attractiveness of the I-bond rates right now, paying 6.82%, is going to taper off over time because the Fed is laser focused on getting that inflation target back down toward 2% where they like it to be. Now, that's not going to be easy. And the question is how much pain are they going to allow the economy to endure in that effort? But they're focused on it. So I think we need to assume there they can't get to it.

They're going to try to get close. And that means that these I-bonds, which have not been attractive in the past, are probably not going to be terribly attractive in the future. I'm thinking a couple of years down the road. But in the meantime, if you have money that you want high safety on, and these certainly qualify because they're U.S. government backed and guaranteed, and you want an attractive rate of return right now, 6.82%. If you were to buy them tomorrow, you'd get six months at that rate. It would then adjust to the new rate, which we'll know in May, which is pegged to the consumer price index. So at least for the next year, I would say you're going to get a fairly attractive rate.

The question is how long will that continue? And would it be better to take advantage of something like a CD where you could get five plus percent, and you could lock that up for two years, three years, five years, something like that. But if you want to just take $10,000, you want it to be safe, and you're saying, listen, I'm fine if this is really only attractive for a couple of years, and then I'd pull it out, you know, I'd be fine with that. Give me your thoughts, though. Yeah, I think that sounds good.

You know, I want like a long term thing. So yeah, I mean, no, you know, like rush. So yeah, that would be great.

Thanks so much. Yeah, absolutely. And you know, I think the key here is, I mean, these are 20 year bonds with a 10 year extension.

So they 30 years question is just how attractive are they going to be in the future? The good news is, you'll know that because they're pegged to inflation, if we're entering a season where inflation is going to be elevated, you know, for quite some time into the future, well, at least you'll know that this money is offsetting the effects of that, because that's really why they were what they were designed to do. And so I think from that standpoint, it does make some sense, as long as you have the right time horizon on it, and you understand kind of how it to approach it, the way you would put 10,000, which is what you can put in one calendar year in to buy the electronic bonds is just open an account mad at treasury That's treasury

And then once you open your account, you can transfer the money in from a an account that you would link to it. And then you would purchase the bonds, you can do up to 10,000. The only way to get beyond that, you can get an additional 5000 in paper bonds through a tax refund only.

So if you haven't filed your tax return yet, and you wanted to take advantage of directing some of your refund into I bonds, you could go above the 10,000 up to 15 total for the calendar year. Thanks for calling today. Well, it looks like all the lines are nearly full. So many more of your questions just around the corner 805257,000. This is faith and finance live. I'm Rob West and we'll be right back. Delighted to have you with us today on faith and finance live.

I'm Rob West. Hey, this ministry is listener supported. Let me just remind you if you'd like to support this work and help us bring you this broadcast each day plus our app and all the resources that we offer through faith five, we would welcome your support here at the ministry as we press toward the end of our fiscal year trying to make up for some ground we still need to cover and your partnership in that financially would go a long way. And so if you've benefited from this ministry, you listen regularly and you'd like to be a part, we'd certainly welcome that at faith Just click Give that's faith And just click the Give button you can give one time or become a monthly patron. You'll also find a way to give not only online but over the telephone and through the mail. So thanks in advance for your generosity. Again, faith Just click Give. Alright, back to the phones.

We go to Florida. Hi, Brenda. Thanks for calling. Go ahead. Hey, can you hear me? Yes, ma'am. Alright, so Rob, I have two questions. And first, I want to thank you for your faithfulness. Oh, I appreciate that.

Thank you. So my first question is this. I have invested three different little somethings. And they went down. And I'm saying, Should I pull out?

Should I wait for them to come back up? That's the first question. Alright, let's camp out right there for a second. So three different somethings. Give me give me a little bit more on that. Are you talking about stock market investing? Or what did you invest in?

Yes, stock. Okay. And, you know, they were like, new stuff, technology, and I'm like, Okay, I'm in I'm in 59.

So I'm thinking, I need to be more aware and try and do something different. Okay. Did you pick these investments yourself, Brenda? I did. I did a little research and tried to see what they were doing. Okay.

And, you know, actually, a couple of them have started to come back up. Okay. Are they individual stocks or are they what what you're called mutual funds, which is like a basket of stocks? Individual stocks. Okay. And what type of account are they in?

Are they inside of a retirement account or are they in a taxable account? This is all me. Okay. All right.

I'm gonna do this. Okay, last question. How much did you put in these investments? Oh, it wasn't that much. 1000 here 1000 there. Okay, what's? Yeah, what's the total you have in this account?

Just still a few 1000 3000. Okay. All right.

Very good. And then beyond that, what other investment accounts do you have? Do you have a retirement plan at work? I do.

peanut butter and radio just don't work together, Brenda. But that's okay. We're going to give you a pass on that one. So you're in the state of Florida retirement system. Do you work for the state?

I do. Okay. And in two years, I will have 20.

I have worked before but yeah, 20 years I'll be in. So I'm thinking, should I stay with them beyond that? I don't want to. But but if I need to, I will. Yeah. Okay. Very good. Yeah. Well, you know, I think the key is to understand what you're giving up by leaving just so you can make a good decision.

You know, I understand. I think if I remember correctly, in order to get the full benefit of the state retirement system, you have to have 33 years of creditable service. So you may get a reduced benefit, but you only need to have one year of service to be vested and have access to the retirement dollars that you've been putting away. So I think the key is to probably get with somebody with the FRS and just ask about your various options. So what would you have available to you if you retired quickly? What if you waited a few years?

Are there any milestones along the way where you would get more? And then it's just a matter of balancing your quality of life and the work that you're doing, whether God still has you there, he's calling you to something else, and then put that alongside the financial implications of those decisions so you can pray through it and make that call. Florida retirement system is very strong and could be a great option for you, but you may want to just kind of lock in what you have there now and then redirect your time and energy to something else. So I think you need to have some conversations with them about what your options are. Going back to your initial question, Brenda, you know, I don't mind you putting a few thousand dollars in an investment.

I love the fact that you were excited about it. You did your own research and you're going to learn from it regardless. What I'm not crazy about, although, you know, it's not a huge sum of money, although even just a few thousand dollars is not insignificant, is you're not properly diversified. So you're what's called highly concentrated and you're highly concentrated in a very specific sector of the economy that's been out of favor the last year and even this year, the high growth area and it's going to continue to be as we head toward the prospect of recession as these rates stay high. These high flying tech companies need a lot of cash because most of them are not making a lot of money. They're pumping it all back into trying to grow and with the cost of capital being so high now with high interest rates, it's creating a problem, which is one of the reasons we saw the Silicon Valley Bank failure in the last couple of weeks. So I would just say, you know, if you're down, you may want to just say, hey, I'm going to leave this there and forget about it.

And that's fine. I wouldn't put a lot more money though into individual stocks. I'd probably, if you're going to invest on your own because you enjoy it and you want to learn a bit more, I'd probably use mutual funds. And these are instead of being at the risk of one company or two or three companies, you could have, you know, 50, 60, 100, several hundred stocks in a mutual fund. So then you get what King Solomon talked about in Ecclesiastes, diversification.

You don't put all your eggs in one basket. So I think that could be an option for you. Let me do this. I want to send you a book as our gift to you. It's called the Sound Mind Investing Handbook. And I think because of your interest in this space, you'll find that it's a very interesting read. It's chock full of lots of great information, but it's all from a biblical perspective.

So you'll understand and at God's heart for investing at the same time you're learning the how to's. Stay on the line. We'll get your information and get that right out to you. And we'll be right back.

Stay with us. You know, as we think about a biblical worldview of money management, we have to start with the idea, absolutely have to start with the idea that God owns it all. That's the fundamental idea that changes everything about our money management, because now every spending decision is a spiritual decision. Now, you might say, wait a minute, Rob, I mean, you know, I spend money all the time for very insignificant things.

How is that a spiritual decision? Well, keep in mind that if this is God's resources, we're his money manager. So we have to know the heart of the Father in order to manage his money in a way that reflects his wishes. So we live according to that biblical worldview, and it does change how we approach our spending decisions, or it should, because it's a tangible demonstration that, God, you are my provider and that I want to honor you in everything. Now, clearly we're to enjoy what he gives us and we're to use it to provide for our families, but we can't miss this opportunity to use it to connect into where he's at work through our giving and our generosity. When we understand money management from that perspective, through that lens, it really does change everything about money becoming a tool to accomplish God's purposes, but it also being a testimony to the world about how we handle it, how loosely we hold it, even in the midst of uncertain times.

And as we renew our minds in God's word, hopefully we'll develop God's heart as it relates to managing his money. That's our goal is to help you do just that on this program every day. Hey, our lines are full, so let's get right back to the phones. We're going to head to Antioch, Illinois. Karen, you're next on the program. Go ahead. Hi guys.

Thank you so much for taking my call. I'm 60 years old. I live in a mobile home and I have two jobs because the first job doesn't really, how can I say, I make just enough money to make ends meet.

Okay. Not to be able to save anything. So I have a second job that the whole purpose was I wanted to save some money. I don't have, um, any kind of savings or anything like that. And I need to retire probably in five to seven years.

And so I thought I got a second job. I could start paying some things off. I could pay my car off. I could pay my mobile home off. Um, the whole plan was to be debt free in five to seven years when I want to retire.

But it seems like it seems like the second job doesn't seem to be, um, what's the word I want to say? I'm not using that money for what it was intended. Yeah. It seems like I end up using it for groceries or the bigger heating bill or a bigger cell phone bill. It just doesn't seem, it's like I, that was the whole purpose to have that job so I could pay off everything and I don't know what I'm doing wrong. Yeah. Where did those, um, how did you cover those expenses?

You just gave a couple of examples, uh, prior to getting this second job. Would you have just put that on the credit card? Um, no, I, um, got behind on everything. Yeah. Yeah.

Okay. So it sounds like that based on your current spending, those things you get a bill for those discretionary spending items that you don't get a bill for, but come up every month, like maybe eating out or buying some clothes or entertainment or whatever it might be. Um, even going to the grocery store, uh, you are living beyond what, uh, your net pay is on just that primary income. Um, and so what's happening is by way of you saying I'm getting behind on things or if you were incurring some debt that's been building over time, uh, your idea that the second paycheck, which would be truly surplus is really not surplus because you were living beyond your means with regard to your first income.

And so it's got to start with that spending plan. I think the first step, Karen, is really to understand what am I truly spending on a monthly basis right now? Uh, when I put everything in, I mean, I, you know, even those things that don't come up every month, if you have a, you know, your car insurance is once a quarter, if you were to take that and, and break it down by month, what would that be? And you know, you're going to have some birthdays and Christmas gifts that are going to come up for family and friends. And how much do you need to put aside for that every month?

So you're ready for it. And you know, if we were to truly get everything into the budget, uh, without anything going to savings, but if you were to take your net pay and just break it down for, you know, really what you're truly spending, then we determined, do we actually have anything left over or are you going underwater every month just based on that one paycheck? And I suspect you'd find that when everything's allocated to the budget, you're going underwater. And so at that point we have to say, okay, we have two options, either increase income or decrease expenses.

And you increased income and that's great through that second job, but it didn't accomplish the purpose you set out for it to because all it's doing is helping to cover the, the amount that you're short every month. Um, so I think what we, what we need to do is we need to cut expenses and say, where can I cut back? Which expenses can I eliminate? Get on a budget, give every dollar a name, use the envelope system, you know, whether that's a physical envelope system or the digital envelope system like you'll find in the faith fi app, uh, where when a particular category is out of money for the month, you stop spending and we build the budget in such a way that you truly have a surplus when you put the, you know, both paychecks together. And so, you know, you've got an emergency fund that you've built up, so that covers the truly unexpected expenses. And then that monthly surplus that you have, um, could go toward really those goals that you have, which would be, you know, saving for the longterm, getting yourself completely out of debt so that when you're ready to retire, your expenses are as low as possible because now you're not paying any debt service and you've got a little nest egg there beyond the emergency fund that you can use to convert to an income stream to supplement, let's say social security or whatever else you have. But it really all starts with that spending plan. So have you ever taken the time to try to capture everything you spend on a monthly basis? Yes, I did. That's why when I got the second job, uh, the second job is a little bit more flexible. I work for a school system and I had, and I didn't really take into consideration being downtime for the summer or being downtime for the holidays. So once we come back from the school, um, um, I'm always playing catch up again. And I, and I did very, I mean, it looked great on paper.

It really did. But, in actuality, I don't spend a lot of money on like other things. Um, and if I do, I usually will go to Goodwill or something like that.

But, uh, it looks so good on paper. I was so excited and yet I haven't been able to put an extra dime towards anything since I started the second job. Yeah.

Yeah. Well, I think what it comes down to is, you know, you were looking at it on a monthly basis, uh, and you were looking at it for those months where you have both paychecks and then all of a sudden, like you said, you hit the summer months and it goes away and then you get behind and then throughout the fall, you're playing catch up and then maybe something unexpected comes and you put all that together and basically you're not making any progress. So I, I think it does still come down to you saying, okay, what am I going to have on an annual basis from job number one? And what am I going to have on an annual basis from job number two? That total amount then divided by 12 is what you have to live on, including the surplus you're trying to create. So you've got to live on less than that.

So you've got something left over to accomplish your goals, saving for the longterm, reducing debt, but you've got to look at it in the total income that you're going to have for a year. Um, what I think the next step is for you to go back to that budget and really see where you can trim and cut expenses so that you'd be able to, um, really make some progress. I think you've got to do some more work there before you're ever going to be able to get beyond this. Thanks for your call today, Karen. I appreciate it. We're going to take a quick break and back with much more after this. Great to have you with us today on faith and finance live. I'm Rob last for taking your calls and questions.

Let's head back to the phones to Indianapolis. Hi Amy. How can I help you?

Hi Rob. Thank you. Take my call. Um, uh, my question is I'm 63 years old and um, I'm divorced and divorced for nine years. I was married for 26 and um, I've heard that I can potentially draw off of my exes, um, social security and I was wondering what the policy was with that and at what point I could do that and also if I did, um, cause I'm planning on working till 70 and not taking mine at 70, could I just continue to discontinue taking his and take mine? Yes.

Yeah, absolutely. So here's the way that works. Uh, basically if your marriage lasted 10 years or longer, uh, and you are unmarried, uh, you would have the ability to take his benefit. Now, um, as long as you know, you could take it as early as 62, but you're going to have about a 32% reduction on that benefit, which is only up to 50%.

Oh, as a, as a spouse or an ex spouse that you can get based on his record, you'll take about a 32% reduction on that versus waiting until you get to full retirement age. Um, so you know, you have to just determine whether it makes sense for you to go ahead and do that. Now, if uh, you can let your benefit continue to grow and then at some point if you wanted to switch to yours, you could certainly do that. You can't take both, but you could take, uh, either your ex spouses or yours, whichever is higher.

And so a lot of folks will do that and let theirs continue to grow and then switch to the other. Okay. And does he have to be 65 before? Well, I guess not before I can draw off of his, uh, no, as long as he's a 62 years or older, you would have the ability to take that. Okay. And do I apply for that through the social security office? You do.

Yep. So you'd contact and uh, just let them know that you want to explore that. And it'd probably be good, Amy, for you to do this and have them look at your record, look at his record, just talk through the options and what you're thinking about doing. Um, so that, you know, they can talk you through all of this and actually use both of your, you know, real records to give you the information, uh, which they would have access to.

But yeah, when you're ready to claim benefits, you would do it through them. Okay. All right.

Thank you so much for your help. I really appreciate it. You're welcome. Thanks for your call today. God bless you.

Uh, to Cartersville. Hey Frank, how can I help you? Hi. Yes. Um, I am 20 just starting out with my financial journey. I'm, I have been told to diversify and invest in multiple things, but I've been told how or where to do that. Yeah.

Well, I love that you're starting early here, uh, Frank. Um, and you're right. You should be diversified, especially, I mean, this is always true no matter what type of investing we're doing, but it's even more apparent when we're just starting out because if you've got a small amount of money and you're investing in, you know, fractional shares in an individual stock, you're just all at the risk of that one company, which just gives you a lot greater volatility. Cause if, you know, they're in a particular sector or that particular company has a bad quarter or maybe there's a problem, you know, of some sort, uh, that they're encountering, you know, you could see a dramatic decline. Now you'd have tremendous upside too.

If you know they do incredibly well because you're concentrated there, but it just is, is going to be a bit more volatile than, than I would like. So I think at that point you've got a couple of options to have the diversification you're talking about. Um, and that would be either through mutual funds or exchange traded funds, um, that are often indexes. So one option is to just buy the market, so to speak. So you could, you know, use index funds, uh, to, you know, for instance, a good example would be the S and P 500 index.

So these are the 500 largest companies in the United States. They're domestic, you know, they're large cap stocks and you know, you can buy in with as little as you want basically into an S and P 500 index. And that would give you that built in diversification because with every share you buy, you're buying a piece, very small piece, but a piece of all 500 companies. Another approach would be to buy a mutual fund, either an index or one that's more actively managed. So in that case, you're buying the expertise of a particular investment manager who is then going out and buying stocks and bonds at your age. Probably you'd want one that's very heavily focused on stocks. And the idea is that that money manager, the manager of the mutual fund is trying to outpace his or her benchmark, which is the index.

So if they're buying large cap, uh, you know, domestic companies, their benchmark would be the S and P 500, but because of their unique skill set and expertise, the idea is they're trying to outperform the S and P 500. But again, you're properly diversified. So I think that's, you know, a great option for you.

I would probably give you two places to go to learn how to do this. Number one is These are great friends of ours. They write on this topic a lot. There'd be a wealth of resources there for you to explore. And then they also make mutual fund recommendations through the sound mind investing newsletter. So you'd be a little more hands on, but you'd be taking their expertise and using that to determine which mutual funds to buy. So again,

A more automated solution would be something that especially for your generation is very popular and that's what's called a robo advisor, which is basically where through a very low cost account, you're answering a series of questions about your age and your goals and your objectives. You're setting up an account and then you're making systematic contributions in that account. And based on the way you answer those questions, they're automatically investing that money every time you make a deposit into a number of index ETFs, exchange traded funds. And it might be, you know, an ETF that has the domestic market, one that's international, one that's large cap, one that's small cap. So you've got a wide range of investments, but it's very low cost.

It would be about one fifth of one percent a year. And the nice thing is there's no transaction costs. So every time you make a deposit, it would automatically be reinvested. And then you could just be really diligent to make contributions every month. And the idea would be that as the overall market grows and this year is going to be challenging without question. But, you know, you're not investing for a year. You're investing for, you know, in your case, 10, 20, 30, 40, 50 years. And over time, it's going to be the very best place for you to build wealth. I would recommend the Schwab Intelligent Portfolios or Betterment as two options there. Give me your thoughts on all that, though, that I've shared.

I'm kind of liking the robo-advisor. But you said the I've heard a lot of things about like, I think it's like a Roth IRA and other stuff like that and also bonds. Would that be advisable to someone starting out or would that be more later on?

Yeah, so let's talk about that just for a second. So the the Roth is the type of account that's really has nothing to do with the investments because you can hold any of the investments that I talked about inside a Roth. So the reason you'd open a Roth and I'm a big fan is if you have earned income, you have the ability to put this year you could put in, you know, up to $6,500 into a Roth IRA, and that money is then going to grow tax free until retirement. And then inside that Roth, you could invest exactly the way I described you could use a robo-advisor. So if you went to Betterment or Schwab, you'd open a Roth, you'd make your contributions, and then the investments would take place inside there. There's probably going to be with the robo-solution is an allocation to bonds, but it's going to be very small, because with your age, you're going to want to be on the more aggressive end, typically of the risk spectrum, just because you have so much time on your side. I mean, if you're 20, you can't touch this money, and you can get your contributions back, but you wouldn't want to, you really don't want to touch this money until retirement. So we're talking, you know, 45 years down the road.

So given that long time horizon, you're going to be better off to have all of this, or virtually all of it in stocks and much less in bonds, which is a more conservative, stable type investment. But the beauty of the robo-solution is all that's determined for you based on the algorithms that are deployed as you answer those questions. Does that make sense? That makes a lot of sense. Yes.

Yeah. Okay, good. Well, hey, I would, I would go in that direction. I want to send you a book called the sound mind investing handbook. And I think that will give you some more information that perhaps you can, you know, explore as you begin to learn in this area and, you know, continue to just grow in your understanding what it means to be a faithful steward, but also how you take that and deploy that into very various investments. So if you stay on the line, we'll get your information, get the sound mind investing handbook out to you.

And I think that'll be encouragement to you. All right. Thanks for your call today, Frank, we appreciate it. Well, folks, unfortunately, we are about out of time today. I know there's a number of questions holding and callers that we didn't get to. And I apologize, we didn't get to you.

We'd love to see if we can get you on a future broadcast. But so thankful to have you along with us today. You know, as we think about our role as stewards and managing God's money, you know, ultimately, it comes down to despite the fact that it seems like there's just an unending number of decisions that we have to make with God's money every day, it comes down to live, give, owe and grow. I mean, really, there's only four things we can do with it, we can spend it on our lifestyle, we can give it away, we can owe it for debt and for taxes, and we can grow it for the future.

And God's Word speaks to all four of those. So we need to understand the principles found in God's Word to apply to each one of those uses of money. But when we understand the heart of God, and we hold it loosely, recognizing His ownership of all of it, and then we apply this wisdom like spending less than we earn and giving generously to break the grip of money over our lives and having margin so that we can save for the future and fund our goals. And then ultimately, minimizing debt and trying to get out of debt over time, then we put ourselves in a position to experience God's best. Doesn't mean we're not going to have the trials, we're going to have trials along the way. But at least we know that God is our provider, and we've been faithful in managing His resources to the best of our ability. And that's certainly what our goal is. We look forward to having you back with us next time on this program.

Faith and Finance Live is a partnership between Moody Radio and Faith Phi. So thankful for my team today, Charles, Amy, Robert and Tahira. Hope you have a great rest of your day and we'll see you tomorrow. Bye-bye.
Whisper: medium.en / 2023-04-10 12:08:45 / 2023-04-10 12:25:38 / 17

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