11 – 25 Things to Consider When Investing

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[INTRODUCTION]

Bob: Welcome to Christian Financial Perspectives, a podcast where we talk about ways to integrate your faith with your finances. This is Bob Barber.

Mary Jo: And I’m Mary Jo Lyons.

Bob: Are you ready to learn how to apply biblical wisdom to everyday financial decisions?

Mary Jo: Join us as we look at integrating your faith with your finances. If it’s your first time listening, welcome to our podcast, and if you’re a returning listener, welcome back.

[EPISODE]

Bob:

Ecclesiastes 11:2, “Send your grain across the seas and in time profit will flow back to you, but divide your investments among many places, for you do not know what risk might lie ahead.” You ready for another great show, Mary Jo?

Mary Jo:

I am. Today we’re going to be talking about the 25 things to consider when investing in stocks and bonds. There’s quite a few, and they take all kinds of different directions. That brings me to one of our favorite scriptures and I know our listeners, if they’ve been tuned in at a time or two, they’ve heard us use this one in the past, but I think it goes without saying. The earth and everything in it belongs to the Lord. When it comes to our investments, I think the overriding question is do you believe that God owns it all?

Bob:

And you know we’ve talked about biblically responsible investing a lot in our past podcasts, and looking at all of this, we really believe that God owns it all and what you invest in is extremely important, and that as a Christian we don’t go invest in companies that are blatantly violating biblical principles.

Mary Jo:

Exactly.

Bob:

All right. Let’s get into these 25 because it’s going to take awhile to get through these. If you’re driving in your car on the way to work or coming home or cooking in that kitchen, whatever you’re doing, you’ll find this is some great information. But before we get into talking about time periods and different categories like stocks, bonds, and money market accounts, I need to say that we’re using the Morningstar Index Chart as our reference for returns over the past 10, 20, and even 30 year rolling periods going all the way back to the 1920s. The first thing to consider is that over long periods, stocks have shown greater total returns than bonds. Now, how long a period we talking about Mary Jo?

Mary Jo:

20 to 30 years. I think when we get caught up with investments, we’re only talking about the here and now. You have to take a longterm approach in looking at some of these, and see what history has shown us.

Bob:

I think there’s ample evidence, including all those supporting charts that we have. Now, you can get your mind blown a little bit about that that too, because there’s so many different charts that we use, but over time these charts have demonstrated that stocks do perform better than bonds, but it’s over time. You’ve got to go through those market cycles.

Mary Jo:

It’s an economic principle and an expectation that when you have increased risk, you have an expectation of an increased return that would pay somebody to be willing to take that risk.

Bob:

We have a saying around here, too, that the cost of a good return is volatility. If you want a higher return, you’ve got to be able to put up with more volatility.

Mary Jo:

Yes, stocks have historically paid a premium and what we mean by that is the premium is the excess return or the extra that you get by investing in something that has more risk, but you typically would expect a higher return on stocks than you do on something that’s perceived safety, like bonds have been.

Bob:

Yeah, there’s risk and reward factor in there, which takes us to our second one of the 25. Over long periods, bonds have shown greater total return than money market instruments.

Mary Jo:

Again, 20 to 30 year time frame.

Bob:

Today, we are in a very low interest rate environment where interest rates are going up. For the first time in many years, people are watching their bond values possibly decline depending on how long a term their bonds are. We’re a big believer right now in being careful of those longterm bonds. There’s that formula. If you own a 30 year bond and interest rates go up by 1%, the value of those bonds can go down by 30% if that’s a 30 year bond.

Mary Jo:

Typically, during periods of rising interest rates, bond prices are going to come down. They work in reverse that way. We fully expect that, but you’re also looking at the total return of that bond, the income that you receive off of the bond payments, as well as the price that you’ve paid for that bond, so it’s kind of a complete package.

Bob:

The third one is when we’re saying 20 to 30 years, again, this is over a longterm period because this may not be the case right now, but over long periods, money market returns have slightly exceeded inflation.

Mary Jo:

Well, we’ve seen it when it quite hasn’t worked out that way in recent years, that’s for sure.

Bob:

The fourth one is, on average, stocks are much riskier than bonds. Now, that’s on average. We’re talking about high quality bonds. High yield bonds have many times as high a risk as stocks do.

Mary Jo:

We always think of bonds as the safety part of our portfolio, and we could talk about this, but the purpose of today’s podcast is not really to give an education so much on stocks and bonds, but I think there’s some things to think about. When you look at bonds, there are certainly all kinds of risk associated with the types of bonds. We invest in municipal bonds. We invest in corporate bonds, certain kinds of bonds that have some sort of revenue stream, whether it’s taxation or whether it’s a toll bond for example, on how they collect the money that they use to pay those bonds down.

Bob:

Number five, on average bonds are riskier than money market accounts.

Mary Jo:

When we talk about market funds, there’s a perceived safety that they’re like a dollar. They always have a $1 value. There have been times when that hasn’t always held true. So money markets invest in other things, most of which are very safe instruments, but there is a level of risk there. I don’t think we can say that it has always held its value.

Bob:

I remember when they went below that dollar, what we call par value.

Mary Jo:

Right. We called that breaking the dollar mark.

Bob:

So, this takes us to number seven. You will most certainly make investments that go down immediately after you buy.

Mary Jo:

Are you talking about my investment experience?

Bob:

I’ll tell ya. It seems like it happens every time. As soon as you buy it, it’s like, okay, how did they know? That’s why as soon as you buy it, if you’ve made a good decision, it’s based on longterm. You’ve done your research and it’s a good company to buy, but you just got to take your eyes off of it.

Mary Jo:

You do, and you can’t constantly watch. You just know that you’re going to commit to get in. I know that a lot of people like to pick a price target and try to wait for that dollar point that they want to get in. Say something’s trading at $25. They’ve been watching it and they want to get in. They think it’s going to go up to $30. They’re not going to sell until it gets to $30, or they’re not going to buy until it drops down to $20. I just think that that’s kind of a fool’s errand. You just have to make a commitment and get it.

Bob:

Like number seven said, you will most certainly make investments that go down after you buy.

Mary Jo:

Yes.

Bob:

Number eight is just the opposite. You will sell investments that continue to go up after you’ve sold.

Mary Jo:

That’s a tricky concept for investors to kind of get their hands around. The successful investor that’s taken the emotion out of investing, they are going to have a discipline. They know that they are going to rebalance and sell once they hit their total return target. Most people are looking for a 20-25% return. They know once they do that, they need to shave that off, but other people say that it might continue to go up. Well, but it might continue to not go up. Stick with your discipline. Don’t be tempted.

Bob:

This does take us to number 9 of the 25. You will stay in some holdings for too long. Even the greats like the “Warren Buffets” have done that.

Mary Jo:

Oh, I can’t tell you all the times in the tech boom. There were so many investors that held all these tech stocks in their portfolio. Some can do that with pharmaceuticals. They tend to get in and even bank stocks, they get emotionally attached and they keep thinking it’s going to come back. It’s going to come back. I know it is. They just hold on and hold on and hold on. Well, you’re leaving money on the table for something else that’s going to be of greater value while you’re holding on.

Bob:

Number 10, the value of the opportunities you miss will far exceed those you take.

Mary Jo:

I think that’s true in so many areas of life.

Bob:

Number 11 – someone, Oh gosh, this is so true. Someone or some group of people are always going to do better than you. That’s what we call the bragging rights. You’ll always hear people brag about that great stock they bought, but you never hear them talking about the one they bought that went down.

Mary Jo:

So often the routine on the golf course is everybody’s talking about their wins, but they don’t share their losses. That’s for sure.

Bob:

Let’s go to number 12 then – someone or some group of people will always do well as you with less risk. What does that one mean?

Mary Jo:

It sounds very similar to truth number 11, but it’s an important distinction. Money market investors and bond holders may be able to say that they deal as well as the stock market in periods when the markets went down. Well, I was in bonds. I didn’t take as much risk and I did better than you. It just all depends on what’s happening during that timeframe.

Bob:

Now we’re going to come to the middle one of our 25, so this is the 13th one. It’s interesting how it goes right behind these last two, which were someone or some group of people always do better than you or someone or some group of people always do as well as you with less risk. This is a big one. I think this one really comes out. Yours is the only relevant timeframe, not other investors. Hypothetical mountain charts, plotting past performance for example, are irrelevant to your performance. So true. Your timeframe is the one that counts.

Mary Jo:

It’s the only thing that’s relevant. You can always look back. Hindsight is always 20/20. You weren’t invested in it back in 1929, so you only have to look at your experience.

Bob:

I think that’s why so many people say, “Well, that fund’s been doing 10-12%. when I got in and all of a sudden it starts doing 4% or 3%, and then they’ll jump ship at two years when that fund’s just about to start doing good again.

Mary Jo:

investments go in and out of favor. One of the things you have to recognize is when you start reading about it and you see that fund on the cover of Forbes Magazine, then everybody else is seeing that same headline, so they’re all jumping in. That fund manager now has all kinds of new money flowing in, and he has to scramble to reinvest that. His performance probably is going to suffer because now there’s all this inflow of money. The same is true if there’s a sudden outflow of money. When you start seeing performance numbers, it’s pretty safe to say that those are going to change. We all follow the herd when it comes to investing.

Bob:

I really like how each one of these build on each other. Have you noticed that?

Mary Jo:

They do. They’re flowing.

Bob:

Let’s go to number 14. Boy, this is so true. The investment market is a rapidly adjusting environment where past performance is an extremely poor predictor of future success. Don’t always just go to the winners. I remember when we used to laugh a long time ago about a major magazine that would always post all the top funds for the year. Usually those were the worst ones the next year. 15th one – you’re not paying for information but for knowledge.

Mary Jo:

Experience.

Bob:

Yeah. Yes. You are. The experience of somebody who’s going to help you get through those very emotional times cause we live in such an informational age. If you’re watching that news every day, you can get very emotional, and it will drive you insane because there’s so many ups and downs.

Mary Jo:

Well, and it’s all conflicting information. You turn on one channel, they’re saying one thing, you turn on another channel and they’re saying the complete opposite. Who do you trust and what do you believe?

Bob:

And not only that, you just mentioned a couple of channels. Then you go to a couple of internet sites, and then you turn on your satellite radio. There’s so many different opinions out there.

Mary Jo:

It’s about ratings. They’re there to sensationalize, and they’re there to get listeners or readers for that matter. One of the things I always think, it’s funny, you notice how the market sores and crashes and tumbles, but where do they come up with those adjectives?

Bob:

I wonder that myself, so let’s take that to the 16th one of our 25 things to consider when investing in stocks and bonds.

Mary Jo:

Money can only be made in the future. It is impossible to buy past returns, and we’re always talking about what investments have done in the past. Bob, one of the things that we always have to say whenever we’re talking about any kind of investment is past performance is no indication of future success.

Bob:

Yes, we do. We mentioned that one a lot, don’t we?

Mary Jo:

We do.

Bob:

Number 17 – the principal calls of change and investment prices is change and consensus expectation. That could be a tongue twister.

Mary Jo:

Yes. Most investors, they don’t have a clear understanding of what causes the prices to move up and down throughout the day or as they own a stock. So Bob, why don’t we move into number 18 – get used to uncertainty.

Bob:

Yeah, get used to it because like it or not, every investment decision is based on multiple guesses about the future.

Mary Jo:

We are all just guessing. History can give us a bit of a roadmap to look at what the future might hold, but we’re all looking at new economic situations, new leadership, all kinds of things that are influencing companies now that weren’t there in the past. It’s not the same playing field.

Bob:

Funny that you talk about guessing, too. There’s an old adage that when all the economists start saying, everything is so great. Be careful of that because the economists are wrong many times.

Mary Jo:

Oh, they certainly are. It’s human nature, and they’re doing the best they can with the information at hand but information changes quickly.

Bob:

Yeah, I bet I can answer this next one. Number 19 – experienced advisors may increase your chance of investment success. Now why would we say that? Get the emotions out of it. I can see you’re looking there. Yeah, of course. It’s get the emotions out of it. Experienced advisors are going to help guide you through the turbulent waters, and boy are they turbulent. One market’s going to be better one time. Another market’s going to be better another, but an experienced advisor has been through all these markets and can help you get through them and come out on the other end of the tunnel, the light at the end of the tunnel.

Mary Jo:

They’re there for a discipline. They’re going to hold your hand. They’re going to remind you of what your goals and objectives were. They’re going to just hold you accountable. I think that’s the difference between success and failure a lot of times is those investors who think that they can do it themselves. They’re self directed and many of them are fine, but they really need that discipline. That’s what a trusted advisor can really do for you.

Bob:

Which takes us to number 20 – the biggest risk most investors face is actually their own emotions. Selling low and buying high and following the herd. We had that chart – ask for the chart that we have on emotions. You’ll be amazed that when the stock market and the bond markets, when they’re at their peak is when everybody wants to get in, but that’s the highest point of risk and when they’re at their lowest point, like back in ’08, everybody wanted out, and that was the best time to get in.

Mary Jo:

Bob, that brings us to something we were going to talk about towards the end of the show. That’s something called the Dow bar study. Most advisors would have that – to boil it down and make it simple. If you look at the average return of stocks, then you look at the average return of bonds, take any asset class, and the index that tracks them. Then you look at the average investor’s average return. The investor always does worse. The reason that is is because of their emotions. They’re always making knee jerk reactions, staying in too long, holding on, not selling when they said they were – those types of things.

Bob:

So, let’s get down to our last five. Number 21 – there is no such thing as a sure thing.

Mary Jo:

Bob. I think these last five are my favorite. I think that I’ve given a lot of thought to these as we’ve added them to the list. I just found that this is what most investors think. Stocks in general have historically provided gains over the long term, but it’s individual companies that are much riskier. If something seems too good to be true, it probably is. Diversification wins out over time.

Bob:

Think long term. No one can consistently time the market successfully. If they could, everyone would be doing it. If you’re concerned about hitting a price target, the best advice is the dollar cost average in and out of a discipline strategy. I love the dollar cost average thing. Now, that means putting in the same amount of money every single month. Let’s say you’re putting in $300 a month or $500 a month. It doesn’t matter where the markets are or what the price is. Dollar cost averaging automatically helps you buy less when the market’s high and to buy more when the market’s low.

Mary Jo:

Your 401k kind of works like that. Whenever your payday comes around, you get a contribution and it’s buying in on that day. It’s consistently month after month on the first and the 15th or the 15th and the 30th. It’s always buying in. It doesn’t care what the market is doing that day. It’s just going to buy in, and the same is true if you want to unwind a position. Let’s just say you have a concentrated position in a stock, maybe your company stock and you think, oh man, I just hate to sell. I know it’s going to keep going up. Well, you just say, okay, I’m going to sell 25% of it this month, 25% the next month, 25% the next month until it’s all unwound over a four month period. Then you’re out of it and you’re not trying to chase that price.

Bob:

And realize you can do that even over a 10 month period in 10% increments.

Mary Jo:

Absolutely.

Bob:

You could do it over a 12 month period and just divide that out. All right, so we’re down to our last 3 of the 25. Consider the tax impact of your investment decisions because taxes can easily eat into your returns. Short term gains are costly because you’re not paying the longterm capital gain tax.

Mary Jo:

I just love this next one, and this is one that I guess I’m pretty passionate about. Tune out the market noise. The only truth that we know about the stock market is it’s going to go up and it’s going to go down. I think I mentioned this earlier, the markets, the talking heads that are out there in the media, they’re just using sensationalism to get you to tune in. Don’t watch it every day. I think one of the best things you have to do for an investor is just get a longterm diversified plan in place. Trust the markets are gonna do their thing over time, and then when you need it in 10-20 years, it’s going to be just fine. You do occasionally, on an annual basis, have to look to rebalance and reallocate those funds.

Bob:

As I mentioned in the beginning, all our mamas were always saying, don’t put all your eggs in one basket. That’s an old saying.

Bob:

And all our mamas we’re doing, that’s a Southern boy me calling them mama. All they were doing was a quote in Ecclesiastes 11:2 that says, “Give your portions to seven or eight because you do not know what disaster may come upon the land.” That’s truly, when you’re talking about building a diversified, why it’s so important. You don’t know what is going to do well and what’s not going to do so well in the future because nobody knows the future. Again in Ecclesiastics, I was just reading this this morning, in the third chapter, “There’s a time for everything. There’s a time to grow. There’s a time to tear down, a time to heal. There’s all those different times.”

Mary Jo:

Absolutely, and that brings us to the last but not least. The best traders in the world are sometimes wrong. You can get lucky a time or two. I just encourage all investors to stay humble because your next pick, you might not be so lucky.

Bob:

So there you go. There’s the 25 things to consider when investing in stocks and bonds. If you’d like to get a copy of that, feel free to go to Christianfinancialpodcast.com. All our contact information is right there. You just call or email and say I’d like a copy of 25 things to consider when investing in stocks and bonds. There were some great scriptures you had here in closing.

Mary Jo:

When we talk about the stock market, I think investing, it’s much more than the stock market itself, if that makes sense. When you reduce the idea of a longterm investment strategy down to trading, like so many of the so called day traders do, it just makes me kind of think of greed, and there’s a lot about greed in the Bible. One of the scriptures that kind of stands out there for me is Matthew 6:24, “No one can serve two masters for you will hate one and love the other. You will be devoted to one and despise the other. You cannot serve with God and be enslaved to money.” We want to invest for a reason, but we can’t be a slave to our money

Bob:

I want to end up with this scripture too. Proverbs 15:22 which is one of my favorites, “Plans fail for lack of counsel, but with many advisors, they succeed.” We don’t know at all, and we believe in many advisors. We have sub advisors that we work with that help us put together our portfolios and what we’re going to invest in. We don’t believe that any person should be an island, but God’s word says we need one another. In Ecclesiastes, it talks about how a cord of three strands is not easily broken and pity the man that has nobody to watch his back and doesn’t have a friend. We base everything off that scripture that we need one another and we can help one another.

Mary Jo:

Bob, that’s so true. In our business, we are constantly being schooled. We are going back for continuing education every year. I have to do that for all my licensing and I know you have to do that. We go to business conferences. We get in publications that we’re constantly reading and we’re always looking at what the masterminds in our business are saying. We consult many advisors, and I think that that’s important for our listeners to do the same.

[CONCLUSION]

Mary Jo: You’ve been listening to Christian Financial Perspectives. Join us as we explore more about how to apply biblical wisdom to your financial situations.

Bob: To make sure you don’t miss any of our podcasts, you can subscribe to Christian Financial Perspectives on iTunes, Google Play, or Stitcher. To learn more about integrating your faith with your finances, visit out website at ciswealth.com or call 830-609-6986.

Mary Jo: That’s all for now.

[DISCLOSURES]

Comments from today’s show are for informational purposes only and not to be considered investment advice or recommendations to buy or sell any company that may have been mentioned or discussed. The opinions expressed are solely those of the hosts, Bob Barber and Mary Jo Lyons. Bob and Mary Jo do not provide tax advice and encourage you to seek guidance from a tax professional. Investment advisory services offered through Christian Investment Advisors Inc. DBA Christian Financial Advisors, a registered investment advisor. Keep in mind that the investor returns reflect investment selection as well as sales charges, fees, expenses, and transaction costs. Whereas the S & P 500 index returns do not. These factors also contribute to the difference in returns. Indexes are unmanaged. You cannot invest directly in an index. Performance illustrated is not indicative of future results. The return in principle value of bonds fluctuate with changes in market conditions. If bonds are not held to maturity, they may be worth more or less than their original value.