Why Is Investing Important to Wise Money Management?

             Families, communities, and nations are stronger when they practice good money management. One component of good money management is investing with the goal for getting rich slowly. President James E. Faust of the First Presidency shared the following thought:

The parable of the ten virgins, five wise and five foolish, has both a spiritual and a temporal application. Each of us has a lamp to light the way, but it requires that every one of us put the oil in our own lamps to produce that light. It is not enough to sit idly by and say, “The Lord will provide.” He has promised that they who are wise and “have taken the Holy Spirit for their guide” will have the earth given unto them” (“The Responsibility for Welfare Rests with Me and My Family,” April 1986 General Conference).

            One key to successful investing is to understand the difference between investing and speculation. To fully understand this key, memorize the following saying: “If it sounds too good to be true, then it is too good to be true.” Investing is for the long-term with the idea of getting rich slowly, while speculation is any investment that promises to do better than the market, a get-rich-quick scheme.

            According to E. Jeffrey Hill and Bryan L. Sudweeks in their book “Fundamentals of Family Finance – Living Joyfully within Your Means,” there are important steps to take before speculating with your money. The first step is to pay off all your credit card debt and consumer debt, pay off your vehicles completely, and pay off student loans. While you are paying off the debts listed above, make sure that you are contributing ten percent of your income to tithing each month and investing ten percent of your income to a tax-advantaged, diversified IRA and/or 401(k) with most of it in stocks.

In addition to the above, the authors state that you should pay an honest fast offering monthly of at least the cost of two meals, meet all the basic financial needs for you and your family (food, shelter, transportation, education, etc.), have adequate insurance (life, health, automobile, and home), have a three-month emergency supply of money, food, water, and fuel (where possible), meet enough of the financial wants of your family to be happy (vacations entertainment, furniture, etc.), and be paying off your home mortgage as quickly as possible.

If you are doing all of the above, you may feel comfortable doing whatever you desire with any money that you do not need.  An investment is something that you buy or purchase that will generate income or gain in value. The authors state that there are purposes for investing that go beyond getting a good return on your money. Other purposes are to meet short- and long-term needs for your family, show God that you are a good steward of His possessions, and to bring yourself and your family to Christ. They gave seven principles of successful investing:

Principle 1: Invest as a full partner with your spouse. [You and your spouse should work together in all areas in your marriage, including budgeting and investing.]

Principle 2: Understand risk and stay diversified. Risk is inherent in all investment activities…. It is important to understand the tolerance you have for risk…. Diversification is your best defense against company-specific risk…. It is also advantageous to invest in several different asset classes.

Principle 3: Make low-cost and tax-efficient investments for the long term. Watch your investment costs carefully, including costs for transaction fees, management fees, and taxes. Remember that when investing, a dollar saved is worth more than a dollar earned – you have to pay taxes on every new dollar you earn, but every dollar you save is already taxed and can earn interest.

Principle 4: Monitor your portfolio performance. President Thomas S. Monson taught, “Where performance is measured, performance improves. Where performance is measured and reported, the rate of improvement accelerates.” How can you know how the investments in hour portfolio are doing if you do not monitor their performance?

Principle 5: Don’t try to time the market refers to the attempt to obtain greater than market-rate returns by buying when the market is low and selling when the market is high…. It is difficult, expensive, time-consuming, and just plain dumb to try to beat the market on your own.

Principle 6: Invest with high-quality, licensed, reputable people and institutions. When you need help investing, do not be afraid to ask for it. However, be sure to get help from good people whose actions and beliefs are consistent with [good investing] principles.

Principle 7: Develop a good investment plan and follow it closely. Develop a good investment plan that is consistent with your goals, your budget, and [good investing] principles. An investment plan is a detailed road map of your investment risk and return, investment strategy, constraints, and reporting and evaluation methodology. Think of our investment plan as a road map to successful investing. Follow this plan carefully.

            Investing is an important part of successful money management because it is a way to make your money work for you. Otherwise, inflation will eat the buying power of your money. We should understand that the wise use of money brings blessings to families, and investing is a way to use money wisely. 

            Yet, there is a greater investment that you can make as taught by President Gordon B. Hinckley: “The gospel of Jesus Christ … [is] a greater investment than any…. Its dividends are eternal and everlasting” (Teachings of Gordon B. Hinckley, pp. 567-68). Wise parents will seek understanding about investing money and then teach their children to do it. Strong families understand wise money management, and strong families strengthen communities and nations.