Faith-Based Investing: 3 Ways to Invest with Your Values
It was fall 1999. My high school economics teacher had crafted an experimental lesson plan around investing. She asked us to create a test portfolio with five individual equities and track their performance throughout the school year.
I stepped up to the challenge. Little did I know that it would forever shape my experience with investing.
The tech industry was booming (at the time). I carefully selected Cisco, Hewlett Packard, and a few other tech stocks for my hypothetical portfolio. But I didn’t stop there.
I invested $2,000 of my hard-earned cash in the same stocks.
And you know what happened?
I failed.
The $2,000 investment portfolio declined by 50% within a few months. I couldn’t withstand the pressure and sold each position at a deep discount.
Boy, that was a disappointment.
But it was also a really valuable learning experience for me.
There were two main reasons behind my early investing mistake: naïveté and lack of diversification.
Nearly all of my holdings were in the tech industry. This was my first foray into investing, and I had no idea what I was doing. I didn’t have a good strategy.
And I didn’t really know WHY I wanted to invest. It was just an experiment to see if I could make my money work for me.
Now, as a more astute investor, I understand the importance of vision and values in financial decision-making when trying to build wealth.
This is especially important as a Christian.
I want my dollars to go toward building a better world and supporting companies who share my values. Not only do I want to provide opportunities for my family, but I also want to give more to causes I care about.
In this article, I want to go over three principles of investing to help you align your financial decisions with your values.
I. Clarify Your Why
Try this little experiment.
Ask yourself, “Where do I want to be five years from now?”
Imagine that dream in as much detail as you can. How does it feel, look, and sound? Who is there with you? What kind of emotions do you associate with this dream?
OK, now ask yourself, “Who do I need to become in order to reach that dream? How am I called to be a better version of myself?”
Think about the guiding principles, or values, that will bridge the gap between where you are now and where you want to be.
Defining your ideal life doesn’t just mean figuring out what kind of home you’ll live in or what vacations you’ll go on.
It also means thinking about who you want to be and how you want to contribute to your family, your community, and the world around you.
Start with this overarching vision, and then design multiple goals around that vision.
You can even break a multi-year vision down into a one-year dream that ties into that vision.
Try the following:
Define your five-year vision. For example, “Five years from now, I want to build our family’s dream home.”
Break that vision down into one-year chunks. So, for the above dream, the first year’s goal might mean starting a side business to earn additional income.
Outline four specific goals. Make sure they are goals that move you toward the one-year vision. And don’t forget to put a deadline on each goal! If it helps, make the deadline at the end of each quarter.
Now, break down that goal into five tasks that are going to move you toward that goal. I’m not saying those five tasks will be the only ones you need to accomplish. Just write down the ones that are absolutely essential to moving toward your goal.
Take action! Don’t delay. Just start.
Now when it comes to investing, how you invest and what accounts you need are going to depend on your specific life goals.
Do you want to retire earlier than the traditional age of 65? Then thoughtfully research the steps you must take to get there.
Early retirement entails a longer reliance on investment income.
Let’s say that you’re within five years of being financially independent and will be drawing down your investment portfolio to fund your lifestyle.
Your asset mix should be more conservative than someone who is 20 years away from financial independence.
Age is only a number. Instead, pay attention to your investing time horizon.
Next, carefully inspect your current investment portfolio. Do your investments align with your specific goals? Consider the purpose behind each account.
Investment accounts such as 401k plans, 403b plans, and IRAs often are earmarked for retirement.
But what about 529 college saving plans?
Is the investment mix in your 529 plan too conservative or aggressive for the estimated date of withdrawal?
Paying for private elementary or high school expenses out of the 529 plan is now allowed, and your investments should reflect a shorter time horizon if you plan to use the 529 account for earlier expenses. Age-based investment options within 529 saving plans are typically designed to pay for college expenses.
For an emergency fund, focus on cash or money market funds. Equities fluctuate in value, so reserve equities for long-term goals.
Consistency is key when matching an account’s investment mix with its intended goal.
For any mismatch, find a tax-efficient way to get rid of the position. In a tax-sheltered retirement or 529 college savings plan, there is no tax consequence for selling.
However, you need to exercise caution with taxable brokerage accounts.
If you want to dispose of an appreciated position in your brokerage account where the current market value (“FMV”) is much higher than the cost basis, first calculate the federal and state tax implications. For example, a $1,000 FMV and $400 basis results in a $600 gain.
It may be wiser to choose a different position where the value and basis are closer (i.e. $1,000 FMV and $800 basis = $200 gain).
To summarize, start with the big picture vision, create financial goals to get there, and ensure that your investments are consistent with those goals.
II. Market Timing Doesn’t Win
Did you ever play with a Magic 8 Ball as a kid?
If not, I’ll jog your memory. You would ask a question, shake the ball, and turn it over for an answer. There were 20 possible responses, half of which were some version of “yes.”
It’s fun when you’re a kid, but the whole concept is pretty… silly.
Trying to time the market is the equivalent of putting your investment portfolio into the hands of the Magic 8 Ball. It’s pretty much all chance.
You tactically move in and out of positions based on whether you think the stock market will go up or down on a given day. Honestly, even professional economists can never perfectly predict what the market is going to do.
Market timing is more than a gamble. It’s downright exhausting.
Parenthood, though extraordinarily enriching, is really tiring. It requires immense amounts of energy to pour into kids after a long day of work, whether paid or unpaid.
Between working and parenting, do you really want to expend more energy on investments than required?
My advice is to develop a long-term asset mix instead and adhere to that mix. Assess the level of risk you are willing to take in your investment portfolio and determine if your existing assets accurately reflect your risk tolerance.
If you want to learn more about what type of investor you are, take this free assessment! Your results will help you better understand your investing style so you can make the right decisions for you and your family.
If you’re not sure what your investment style is, think about the last market downturn. Did you check your retirement account balances every day even though you were five years or more from financial independence? If the answer is yes, you may want to consider a conservative portfolio.
An aggressive investment mix may be more appropriate if you see an economic downturn as an opportunity to buy equities “on sale.”
When defining an ideal portfolio mix, remember that the stock market is cyclical.
A bull market won’t last forever. Neither will a bear market. And neither will a recession.
In 2020 and 2021, we experienced an extraordinary U.S. bull market run. There is always a possibility after a bull market that we could feel the pain of a deep recession. There is no Magic 8 Ball to tell us when the next sustained downturn will happen. There are indicators, but as I said before, economists rarely predict every market downturn.
Furthermore, recognize that only 10 percent of your investment performance is attributable to the positions you choose. The other 90 percent of performance is based on the asset mix, or ratio of stocks to bonds.
You may want a single investment strategy for all accounts. Or, it may be simpler to develop two strategies — one that is short-term and another that is focused on long-term goals.
The bottom line?
Avoid timing the market, and you’ll rest easier at night.
III. Use Your Investment Portfolio to Benefit Charities
Did you know that cash donations are not the only way to support charitable organizations?
You can actually donate stocks to a charity of your choice.
Positions with high fair market value and low tax basis are known as highly appreciated positions.
These are ideal for charitable contributions -- if they are located in a taxable brokerage account.
Do you or your spouse have concentrated stock positions from a prior or current employer?
A very large portion of your household investment portfolio may be tied to an employer if you vest in stock options or receive Restricted Stock Units. Donating shares of stock to a charity provides several benefits:
You support a meaningful cause;
You diversify your investment portfolio; and
You avoid capital gains tax.
For example, suppose you want to make a $1,000 donation to church. You’ve held $1,000 of Disney stock for more than a year, and your cost basis in the stock is only $600. You transfer the stock directly from your brokerage account to the charity.
This strategy avoids $400 of long-term capital gains because you did not sell it. The charitable organization is a non-profit, so it is not required to pay capital gains tax.
You (the donor) still receive a $1,000 charitable deduction and avoid paying capital gains tax. It is a win-win for both of you!
Want to take your charitable giving to an even higher level?
Donor-advised funds are simple to establish and easy to use. They are ideal if…
You have not already committed a specific dollar amount to a charity in writing and…
You want to give substantially to one or more charities.
A donor-advised fund typically may be opened for $5,000, and grants of $1,000 or more are suggested.
In short, consider your investment portfolio for charitable giving.
Can I Invest as a Christian?
Many Catholics and Christians falsely believe that investing is intended to help the “rich get richer.”
If that is where you are right now in your beliefs about money, I invite you to ask yourself this question:
“Is this belief helping me reach my long-term financial goals?”
If you want to…
Save enough money to retire comfortably
Give your kids and grandkids the opportunity to go to private school
Reduce the amount of student loan debt your kids have later
Support companies and charities whose values you share
…investing is truly the best way to achieve those goals.
God wants everyone to live abundantly. This doesn’t mean simply working hard. It also means taking the income that you earn and putting it to work for your family!
Proverbs 6:6-8 says it well:
“Go to the ant, you sluggard; consider its ways and be wise! It has no commander, no overseer or ruler, yet it stores its provisions in summer and gathers its food at harvest.”
When God graces you with financial gifts, do not just spend the money on short-term desires.
You can save unexpected income for a time of financial hardship (or opportunity). If you’re still in the process of building your emergency and opportunity funds, put the extra money there.
Let’s say you have a solid emergency fund or that you have quite a bit of extra income. You can put some of it away into your retirement account. If your children’s schooling is a more immediate goal, you can put all or some of that extra income in your 529 account.
And remember: you can use money to make a HUGE impact in the world! Use your investment portfolio as a tool for the greater good. Support companies and charities who are making the world a better place by donating stocks.
It is possible and can be GOOD to build wealth as a faith-driven parent. You can use financial resources, including and especially your investments, to build up God’s great kingdom on earth!
At WorthyNest®, we guide parents through important financial decisions using a values-based approach. Contact us to explore a one-on-one relationship.