Putting Your Money to Work

Show Notes

Most of us make money by working a job. But there is another way to make money — and that’s by putting money itself to work. Getting your money to earn more money is crucial if you’re going to build a nest egg for the future. We’ll talk about that today on MoneyWise.

• As we often say, there are five basic things you can do with money: You can earn it, live on it, give some away, owe it to someone, and lastly, you can grow it for the future.
• Earn, Live, Give, Wwe, and Grow.
• On this MoneyWise, we’ll focus on growing your money. The run-up in inflation that we’ve seen over the past year-and-a-half makes it clear that finding ways to grow your money is essential. If you put money in the bank and earn a 1-2% annual return while inflation is running at 7-8% percent annually, you’re falling way behind!
• Inflation means that the money you put in the bank will have significantly less purchasing power when you take it out than when you put it in.
• That’s why it’s so important to increase the growth rate of your money to try to keep up with inflation.
• KEEPING UP WITH INFLATION
• So, how can you do that? Well, there are many options, but each calls for investing your money somehow. The safest approach right now would be to invest in government I-Bonds. The “I” stands for inflation. Those bonds, guaranteed by the U-S government, are designed to keep pace with inflation.
• Unfortunately, I-Bonds carry restrictions, such as a $10,000 per-person limit on how much you can invest each year. Further, you can’t hold I-Bonds in a retirement account such as an IRA or a company-sponsored 401(k) plan.
• So, to match or beat inflation, you have to go beyond super-safe I bonds and look to investments that grow with the economy.
• INVESTING IN THE MARKET
• For most people, investing in the stock market is the easiest way to do this. We know that seems scary to some people. But to get your money to grow requires you to take some risk.
• The good news is that you can minimize the risk of investing in stocks if you spread your money across many companies and stay invested for a long time.
• The easiest way to broadly invest is to hold mutual funds that contain shares of many companies. Some funds hold the stock of hundreds of companies. And those funds have tended to do quite well over time.
• Of course, no one knows the future. But history tells that those who invest broadly and steadily over a long time almost always come out ahead.
• THE POWER OF COMPOUNDING
• As your investments grow over time, the earnings on your investments can purchase more shares. Those new shares will grow and allow you to purchase still more shares.
• This “compounding” growth is what helps you keep up with or outpace inflation. The effect of compounding, given enough time, is remarkable. It can turn relatively modest investments of thousands of dollars a year into millions over a few decades. That’s why compound interest is often called the “8th Wonder of the World.”
• One warning, however: Investing can foster bad things in your life, such as greed when the investment markets are performing well and fear when they’re not. As a Christian investor, you need to be on your guard. Don’t let greed and fear take over. Instead, seek to be a wise and faithful steward who takes a reasonable amount of risk to prepare for future needs.
• It’s possible in investing to take excessive risk. Proverbs 13:11 warns, “Wealth gained hastily will dwindle, but whoever gathers little by little will increase it.”
• It’s also possible to take too little risk, which likely will result in you not being financially prepared for your later years. As a steward of what belongs to God, it’s your role to find the right balance as you seek to put your money to work and make it grow.
• For helpful guidance in this area of investing, visit MoneyWise.org.

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• TreasuryDirect.gov