Finance is a tool that should benefit you. When the tool is used, it does wonderful things for your life. If you allow it to master you, it will bring pain, frustration, and disappointment. Mastering the tool of finances will bring you into the abundant life that God has prepared for you. Here are some questions from readers concerning investments.
Question – What are bonds/bond mutual funds and how do I incorporate them in my portfolio?
Great question, bonds allow you as a bond investor to lend certain amounts of money to a company, bank or government agency for a predetermined time in exchange for income. The company, bank, or government will pay you interest in exchange for your investment. Government use bonds to finance major projects such as parks, recreation facilities, and highways. Companies use bonds to finance research and development of major products. Typically bonds can be invested for as little as $1000. Bonds can be used in a retirement account to avoid fluctuations due to the stock market.
For instance, many investors switches their investments to bonds to avoid major loses during the stock market crash in 2007. Having a portion of bonds in your retirement account preserves your investment. Bonds are especially useful when a person is in the later years of his or her working career. Good bonds are safe and will give you stability in your investments. Bond mutual funds are a collection of bonds similar to mutual funds. Bond funds ensure a steady flow of income because they do not take on much risk. These investments can be obtained through your 401K or IRA.
Question – I have insurance, how much do I need and what type should I purchase?
Determining the type and amount of life insurance can be secured through an insurance agent. There are many types such as term life, cash value or permanent life. Term life is basically a temporary insurance specific for a number of years (10, 20 or 30). When the policy expires, you will have to renew. Term life is popular and low cost.
Another popular policy is permanent life insurance. It is a policy to build wealth while living. Permanent life has two components. The first is the death benefit and the second is the cash value of the policy. The cash value enables the life insurance companies to make policy loans available to the policy. Cash value is a savings account that allows wealth to accumulate from a portion of your monthly premiums. Payments of this insurance can be twice as much as term due to the fact the policy never expires.
The last question is how much should I purchase. Again, work with your agent to determine, but a simple rule of thumb is to buy five to eight times your current income.
To determine this amount consider these questions:
- How much income should I be replacing when I die? Will my family have enough income without me?
- What unresolved bills and debts will be remaining?
- How can I ensure financial success for my children and grandchildren?
I know this is a tough subject but you will become a smarter investor if you act accordingly. As Proverbs 13:22 states, “A good man leaves an inheritance to his children’s children.
Question – What is the best stock tip for me to gain some extra money?
Don’t buy. I suggest this to many because there is a level of priority that you must have before you dabble into stocks. Stocks can sometimes encourage a short term get rich mentality rather than having a long term focus. I encourage others to do these things first before buying stock:
- Get out of credit card debt
- Completely fund your emergency fund
- Contribute consistently to an IRA or 401K plan
- Secure the appropriate amount of insurance for you and your family
Stocks can be considered risky and too narrow focused. The objective of any investment should be to seek diversification (Ecclesiastes 11:2), have a long term focus (Luke 14:28), and become a continuous investor (Proverbs 28:20, 22). Stocks can be a complement to your investment future. Acquiring mutual funds may give you the best opportunity to double your growth rather than having individual stocks. Mutual funds have become one of the best alternatives to increase your monetary assets.