Money, Power, Respect with Kemberley Washington
In Luke 19:12-24, we find a nobleman who leaves money to each of his ten servants. Upon his departure, he instructs each of them to invest the money. Upon his return, he calls each of the ten servants to determine how much money each has gained by investing. He finds that the first two servants invested wisely and were able to obtain a gain. However, when the nobleman questioned the third servant, he finds that the servant did not invest the money at all, but simply kept the money tucked away in a napkin.
Recently, I had the opportunity to speak with a friend who informed me about her fear of the stock market. Because of the ups and downs in the market, she has decided to simply not invest at all. As a result, she is more comfortable with conservative financial products such as certificate of deposits and money market accounts, which pay little or no interest.
However, the reality is that if you have financial goals, you can’t afford not to invest. Of course investing can be risky, but placing your money in “safe” financial products, such as certificate of deposits, have risks as well. These products are subject to inflation risk, which is the risk your money will be unable to keep up with today’s dollar due to the loss of purchasing power.
Determining whether you should invest really comes down to your goals and time horizon. Of course, if you need the money for emergencies or for other needs in the next few years, it may not be a good idea to invest. Since the market is volatile (risky), especially in the short term, a quick decline in the market could damage your investment.
However, if time is on your side, investing is a great idea because losses could possibly be offset by future gains.
Where to start?
If you are afraid of investing or simply have a fear of investing, I challenge you to get started. First, get your financial house in order. Build your emergency funds and pay down high interest debt. A great way to get started is to consider investing in index funds. Index funds track the market and thus provide diversification. Seek low cost funds from companies such as Vanguard to help get you started.
Remember: your choice, your future!
Kemberley Washington is a certified public accountant and business professor at Dillard University. Follow her on Twitter or connect with her on Facebook. For more personal finance and tax tips, subscribe to her blog at kemberley.com.