This is one of six video sessions are designed to help young men understand some of the basics necessary for their lives as providers and churchmen. They cover areas of time and money management and matters of career selection. The teachers in this series are local church members who are. experienced in their areas of instruction.

Okay, well I'm Scott Brown and I'm here with Al Burke. We're here to talk about some of the basics of investing and it's a pretty interesting subject, Especially when you think about it in terms of Americans. Americans actually don't invest much. I was just reading today in preparation for this time that Americans don't save much at all. For example, I wrote down some of the statistics.

If you're under 35, the average is $5, 000. Age 35 to 44, $14, 000. Age 45 to 54, 25, 000. Age 55 to 64, 45, 000. But get this, it drops almost in half after that.

Age 65 to 74, 27, 000. Age 75 and over 20. So it keeps dropping. Now this doesn't include home ownership. It includes, you know, other liquid assets.

But I think it tells us that Americans, While they may boast about being the richest nation in the world, they might not have the richest individuals in the world. So let's talk about investing. So Al, we just want you to give us some basics, give us some terminology, some techniques, some instruments, some warnings, some dangers, and at the very end I'm going to ask you to give some recommendations for young men especially. Okay. Okay.

Thank you, Scott. So I think one of the most important questions to ask in the beginning is why invest? Why do we do that? And I think the Bible does have a clear answer for this in many places, but just to name a couple, in Proverbs 21 20 it says, there is desirable treasure and oil in the dwelling of the wise, but a foolish man squanders it. This is the idea that you do not consume all your resources as soon as you receive them.

When I was in the Army many years ago, I knew a few soldiers. When they got their paycheck, it was gone that same night, and then they would go two weeks without pay, which you can get away with that in the army because they cover your housing and food. But in real life that doesn't work. You have to plan. So in this sense, you know, we don't use all of our resources and we save some for investing.

Also, if we look at the parable of the talents in Matthew 25, 14 through 30, I won't read the whole thing in the interest of time, but the master leaves his servants with certain amounts of resources, talents in this case. One receives five, one receives two, and one receives one. The one with five uses it to do business. It says trading and he produces five more. He's called the good and faithful servant.

The one with two does the same and produces two more, essentially doubling his money also. He's called a good and faithful servant. The one with one is scared and buries it in the ground, only to retrieve it later and give the same one back to the master, and he's called a wicked servant. So that's a principle. I think that in general, the resources that God gives us we're to use wisely.

It's not always money. It could be something else. Time, like you spoke about recently, is a precious resource. So we are to use the things that God gives us wisely and he expects us to do so. So Al, let's get down to some of the nuts and bolts.

I'd like to talk about, I'd like to have you talk about interest, the time value of money. Give us some of the terminology and the principles that will help us understand that. Sure. There are a few basic things that need to be understood when you're investing. First of all is your rate of return, your interest.

If you're going to invest something, you expect to get more back than you put in, right? This is your rate of return or your interest. It could be a simple loan to a corporation, it could be stock, it could be a number of things, but you do, based on what you're doing, expect either a low return or a high return. And we'll talk later that this return is correlated highly with the level of risk. But you do need to understand the rate of return.

You also must understand the time value of money. That is to say a dollar today is not the same as a dollar ten or fifteen or twenty or thirty years from now. A dollar today is worth a lot more. And that can be illustrated in two ways. If I had a dollar today and I invest it or do something with it, it could be two dollars in the future.

So it's worth more to me now than it is then because it has the potential to be higher. Also, because of inflation, a dollar's worth of goods or services today will cost much more than a dollar in the future. So if I were to just take the money and put it in a box and pull it out in ten years, it's not going to go nearly as far. So the time value of money is very important and that will be a concept we look at here in a bit. The risk associated with an investment is correlated with the reward.

This is taught in almost every single financial class. And when you hear that it's not correlated when you're promised that you can have a high return with a low risk, it's probably a scam. And we've seen many instances of that in the news in the last decade and more where false promises are made and it's usually a Ponzi scheme or something of that nature. So that's something to watch out for. So Al, how does a young person recognize financial scams?

Scott, you've heard the old saying, if it's too good to be true, it probably is, and that is really the best advice to follow. There are certain financial rules that apply in almost every situation, and almost without exception, these scams are promising guaranteed 20% or something like that. That's just a totally unreasonable return. So that has to send a red flag up and that's normally how the government officials catch some of these Some of these people they're involved in this type of activity is they hone in on some of these once it's made The complaint is made they realize that it's just not a realistic rate of return. There are a lot of different expressions of this.

I don't know how many young men have come to me so excited. They saw this car on eBay and it's like $10, 000 under market. And all they have to do is hit the buy it now, send the money and then go figure out how to go get the car. And the money disappears and the car never shows up. Here's the deal.

There are no good deals on cars. Cars basically sell for what they're worth. How about that? As do almost all the other assets. So any other ways that particularly young people can recognize scams like that?

Pray a lot. Pray for wisdom. Seek counsel from godly men before you embark on a particular business venture or an investment. There is a wisdom in the multitude of counselors. I'd like to also mention risk tolerance.

You know, people have a different tolerance for risk. Some people are risk averse, which means they don't like risk. Some are risk lovers. The population tends to sway toward the risk averse side. And your risk tolerance is important when you look at financial investing as well as your age, how long you have to recover from a mistake, let's say.

Your financial status, do you have some resources that you can afford to lose should the investment not turn out? And then just your preference. How do you feel? How are you going to handle the elevated level of risk? So Scott, one more thing I'd like to touch on while we're discussing terminology is tax deferred status.

Investments are either tax deferred or not. And tax deferred is important because you can invest these dollars without paying income tax. Now you're going to pay tax when you pull the money out eventually, but it's a vehicle that's often used whether it be a 401k plan, we'll talk about that in a little bit, or an IRA where you can deposit larger amounts of money and they can grow tax-free and then you pay the taxes at the current tax rate when you pull it out. It's very popular today. So you have to understand whether it's after-tax dollars you're investing or pre-tax dollars because if they're pre-tax dollars you have certain restrictions on what you can do with the money.

Okay so there might be somebody here who hasn't heard the term after-tax dollars and pre-tax dollars. Could you explain that? Sure. So If I go to work today, which I did, and I get paid for my work, income taxes are then charged on my wages. That's an after-tax dollar I now have.

If I go invest that dollar and it grows to two dollars, I now owe taxes on the dollar I gained, and depending on how long it took me to do that, it could be income tax or it could be capital gains tax. But I would pay taxes along the way on the gains. Now, if it's a pre-tax investment, So I go to work, I make the same dollar, but that dollar instead of being paid to me is slid into a tax-free account. My income taxes on that dollar now are zero and I can invest it in in a pre-tax investment and it can grow and I owe no taxes on the growth. This could be in there for decades.

When I pull it out, let's assume it's a hundred dollars now, then I would pay the current income tax rate for me at a hundred dollars. Typically this is done during retirement after you've you're not making as much as you did during your working life so your tax rate should be lower theoretically. Yeah, so the more you can do with pre-tax dollars the better off you are. That's one nice thing about having a business. You spend money on a pre-tax basis and that money that you spend on that health care or that investment is not taxed.

It goes straight in so you get the full value of the dollar. That is correct. Yeah. Yeah. So, so you you got this you got this person.

He's 20 years old and he's got a job. How how should he think about pre-tax dollars with the job that he has. What can he do? So most employers now, not all, but most have some sort of retirement plan that's becoming very popular, have a 401k plan. A 401k plan is a plan where your employer will automatically take money out of your check at whatever rate you request.

Three percent, four percent, five percent, six percent is a popular number. And your employer will then match those funds. Some employers match a hundred percent, some match eighty percent. You know it depends on the company. But let's just say your employer, if you put in 6%, let's say they match 6.

So if you are making $1, 000 a month, $60 of that you give, Your company adds another 60, so 120 goes into the 401K plan, and then it's invested in the way you choose. There are several investment options within the 401K. They always range from safe to risky, safe being guaranteed very low rate of interest, risky being invested in international stocks or whatever. They have several different funds there and you can mix and match. One thing you should always avoid, in my opinion, you should avoid putting the money in your own company's stock within your 401K.

Typically these companies will have a series of investments and they'll always have their own stock because they, you know, you're part of that company, you can invest in that company if you want. Well if you think about your livelihood, your job is already linked with that company. That company needs to succeed for you to continue getting a paycheck. Your bonus, if you have one, is linked with that company. If you put all your retirement savings in that company stock and that company has a problem, you could lose everything.

This happened with some of the employees of WorldCom several years back. I read one story of a man who was, he had a great job and you know WorldCom for some of you, some of the younger people may not remember WorldCom but it was a company that went bankrupt essentially. So the employees lost their jobs, salary went to zero, bonus went to zero, and this particular person I read about had three quarters of a million dollars in a 401k which also went to zero. So had that been invested in other securities, they would have been able to preserve the 750, 000 and take it with them from the company. So diversification, that's a term that means spreading your risk out away from one or too few companies.

So what are some other ways that people can invest money pre-tax? Aside from the 401k, you have an IRA, an individual retirement account, which is very similar to a 401k only it's not attached with a company. This is just a personal thing. You establish an account with a bank or a firm and you can send a certain amount of money in each year and invest it virtually any way you want to. Any stock, any mutual fund.

You can even invest in real estate if you have the money in the right kind of IRA. So it's pretty wide open as long as it's an investment activity. You have to be careful that you don't derive personal benefit from it other than the investment earnings. For instance, you couldn't, within your IRA, you couldn't buy a house on the North Carolina coast and then go vacation in it every summer because you owned it. Now you're deriving a benefit from what's a tax-deferred investment and you will rapidly get in trouble with the IRS with something like that.

So it's for investment purposes only, but the options that you can invest in are very wide. A Roth IRA is similar to a traditional IRA except it is after-tax dollars. However, it grows tax-free while it's growing and then there are no taxes when you pull it out. So if you think about that, if you take $100 after-tax and invest at age 20 by the time you're 65 you could have a sizable amount of money in there it would all be tax-free assuming of course the government does not change the tax laws which would be very unpopular for them to do that to Roth IRAs. So let's talk about interest.

I'd like you to talk about the way interest works. I think there's confusion in people's minds when they say oh I'm gonna buy that car at X percent interest or that house. So get us under the hood about interest rates. Interest is an amazing thing because in your mind you know eight percent versus twelve percent interest doesn't sound like that big a difference. But if you take $100, let's say, and invest it at 10%, you're going to make $10 at the end of the year.

So you'll have your initial 100 plus 10, you'll have 110. If you were to just leave that in, so now you've got 110 for the second year and it gets 10%, it would be $121 because you're not only getting the extra $10, but you're getting that extra dollar because your interest is compounding, we say. So that investment of $100 to 10% would actually double in just 7.3 years. This number changes drastically when the interest rate goes up or down. If you invested the money at 15%, the $100 only takes 5 years to double.

And at 20%, 3.9 years. And the interesting thing about that is it doubles again in another 3.9 years. So at 20%, if you invest $100, 3.9 years you have $200. 3.9 more years you have $400 and $800 and so on. So the interest rate makes a big difference, a very big difference.

I remember when I first heard the term rule of 72 and it changed the way I thought about loans and interest rates and things like that. Tell us about the rule. This is an amazing rule. You know, I have an MBA with a concentration in finance. Never once was the rule of 72 mentioned ever.

But it is a very neat rule, and it works this way. If you're looking at investing or even borrowing, either way, at a certain interest rate, you take 72 and divide by that interest rate and you're going to get a number of years, you will get the number of years that it's going to take that debt or asset to double. In other words, if I borrow $100 from you at 12% and I hold onto it, you take 72 and divide by 12 and in six years, I owe you double. I owe you $200 because of the compounding interest in the way that works. And then of course in six more years I owe you $400, in six more $800.

So the rule of 72 works almost for any interest rate. So at 10% it takes about seven years for the number to double. At 18% in four years it doubles. So this is a quick way to make any person look like a genius when they're talking with anybody related to money because it's a quick approximation. And if we were to run it mathematically, it's amazing how it holds.

At 2%, it actually takes the money 35 years to double when the rule of 72 would predict 36. So it's off by one year. At 7%, it actually takes 10.24 years. The rule of 72 predicts 10.3. So it's only off by .1 years.

At 25%, the actual rate or the actual time is 3.11 years. The rule of 72 predicts 2.9. So this is pretty consistent all across the range of interest rates and it's a very quick way to calculate and it really you do you know you look at credit cards that sometimes have a 15, 18, 21 percent interest rate. Just think about that. If you didn't make any payment, if you're able to borrow the money from the credit card company and hold it, that debt's going to double every three years.

In six years it'll quadruple. In nine years it's eight times. Now in reality the credit card company requires you to make a payment every month, so it's not quite that easy of a calculation, but it really does set home how expensive it is to borrow money at that high of an interest rate. If you're looking at a car loan at say 6%, if you bought the car and didn't make any payments in 12 years, you would owe twice what you paid for the car. Now in reality they use an amortization table and you know they have it they have an equal payment over a fixed amount of years and this this table is fairly easy to construct in Excel and you can see the amount of principal which is what's paid off the loan, and the amount of interest that you're paying each month.

And I guess one thing to mention on that, if you do build one of those tables, and it's over a time period of 60 months or 120 months or whatever it is, If you look and look at the top, how much is principal and how much is interest equals the payment and you just tick down one more line and pay another principal, you're only going to increase your payment a little bit but you just knocked a payment off the back. So you can pretty easily see that the time that this loan is out really does cost you a lot in the end. So that's, if you do, you know, there are, I believe there are some, especially in the purchase of a house, There are some situations where it's probably okay to borrow money. But you, when you look at that amortization table, you can actually see that you can take off extra payments on the top and peel them off the back fairly easily. You know, I, you know, my counsel for young and old men is, hey, don't have a car payment.

Just buy your cars. Buy your cars, wear them out, throw them away, get another one, and, you know, don't, you know, don't get involved in car loans. But one of the things that often shocks people who do get car loans is that they find that they're paying the interest up front and that has to do with the amortization schedule. So the interest, you know, in the beginning payments you're paying, let's just say you have a $500 car payment, you know, you're paying 400 of it of interest and 100 of it of principal. And, of course, you know, the interest portion drops as, you know, as the loan plays itself out.

That has to do with the amortization schedule. You use that term. Explain amortization schedule. So the amortization schedule is simply on a loan at a certain interest rate, it is a table that calculates an even payment over the time of the loan. So if it's a five-year loan paid monthly, it will be broken into 60 even payments, each payment consisting of a portion of payback on the loan which is called principal and a portion of interest and that payment is the same every time.

Each time the principal gets a little bigger and the interest gets a little smaller. So it shifts as you go down the table. In the beginning as you said Scott very high interest by the end almost no interest is the way that works. I do think... Why do they do that?

To make money. Well so well one reason is so that after two years you've made all these payments, you haven't paid hardly any of the principal down on your car and you owe more than the car is worth. So you have to, you really kind of have to keep the car. You have to keep making the payments at that high interest rate. Two more thoughts on this.

You know, When you look at investing, there's really three types of things you can spend your money on. This might drift more into personal finance, but you can spend it on an appreciating asset, which would be an investment, a stock or a bond. Even a house is an appreciating asset most of the time. You pay for it and it's probably not going to lose value, probably increase some. Then there's something, there's most everything else which is a depreciating asset.

A car is one of the worst. You buy it, it depreciates 10%, probably just driving it off the lot, and then depreciates very rapidly in its first three years, then slows a bit, and near the end of its life it slows a lot more. That's why used cars are so attractive. The very worst kind of thing to purchase is something consumable, which would be a cruise. I'm not against cruises but if you're going to go in debt you really don't want to do it for a consumable thing because then it's gone and all you have left is the debt.

You don't have anything you can sell or anything that you continue to utilize. So that that's an interesting way to look at the assets we're buying. When you walk on a car lot and someone's there to try to sell you a new car, one of the first things you might hear is, how much would you like to invest? And they use the word invest. And when you hear that, the first thing you should say is a car is not an investment, it's a divestment.

Because it doesn't appreciate in value, it never will. I mean unless perhaps, you know, you bump into some car and you can get a little bit of return on it. But pretty much, you know, the moment you drive a new car off a lot, you've lost X thousands of dollars depending on how much the car was worth. And, you know, cars are not an investment. They are always a depreciating asset and you have to just recognize that.

You don't invest in cars, you divest in cars. The terminology investment that the car dealers use, and they don't call them used cars anymore, they're pre-owned. They sound better that way. Like you're willing to pay a little more for a pre-owned than a used car. The other thing I wanted to say, Scott, that was interesting right now is I think the young people today probably have a skewed view overall of what interest rates can do.

Oh my. So I was pretty young, but I was around when President Carter was in office. And mortgages back then were in the teens. If you're looking in the teens for a home mortgage, that is a completely different dynamic than we're dealing with today. I remember I had a paper route back in the late 70s, early 80s, and every month I would ride my bike to the bank and I would unload my hundred dollars I earned that month.

And I think my savings account at that time was paying something like five or six percent. You could actually see the interest. Now it's point one percent. So you still see your interest but it's two cents, three cents. On $1, 000 at .1%, you make $1 per year.

Versus that 12% car loan you might have, you're paying $120 on that $1, 000 you borrowed. It's a huge difference. Yeah, yeah. Interest rates are at an all-time low in my lifetime right now. Significantly lower.

I mean for things like houses and cars and things like that. So the interest rates are are so remarkably lower today than they have been for the last really 50 years in America. Many economists have been calling for those to increase for a long time And I do think they will increase, but they have been low for a long time. That's very unusual right now. Any other applications for young people in terms of interest rates, amortization schedules, how should they think?

I mean you run into amortization schedules when you buy a house or anytime you put something on credit there's an amortization schedule. You should always ask to see the amortization schedule to see how much and when you're spending your interest money. That's right. Better yet, it's so easy to get upside down on something. Better yet, you should learn how to create one on your own computer to make sure that it matches.

It takes just a couple of minutes in Excel and you do that and double-check that your amount matches what they're saying. You know the principal, you know the interest rate, you know how long, the term they call it. That's all you need to know to calculate that payment. Talk about no money down house laws. So, when you purchase a house, normally the bank would like to see you put 20% down.

And the reason they like that is they want you to have a stake in the property. If you put zero down, you don't have any skin in the game and if the house value drops, you now have what's called negative equity. In other words, the house is worth less than you owe. Now historically, normally houses go up. We did see an exception to that around 2007, 2008, where house values took a drop and a lot of people got in trouble.

I think as Christians, if we do borrow money, we are obligated to pay it back. I remember one of the things that irritated me throughout that period, you would hear people talking about strategic foreclosures. A foreclosure is when the bank comes and takes the house because you defaulted on the loan, you haven't paid it. You don't have an option to strategically foreclose. Even though the numbers may say that's better for you, you're not meeting your obligation to pay the debt you said you'd pay.

A borrower is a slave to the lender, the Bible says. So we have to enter any situation with debt very cautiously. But any time you have a zero down payment, it's a dangerous situation. It might be tempting. If I just might make a comment, you know, there are a lot of things out there in the marketplace that say 90 days Same as cash, 180 days same as cash, one year same as cash.

Basically come on in now, get the new riding mower, take it home, and you have this debt hanging over your head for the next year. Which by the way is accruing interest, However, if you pay it off within the year, they forgive the interest. They're banking on a certain percent of the people missing that end, and then, boom, the 20% interest piles on for the whole year. Years ago, I did a one-year savings cash where I outfitted my whole house with new carpets and floors and it was like I had this thing on my back all year. After about two months I couldn't wait to just pay it off and get rid of it because I was scared that I might forget it and all this interest would pile on me.

So it's best to avoid that. So you know so you get into a no-batten down payment house and the market slides. Well here's the reality. The market is always going to go up and down. And, you know, can you time it?

Around here, I think, you find a market slide every 12 to 15 years pretty consistently. And, you know, some markets are more active. Some markets have, you know, have shorter cycles in ups and downs. But buying a house when you're at the top of the market, when you buy the house at the top of the market, you have to recognize a down is coming. So you're going to want to be able to live through that downturn because it probably will come back but you might be stuck for quite a while like in this last one probably 3 to 4 years.

That's a good point. You know if you find, if you buy a house and you even if you paid a lot you know paid cash for it it still might go down but that's not the end of the story as long as you don't sell it at that moment, you don't actually realize any losses. If you're living in the house and it's keeping rain off of you and keeping you warm in the winter, it might recover. So we don't need to stress on these things. AW Pink, sovereignty of God, God has control of all circumstances.

So if we find ourselves in that situation, we can still be happy. Al, let's talk about different kinds of investments, CDs, bonds, stocks, mutual funds, things like that. Sure. So, CDs are certificates of deposit and what they basically are is an investment at the bank at a certain interest rate where you agree not to touch the money for a certain period of time. It can be a short time frame like a month or two.

It can be a year, two years, five years. The longer you leave the money in there and the more you put in, the higher interest rate you're going to receive. Now today, these aren't too much better than savings accounts. They are some better but they're in the range of point, well let's see there about .7, .8, .9 percent, 1 percent. They're not very high.

You tie up your money for seven years, you can get 1.05% on a value up to $100, 000. That's not very good. That's an investment you'll want to make if you can't afford to lose the money. So maybe you're 85 years old, You don't have time to weather a market dip in recovery. You might want to look at something like this.

Especially if you don't need the money right now, but you want it to be safe, fairly safe. I say fairly because the stability of the economy is always something to be concerned with. But these CDs are essentially looked at as very, very, very safe investments. And they're held by banks. The next level up would be bonds.

You can buy government bonds. You can buy corporate bonds. I included one in my PowerPoint for the Confederate States of America just because we're here in the south. But bonds are simply a loan. You loan money to the government, that's a government bond.

You loan money to a corporation, that's a corporate bond. So these things, you know, you can receive in the four, five, six percent, and bonds are rated by professional agencies from very, very safe, triple A's, all the way down through junk bonds. So they're linked, they're basically judged on their risk, the likelihood they'll be paid back and obviously the interest rates are higher, the higher the risk that they'll default. If you're investing in a company that's on shaky financial grounds, you're going to want a very high interest rate because there's a higher probability that you're not going to get your money back. Now another thing to mention on bonds is you don't have to wait until the end until the bond matures.

These things are easily traded in today's market. The tools that are available to the home investor these days go beyond what your professional stockbroker had just a decade ago. There's a lot of tools available to give the home trader a lot of interesting things to do. The next level of risk would be stocks, often called equities. These are ownership shares in companies.

You can go out and buy a share of McDonald's or whatever you want or multiple shares. And this is an investment. You would do this if you thought the stock was going to go up or and or if there was a dividend. A dividend is money that's paid by the company to the shareholders. Typically each quarter it's a share of the profits.

Some companies that are fast growers don't pay dividends, other companies pay large dividends. The percent of dividend it pays relative to the stock price is called the dividend yield. So a lot of guys like dividends because it's money coming in, but those typically aren't your high-growth stocks. If you're investing in a Tesla or something like that, you're probably buying it because you think it's going to appreciate in value. If you're going more for a company that's been around a long time that pays a dividend, then you might be investing for the dividend.

One thing to note, when you invest in stocks, you don't want to put all your investment in one stock because not only do you have market risk, you have company risk. If the CEO turns out to be a thief, or the company violates federal law in something, or it's an airline company and they have a crash, that stock's gonna drop when the rest of the market won't be affected. So you want to mitigate the company's specific risk by investing in multiple stocks. That's called diversification. It's one of the biggest mistakes made.

Put two money assets in one thing or one series of things. You know if you put them all in airlines, if you have United, Delta, American, whatever, and something happens to the airlines, they all go down. So it's preferable to have one in manufacturing, maybe one in different areas to diversify against it. Now if the market, the whole market goes down, you're still going to go down. But you've reduced the company risk or even the industry risk.

And then beyond that you can get into some even riskier things like stock options. Those are really beyond the scope probably of this discussion. So savings accounts. Talk to us about savings accounts. You know savings accounts really should, and this probably drifts more into the personal finance area, they should be a buffer against things happening in life.

You know, we do have things occur in life, air conditioners break, the roof needs to be fixed, someone breaks an arm and needs a medical treatment. You should spend less than you bring in and then create a savings account. Only after you have that should you begin investing. I talked earlier about a savings account being an investment, but only because it pays a small amount of interest. You could, on looking at the scale of low to high returns, you could say savings accounts on the bottom.

But really, I think we can probably consider it zero interest since it's so low that you're not going to make anything significant from that. So a savings account should be where you keep your excess that you're saving for potential hazards that happen. I know some people recommend three months of your income and savings or six months. I don't think many people have that, but that's a recommendation. It allows you to handle situations in life in a little calmer situation.

If you get laid off from your job and you have six months of income savings, you've got time to recover and decide what you're going to do. If you're living paycheck to paycheck, You have a catastrophe now. So I think it helps with a more stable situation if you have a savings account. Yeah, so the stock market. So the stock market goes up and down.

What are your recommendations for that? Okay, Well the stock market does go up and down and sometimes it goes up and down a lot. Just to give you an example, some years it's gone down 30% or more. You know if we look at the Great Depression which occurred in 1929, started there, you had in 29, now the market crashed in October of 29. That year there was an 8% loss in the market right and it was I don't recall the return up to October but it was booming through the roaring 20s.

Finished 1929 down 8%. In 1930 it was down another 25 percent. In 31 it was down 43 more percent. In 32 it was down another 9 percent. So if you had money in the stock market and you rode it through that period, you were down, you know, 60-70%.

You lost a lot. But in 1933 it was up 50%. So there's wide swings. You know, so when you invest in the market, you might, if your timing is bad, you might take a loss. But the thing about the market is over the long term it normally goes up.

So the historical return on the market over the last 90 years or so is 11.53 percent, roughly 12 percent. And by using our rule of 72 we know that an investment in the market is going to double that every six years. So in 12 years that's four times. In 18 years that's eight. 24 times is 16.

And this is a lot of money if you invest at age 20 through age 65. If you look at 10 year periods of the stock market, pick almost any 10 year period, I think there may have been one where there was a negative return and it was small. But in most cases the market's gone up. So what I'm saying is the longer you're invested in the market for, your probability of loss approaches zero. Now you're going to get swings all the way through.

And the other thing with developing a habit of investing throughout your life is you benefit from what's called dollar cost averaging. When the market goes up you feel great because the money you put in there is now worth a lot more. Even though you're not taking it out you can look at your statement balance and say wow I'm making some money. When it takes a dip you can feel good because the $100 you put in this month just bought 50% more than the $100 you put in last month. So over time this investment strategy of a consistent small investment adds up.

In fact I had done some numbers. So a young investor Scott at age 20, if someone just took $100 and put it in the stock market, and let's assume that the market does return 12% throughout that person's lifetime until age 65, that $100 invested once, I'm talking about one time, they did it once and never again. Turns into $16, 399 by the time they're 65. Now, that sounds like a lot. You have to adjust it.

45 years in the future, that $16, 000 only buys $4, 300 worth of goods today. So in today's dollars it's $4, 300. But you only put in $100. If you do the same thing but wait 10 years before you do it, so at age 30 you put in $100 and you pull it out at 65, instead of being $16, 000 it's only $5, 280. It's one third of what it would have been ten years earlier.

If you invest $100 at 12% once per year between ages 20 and 65, you have $137, 580 when you're 65. And if you invest $100 a month from age 20 through 65 at a rate of 12% return, the average return of the stock market, you have over $1.6 million when you're 65. This illustrates the time value of money and compounding and slow, steady investing. What a lot of people do is they go into their 20s, they decide what they're going to do. At around 32, They started thinking, well, I should probably invest something.

They don't really get serious until later in life, but the early years are the ones that are so beneficial at the end because that early invested money has a chance to grow. And by the way, when you accrue these assets, this allows you to do so much more ministry-wise later in life. If you want to do something, you have resources and abilities to do things that you wouldn't have otherwise if you hadn't planned this way. So the time, I guess that's one of the big messages I would like to leave is that time is a huge thing with regard to investing. So you got the stock market, now you have mutual funds, which is a little bit of a version of the stock market.

Talk about that. So mutual funds what they are is there's a fund manager that runs the fund and the manager buys and sells stocks and other securities actively in an effort to make the fund outperform the market. Now these funds all have a different twist. They might be real estate funds or they might be overseas funds and they might be large cap funds or whatever. You know there are so many funds out there.

I don't know how many but hundreds probably thousands of them and you can research and you can see what's the rate of return of the fund over the last year last five years since inception who's the fund manager. Now some of the funds that are really actively managed, they have a fairly large fee associated with them. So not only do you have to, not only does the fund have to beat the market, but it has to beat the market enough to pay the fee of the fund managers. Because the harder they work, it makes sense, The harder they work researching the companies they're going to invest in, the more it costs, the larger staff they have to have. Some of the cheaper funds, when I say cheaper, the ones with the lower fees are what's called index funds.

And all they do, they copy the market. So, an index fund would copy the S&P 500. That's not too hard to do. You just look at the companies that are in the S&P 500, you buy all those, you bunch them in a fund, and that's your index fund. Now, the thing about mutual funds that's so neat is, remember I mentioned company-related risk before?

The risk that a company would break the law, gets sued, go bankrupt, the executives would be filed with criminal charges or something like that. That's mitigated because if a mutual fund invests in 50 different companies or whatever and one of them goes bad, it's not enough to influence the overall fund. So mutual fund has a built-in company risk mitigation or diversification we say that is not present when you invest in a single stock. A lot of people invest in mutual funds. They're a good way to go.

And most of the 401K plans have mutual fund options in there with the exception of the company stock of the company you work for. You won't have any other individual stocks in your 401k except the company you work for. The rest will be mutual funds and they'll usually be several flavors. Very limited choices, seven or eight you can choose from in your 401k, whereas out in the world there are literally hundreds of mutual funds. So they're a pretty good way to go.

What are some of the biggest mistakes a young person can make in investing? Biggest mistakes I would say, first of all, is not investing. Not doing it. Not doing it at all until 30, 35, 40, 45 years old. Get in the habit of, even if it's 20 bucks a month, 30 bucks a month, 50 bucks, you know, get in the habit of doing it.

And then if you find yourself working for someone else, I know a lot of folks are entrepreneurs and that's great, but if you find yourself working for someone else or some corporation and they do have a 401k, definitely participate, especially up to the company match level. Now, you're allowed to contribute a lot more on a 401k, but the company match caps at a certain level. So, you really, once you get past the company match, you really have to evaluate, do I want to continue to invest more here or somewhere else? Should I do an IRA or something else? But that company match is too good to pass up in most cases.

And it does amass very quickly. You'll blink and in a year or so or two years, You'll be amazed at how much money's in there, especially if the market happens to be going up at the same time. And then you can actually move that money around as you see fit inside the 401k. You can also adjust your investment direction when you're making your contributions every paycheck, you can direct it to which funds you want to go into. Sure.

So, I mean, we're here to discourage people from debt. What are your thoughts about that for young people especially? What are the temptation points? Well, you know, we live in a society that thrives on debt right now. In fact, a lot of times you go to purchase something, they almost prefer you to finance it because they know they're going to probably profit from the interest.

You go to these department stores, you'll get a 10% discount right at the register if you get the credit card, and that's tempting sometimes. I've actually done it. If my purchase is big enough, I'll do it and then pay it off immediately. I know that's dangerous. Normally I say no, no, no, but if I'm buying something that's $3, 000 and there's $300, I've done that before.

I have to admit, I don't know if that's wise or not, Probably not, but I have closed the account right after that. But it's a temptation. The society loves to function on debt, and we've become a society that doesn't save. I think my grandparents, they saved money. I know they did because I've seen it.

Today, we don't. We're more accustomed to completely using up our resources. We've gained this mentality that the government will take care of us later. You know, we're participating in social security and I think we're not thinking ahead like we should in most cases, in many cases. So I think the biggest mistake is not investing.

The second biggest mistake is probably not researching carefully what you're going to do. If you hear, like I said before, if you hear of something that sounds too good to be true, it probably is. You need to understand it before you invest in it. And then don't invest with the idea that I'm going to make this investment and three months from now I'll pull the money out after I've made a ton and buy a new car. If you're looking at a three month window, probably not going to work out for you.

If you're looking at a three year window or a ten year window, it probably will work out for you. Like I said, you've got ups and downs. The longer horizon is definitely the better way to go with that. Well, I think the Christian mentality is for increase. And Christians should increase the things that God gives them and that's what investing is all about.

So I appreciate your thoughts. Thank you, Scott.