Dear Chuck,
I’m new to investing and don’t really understand the ramifications of inflation and deflation. I would like to position myself to minimize loss regardless of what happens. Any tips?
Novice Investor
Dear Novice Investor,
I am not a professional investment advisor but can give you some Biblical financial principles that will help you get started on a solid foundation.
1. Investing involves the risk of losing money. Be sure you have an emergency savings account in place before investing money. Don’t invest any money that you cannot afford to lose.
As my friend, Vince Birley says, if losing money makes you upset, maybe you need to give it away instead of investing it.
2. Avoid investing to simply acquire wealth. Motives matter to God.
“Do not toil to acquire wealth; be discerning enough to desist. When your eyes light on it, it is gone, for suddenly it sprouts wings, flying like an eagle toward heaven.”
(Proverbs 23:4-5 ESV)
It is better to start small and learn. Money quickly earned is also quickly lost.
Patience and humility are qualities that will help you.
3. Use your mind by reading, researching, and gaining knowledge on anything you are interested in so you can invest with wisdom. Far too many novice investors make guesses, take foolish risks, or follow advice from a friend that only tells you of all their success!
“By wisdom a house is built, and through understanding it is established; through knowledge its rooms are filled with rare and beautiful treasures.” (Proverbs 24:3-4 NIV)
4. Don’t try to time the market or predict the future.
No man knows what tomorrow will bring, so regardless of what all the get-rich-quick books may tell you, it is not a good idea to attempt to invest based on what someone has convinced you will happen to a stock, or gold or real estate or any other opportunity! Invest based upon your conviction that you believe the investment will perform well over time and you are willing to be patient even if it goes up and down in value.
Understanding Inflation and Deflation
Think of a balloon. Inflation causes it to expand. Deflation causes it to contract.
The consumer price index (CPI) is the most common measure of inflation and is reported monthly by the Bureau of Labor Statistics. It averages a set basket of U.S. goods and services that includes 8 major groups: housing, food and beverages, medical care, recreation, apparel, transportation, education and communication, and others. When aggregate prices rise, the purchasing power of a dollar declines and vice versa. Central banks attempt to keep a balanced economy by conducting monetary policy which includes the setting of interest rates. However, the dollar can be impacted by things beyond our control.
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SOURCE: Christian Post, Chuck Bentley
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