August 9, 2018
Don’t let a celebrity’s tweet or E. coli ruin your retirement. Really.
We save to give. This is part of God’s design for us and our money. We save and invest for retirement so we are free to live and give generously during our retirement years.
So how you invest for retirement matters. And investing your money in one, or even just a few, stocks is not best. There are many shocking stock stories that show you and me this.
But first, what is a stock?
Imagine for a moment that you cut a deal with your friend who was buying a small home. The home was worth $100,000. To purchase their home, you gave him $10,000 (or 10% of the home’s value). This was your share of the home. In the deal with your friend, your share’s value would go up or down based on the home’s value. So if the home’s value doubled to $200,000, your share of the home would double as well. Your $10,000 becomes $20,000 (still 10% of the homes value). Of course, if instead of doubling, the home’s value is, for some reason, cut in half to $50,000, your share is cut in half as well, so $5,000 (which still reflects your 10% share of the home).
This is kind of how stocks work. Each stock is a share (or a partial ownership) of a company. This is why those who own stock in a particular company are referred to as shareholders of the company.
The value of a stock goes up or down based on the perceived value of the company.
Now, here are five shocking stock stories that you should know:
- Enron. For six straight years, Fortune magazine called Enron “America’s Most Innovative Company.” When 2001 started, the company’s stock price was around $80 per share. But everything was not as it seemed. Enron was entrenched in corporate and accounting fraud. By the end of the year, Enron had filed for bankruptcy, and its shares were worthless.
- General Electric (GE). General Electric is one of America’s great companies. From the 1980s to 2000, the stock continued to increase in value. Because of this, many viewed the stock as a stable and trustworthy investment. What could possibly go wrong with investing a major percentage of your retirement in a longstanding, large company like General Electric? In 2000, the company’s shares were worth close $60 per share. Since then, the company has faced several challenges, causing share to be worth about $14 per share today.
- Sears (SHLD). Sears stock was made available to the public in 1906. By 1969, Sears was the largest retailer in America. Sears was still a retail powerhouse in the early 1990s. However, things began to change. Competitors like Walmart, and, now, Amazon took over. The retail giant wasn’t able to keep up. In 2007, the Sears’ stock was worth around $122 per share. Now, they are worth about $3.00 per share.
- SnapChat (SNAP). Admittedly, I don’t use SnapChat that much. But my SnapChat usage is not what you should be concerned about. You should be concerned about Kylie Jenner’s SnapChat usage. Why? Because apparently everyone else is. In 2017, celebrity Kylie Jenner tweeted out that she doesn’t use SnapChat anymore. This resulted in a 6.1% or $1.3 billion decrease in SnapChat’s value. Just one tweet cost a company over $1 billion.
- Chipotle (CMG). Personally, I love their food. But I wouldn’t bet my retirement on them (or any individual stock). In 2015, Chipotle’s stock price plummeted due to E. coli outbreak that caused 50 people to get sick. In 2016, a few tweets reporting that a person had become sick after eating at Chipotle cause the stock to go down 3.5%. And in 2017, a celebrity’s Instagram story regarding her getting sick after she ate at Chipotle caused it to fall 5.9%.
What is the lesson of these stories? You can’t rely on individual stocks for your retirement. So diversify. Don’t invest in one or even just a few stocks. Spread your retirement investments across many different stocks and other investments.
How do you do this? Mutual funds are one option to consider.
Mutual funds help limit the risk that individual funds brings by bundling several stock together, picked by financial professionals.
Think of a mutual fund as a company, and this company exists to buy and sell stocks and other investments on your behalf in hopes a giving you a good return on your investment.
Just like you can purchase a portion of a company, also known as a stock, you can purchase a portion of a mutual fund. And like a stock, this portion is also called a share.
Your share goes up with the value of the mutual fund goes up. Likewise, your share goes down when the value of the mutual fund goes down.
Different mutual funds (like different companies) have different goals and strategies to achieve those goals. So, if you are looking for a mutual fund, be sure that its goals align with your goals.
So don’t let a celebrity’s tweet or E. coli ruin your retirement. Diversify the investments in your retirement savings.
Written by Art Rainer, member of the Summit Stewardship and Generosity Ministry Leadership Team.
Get resources like this one directly into your inbox by signing up for the Stewardship Ministry Digest.