| This is the last post of the 4-part series of "Can | | | | Catholics), exclude buying individual stocks because |
| a Good Catholic Be Wealthy?" I hope by this time, | | | | the losses can be so great. Mutual funds have |
| I have convinced you that it is morally acceptable | | | | emerged to be the vehicle of choice for many. |
| for a Catholic to be wealthy. Although in theory, | | | | Because they invest in many stocks, chances of |
| this is not difficult to accept, there seems to be | | | | losing 80% of the original investment is very slim. |
| an unwritten rule against anyone making lots of | | | | To any responsible person, mutual funds are the |
| money in a short span of time without actually | | | | way to go. It must be a way to go for Catholics |
| working for it. I believe this thinking, at least in | | | | as well, is it not? I will go to argue that it is not |
| part, has stemmed from our understanding of the | | | | for several reasons. |
| original curse, "Cursed be the ground because of | | | | Why Investing in Stocks is Superior to Investing |
| you! In toil shall you eat its yield all the days of | | | | in Mutual Funds in Every Way |
| your life...By the sweat of your face shall you get | | | | 1. Ethical Investing - If you own a mutual fund, |
| bread to eat" (Gen 3:17, 19). | | | | can you tell me what are its top 10 holdings? No? |
| The perfect example of such a way of earning | | | | What about its top 5 holdings? Still no? What |
| income is, of course, gambling. No work is | | | | about its top holding? Well, then you're in serious |
| involved in gambling (unless you're counting cards | | | | trouble, my friend! As this blog will explore more |
| in Blackjack!). Any earnings or losses result purely | | | | down the road, ethical investing is a big part of |
| from chance. Especially in fundamentalist circles, | | | | Catholic investing! We are morally obligated to |
| gambling is considered a sin. What does the | | | | invest in companies that do not act contrary to |
| Catholic Church say about gambling? We don't | | | | the laws of God. For example, did you know that |
| need to look far...the Catechism of the Catholic | | | | Merck produces vaccines made in part from |
| Church (CCC) paragraph 2413 states: | | | | aborted fetal tissue? If the mutual fund that you |
| Games of chance (card games, etc.) or wagers | | | | bought owns Merck, you are indirectly putting |
| are not in themselves contrary to justice. They | | | | your money in a company that may be acting |
| become morally unacceptable when they deprive | | | | contrary to your conscience. If you want to |
| someone of what is necessary to provide for his | | | | invest ethically in a mutual fund, you should keep |
| needs and those of others. The passion for | | | | up to date with the hundreds of companies that it |
| gambling risks becoming an enslavement. Unfair | | | | owns and ensure that each and every company |
| wagers and cheating at games constitute grave | | | | are acting in at least ethically neutral ways. On the |
| matter, unless the damage inflicted is so slight | | | | other hand, it would be much easier to do |
| that the one who suffers it cannot reasonably | | | | research on just a few companies. |
| consider it significant. | | | | 2. Mutual funds are not immune to market |
| Therefore, the Church has exonerated gambling! | | | | downturns - as most mutual fund investors just |
| Next time you win a few bucks at the casino, | | | | found out the hard way in 2008-2009, mutual |
| you don't have to lie about it to your friends at | | | | funds can drop by as much as 50% in a bear |
| church. The caveat is that the likelihood of | | | | market. If you think by buying mutual funds, |
| gambling leading to sin cannot be underestimated. | | | | you're reducing your risk, you may want to do |
| It can lure us into various sins including several of | | | | some rethinking. Mutual funds simply own multiple |
| the 7 deadly sins: greed, wrath, envy, lust and | | | | stocks and if those stocks drop by 50%, there is |
| even pride. | | | | nothing preventing the fund from dropping by that |
| Using your imagination, you can visualize someone | | | | much as well. Your best bet against this drop is to |
| who has fallen or is on the verge of falling into sin | | | | spend some time doing your homework and buy |
| because of gambling. He would have brought | | | | rock solid stocks (or even liquidate in a bear |
| much of his family's savings to the casino and lost | | | | market). |
| it all, getting involved with loan sharks, lying to his | | | | 3. Mutual funds really don't do that great - it's |
| wife, etc. etc. Much of this type of visualization | | | | simple math. By investing in many stocks, a |
| can be transferred to someone in the stock | | | | mutual will achieve the average of the returns of |
| market. It's the year 1999 and our imaginary | | | | all of the stocks. Even if the fund manager has a |
| "investor" friend has witnessed his co-workers | | | | few awesome picks, those great returns will |
| make a killing buying stocks like Cisco and Nortel | | | | always be dampened by the underperforming |
| Networks. He soon sells all of his bonds and | | | | stocks. Why would you want to get an average |
| mutual funds and buys the above mentioned | | | | return anyway? If you look at the S&P 500 |
| stocks. At first, he sees his investment grow by | | | | index, from August 1999 to August 2009, the |
| 20% in a couple of months. Then, towards the | | | | return was -22%. Say what? Yes, you would |
| end of the year 2000, his stocks begin to sink. | | | | have lost 22% if you bought a S&P 500 |
| Thinking that they would bounce back, he takes a | | | | index fund 10 years ago. That is the reality of the |
| line of credit and "averages down", buying more. | | | | market average. On the other hand, if you had |
| A few months later, the stocks continue to drop. | | | | bought and held Apple (Ticker: AAPL) for the |
| This time, he re-mortgages his house and | | | | same period, you would have made more than |
| averages down even more. By the time the | | | | 800%. How difficult was that? Not very! |
| summer of 2002 comes around, he has lost more | | | | Going back to Genesis...in the beginning, God did |
| than 80% of his original investment and is in a ton | | | | not intend for us to have to toil to make a living. |
| of debt. There is very little doubt that investing in | | | | So, why would it be contrary to His will to invest |
| stocks has led him to sin. He has put his own well | | | | in stocks to earn good returns, as long as we |
| being along with his family's into jeopardy. | | | | invest in ethical companies and in responsible |
| This type of "investor" is among many who give | | | | ways? In future posts, we shall explore together |
| true investors a bad rep. They are the ones who | | | | these various aspects of investing. Of course, we'll |
| create a bad aura around stock investing. Thus, | | | | learn how to make some good money in the |
| responsible investing, for many people (including | | | | market as well! |