Mutual funds offer a convenient, simple and efficient way to achieve diversification. This is ideal for many investors who want a broad exposure to different types of investments without having to own hundreds or thousands of individual stocks or bonds. By owning one mutual fund, you can typically own between 30-500 underlying securities and spread your risk out among many names instead of trying to pick the specific winners or losers.
But have you ever stopped and wondered what’s really inside these funds? We tend to forget that when we buy a mutual fund, we own more than just a bunch of “stocks”. In fact, we become owners in the underlying companies. When the companies we own do well, we benefit as owners.
While I normally wouldn’t turn over my money to someone else and blindly ask them to buy me a company, that’s exactly what we’re doing with mutual funds. Every mutual fund has a fund manager, to whom we have given the responsibility to select the individual stocks and bonds to best meet the fund’s objective. We’re trusting that they know what they’re doing and are relying on their credentials and track record to make good decisions.
In many ways this is a great delegation of responsibility. It’s the same way that we trust the pilot of a plane to get us to our destination – we don’t feel the need to analyze every lever he pushes in the cockpit. But investing comes with an additional layer of responsibility because of stewardship.
When we understand stewardship, we understand that none of our money truly belongs to us. It’s all been given as a gift from God (1 Cor 4:7), to be managed on His behalf. And as stewards, it does matter what companies we own, because that’s where our profits are coming from. We have a responsibility to do good with what’s been entrusted to us in addition to doing well. Contrast this to the mobster’s wife who doesn’t want to know the source of that fancy diamond necklace.
I don’t have the time or desire to research the hundreds of companies I own any more than you do. It would be a full-time job, which in fact, it is (those mutual fund managers!). But I do want to have confidence that I can feel good about the types of companies I’m owning, the ways they conduct business, and how my profits are being generated.
The good news is that it’s not very hard to accomplish this these days. There are over a dozen different fund companies that specialize in Biblically Responsible Investing, who acknowledge the same responsibility of stewardship. While not everyone will agree on exactly what is morally “over the line”, most of us can agree that there is a line out there and we should make efforts to stay on this side of it.
If you’re unsure if the companies you own are generating profits in a way you’re comfortable with, let us know and we’d be happy to help you analyze the holdings. In fact, we’d be happy to provide you with a free portfolio screening review and we’ll send you the results. Don’t be a mobster’s wife – find out today exactly what you own! “For if you have not been faithful in handling worldly wealth, who will entrust the true riches to you?” (Luke 16:11).BACK TO NEWS