What Are Mutual Funds & ETFs: Your Easy Button for Diversification?

You ever search for that easy way to invest?I was thinking about as I was preparing for the show today, that Staples button, you remember that thing from a few years back, it just said easy on it. You press the button, well, what if investing could be just like that? And I got a great listener question. And it's what the listener said.She said, Ralph, I really don't understand mutual funds and ETFs. Everyone talks about them, but they sound complicated. Are they actually worth it? And I thought to myself, that is a truly great question.And I'm gonna talk about fees later on because there are some fee considerations with this. But that's exactly what I want to talk about on today's show.I want to talk about mutual funds and ETFs, because if you're looking for an easy way to invest, this is really a great way to get started. Let's cover that on today's show.This is Financially Confident Christian, your daily dose of gospel, grounded insight and faith driven tips to to help you break the cycle of financial shame with confidence. Hello there. Welcome to Financially Confident Christian. I'm Ralph and I'm so happy that you've chosen to join me today.The truth is, mutual funds and ETFs are just not as complicated as they may seem. In fact, a lot of people feel overwhelmed when it comes to investing. And that's why I decided to do this 30 day series.Because I said there are so many people that, that would benefit from learning how just even if it's just basic pieces of investing. Because so many people feel overwhelmed as soon as you use the word investing. I've heard it so many times in my practice, Ralph.As soon as you say that, I feel completely overwhelmed. But the cool thing is these mutual funds and ETFs, in a lot of ways they may just reduce that over them and they could be as simple as that.Easy button. And I've spent 30 years, it's hard to believe when I think about it.I spent 30 years working with people trying to help people just like you break that financial shame that comes along with bad financial decisions. And in so many ways, a lot of times it's just a function of not understanding. So you just need to be educated on this thing.And that's the whole reason that I started this show. It's all about how to become a financially confident Christian.And I did that because my goal at the very onset of this was to give you the tools to make better financial decisions. And the thing is, most people don't understand that Mutual funds and these EFTs, they've already investing in them.If you've cut a retirement plan at work or you've got a 401k or 403b or 457b, they're all these type of things, or an IRA. Oftentimes you'll, your broker is investing in mutual funds because you're not investing in that one individual stock.It's almost like a gamble if you think about it. When you're investing in that one individual stock, you better hope you understand what you're investing in.And I'm telling you right now, this is the truth. This is brutal honesty. I've avoided these things myself for so many years.I'll never forget my oldest son called me one day and he said, dad, I'm thinking about investing in ETFs now. Of course, I didn't want to sound like an idiot when it came to my son's. I'm, oh, yeah, that's a great idea, son.I had absolutely no idea what he was talking about. So as soon as we hung up the phone, I got online, I started researching these things and I had to learn about them.And that's what I wanted to convey to you today. What are we talking about today? I'm going to make it really simple.I want to simplify this so that you can understand this, so that you can put these things to work. And I found this quote as we're preparing for today's show. It's from Jack Bogle. Now, Jack is the founder of Vanguard, and he famously said this.He said, don't look for the needle in the haystack, just buy the haystack. And in a lot of ways, these mutual funds and ETFs, that's exactly what they are. They're the haystack. One of the things that these things do.And honestly, that quote from Jack really captures what these mutual funds and ETFs do. Because instead of guessing, you're not trying to bet on winners.You ever had that friend at work that says, hey, Ralph, I got a sure bet in the market, but these ETFs and mutual funds are really allowing you to buy that basket. So you can get all the winners at the same time. And if you have a loser, I should say, you don't lose all your money.And it completely removes the guesswork. So let's talk about the basic principles of these things. A mutual fund. A lot of people hear the word mutual fund.They say, Ralph, you've already lost me. Don't get lost in this. Think about a pool. It's just a pool of investments.It's just when a bunch of different investments come together and they're managed by a professional. So if you think about it, these big Wall street executives have these folks that are money managers for them.Well, you can do the same thing by buying into a Mutual Fund or ETF. You basically have a professional manager. Now, ETFs are just about the same as that. Now, I'm not going to get into the weeds in this, but.But basically, an ETF is traded like a stock. It's sort of like a hybrid. So you can buy these ETFs and you can trade them just like you're on the stock market.Here's the most beautiful part of all of this, the reason that I'm really talking about this today. Both of these things provide instant diversification.One of the things you want to be careful of when you're investing in the market is you want to diversify your investments. You don't want to have all your eggs in one basket. I've had clients and been in that situation before because this is the key.You want to make sure they're diversified.So if, for example, one industry fails, and we're going to get into a little bit more details here in a few minutes, but if one industry fails or a particular company in that industry fails, you don't lose all your investment. And they also. These things are great because they reduce that pressure.So many people have said to me, Ralph, when it comes to investing, I feel this pressure on me. And listen, I felt that pressure, too. I've had people say to me, Ralph, what. What would you invest in?Now, I, as a practice, don't offer direct investment advice. I help people make investment decisions from the standpoint of deciding to invest, how much they should put into it.I talk about the tax impacts of that, but I don't get into picking winners and losers because there is a ton of pressure on that.And the thing I want you to remember right off the jump here, before we even move on at all, a lot of people have asked me, they said, Ralph, but if I invest in these, is there no risk? Yes, there's still risk. You're just not betting on one.So you're removing the gamble and you're removing that thing about, oh, I'm going to invest in these sure things because this thing's got to win for me. How many times have you heard that around you, that sure thing? Next thing you know, that stock's not Worth a thing.Well, let's go a little deeper now, because I wanted to just. I want to scratch the surface there for a second, but now I want to go a little deeper into this.Mutual funds are basically a weight that you can gather money for from many investors. So that's basically what a mutual fund is. Mutual fund goes out into the market and they say, hey, we've got this fund. This is our principle.This is our prospectus of what we're going to do. This is the idea that we have behind it.A money manager usually manages that, and they buy a mix of stocks, they buy a mix of bonds, all different things that go into that. And guess what? When you invest in that mutual fund, you're buying a piece of that mix. So you've maximized your diversification.Generally, they're run by investment managers who are much wiser than you and I. Let's just be honest with that. You don't come to me for investment advice. And like I said, ETFs are very similar.The only difference with them is they're a bit cheaper, so they allow you to get into the market at a much lower rate. I talked about that on the show the other day. You can start with something as little as 25 bucks, and you can buy and sell these throughout the day.Again, it all comes down to diversification. If you work with an investment person, if you work with a broker. Many of my clients work with brokers.You may have a broker right now that you work with most of the time. If you have an effective broker. I'll say I probably should have said that from the beginning.If you've got an effective broker, they're going to work to help build diversification. Because what does diversification really mean? I guess I should have started there. You're spreading your risk.For example, if you went out and played just one stock, and I had this situation with a client not too many years back, they actually owned Exxon stock. And I'm not picking on Exxon, but. But Exxon, and this is many years ago, had a major disaster up in Alaska.And all of a sudden that Exxon stock took a nosedive because this particular client was only invested in Exxon stock. They weren't diversified. So that stock turn hurt them immensely. And that's the reason to diversify.And like I said, I don't want you to miss out on this. There is still risk in this.You can't completely eliminate risk, but you're eliminating some of it because you're smoothing out those rises and falls in the market because you've got this basket of investments. And generally they're in different sectors. What I mean by that is you may have some things in pharmaceuticals, you may have things in utilities.And the idea is, generally speaking, the whole market doesn't take a crap at the same time. And it's kind of a harsh way to say it, but generally that's the way it works. It doesn't all happen at once.So by buying this basket of investments, you're spreading that risk over many things. And you've got to understand, though, costs do matter. I'm gonna talk about that later on in this week.I'm gonna tell you how to really get under the hood and see what your costs are related to these investments. Because some mutual funds unfortunately have some pretty high costs. But you gotta go into that, understanding that.And I always wanna tie things back into Scripture. That's one of the reasons you join me, I hope. I always want to try to base us in scripture. And I found this quote from the book of Proverbs.It's from Proverbs 24, verse 27, and it says, put your outdoor work in order and get your fields ready. After that, build your house. And that's exactly what I'm talking about on today's show. Diversification.It's about laying out that right foundation first.When I work with small business clients, the thing I tell them time and time again is, is it starts with a strong foundation while mutual funds and ETFs help get you to that strong foundation. So if you're like me, I would love to have a strong foundation. This is a great way to start. How about we pray together today?Lord, we just thank you for the provision you give us in our lives, Lord. We thank you for these things like mutual funds and ETFs, Lord.And as we navigate these investments decisions, Lord, we would ask that you would help us to be wise and help us to find ways to. To simplify these things that can be so confusing on their. On their basis of what we usually see, Lord.But at the same time, Lord, help us to be patient. Help us to not always be looking for that one big winner, that one thing that's going to just shock the market. And we're going to.We're going to make a ton of money overnight, Lord. Help us to invest steadily, Lord, because that's what your word talks about. That, that honest and routine and consistent investment.Lord, help us not to chase those fads. It's so easy to chase those fads. Those get rich quick overnight things, Lord. And Lord, we just always surrender our trust in you, Lord.We're not trusting in the market. We're not trusting in our money, Lord. We're trusting in you. And we just surrender that to you.And we ask all these things in the precious name of Jesus. Amen. I always want to give you an action item as well. And I thought about, okay, well, what can I do today? Here's a great idea.Go into your retirement. Most people have a retirement account or some sort of investment account. If you don't, this is a great idea to start studying those things.But log into your account and take a look at what you have. Chances are you're going to be invested in mutual funds or ETFs. Go find that name of that mutual fund and do some research about it.See what companies make up that mutual fund. It might be surprising to you just how many companies you're investing. A lot of people are surprised when they do this.Like Ralph, I didn't realize I invested in all these companies. I just thought I had this mutual fund, this American fund, or this Vanguard fund.But when they got into it, they were amazed at how many different companies they were actually investing in. So that's really my action plan for today. Make a smart decision. Go understand what you're investing in.I just want to thank you for joining me on the show today. If you've got a question you'd like to have answered on the show, I would love to get that question from you.Just go to justaskralph.com you can put your name, your email address in and send over the question and I'll feature it on the show. And as I close, I just want to thank you for the confidence you place in me by joining the show every day.My goal is to help you become a more financially confident Christian. So as you go about your day today, stay financially savvy. God bless you, and you have a great day today.