How to Decide How to Invest

Investment decisions are far more about the goals, life situation, and risk tolerance of each individual and family than about putting your bet on the right horse. 

By Mark D, Harris

The American economy is struggling. Inflation is worse than at any time in the past forty years and the stock market has lost a quarter of its value since January of 2022. Retirees, many on fixed incomes, have lost $3 trillion in the same time.[1] Many are struggling just to get by. Necessities like food, fuel, clothing, shelter, and often health care, slip out of the fingers of millions of our countrymen.

Simultaneously, inflation is 9.1%, and the average interest on money in savings accounts is less than 1%. This means that in terms of purchasing power, savers are losing over 8% on their money.  For example, one hundred dollars in a savings account now could rise to $101 one year hence, but would only be able to buy $93 worth of goods and services.

I am not an investment advisor, financial planner, accountant, lawyer, or anything like that, but nevertheless folks have asked me for and I have provided unofficial investment advice for decades. Presumably, they want a quick answer, like “buy stock A.” As with everything else in life, however, the best answer is not a quick one. Knowing how to invest means first knowing yourself, your risk tolerance, and your goals. Any good investment plan will ask many of questions before providing any answers. I hope that this article helps potential investors to invest in a way that will meet their individual needs.

Inquiry 1 – Who is the person seeking investment advice?

  1. How old are you? The young are generally more risk tolerant than the old, largely because they have more years to recoup any losses.
  2. What is your net worth? People with little money may have to forego real needs if their investments decline, while those with a great deal of money may not go hungry if theirs do.
  3. What is your income? Those with more disposable income may have more flexibility.
  4. What are your expenses? Higher expenses limit investment size and increase risk.
  5. How stable is your living situation? Are you likely to change jobs in the near future? Move to a different place? Incur a large expense? Get married? Go back to school?
  6. Who do you provide for? Someone who feeds, clothes, and houses no one but himself usually has more financial flexibility that someone who has others depending on him.
  7. How much debt do you have, what kind is it, and what are the interest rates? Mortgage debt, or debt backed by real assets (property, car, precious metals, etc.) is very different from student debt and from credit card debt. The first type may have interest rates of 3-4%, while student debt may be 10% and credit card 16%.
  8. What is your risk tolerance for financial loss? Some people panic if they lose $100, and others take a loss of $1000 in stride.
  9. What are your financial goals? Have $100,000 by age 30? Have $1,000,000 by age 50?
  10. What do you know about investing? Have you invested before? What is your previous investment experience?
  11. How much time do you want to spend learning about companies and managing investments? An uninformed person, or someone not interested in closely tracking their investments, may wish to consider mutual funds with professional investment managers.
  12. When will you need this money? Living expenses now? Large purchase like a house? Medical bills? A big trip? Retirement? Something else?
  13. Do you have a business of your own, or do you wish to start one? If so, the best investment may be to invest in yourself by funding your own business.
  14. What do you give to charity? Many people give a tithe (10%) or less to a church or house of worship. Others have hospitals, clubs, or other organizations to which they have committed gifts. Charitable giving is a great idea for everyone. Even the widow gave her two mites.

Inquiry 2 – How do you wish to prioritize your use of money?

  1. What costs can you cut? Cutting costs is the most useful way to maximize one’s financial situation. Transportation and entertainment costs may be the first place to look.
  2. How much of an emergency fund do you need? Some advisors recommend people have enough money in savings to cover their expenses for six-months. Such a cushion can protect someone from bankruptcy in extremis. The flip side is that an emergency fund of $30,000 in a savings account may earn 1% interest, while higher interest debts accumulate. Each individual and family must decide what they are comfortable with. Emergency funds can be placed in money market or other short-term accounts to maximize interest while still leaving the money accessible.
  3. What debt can you retire? Rank debts by size the interest rate. For example, if Person A has a $2,000 debt at 4%, and a $10,000 debt at 10%, he has two choices. First, if he feels in danger of getting discouraged, he can pay off the smaller debt and use the money saved to tackle the big one. Second, if he has enough income, he can pay off the larger debt first. Option 2 will save him money in the long run, but may not be feasible.
  4. What large expenses do you see on your horizon? Buying a house or car, having surgery, or even purchasing Christmas gifts may require financial planning that will hinder or even block investing for a time.

Inquiry 3 – After considering all the personal and financial issues above, if the person still has money to invest, what are their priorities and values?

  1. Do they want to make as much money as fast as possible? If so, the risk will likely be high.
  2. Do they need ongoing income?
  3. Do they wish to invest only in their home country, do they have a preferred country or region to invest in, or are they comfortable investing anywhere?
  4. Do they have social values that would restrict their investment options? Some people will not invest in firearms or ammunition manufacturers. Others refuse to do business with socially liberal companies.
  5. Will they invest regularly, like every month, or will they invest at undetermined times? Dollar cost averaging refers to investing a certain amount every month. By doing so, one buys more shares when the cost is low and fewer shares when the cost is high. For example, if a woman invests $100 per month in a stock or mutual fund that costs $50 per share in January, she will buy two shares. If the cost drops to $25 in February, she will buy four shares. If the cost increases to $100 per share in March, she will buy one share. The investor does not need to try to time the market, which is impossible, but buys low automatically.

Inquiry 4 – Considering everything above, what individual investments should be recommended for this person?

  1. Mutual funds – Actively managed mutual funds attempt to follow a predetermined strategy, such as growth or value. Index funds track the Standard and Poor 500 or some other index. Expenses tend to be higher with actively managed funds, but historical performance has not consistently exceeded performance of index funds.
  2. Stocks – Publicly traded and regulated by the Securities and Exchange Commission (SEC).
  3. Bonds – Corporate, municipal, and government.
  4. Real estate – Residential or commercial.
  5. Precious metals – Gold, silver, platinum.
  6. Currency (including cryptocurrency) – Euros, pounds, yen, yuan, lira, or Bitcoin and other types.
  7. Other investment vehicles (futures, shorts, puts, calls, etc)
  8. Which investment company will provide the best value for this investor’s needs? This includes low fees, market research, and customer service.


I hope that this article guides people who wish to invest but do not know how to decide what to invest in. Finding the right investment is far more about the individual investor than it is about any company. Official or unofficial, financial advising is serving others rather than enriching oneself. Whether doctor, lawyer, clergyman, laborer, or even politician, we exist to do the best we can in the time we have for God and for those He has placed in our lives.

Related Articles

  1. Getting Rich versus Growing Rich in Investments
  2. Robust Thrift
  3. Values Aligned Investing

[1] Stock market’s fall has wiped out $3 trillion in retirement savings this year, 17 Jun 2022,

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