The perfect example of such a way of earning income is, of course, gambling. No work is involved in gambling (unless you're counting cards in Blackjack!). Any earnings or losses result purely from chance. Especially in fundamentalist circles, gambling is considered a sin. What does the Catholic Church say about gambling? We don't need to look far...the Catechism of the Catholic Church (CCC) paragraph 2413 states:
Games of chance (card games, etc.) or wagers are not in themselves contrary to justice. They become morally unacceptable when they deprive someone of what is necessary to provide for his needs and those of others. The passion for gambling risks becoming an enslavement. Unfair wagers and cheating at games constitute grave matter, unless the damage inflicted is so slight that the one who suffers it cannot reasonably consider it significant.Therefore, the Church has exonerated gambling! Next time you win a few bucks at the casino, you don't have to lie about it to your friends at church. The caveat is that the likelihood of gambling leading to sin cannot be underestimated. It can lure us into various sins including several of the 7 deadly sins: greed, wrath, envy, lust and even pride.
- Ethical Investing - If you own a mutual fund, can you tell me what are its top 10 holdings? No? What about its top 5 holdings? Still no? What about its top holding? Well, then you're in serious trouble, my friend! As this blog will explore more down the road, ethical investing is a big part of Catholic investing! We are morally obligated to invest in companies that do not act contrary to the laws of God. For example, did you know that Merck produces vaccines made in part from aborted fetal tissue? If the mutual fund that you bought owns Merck, you are indirectly putting your money in a company that may be acting contrary to your conscience. If you want to invest ethically in a mutual fund, you should keep up to date with the hundreds of companies that it owns and ensure that each and every company are acting in at least ethically neutral ways. On the other hand, it would be much easier to do research on just a few companies.
- Mutual funds are not immune to market downturns - as most mutual fund investors just found out the hard way in 2008-2009, mutual funds can drop by as much as 50% in a bear market. If you think by buying mutual funds, you're reducing your risk, you may want to do some rethinking. Mutual funds simply own multiple stocks and if those stocks drop by 50%, there is nothing preventing the fund from dropping by that much as well. Your best bet against this drop is to spend some time doing your homework and buy rock solid stocks (or even liquidate in a bear market).
- Mutual funds really don't do that great - it's simple math. By investing in many stocks, a mutual will achieve the average of the returns of all of the stocks. Even if the fund manager has a few awesome picks, those great returns will always be dampened by the underperforming stocks. Why would you want to get an average return anyway? If you look at the S&P 500 index, from August 1999 to August 2009, the return was -22%. Say what? Yes, you would have lost 22% if you bought a S&P 500 index fund 10 years ago. That is the reality of the market average. On the other hand, if you had bought and held Apple (Ticker: AAPL) for the same period, you would have made more than 800%. How difficult was that? Not very!