As a financial advisor, the assumption of the public is that investing is my area of “expertise” – I’m sure that when our clients talk to their friends about their conversations with me, the first thing that comes to mind may very well be “investments.” While I certainly do not have all the answers or know everything there is to know about investing, I am passionate about this topic, and I am especially passionate about the ways scripture provides wisdom in this area. In fact, God’s word has more specificity in regards to the area of investing than almost any other financial topic.
Before we explore the principles of a Biblical perspective on investing, we need to establish that, like many other areas of our lives, there is a very great difference between the worldly perspective and the Biblical perspective. The world would have you believe that you can and should get “rich” as quickly as possible. There is a huge amount of impatience surrounding us in our culture. If you want something, buy it now! The concept of saving, or denying ourselves our desires is a foreign concept. After all, you can pay with credit or get a loan for almost anything you could ever want. The time-tested wisdom of scripture warns against the culture of rampant consumerism. Outlined below are eleven Biblical concepts that should form our investment philosophy. These concepts all come together to show that one preserves wealth by following the principles of diversification, professional management, and a long time horizon. You will never be misled by listening to what God has to say.
1. Saving/Investing First
“Prepare your outside work, make it fit for yourself in the field; and afterward build your house.” – Proverbs 24:27
One accumulates wealth by spending less than they earn over a long time period. Before we spend and consume, we should save and invest. A great reference here is the Kingdom Advisors’ Sequential Investing Hierarchy. At level 1, we eliminate all high interest and short term debt. At level 2 we create an emergency fund of 3-6 months living expenses. Level 3 has us saving for major purchases. At the next level, level 4, we will diversify to meet long-term goals, such as retirement and college education. As your cash flow adjusts with your freedom from debt, we can revisit these other goals and discuss where you can increase your saving and investing efforts.
2. Preservation and Steady Growth of Capital
“A faithful man will abound with blessings, but he who hastens to be rich will not go unpunished.” – Proverbs 28:20
This concept stands in opposition to the worldly desire to “get rich quick.” God warns us to stay away from this kind of mentality, but rather steadily invest. Scripture tells us that through faith, our lives will abound with blessings. This is not a promise of monetary wealth - no “prosperity gospel” here. But rather, this verse is urging us to shift our mindset to focus on faithful obedience to God. Chasing after riches will lead to punishment.
3. Long Time Horizon
“For which of you, intending to build a tower, does not sit down first and count the cost, whether he has enough to finish it.” – Luke 14:28
This guideline ties in well with the previous one, and it has been proven true over hundreds of years. A long time horizon is the key to building wealth and reaching our goals. A client who comes to me in his late 60s with only a few years left till “retirement age” is in a very different boat than one who begins saving and investing earlier in life.
4. Time is a Tool
“Go to the ant you sluggard! Consider her ways and be wise, which, having no captain, overseer or ruler, provides her supplies in the summer, and gathers her food in the harvest.” – Proverbs 6:6-8
Historically, stocks have returned 6.8 percent after inflation over the last two centuries. This level of real return, which includes reinvested dividends, will double the purchasing power of your stock portfolio on average every decade. Notice the length of time in those previous statements – centuries, decades. Not days, weeks, or even months. Now, we certainly don’t have centuries to live, let alone build wealth. But through wise planning, you can certainly tap into the proven potential of a long time horizon. I’d like to pause here for a moment and look a little deeper into what these two concepts on time can mean for a believer. If we trust in Jesus and believe in the truth of God’s word, then we know that our real treasure is not tied to our own short lifetime or limited to what we can save and earn over the course of 80 or 90 years. Our legacy as servants of Christ can have a greater impact on His Kingdom than we can ever imagine. The truth you are showing to your children, and eventually your children’s children is worth far more than the value of your 401K. You may never be able to measure in terms of dollars and cents how your generous giving will grow for the Kingdom.
5. Cycles are Inevitable
“For since the fathers fell asleep, all things continue as they were from the beginning of creation.” – 2 Peter 3:4b
I know it can be difficult to peel ourselves away from the news of impending doom with this latest “apocalypse du-jour” – but scripture tells us that there is nothing new under the sun. We have had market crashes, economic panics, wars, famines – you name it – many times before, and they will continue. Some investors attempt to harness these cycles, or attempt to avoid loss through concepts such as market timing, or economic forecasting. After a lifetime of close study, Harvard economist John Kenneth Galbraith concluded, “The only function of economic forecasting is to make astrology look respectable.” Our approach to investing begins with an understanding that markets are volatile – this is actually something we want! I have often heard from clients after a particularly low dip in their portfolio, or after a particularly troubling current event that “this time it’s different.” All I need to do here is point back to this scripture. No, this time it is not different. Economic uncertainty is certain.
6. Diversification Strategy
"Cast your bread upon the waters, for you will find it after many days. Give a serving to seven, and also to eight, for you do not know what evil will be on the earth.” – Ecclesiastes 11:1-2
Put in other words, this concept calls us to not put all our eggs in one basket. We see from this verse, that, because we do not know what the future holds, spreading our assets out is a wise decision. Broad diversification involves the distribution of a portfolio among differing equity styles, sectors and geographic theaters which have historically run on different cycles. All we’re trying to accomplish by diversifying broadly is to suppress to some extent the short-to-intermediate-term volatility of the overall portfolio – because different components will be running on different cycles – while still earning the full returns of all the components in the long run.
7. Seek Wise Counsel
“Listen to counsel and receive instruction, that you may be wise in your latter days. There are many plans in a man’s heart, nevertheless the Lord’s counsel – that will stand.” – Proverbs 19:20-21
I believe there are two layers to this element of Biblical wisdom: we should seek wise counsel from both men and the Holy Spirit. Through our clients' decision to seek out a financial advisor in our firm, they display this concept of wisdom. I in turn seek out counsel within the different areas of my financial practice each and every day. I am in no way the expert on all areas of finance, and I have several trusted members on my team to help me be the best advisor to my clients I can be. Beyond the advice from men, however, we are to trust in the counsel that surpasses all human wisdom – that of the Holy Spirit. Through prayer, you can grow in your faith and align your goals with God’s plan for your family.
8. Avoid High Leverage
“The rich rules over the poor, and the borrower is servant to the lender.” – Proverbs 22:7
We have discussed God’s warnings against debt at length, and when it comes to investing we should avoid the use of debt. In the same vein, we should be wary of taking huge risks on the “hot new thing” in the hopes of striking it rich. Investment speculation should only be done after asking, “Would this money be better used by giving to a Kingdom purpose?” and “Can I afford to lose this money with no adversarial impact on my long-term goals?” Many of these Biblical concepts of investing overlap, and in this area, the antidote to high leverage can be diversification.
9. Monitor Your Anxiety
“Be anxious for nothing, but in everything by prayer and supplication, with thanksgiving, let your requests be made known to God; and the peace of God, which surpasses all understanding will guard your hearts and minds in Christ Jesus.” – Philippians 4:6-7
One of my greatest responsibilities as your advisor is to guide my clients and friends down a path to reach their financial goals that is set within the parameters of their individual risk tolerances. An analogy I like to use is a highway. You can drive at speeds below the speed limit, say 50 miles per hour, or you can risk death or a hefty ticket at 120 miles per hour, and everything in between. Personally, I would view these two extremes as both risky in different ways. When you are too cautious, you run the risk of being rear-ended (hit with the reality of inflation) or not ever reaching your destination. When you are too aggressive you run the risk of crashing, burning, and losing it all. I believe that investing in the equity market is the best way for my clients to meet their long-term financial goals, but I do not want my clients to lose sleep over the performance of their portfolio. I can help my clients invest in ways in which they are comfortable and work to align their portfolios with the level of volatility they can tolerate, but at the end of the day, it is not up to me to set your minds and hearts at ease. Scripture tells us to cast all our fears and anxiety on the Lord. He is the true comforter, and only through trust in Him can we find lasting peace.
10. Establish Limits on the Amount You Invest
“Better is a little with the fear of the Lord, than great treasure with trouble.” – Proverbs 15:16
When we live by this tenet of investing, we should circle back to one of the most important questions we can ask: “how much is enough?” Investments are a tool one uses to accomplish financial objectives; they are not an end in themselves. Our goal as Christians should never be to acquire or grow as much wealth as we possibly can, but rather, we should align our goals with God’s Kingdom. We can take a look at our lifestyle needs and project a value goal for a benchmark of assets needed at retirement…but that is not the ultimate goal to set as followers of Jesus. Once you answer the question of how much is enough, and as you approach that limit, you will have more and more opportunities to give your wealth away for Kingdom purposes.
11. Spousal Unity in Decision Making
“Nevertheless let each one of you in particular so love his own wife as himself, and let the wife see that she respects her husband.” – Ephesians 5:33
This final concept reminds us that you and your spouse are a team. In seeking wise counsel in your financial lives together, you have made great progress already in coming together to learn from one another and align your hearts to Jesus’. Spousal unity is vitally important to me as a financial advisor. In fact, this concept has inspired one of the rules I set with my own clients. If they are married, I will only meet with them as a couple for our annual review. Some clients will tell me that one or the other spouse doesn’t care about their finances, or doesn’t want to know what’s going on with their portfolio. That is a red flag! It is so important that you are both aware of the workings of your financial portfolio, have a solid understanding of your plan for the future and in cases of emergency, and are in agreement with any changes being made to your financial plan. God gave you your spouse as a complement, as a helper and team member in all things.
If you have questions on any of these biblical principles, or would like guidance on how you can apply them to your own investment portfolio and long-term plan, please reach out to set up a time to speak with Kim or Erin!