The Bible covers a surprising number of investment principles. Stick to these like glue and you will avoid considerable heartache and will grow your wealth over time.
Principle 1: Save
6 Go to the ant, you sluggard; consider its ways and be wise! 7 It has no commander, no overseer or ruler, 8 yet it stores its provisions in summer and gathers its food at harvest.
Proverbs 6:6-8 (NIV)
Many people want to take the easy road. They want to invest whatever money they have and take risks in order to grow their money. As a result they focus more on the specific investments than the overall strategy required to achieve their goals.
The reality is the best long-term strategy for wealth creation is simple. Save. To build any significant wealth, you need to set aside a portion of your income each and every month, and invest it for the long-term.
Principle 2: Diversification
Invest in seven ventures, yes, in eight; you do not know what disaster may come upon the land.
Ecclesiastes 11:2 (NIV)
Visit any financial planner and they will tell you that you should diversify your investments. Little do they know that this advice is from biblical times. You only have to turn on your TV or open a newspaper to see the chaotic world that we live in. Some countries go through long periods of stability, lulling us into a false sense of security.
No doubt you’ve heard the cliché ‘don’t put all your eggs in the one basket’. As the Bible says “invest in seven ventures, yes in eight” don’t invest only in one investment or even in one asset class (e.g. shares, bonds, real estate). Diversify your investments across asset classes and within asset classes.
For example, don’t put 100% of your investment savings into the stock market. In addition, when investing in the stock market, invest in numerous shares, not just 1 or 2, nor should you invest in just 1 or 2 industries. Academic research shows that a share portfolio should have at least 15 different companies, in order to have adequate diversification and minimise risk. This should be across a few industries to allow for the fact that each industry is impacted at different stages of the business cycle.
Principle 3: Planning and research
28 “Suppose one of you wants to build a tower. Won’t you first sit down and estimate the cost to see if you have enough money to complete it?
Luke 14:28 (NIV)
If you want to renovate your home you make plans right? Well the same applies to ‘building’ an investment portfolio. Think of it just like any other construction. In order to build something that won’t topple over, you need to do the appropriate planning and research.
When it comes to investing, too many people ‘rely’ on the views of others, including professionals rather than taking responsibility for doing proper due diligence. This is not to say you shouldn’t get professional advice, but it is to say that you make sure you do your own homework.
Principle 4: Get advice
“without consultation, plans are frustrated, but with many counsellors they succeed”
Proverbs 15:22
We live in an increasingly complex world so it makes sense to get advice in areas that are not our expertise. Proper investment advice may well save you a lot of time and heartache. It is well worth considering!
Principle 5: Be Patient
20 A faithful person will be richly blessed, but one eager to get rich will not go unpunished.
Proverbs 28:20 NLT
In a world with a 24/7 news cycle most of us have become even more rushed. But investing needs to be no different to storing away a good bottle of wine for the future. It takes time for it to mature. Your investments should be purchased based on their likelihood of doing well over the long-term, not over the next 6 to 12 months. Patience is hard, but it yields the best results.
Principle 6: Don’t hoard
13 I have seen a grievous evil under the sun: wealth hoarded to the harm of its owners, 14 or wealth lost through some misfortune, so that when they have children there is nothing left for them to inherit.
Ecclesiastes 5:13-14
My grandmother was a great hoarder, she never wanted to throw anything out. To be fair some things have genuine sentimental value. But when it comes to money many people become workaholics building wealth that will never be used for anything meaningful, let alone to be enjoyed.
“Do not store up for yourselves treasures on earth, where moths and vermin destroy, and where thieves break in and steal. But store up for yourselves treasures in heaven, where moths and vermin do not destroy, and where thieves do not break in and steal. 21 For where your treasure is, there your heart will be also.
Matthew 6:19-21
It’s interesting that Jesus did not say to ‘not’ store up, but rather to store up the right kind of treasure. So let me ask you “what are you storing up?”
Principle 7: Spouse involvement
4 “Haven’t you read,” he replied, “that at the beginning the Creator ‘made them male and female,’ 5 and said, ‘For this reason a man will leave his father and mother and be united to his wife, and the two will become one flesh’? 6 So they are no longer two, but one flesh. Therefore what God has joined together, let no one separate.”
Matthew 19:4-6
One of the sad observations of my financial planning career was when one spouse in a marriage did not involve the other in the financial and investing decisions. In many cases a poor decision was made at some point, leading to unnecessary and avoidable marriage problems, which could have been prevented through joint decision-making.
Principle 8: If it sounds too good to be true, it probably is
No doubt you’ve heard the cliché before, but I promise you, it’s true. If an investment promises spectacular returns then it is safe to assume that the underlying risk is extremely high.
Many financial products are wrongly labelled, and in some cases, deliberately so. Just because a product states ‘low risk’ or ‘high return’ does not make it so. There is no substitute for research and determining how an investment actually ‘generates’ its return. What may look good on the surface may be very different under the surface.
Principle 9: Saving involves sacrifice
Saving is deferring current consumption into the future. Many people live within their means, which is they spend every dollar earned. However to save and achieve long-term goals you need to ‘live beneath your means’. Yes, you will be sacrificing some current consumption for the future, but you won’t miss it, and you’ll end up in a far more stable financial position.
Principle 10: Stick to quality
To preserve your capital you should focus on high quality investments rather than those that are more speculative. Purchase assets that have a proven track record and are likely to help you achieve your long-term goals. As Christians we are called to be good stewards of the resources that God has given us, and therefore it makes sense to only buy assets fit for a king!
GRAND PRINCIPLE: Does the investment line up with kingdom values?
Last but not least is the need to ensure the investments are consistent with your Christian beliefs and values. This is increasingly difficult in our secular society where ethics are considered to be relative rather than absolute. However with proper due diligence you can determine whether an investment is appropriate. Some entire industries you may wish to avoid.