Learning to make informed investment decisions is a key part of becoming a wise steward. The very nature of investing involves risk, yet risk can be minimized by clearly defining investment goals and corresponding strategies. The bible advocates investing rather than keeping money “under your mattress”. Jesus criticized the servant who buried the single talent that was entrusted to him, while praising those servants that earned good returns on their investments (Luke 19). Avoid making decision on emotions, take time to think and pray (Psalms 37:7). Adapting the following practical financial principles should help toward making good investment decisions:
Develop an Investment Strategy – Prior to investing one red cent, determine 3 things – investment goal or purpose, usually driven by a specific financial need (college fund, retirement, estate planning, etc); define your risk parameters-investments should seek to provide a sense of financial confidence, not a sense of panic (how much risk are you willing to take); investment horizon (when is the money needed), generally, the shorter the investor’s horizon, the less risk you should be willing to accept. These 3 considerations help determine the type of investment to pursue.
Proverbs 21:5 “Good planning and hard work lead to prosperity, but hasty shortcuts lead to poverty.”
Invest in Products You Understand – As the ol’ saying goes, “if’s it’s too good to be true, it probably is”. Take time to ensure you have a clear understanding of how the investment makes money so that you can recognize when the investment is in trouble.
Proverbs 24:3-4 “By wisdom a house is built, and through understanding it is established; and by knowledge its rooms are filled with rare and beautiful treasures.”
Diversify – It’s never a good idea to invest all your money in a single venture. Instead, it is better to diversify investments so that if one does poorly it can be offset by the gains on other investments. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
Ecclesiasties 11:1-2 “Cast your bread upon the waters: for after many days you will find it again. Give a portion to seven, and also eight; for you do not know what disaster may come upon the land.”
Evaluate Investment Performance Periodically – Cycles of economic prosperity don’t continue forever. We beleive a “buy and hold” strategy doesn’t work well in today’s volatile markets. Establish benchmarks for your investments, analyze the performance, make adjustments accordingly.
Proverbs 27:23 “Know the conditions of your flock (investments) and pay close attention to your herds (portfolio).
Seek Wise Counsel – Believers understand the Bible is the living word by which HE communicates HIS directions and truth to all generations. As a result, the Bible should be your first filter when making final decisions. If married, your spouse should be the primary source of human counsel. No matter what the consequence of a decision, if the decision is made together, the marriage is more likely to remain healthy. In financial matters, unless you’re a “do-it-yourselfer” and have the time to conduct detailed research & analysis of investment products, you probably need to seek professional financial advice or assistance. In doing so seek a financial professional that is trusted, respected, and one who demonstrates wisdom with thorough questions and explanations.
Proverbs 12:15 “The way of a fool is right in his own eyes, but a wise man is he who listens to counsel.”
Proverbs 15:22 “Plans fail for lack of counsel, but with many advisors they succeed.”
Proverbs 1:5 “Let the wise listen and add to their learning, and let the discerning get guidance.”