4 Bible-based investment principles
When it comes to investment management, there is a gamut of resources we can turn to for advice: local banks, financial advisors, textbooks and online resources; and of course, the Bible.
Whether or not you are spiritual, the Bible is indeed a repository of sound financial advice. And why wouldn’t it be? Randy Alcorn, an author on Christian stewardship, claims that money and possession is mentioned 2,350 times in the holy book – more than the mention of heaven and hell!
In fact, we can find biblical counsel in all aspects of financial management, particularly in investing. With so many scams around, it seems that the authors had foreseen the need to provide wisdom and counsel as far back as 2,000 years.
Investment principle # 1: Eliminate debt
Pay all your debts, except the debt of love for others. – Romans 13:6
One thing very clear about that the Bible is that God’s word is very much against debt. God highly encourages the quick elimination of debt. And why be adamant about it even if we are talking about investment here? That is because by eliminating all forms of debt, you free yourself from interest payments. This excess can now be appropriated for investing.
Avoid investing when you carry huge consumer debt. A credit card balance carries a 36% annual interest. In contrast, equity fund returns for the past 10 years average 17%. You stand to gain more by eliminating any debt first.
Investment principle # 2: Diversification
Cast your bread upon the waters, for after many days you will find it again. Give portions to seven, yes to eight, for you do not know what disaster may come upon the land. – Ecclesiastes 11:1-2
Diversification is a strategy in investing. If done right, it can spell the difference between profit and loss. Nowhere does it guarantee success but at the very least, it diminishes the risk we are undertaking. No matter how profitable one investment may seem, it is never wise to put everything you have in that basket. Hence, the timeless investment advice, “Don’t put all your eggs in one basket.”
Due to the uncertainties in the financial markets, we should properly diversify our portfolio with a mixture of real estate, equities, bonds, cash, and even alternative investments; and also constantly rebalance our assets to maximize our returns and minimize losses.
Investment principle # 3: Invest only on things you understand
By wisdom a house is built, and through understanding it is established; through knowledge its rooms are filled with rare and beautiful treasures. – Proverbs 24:3-4
As a general rule in investing: invest only in things you understand. If you don’t understand what you’re getting into, don’t! Years back, when I was a newbie in investing, I was presented with an offshore investment option called Luxemburg Real Estate Investment Trust (REIT) Fund. Wow! Sounds profitable, I thought. That’s why I didn’t bother learning more about it. I took it at face value. Ten years later, I only managed to recoup 20% of the amount I invested.
Everything involves risk, even cash. But we lessen our risk when we understand what we are getting into.
Investment principle # 4: Avoid get-rich-quick schemes
Good planning and hard work lead to prosperity, but hasty shortcuts lead to poverty. – Proverbs 21:5
In this day and age, it is easy to get enticed with the promise of a quick buck. That’s why pyramid and Ponzi scams disguised as legitimate businesses are proliferating, preying on the greed and gullibility of people. After all, why wait 10 or 20 years to make millions of pesos when the same amount can be achieved in just a couple of months (or even weeks)!
The Bible has foreseen such dangers. Proverbs 28: 19-20 says: “Whoever works his land will have plenty of bread, but he who follows worthless pursuits will have plenty of poverty. A faithful man will abound with blessings, but whoever hastens to be rich will not go unpunished.”
When we wish to become rich too quickly, too soon, that’s when things reverse. Remember the wise advice: If it’s too good to be true, then it is!
God is faithful. Not only does He promise abundance, He has given us counsel on how to live a life of prosperity. Following these Bible-backed investment principles, none of us can go wrong. – Rappler.com
Kendrick Chua is a registered financial planner of RFP Philippines. He writes regularly about personal finance. He is also a Chinese language instructor, TV host, free runner, and violinist. To learn more about RFP, you may email email@example.com.