Proverbs and Investing – Notes

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The Bible provides us with five basic guidelines for investing.

1. Be a steady plodder.

The fundamental principle for becoming a successful investor is to spend less than you earn, and regularly invest the surplus. In other words, be a steady plodder. The Bible says, “Steady plodding brings prosperity, hasty speculation brings poverty” (Proverbs 21:5, TLB). The original words for “steady plodding” picture a person filling a large barrel one handful at a time. Little by little the barrel is filled.

Nothing replaces steady consistent, month-after-month investing. Just do it — regardless of the investment climate — because when you do, your investments will grow through compounding.

Compounding occurs when your investment’s earnings are added to the principle, allowing both the earnings and the principle to grow.

2. Avoid risky investments.

God warns us to avoid risky investments, yet each year thousands of people lose money in highly speculative investments and scams. Ecclesiastes 5:13-15 says, “There is another serious problem I have seen everywhere — savings are put into risky investments that turn sour, and soon there is nothing left to pass on to one’s son. The man who speculates is soon back to where he began — with nothing” (TLB).

How many times have you heard of people losing their life’s savings on some can’t-miss, get-rich-quick scheme? Sadly, it seems that Christians are particularly vulnerable to scams because they trust others who appear to live by their same values. If you are offered an investment opportunity that seems too good to be true, it’s probably too good to be true!

The strategy for avoiding scams or risky investments is to pray, seek wise counsel, and do your homework.

3. Diversify.

Money can be lost on any investment. Stocks, bonds, real estate, gold — you name it — can perform well or poorly. Each investment has its own advantages and disadvantages.

Since the perfect investment doesn’t exist, we need to diversify and not put all our eggs in one basket. “Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth” (Ecclesiastes 11:2).

4. Count the cost.

Every investment has costs: financial, time, effort, and sometimes even emotional stress. For example, a rental house will require time and effort to rent and maintain. If the tenant is irresponsible, you may have to try to collect rent from someone who doesn’t want to pay — talk about emotions! Before you decide on any investment, consider all the costs.

5. Listen to wise and experienced godly counsel.

The decision to purchase or sell an investment is best made prayerfully. Despite what so-called financial experts and pundits so confidently express about what will happen to investments in the future, no one knows except the Lord. No one. Period!

God wants to be involved in every area of your finances, including investing. So humbly ask Him for wisdom as you consider an investment. Isaiah 48:17 says, “I am the Lord your God, who teaches you to benefit, who leads you in the way you should go.” In Luke 8:18, Jesus warns us, “So take care how you listen.” You could paraphrase those words like this: Be careful what you listen to. And be especially careful of receiving investment advice from those who do not have a biblical view of money.

Understanding Compounding

There are three variables in compounding: the amount you save, the percentage rate you earn, and the length of time you save.

The Amount

The amount you save depends on your income and spending. We hope you will increase the amount available for saving as you learn God’s way of handling money.

Rate of Return

The second variable is the rate you earn on an investment. The following table demonstrates how an investment of $1,000 a year grows at various rates.

As you can see, an increase in rate has a remarkable effect on the amount accumulated. A two percent increase almost doubles the total over 40 years. But since higher returns usually also carry higher risks, be careful not to shoot for unrealistic returns.

Time

Time is the third factor. Answer this: Who would accumulate more by age 65: Danielle who started saving $1,000 a year at age 21, saved for eight years, and then completely stopped; or Matt who saved $1,000 a year for 37 years starting at age 29? Both earned 10 percent. Is it Danielle who saved a total of $8,000 or Matt who saved $37,000? Check out the following chart.

Incredibly, Danielle accumulated more because of the earlier start. Compounding is your friend, and the earlier you can start it working for you, the better. Start saving and investing today!

When Should I Start Investing?

Proverbs 21:5 tells us “Steady plodding brings prosperity, hasty speculation brings poverty” (Proverbs 21:5, TLB). Other translations use the word “diligent” in place of “steady.” Both of these terms have something in common in their definition — the word “constant.”

Investing is all about building up funds for the long term where they can take advantage of compound interest. You want to maximize the opportunity for growth over years or even decades before the funds will be required.

I believe, if possible, that you should begin investing as soon as you can, even if it is a small amount.

You may ask, what about my emergency fund or my debt or other expenses? Shouldn’t they be the priority? I would say yes, they should be, but it doesn’t need to be an all-or-nothing approach.

Investing right away can be helpful for several reasons:

It creates a consistent habit of investing.

It helps kickstart compounding. Time is your friend when it comes to compound interest, so starting early is incredibly beneficial!

It gives you an opportunity to learn gradually so that you have greater knowledge and tools to invest prayerfully as you have more to invest after accomplishing the early phases of building your finances.

Investing Warnings

Let’s face it — most people want to get rich. I’ll never forget how surprised I was the first time I realized the Bible’s caution against it: “Those who want to get rich fall into temptation and a trap and into many foolish and harmful desires that plunge men into ruin and destruction” (1 Timothy 6:9, NIV). This verse declares that those who want to get rich give in to temptations and desires that ultimately lead to ruin. Wanting to get rich is incredibly dangerous, but why?

The next verse answers that question: “For the love of money is a root of all kinds of evil. Some people, eager for money, have wandered away from the faith and pierced themselves with many griefs” (1 Timothy 6:10, NIV). When we want to get rich, we actually love money. That has consequences I witnessed firsthand. Mike, a close friend, became consumed by a desire to get rich. He finally abandoned his wife and four young sons, and later denied Christ.

For much of my life I too wanted to become rich. Not just a little rich, but filthy rich! So dealing with this attitude in my own heart has been difficult. Here’s what I discovered: When I wanted to get rich, my motivations were pride, greed, or an unhealthy urge to prepare for uncertain economic times. I loved money. However, after I learned God’s perspective, my motive completely changed. I wanted to be a faithful steward, wisely investing the money God entrusted to me. I simply wanted to please Him. I loved God.

Is it wrong, then, to become rich? No, that’s not what I’m saying here. Many heroes of the faith, such as Job, Abraham, and David, were rich. In fact, I rejoice when God enables a person who has been a faithful steward to prosper. Nothing is wrong with becoming wealthy if it is a by-product of being faithful.

Overcoming the Temptation

How then, can a believer in Christ overcome the love of money and the desire to become rich? Let me put it in two words: split and submit.

Paul told Timothy to “flee from [the desire to get rich], you man of God, and pursue righteousness, godliness, faith, love, perseverance and gentleness” (1 Timothy 6:11). When you become aware of a desire to get rich, run from it!

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Investing Terms

Bond – A bond is a type of debt security, meaning when you purchase bonds, you’re essentially lending money to the issuing company or government entity.

Compound Interest – Interest that is paid on both the principal and on the accrued interest.

Diversify – To invest in different types of products, businesses, or products for the purpose of spreading risk.

Financial Planner – A qualified professional who helps people set investment goals and helps them take the steps to meet those goals.

Micro Investing – Micro investing is investing in super small increments by buying fractions of shares. Micro investing allows people to start investing with a small minimum requirement.

Roth IRA – An individual retirement account that offers tax-free growth and tax-free withdrawals in retirement.

Speculative Investment – Investments involving considerable risk but offering the chance of large gains.

401(k) – A retirement savings plan sponsored by an employer. It lets workers save and invest a piece of their paycheck before taxes are taken out. Taxes aren’t paid until the money is withdrawn from the account.