Investing—Diversification (1 of 2)

Over the years, I have seen too many cases where an individual has invested the majority of retirement funds in one company or in one sector. For “a season” these investments may do well, but inevitably every company and sector falls on bad times. This results in significant losses because the portfolio was not diversified in a manner that was consistent with God’s Word.

Because no human can consistently predict the direction of any market (see James 4:13–15), it is important to diversify your assets into different categories of investments that will likely react differently to any given market condition. The Bible recommends this type of 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)

At the time this was written, “Cast your bread upon the waters” was a metaphorical expression used in the grain trade that illustrated the potential successful prospects of a business investment. In short, it is biblical to take some risk within one’s investment portfolio. However, verse 2 recommends diversifying your investments into several (e.g., seven or eight ) categories, because you do not know what disaster may come upon any particular company or sector.

In 1999, I met with a client who had invested most of his money in one sector—technology stocks. I recommended that he diversify his portfolio in a manner consistent with Ecclesiastes 11:1, 2. He believed he was diversified because he owned 25 different stocks. During the bear market (2000 until 2004), the lack of biblical diversification within his portfolio cost him dearly —about a 70 percent decrease in value!

Biblical diversification is obtained by allocating one’s assets into different types of investments that will probably react differently to any particular market condition. Here are some examples:

• During inflationary times, real estate and natural resource equities generally increase in value, while medium- and long-term bonds do very poorly.

• In a period of decreasing inflation (such as 1991 to 1995), medium- and long-term bonds generally will increase in value, while real estate and natural resource equities do poorly.

Many investors try to “time the market”—that is, they buy when they believe that the market is headed higher and then sell when they believe that the market is going lower. God’s Word says (and history shows) that no human can consistently predict the future value of any market or stock (Proverbs 27:1). Hence, there is a need for biblical diversification in one’s portfolio.

Since only God knows the future (Isaiah 46: 9, 10), then the only possible way to be able to “time the market” with any consistency is in total dependence upon God for his specific direction (see John 15:5, Psalm 32:8). Over the years, I have seen a few situations where God has revealed the direction of markets to his children.

In summary, it is biblical to take on a reasonable amount of risk within one’s investment portfolio. However, God recommends diversification. This will reduce the risk and volatility of your portfolio.

Financial Deception— If I Had More Money, I Would Be Happy

Many people believe the deception that money will bring happiness. Although additional income can relieve some financial pressures (if the individual or couple manage their money well), money in and of itself does not bring happiness. Money will definitely not provide joy and peace, which only comes from God.

Ecclesiastes 5:10 states, “Whoever loves money never has money enough; whoever loves wealth is never satisfied with his income. This too is meaningless.”

Over the years, I’ve seen many couples with significant amounts of wealth who have no peace and joy. I think of one couple who started with nothing and accumulated about $40 million worth of assets. However, their unhappiness was evident to anyone who knew them. They were always arguing with each other and with their kids and employees, and they appeared “stressed out” all the time. Certainly there was no “peace of God, which transcends all understanding” (Philippians 4:7).

Only God, through his Holy Spirit, can bring true peace and happiness. Jesus said: “But the Counselor, the Holy Spirit, whom the Father will send in my name, will teach you all things and will remind you of everything I have said to you. Peace I leave with you; my peace I give you. I do not give to you as the world gives. Do not let your hearts be troubled and do not be afraid” (John 14:26, 27, emphasis added).

There are many people in North America who have significant amounts of wealth yet are frustrated, angry, weary, and unhappy. Frankly, some are even Christians who are not experiencing God’s joy and peace. Remember that “the fruit of the Spirit is love, joy, peace, patience, kindness, goodness, faithfulness, gentleness and self-control. Against such things there is no law (Galatians 5:22, 23, emphasis added).

Jesus provides an invitation to everyone who is weary and burdened: “Come to me, all you who are weary and burdened, and I will give you rest. Take my yoke upon you and learn from me, for I am gentle and humble in heart, and you will find rest for your souls. For my yoke is easy and my burden is light” (Matthew 11:28–30, emphasis added).

In summary, based upon God’s Word and 30 years’ experience of working with some very wealthy people, I’m convinced that the key to happiness is not more money but rather a close personal relationship with God. In the 15th chapter of John, Jesus called this “abiding,” which means to be connected to and in communication with God on an ongoing basis. For more information on “abiding in Christ,” I recommend the book titled Secrets of the Vine by Dr. Bruce Wilkinson (Multnomah Publishers, 2001).

Avoiding Surety for Company Loans

God’s Word warns of the dangers of signing surety, which includes a situation in which a company owner gives a personal guarantee for the company’s debt. By refusing to give a personal guarantee for company debt, you will effectively protect your family’s assets, such as your home, retirement fund, etc. The objective is not to avoid paying your obligations, but rather to limit your risk and the potential negative consequences if something goes wrong. If you do not provide personal guarantees, and if the company does have a bad year, you will be in a much better negotiating position with your bank.

Although financial institutions generally ask for personal guarantees, it is definitely possible to obtain a business bank loan without signing surety. If your company has a lot of debt, it may take a few years for you to convince the lender to release you from your personal guarantee. However, it is possible fundamentally because all things are possible with God, and it is clearly God’s desire that you do not sign surety.

The following are some practical suggestions to avoid signing surety.

1. Build sufficient retained earnings in your company with the objective of negotiating the release of your personal guarantees.

2. Develop and implement a personal budget in order to minimize your salary from the company so that you are able to build the retained earnings of the company faster.

3. Another option is to obtain equity investors, who generally do not require personal guarantees because the nature of their investment is equity, not a loan. To do this, you will have to give up a portion of the ownership of your business. If your company has significant debt, the use of equity investors is a much safer way to finance your business. Also, when the company has a bad year, equity investors are your partners, who want to help, whereas a bank generally is focused on protecting its position.

4. Frankly, the best option is to develop and implement a plan to reduce and eliminate your company’s indebtedness. God warns of the dangers of borrowing (Proverbs 22:7), and every reference to borrowing in the Bible is a negative one. I firmly believe that the God of this universe does not need a bank in order for God to bless a business. Over the past 23 years, I have been blessed by God with the privilege of assisting approximately 200 businesses and families become debt-free both corporately and personally.

Philippians 4:19 states, “And my God will meet all your needs according to his glorious riches in Christ Jesus.” Please note that it is God himself who promises to meet our needs—God does not need the bank.

Stewardship Principle-God Gives Us the Ability To Earn Income

Deuteronomy 8:17, 18 provides this warning to those who are wealthy:

You may say to yourself, “My power and the strength of my hands have produced this wealth for me.” But remember the LORD your God, for it is he who gives you the ability to produce wealth, and so confirms his covenant, which he swore to your forefathers, as it is today. (emphasis added)

1 Corinthians 4:7 states, “For who makes you different from anyone else? What do you have that you did not receive? And if you did receive it, why do you boast as though you did not?” (emphasis added).

The key biblical principle provided here is that it is God who gives us the ability to earn money, and as Christians we should acknowledge this by thanking and praising the Lord and utilizing this ability according to his will.

Ephesians 2:10 states, “For we are God’s workmanship, created in Christ Jesus to do good works, which God prepared in advance for us to do.”

Indeed we are “God’s workmanship.” It is God who created us, and it is God who gave us our natural talents and abilities. Clearly, God has a plan for us as his workmanship “to do his work” while we are here on earth.

As Christians, we are to utilize all the resources that God has given us. This includes not only money and material things but also the natural abilities that God has given us. And we are to utilize these resources for his honour and glory.

Priorities—Effective Ministry

An individual’s ministry effectiveness will generally be significantly influenced by the biblical or non-biblical use of money. Jesus indicated that, if you are not trustworthy with money, then God will not entrust you with something of greater importance, which Christ called the “true riches.” “If you have not been trustworthy in the handling worldly wealth, who will trust you with true riches?” (Luke 16:11).

 I believe that God’s “true riches” include a close relationship with God, God’s peace, and God’s joy. In addition, I believe that God’s “true riches” include an effective ministry that has been blessed by God.  

It is interesting to note that one of the requirements for an elder is that the person must not be a “lover of money” and must be able to manage one’s own family well—which, by the way, would include managing family finances in a godly fashion (1 Timothy 3:3–5). From a practical perspective, 1Timothy 3:5 raises this question: “If anyone does not know how to manage his own family, how can he take care of God’s church?”

Further, some biblical scholars interpret the “true riches” that Jesus Christ is referring to in Luke 16:11 to include spiritual responsibilities, which obviously affects one’s ministry.

 It is important to note that the verse preceding Luke 16:11 indicates that an individual must demonstrate faithfulness in a small amount before God will entrust him or her with a larger amount. Jesus said, “Whoever can be trusted with very little can also be trusted with much, and whoever is dishonest with very little will also be dishonest with much.” 

In short, it is one’s character that determines the extent of one’s faithfulness to God, not the amount of money a person has been entrusted with.

In summary, if a Christian is not faithful to God in regard to something of less importance, such as money and material things, then why would God entrust one with something of greater importance, which would include an effective ministry that has been blessed by God?

I believe there is no substitute for studying and meditating on God’s Word with regard to finances. This, in conjunction with prayer, will enable you to determine God’s will for your life in regard to the money he has entrusted you with. As you implement God’s financial principles, God will provide you with his peace and joy in regard to finances as well as an effective ministry.