Risk

How much risk can you take with your investments and still be in line with Scripture? There is a difference between investing and speculation; King Solomon addresses this in Ecclesiastes 5: 13-16, LB:

“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. This, as I said, is a very serious problem, for all his hard work has been for nothing; he has been working for the wind. It is all swept away.”

The Bible particularly warns us about hasty, uninformed decisions—often accompanied by a get-rich-quick attitude:

“Steady plodding brings prosperity, hasty speculation brings poverty.” (Proverbs 21:5, LB)

When evaluating investment opportunities, watch out for these warning signs:

• The projected return seems too good to be true
• The investment will require little effort on your part
• You are not familiar with the investment (or it is complex)
• You are pressured to make a rapid decision without counsel

Every investment involves some degree of risk; there is no “perfect” investment. There are ways, however, to manage risk.

In the 1990s, the team of Markowitz, Miller, and Sharpe won the Nobel Prize in Economics for a landmark study in asset allocation (dividing investments among stocks, bonds, and cash). They found that over 90% of investment portfolio performance was based on asset allocation decisions. Although asset allocation does not eliminate risk, it is a time-honored method for managing risk.

The Bible gives us another tool for managing risk—diversification:

“Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth.” (Ecclesiastes 11:2, NASB)

You may be surprised that this advice—don’t put all your eggs in one basket—has been around for almost three thousand years. In fact, you may be surprised that the Bible has more to say about money and possessions than almost any other subject—over 2350 verses. God’s Word can help us manage risk and be good stewards.

The views are those of Bruce Olmstead and not those of Summit Brokerage Services. Investments in securities do not offer a fix rate of return. Principal, yield and/or share price will fluctuate with changes in market conditions and, when sold or redeemed, you may receive more or less than originally invested.  No system or financial planning strategy can guarantee future results