The Bible is full of life lessons, and that includes investment lessons. Let’s look at one lesson in particular in the New Testament and what it can teach us about wealth management.
In the Parable of the Bags of Gold (Matthew 25:14-30), a man goes on a journey and entrusts his wealth to several servants. You could say that he diversified his investments among several wealth managers. If we look at it in modern terms, you might say that he had a long-time horizon for his investments — similar to retirement planning. He gave one of the servants five bags of gold, another he gave two bags of gold, and another servant just one bag.
Biblical returns: what makes a good investment?
Two of these servants-turned-investment-managers produced 100 percent returns on the man’s investment. Of course, the man was very happy with these two investment managers’ 100 percent return. He was less happy with the third man’s 0 percent.
The servant that got one bag of gold returned just the initial bag. The man felt he could have just given his money to bankers who would have given him some interest. (The fact that he only gave this servant one bag suggests he didn’t have a really good feeling about this investment manager’s abilities.)
That servant said that he was afraid and just kept the money in a safe place. We don’t know if there was a reason for the servant to be scared about losing money, or what “good returns” looked like in those days. We do, however, know that the other two servants/investment managers took their responsibility to the master seriously and worked for the best return. Possibly at one time the servants that returned 100% were also scared and thought they could better serve their master by burying the money in the ground and waiting for a “sure thing.” So what made them invest anyway?
Fear and a financial plan
In this Parable, we get a glimpse at the role fear can play in investing. When you’re scared of losing money, you might make decisions that you’ll be unhappy with in the long run. A financial plan, and an investment plan, can help combat that fear.
Work with an advisor to create plans for your investments (and overall finances) that clearly state your goals and expectations.
It’s possible that the two faithful servants in this Parable risked a lot to provide their returns. If they had both invested the gold in the same venture, they would have increased their master’s exposure to risk, which he presumably sought to reduce when he diversified his gold amongst his servants.
Still, I’m not aware of anything in life that comes without risk. Reducing risk in one area can increase your risk elsewhere. So try to ensure that each one of your investments does what it’s supposed to do. And use your investment plan to outline what each investment is supposed to do. It should also outline the expectations for both your investment manage and you.
Managed expectations can help you avoid both the fear and disappointment we see in this Parable.