Gospel bite: A Biblical perspective on investing.

Money, Finance, Investment Returns, Tax - The Bible covers almost everything. A perspective on the parable of investing talents and the compounding thereof.

In a financial seminar for corporate executives, intended to share leadership lessons and the importance of donning sound Biblical work ethics, one of the Speakers, a CPA by profession, asked ‘Why must we save?’. While the silence from the audience suggested the answer was obvious, the speaker gently remarked with a much deeper connotation ‘..…because Jesus Saves.’

Fast forward 12 years, those three words remains embedded in my mind to this day. As a finance professional, I am extremely passionate about the finance services industry and feel encouraged to share my meditation and insights from the Bible in regard to two financial concepts – ‘Saving’ and ‘Investing’. 

Saving 

The savings rate is the percentage of disposable personal income (net of taxes) that one would choose to save rather than spend on consumption. 

The Household Saving Rate in Australia has seen a spike to 19.80% in the third quarter of 2021 (i.e. $19.80 saving on an after-tax income of every $100 earned) compared to sub 8% rates 10 years ago; however, I believe this is an aberration in the last 2 years due to Covid impacting the propensity to consume (for instance – reduction in allocation to international and domestic travel, focus on non-discretionary goods and services). The long-term average until 2020 measures around the 8% mark. The UK and US stand at 8.20% and 7.20% respectively in the third quarter of 2021, which is in alignment with their historic average.

Investing 

Jesus loved speaking in parables with each one giving earthly context but relating to the kingdom of heaven. In the parable of talents (a form of money in ancient times), Jesus illustrates the example of a tough master who went on a journey and entrusted his talents/wealth (accumulated savings) among his servants, in varying proportions according to their abilities, until he returned. Upon his return, the master found that the one to whom he had entrusted five ‘talents’, had put the money to work and earned 5 more, totaling 10 talents. Likewise, the one entrusted with 2 talents had earned 2 more by investing it wisely. However, the master was furious at the one to whom 1 talent was entrusted as that servant merely buried the money in the ground, hoping to return it to the master upon his return; the master condemns the servant for his laziness suggesting that the least the servant could have done was to invest the money with the bankers so interest could have been earned on the money until such time the master returned. Consequently, the money was taken away from him and given to the one who was initially entrusted with 5 talents. 

The parable has a much broader implication about investing our talents, wisdom, health, finances and resources to multiply and work towards attaining the heavenly treasures, while giving account of how we invested all that was entrusted to us by our maker at the time of his return. This, to me, builds a sound rationale for investing. 

While household saving (particularly discretionary savings that is net of all essential expenditure) is encouraged and demonstrates prudence of a household in managing their budgeting and cash flow, it wouldn’t be too beneficial unless the saving also gets invested. Savings held through cash or bank transaction accounts result in zero to negligible growth and does not shield value of the money relative to inflation (price increase year on year).

Saving is the first step to investing. Let’s substitute the following in the parable.

• Master = You, Investor

• Talents = Ongoing and Accumulated savings

• Master’s return from Journey = Investment Timeframe

• Entrusted to his servants (managers) according to their abilities = Diversification by allocating money to different investment managers according to their area of expertise and asset class (Bonds, Equity, Alternate etc) according to the investment objectives and risk profile.

It is wise to invest a portion of your savings in investment assets in accordance with your investment objectives. A Licensed Financial Adviser is equipped to advise you in areas relating to your goals and investment objectives in line with your circumstances and risk profile.

For e.g. If you desire to start a venture 10 years from now with an estimated requirement of $100,000 at that time, you would be required to invest $46,320 today in a growth asset such as Managed Equity Funds or Shares. The $46,320, at an estimated growth rate of 8%, would grow to $100,000 in 10 years to meet your desired goals. Compare this with investing $86,167 today in a Bank Savings account yielding a return of 1.50% to meet the same goal in 10 years.

However, it wouldn’t be prudent to invest entirely in growth assets where the requirement is relatively sooner, say 6 months. A liquid fund or bank savings account would be a better choice as it would preserve the value of the investment with minimal growth/returns and no/low risk to capital.

Investing is not a hit or miss game. If done correctly, the process is rewarding. Asset Allocation (i.e. in what proportion funds should be invested across Cash, Fixed Income, Equity Funds, Balanced Funds, Property etc) is critical to getting the right mix of risk, returns and liquidity.

The first step however is to save. The next step is to identify a prudent Financial Adviser who would work closely with you and provide advice on areas of advice sought by you. During the adviser’s routine reviews, if he/she finds a particular investment or fund manager under-performing consistently or not yielding the desired result, he/she would pull the funds entrusted with that manager and give it to other managers who would invest your money prudently.

Invest in a good Financial Adviser who will guide you through your financial journey. Better still, in my view, invest in the maker above 'Jesus Christ' who will richly bless you with sound wisdom, guidance and judgement to enable the right provisions in life’s journey.