Lesson Ten

“Basic Principles For Investing”

“For what profit is it to a man if he gains the whole world, and loses his own soul? Or what will a man give in exchange for his soul?” (Matthew 16:26)

In 1923, a group of the world’s most successful financiers met at the Edgewater Beach Hotel in Chicago . Present were: The president of the largest independent steel company; the president of the largest utility company; the greatest wheat speculator; the president of the New York Stock Exchange; a member of the President’s Cabinet; the great “bear” in Wall Street; the president of the Bank of International Settlements; the head of the world’s greatest monopoly.

Collectively, these tycoons controlled more wealth than there was in the United States Treasury, and for years newspapers and magazines had been printing their success stories and urging the youth of the nation to follow their examples.

Twenty-five years later, let’s see what happened to these men. The president of the largest independent steel company (Charles Schwab), lived on borrowed money the last five years of his life, and died broke. The greatest wheat speculator (Arthur Cutten) died abroad, insolvent. The president of the New York Stock Exchange (Richard Whitney) had spent time in Sing Sing. The member of the President’s Cabinet (Albert Fall) was pardoned from prison so he could die at home. The greatest “bear” on Wall Street (Jesse Livermore) committed suicide. The president of the Bank of International Settlements (Leon Fraser) committed suicide. The head of the world’s greatest monopoly (Ivar Kreuger) committed suicide.

All of these men had learned how to make money, but the real question is, did they learn how to live so they could inherit eternal life? If not, they lost their greatest possession. If we do not keep our priorities straight, this study that emphasizes Saving and Investing will be for naught!

 

Most long-term investment goals involve extensive planning. Any long range financial planning needs to be done in view of the following three basic periods in one’s life 

a)     The Accumulation period (ages 20-45). Some of the basic accumulation of possessions begin in this period of time. Plans are made, investments are begun, job upgrading or starting one’s own business takes place during this time, usually. Hopefully, the paying off of debts incurred and the raising of a family also will occur during this time. A primary emphasis that should be given to this period is the beginning of investments that will be over a long period of time (possibly 40+ years). If begun early enough, it will be amazing the difference such will make.

b)     The Preservation period (ages 45-65). An effort needs to be made to continue and enlarge our investment goals during these years, and at the same time try to preserve the assets we have accumulated. These need to be protected from: Inflation, Deflation, Monetary Collapse, and the ups and downs of Interest Rates.

c)     The Distribution period (ages 65-85). Upon retirement, what we have been saving up for is now ready to be distributed over a period of years. If we have planned well and been blessed by God, we will have sufficient to live out our remaining years independent of others’ help. During this time, our investments may need to be changed to a “liquid” investment, with low risk, and interest as high as possible.

BIBLICAL PRINCIPLES TO GUIDE INVESTING

(1) Do not presume on the future, take God as your partner, and realize “If the Lord wills, we shall live and do this or that.” (James 4:15).

(2) Avoid speculation and hasty investment decisions (Proverbs 28:20, 22; 13:11).

(3) Do not co-sign with anyone (Proverbs 22:26-27).

(4) Count the cost, evaluate the risk……Can you afford the loss if it comes (Luke 14:28).

(5) Avoid investments that cause anxiety (Psalms 131:1; Matthew 6:31).

(6) Be in agreement with your spouse over your plans (1 Peter 3:1-7).

(7) Avoid high leverage situations (Proverbs 22:7).

(8) Avoid deceit (Proverbs 11:18).

(9) Be sure to give according to your increase when you receive it (Proverbs 3:9-10).

If we are unwilling to save and invest according to God’s will, He has not promised to bless us (James 1:25). God knows best and has promised to bless richly those who will listen and be obedient (2 Corinthians 9:6-11).

PRINCIPLES FOR SUCCESSFUL INVESTING

1.     Control what is in your power to do something about. You cannot control what Social Security will give you for retirement, but you can do your own investing. You cannot control what your Employer is willing to do, but you can find alternate sources of income for investing. We cannot control our taxes, but we can take advantage of things that will reduce our taxes. We cannot control inflation, but we can be sure that we are getting sufficient out of our investments to keep up with inflation. We cannot control the risk of a single investment, but we can spread our investing out to help cut down on the risk. We must do what we can control about our investing!

2.     Learn to use the “Rule of 72.” This simple rule will help to quickly tell you how long it will take your investments to double. If you divide 72 by the % of interest, you can know how long it will take for your money to double. Example: 72 Divided by 2% will take 36 years to double. But 72 divided by 12% will only take 6 years to double. So, obviously, the lower the interest, the more time required for money to double. See example below:

$ 1000.00 invested at 8%

1^st 9 years…………………………$ 2000

2^nd 9 years…………………………$ 4000

3^rd 9 years…………………………$ 8000

4^th 9 years………………………$ 16000

5^th 9 years………………………$ 32000

3.     Learn the value of Time! “Time is money!” Time is a gift from God not to be wasted. How we use it can make a vast difference in our financial welfare. You can waste it, ignore it, use it, but you can’t stop it. It takes patience to save because it takes TIME! So take time, start early (Proverbs 14:29). “The decisions we make early in life will make a vast difference as to whether we will become dependent or be independent financially.”

EXAMPLE:  

The high cost of waiting to invest $ 100.00 a month at 10% at different ages:

1.     Beginning at age 25---I will have $ 637,677 at age 65.

2.     Beginning at age 26---I will have $ 576,087 at age 65.

3.     Beginning at age 30---I will have $ 382,827 at age 65.

4.     Beginning at age 40---I will have $ 133,789 at age 65.