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Financial Principles Worth Knowing
Each month, I try to set aside one day for planning the upcoming issue of the Sound Mind Investing newsletter. Part of that time is spent catching up on my reading. As I scan the dozens of newspaper, magazine, and newsletter articles, a single question dominates my thinking: Is this something my readers should be aware of?
Should I tell them what the experts are saying about the economy, interest rates, and the markets? I don't very often because (1) they're just guessing, and (2) you can always find impressive experts on both sides of every argument.
Should I review how the stock, bond, and foreign markets behaved over the past month? Typically I don't because market behavior is erratic over the short-term and should have little bearing on the financial decisions you make.
Should I discuss which mutual funds have been hot? Since fund performance over the previous four to twelve weeks has never been shown to have any predictive value (that is, no correlation with which funds will be the top performers over the coming weeks or months), what would be the point?
To know all these things—various hypothetical scenarios about what the future holds, the ins and outs of recent market action, and which funds led the way last month—is, to my mind, to know very little of practical value. Like the ever-shifting sands on a beach, they provide no foundation on which you can build a stable structure.
I see Sound Mind Investing as a specialized discipling tool that seeks to "prepare God's people for works of service, so that the body of Christ may be built up until we all reach unity in the faith and in the knowledge of the Son of God and become mature..." (Ephesians 4:12-13). This means we must learn to set financial priorities that are honoring toward God and point toward the attainment of God-given goals. That being the case, the things worth knowing—and the things emphasized in SMI—are, first and foremost, rooted in God's Word.
• "All Scripture is God-breathed and is useful for teaching, rebuking, correcting and training in righteousness" (2 Timothy 3:16). It's worth knowing that we should look primarily to God's wisdom, not the conventional wisdom, for principles to guide our decision-making. The principles God has given us are practical and personally relevant.
• "Now it is required that those who have been given a trust must prove faithful" (1 Corinthians 4:2). It's worth knowing that we must each accept personal responsibility for making knowledgeable, biblically consistent financial decisions. We cannot look to others to make the tough choices for us.
• "The rich rule over the poor, and the borrower is a servant to the lender" (Proverbs 22:7). It's worth knowing that debt is potentially enslaving and that we should avoid it as much as possible.
• "In the house of the wise are stores of choice food and oil, but a foolish man devours all he has" (Proverbs 21:20). It's worth knowing that maintaining a proper balance between current spending and long-term saving is a sign of wisdom.
• "The plans of the diligent lead to profit as surely as haste leads to poverty" (Proverbs 21:5). It's worth knowing that we should consistently invest from a carefully considered strategy rather than impulsively on a case-by-case basis.
• "Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth" (Ecclesiastes 11:2). It's worth knowing that we should rely on diversification—rather than a preoccupation with market cycles—as a means of controlling risk and protecting our capital.
• "Do not wear yourself out to get rich; have the wisdom to show restraint" (Proverbs 23:4). It's worth knowing that we must be on guard against greed and spending our energies in a futile attempt to get the highest possible returns.
As we continually "renew our minds" with these guiding principles, we can apply them to help us make the day-to-day financial decisions we each face. When followed consistently, we can have confidence that, whatever the short-term sacrifices may be, we are making wise spending, saving, and investing choices. That frees us to leave the results with God, knowing that "Godliness with contentment is great gain" (1 Timothy 6:6).
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