The Biblical Principles of Investing

We know that the Bible is full of wisdom on topics such as marriage, parenting, faith and many others. What about in the area of financial management? Does the Bible have anything to say about how we should handle the blessings that God has entrusted to us?

Although the Bible does not address all the specifics of finances and it does not directly relate to the stock market or real estate investments, it does provide broad principles and at times specific instructions which can be applied to this area.

These biblical principles of investing will help Christians invest wisely while maintaining ethical and moral standards that are in line with the core beliefs of Christianity.

What does the Bible Say about Investing?

The idea that you can invest biblically often brings up some misunderstandings among Christians and non-Christians alike. Sadly, these misunderstandings stem from the common misconception that investing is about hoarding money for the sole purpose of watching it grow.

Investing is a way of multiplying the wealth God has entrusted to us not only to provide for our current and future needs but also to impact and further God’s work on earth.

Investing in the biblical sense is about being good stewards or caretakers of the blessings that we have been given. We read in Matthew 25:14-28 how God commended the stewards for multiplying their talents. God called them “faithful” and as a reward, He entrusted them with more talents.

The Christian’s Guide to Investing

1) Pay off your debts before investing.

While the Bible does not strictly prohibit debt, it characterizes debt as a form of bondage. The Bible warns us against the dangers of indebtedness as the borrower becomes the lender’s slave.

“The rich rule over the poor, and the borrower is servant to the lender.” – Proverbs 22:7

Romans 13:8 also exhort us to “owe no one anything except for the continuing debt to love one another.” Although some godly Christians believe that this phrase prohibits all borrowing, almost if not all Bible commentators agree that Paul isn’t forbidding all debt. Rather, he’s saying that we must pay our debts and other financial obligations.

You might get all excited to hear your friend tell you how her investments are doing well; that she is earning passive income through them. But before you jump in, make sure you have eliminated all consumer debts. Because the money you save on interest by not having any debt is better than any return you could get by investing your money elsewhere.

2) Before you begin investing, you should already have an emergency fund.

Until you have built your emergency fund, you need not attempt other kinds of investments such as stocks, mutual funds, bonds, gold, etc. The purpose of an emergency fund is to meet unexpected and unpredictable needs which could arise.

How much should you have in your emergency fund? It depends on your financial circumstances, but most financial advisors suggest 3 to 6 months of your living expenses. This means if you need $2,000 a month to cover your family’s needs, then you need $6,000 to $12,000.

“Go to the ant, you sluggard; consider its ways and be wise! 7 It has no commander, no overseer or ruler, 8 yet it stores its provision in summer and gathers its food at harvest.” – Proverbs 6:6-8 (NIV)

Because an emergency can strike at any time, your emergency fund should be invested in a safe, liquid investment, from which you can easily withdraw funds when needed, without penalty or loss of interest, such as money market fund. Or you can just keep it in a savings account separate from your regular savings.

3) Pray and ask God to guide you.

Before you start investing, take time to pray and ask God to guide you as the steward of His finances. Always remember that it is God’s wealth you are investing, not yours. And as God’s managers, He will hold us responsible for deciding how to invest His property. So consult God through prayer, meditation and studying the Scriptures.

“If any of you lacks wisdom, let him ask of God, who gives to all liberally and without reproach, and it will be given to him.” – James 1:5

You must also seek investment counsel. Understand that you’re not an expert at investing money, but you are competing head-to-head with those who are. The way to become expert at anything is to learn from and train under the one you believe to be an expert.

“No human wisdom or understanding or plan can stand against the Lord.” – Proverbs 15:22 

But you should seek counsel only from believers who will help keep you from failing to follow biblical financial wisdom. There are many advisers who are experts in all areas of investing, but who might not look at things from a biblical perspective. So learn to distinguish biblical advice from plain investment advice.

4) Never invest in anything you do not understand.

This is Warren Buffet’s number 1 rule in investing. When you invest in things you do not understand, you may end up losing all of your life’s savings. That’s why it is always best to do your “homework” because knowledge is power, and knowledge is the key to success in investing.

“Through wisdom a house is built, and by understanding it is established; by knowledge the rooms are filled with all precious and pleasant riches.” – Proverbs 24:3-4

So if you’re considering investing in stocks, research the companies you want to buy and until you understand them, you may go for mutual funds, especially index funds.

*Related Topic: Basic Principles of Investing for Beginners

5) Diversify your investments.

Diversification, which is the practice of spreading your investment around different types of assets and securities to minimize the risk of your portfolio’s risk and volatility over time, is the key to the long-term stability and success of your investments.

Nobody really knows what will happen today or tomorrow, in our lives or in the stock market. So it is best to diversify your holdings in order to protect your investments and ensure that you can achieve your financial goals while still getting a goodnight’s rest.

“Send your grain across the seas and in time, profits will flow back to you. 2 But divide your investment among many places, for you do not know what risks might lie ahead.” – Ecclesiastes 11:1-2 (NLT)

Maybe you have heard this verse interpreted as an instruction to give to those in need. But if you read from verses 1 through 6, it seems to clearly teach the wisdom of spreading your risk in investing.

You may be surprised to read King Solomon offering financial counsel as he nears the end of Ecclesiastes. But accordingly, Solomon was deeply involved in international trades with merchants. And just like today, one of the main trade commodities was grain.

The merchants of Solomon’s day would load their grains on ships and send them off. But instead of loading all of their grains in just one ship, he tells his merchants to put them in several ships and send them out in a diversified way so that if one of the ships should sink, he would not lose everything.

“Plant your seed in the morning and keep busy all afternoon, for you don’t know if profit will come from one activity or another – or maybe both.” – Ecclesiastes 11:6 (NLT)

It’s the same thing in investing. King Solomon counsels investors to “divide their investments between 7 or 8 ships” so that if disaster strikes, they won’t lose everything. Yes, there are risks that come with investing but you should not be afraid to take some risks. Make investments and enter into business, but use the principle of diversification.

6) Never invest based on greed and avoid get-rich-quick schemes.

One of the major pitfalls in learning to invest is the temptation to get our eyes off of the main goal in the Christian life – storing up treasures in heaven (Matthew 6:19-20), as one can easily fall into the trap of wanting to get rich.

Then He said to them, “Watch out! Be on your guard against all kinds of greed; life does not consist in an abundance of possessions.” – Luke 12:15 (NIV)

Day trading, which is the process of buying and selling stocks even within the same day, is a recipe for disaster. You may have heard some stories of someone who hit it big by doing this. But there are also thousands of stories of people who lost it all doing this. Investing requires patience; it implies waiting on God and trusting Him with the results.

God’s wisdom on building wealth is gathering money little by little, which is the opposite of chasing fantasies. And that is why “overnight” get-rich-quick schemes should always be avoided. Remember that proper investments will take time to grow and yield an income. Any investment that guarantees high return could well be a scam and should raise a red flag on the part of the investor.

“Dishonest money dwindles away, but whoever gathers money little by little makes it grow.” – Proverbs 13:11 (NIV)

Should you borrow money to invest? Absolutely not! One of the things that hasten the process of going into poverty is borrowed money. That’s right! The number 1 contributing factor to the loss of wealth is borrowed money. While there is no commandment that prohibits borrowing, it is a sin to borrow with a covetous heart and a get-rich-quick motive.

7) Never invest money that you cannot afford to lose.

How much money should you invest? Because you can never exactly predict what the value of your investment will be in the coming years, the kind of money you should put in is the money you won’t be needing today, tomorrow, next year or even 5 to 10 years from now.

The biggest problem that can arise in investing is when your personal situation forces you to suddenly sell your investments for cash when the market is down. This is why you first need to build your emergency fund to cover for any unexpected expenses that may arise.

Conclusion

God is not against prosperity. There are so many biblical characters that God has blessed and prospered. But in return, you must be faithful to use your resources to honor God. If you desire to be entrusted with greater riches, God needs to know that you can be faithful with a few.

“Whoever can be trusted with very little can also be trusted with much, and whoever is dishonest with very little will also be dishonest with much. So if you have not been trustworthy in handling worldly wealth, who will trust you with true riches?” – Luke 16:10-11 (NIV)

God alone knows the future. But when you invest, you ought to use your brain, make plans, study the situation, seek wise counsel, take all factors into consideration, do the best you can and leave the results to God. In short, invest wisely; apply the biblical principles of investing and let God take care of the future.

And always remember that your wealth and the wealth of the nations all belongs to the Lord (Psalm 24:1).