Stewardship and the Stock Market
I was on a committee at a church one time whose mandate was to look at the future of the church. Of course, giving was the subject of many a discussion. Just like any good church committee looking at the future, we hired a consultant. The consensus was that the word stewardship was an outdated word and people couldn't relate to it. It was very "Old Testament."
Yet when it comes to money, stewardship is more relevant today than ever. Let me back into the reason.
First, Crown Financial did a study and discovered money was referred to or written about more than any other subject in the Bible. That is a powerful stat. Do you think that God knew we would struggle with money?
Second, at the end of the day, we make mistakes with money because we process decisions through the lens of emotion. Yes, emotion, in many ways is the enemy of financial success. God wants financial success for all of us, thus the needs for all of those versus and references in the Bible (no, I am talking about the prosperity gospel - success is defined in many ways beyond financial wealth). Emotions are the same today as they were in Biblical times, and people in both time periods (today and Biblical times), acted emotionally irrational. Fear is fear, greed is greed, etc.
Thus, stewardship is relevant. What does that have to do with the stock market? Glad you asked. Since the average attention of a blog reader tends to be 4 minutes, I am going to make one point then cover this in future writings.
There are only a very small percentage of versus in the Bible that are repeated word for word. Two of those verses are found word for word both in Proverbs.
Proverbs 22:3 27:12 (New Living Translation)
A prudent person foresees danger and takes precautions. The simpleton goes blindly on and suffers the consequences."
Here is the stewardship principle to learn.
It is just as important to be a good manager of risk when it comes to investing as it is growing investments.
Yet, the vast majority of investors only have a strategy for growing and not protecting their investments. To further the problem, the financial services "industry", or pop culture finance, does little to support that idea. Consider this with me for a second and I think that you will see the problem.
First, the financial crisis that sent the stock market into a severe decline, lasted from the top of the decline to the bottom of the decline, 17 months (give or take a day or two).
Second, those 17 months wiped out 13 years worth of growth in the stock market. In March of 2009, the S&P 500 (stock market) was at levels not seen since late 1996. Think about it, 17 months of stock market decline wiped out 13 years of stock market growth.
Third, unless history erases itself, the stock market historically has gone through periods such as these over time and we are in the longest bull market on record. Thus, the opposite - a bear market, historically speaking should be on the horizon. After all, bull markets don't last forever.
Thus, it makes sense to have a game plan for risk. Tomorrow, a deeper dive into what those two versus in Proverbs are really saying and how you can apply that to your investing life.