Think diversification is only for heathens? Christian investors should take a look at Ecclesiastes 11:2, where King Solomon wrote to “Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on earth.†This basic market truth should be ignored at your own peril. It wasn’t by accident that the Queen of Sheba noted that everything Solomon’s hands touched turned to gold, or that the Lord told Solomon he would endow him with riches, honor, and wisdom.
In basic terms, Solomon’s wisdom tells Christian investors to spread their investment around and not sink it all into one place. Any decent broker or financial adviser will tell you the same thing but you heard it from the good king first. What can happen when you fail to diversify? Let’s look to Enron and the poor souls who worked for the company and had the entirety of their retirement vested in that stock.
When Enron imploded in a bookkeeping scandal, the stock price plummeted and many people lost their nest egg over a course of days. Years of saving and investing swirled down the drain never to be reclaimed. This is what happens when you don’t diversify. If these Enron employees had paid attention to Solomon’s suggestion, and spread their investments over eight different assets, the most they could have lost from the Enron debacle would have been 1/8 (or 12.5%) of the sum total. Even if their luck had been truly horrible and another of their stocks took a tumble at the same time, they would still be looking at only a 25% loss.
Better than losing everything.
Christian investors should take the idea of diversification very, very seriously.
The Solomon Success Team
Flickr / alex-s
