Diversify sums up much investment advice we receive today. However, what does diversify mean, and how do we diversify?
King Solomon was a master at diversification. He wrote in Ecclesiastes, Divide your portion to seven or even to eight, for you do not know what misfortune may occur on earth. His inspired Biblical account was written late in his life as the wealthiest and wisest man in the world. What did he actually do to diversify and what can we learn from his methods?
Solomon’s many investments produced multiple streams of income. The Lord even allowed him to build His holy temple; the value of which is incalculable. His businesses were vast and extraordinarily diverse.
Solomon desired a large trading business. Therefore he procured the services of Hiram, the king of Tyre and his Phoenician seaman to build his navy. Solomon had once purchased twenty cities from this king for $75 million.
His new navy traveled the Mediterranean on a three-year cyclical voyage from Joppa, modern day Tel Aviv, to Tarshish, which is the present Cadiz area of southern Spain. Meanwhile a seaport was constructed at the head of the Gulf of Aquaba called Eziongeber. Here Solomon housed a storage center for the metals mined in Arabah. From this port the Red Sea navy would voyage throughout the Indian Ocean.
Solomon’s navies returned with fine gold from Arabia; Almug wood from India; ivory and monkeys, which indicated trade in Africa; and horses and chariots from Egypt and Kue. They once retrieved $263 million in gold alone. Remember Solomon had an invaluable opportunity with the Lord to choose anything that he desired. Instead of gold and power, he chose wisdom.
We can learn three truths from Solomon’s trading; 1) find something to invest, 2) divide your investments, and 3) delay gratification. A warning is also given- remember that misfortune can happen.
Solomon started with copper from Arabah. This was mined from a worthless piece of land south of a sea that is too salty for anything to live in. He found something, a resource to invest. You can too. In a previous article I wrote about saving money from each payroll. This habit can start your investment habit.
If you have the opportunity to invest into an employer-sponsored plan, take advantage immediately. At least invest the amount that your employer will match, then increase when possible. If you do not have an employer opportunity, create one for yourself. Open an investment account and habitually invest there. As your investment savvy grows, you may venture into investments that take more than a payroll deduction, or use different types of accounts. First educate yourself and master the basics. They won’t change. The first objective is to find something in which to invest.
The next step is to separate your investments, or diversify. What does gold, timber, copper, ivory, monkeys, and horses have in common? Not much, but they form a solid diversified portfolio. A storm can wipe out a timber business, copper veins dry up, and horses can get diseases. Gold, ivory, and monkeys balanced Solomon’s portfolio. Nobody really expects to invest in most of theses items. The investments in your portfolio, however, should be diverse. In a standard portfolio an investor can have a mix of large, medium, and small companies, domestic and international investments, and companies from different sectors, such as energy, technology and retail. A person’s total portfolio can be invested in fixed income, such as bank CDs, or real estate. Many opportunities are available. Research your opportunities. Remember to diversify your investments. Do not put all of you eggs in one basket.
The final idea is to delay gratification. Solomon had to wait three years for one of his investments to return. Most certainly he waited much longer for others. In today’s microwave world, three years is too long for most of us. Patience is a virtue. Money takes time to grow. The Bible teaches us that hasty shortcuts lead to poverty. You must plan for the future today, delaying immediate satisfaction, while keeping your priorities in order.
You do not need complicated ideas to succeed. You need wise advice, solid plans, and self discipline. Remember, the Lord wants you to succeed. His plans for you are great.
I Kings 9, 10 Ecclesiastes 11, Proverbs 21
May 11, 2007
Investment advisory services offered through Sound Financial Strategies Group, Inc.("SFSG"), a Registered Investment Adviser. Securities offered through Comprehensive Asset Management and Servicing, Inc., ("CAMAS") Member FINRA/SIPC. SFSG and CAMAS are separate and unrelated companies. The opinions voiced in this article are for general information only. They are not intended to provide specific advice or recommendations for any individual and do not constitute an endorsement by CAMAS. Diversification cannot ensure a profit or protect against a loss in times of declining values.
Posted on Fri, May 11, 2007
by Chris McAlpin