Finances By The Book - Discipleship Course
Chapter 5
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Key Scripture: Sow your seed in the morning, and at evening let not your hands be idle, for you do not know which will succeed, whether this or that, or whether both will do equally well - Ecclesiastes 11:6

Reducing the Risk

With the present uncertainties in worldwide economic conditions, risks become more complex and investment growth more difficult to plan for. There are, however, three ways to reduce the risk taken in any one investment or on your whole investment portfolio: (1) Become personally knowledgeable about investments; (2) Use the advice of various experts since no one can be an expert in every area; and (3) Do not attempt to predict the future but instead diversify. Remember that even a completely risk-free investment portfolio will never give you peace of mind—only God can do that. "And the peace of God, which transcends all understanding, will guard your hearts and your minds in Christ Jesus" (Phil. 4:7).

Investment errors can easily be made if care is not taken. Some common financial mistakes are:

Delaying decisions about your money.
Not shopping around for the best deals.
Losing track of your money.
Investing without understanding.
Paying too much in fees.

Importance of Diversification

Wall Street’s first rule of investment is diversification, which provides significant gains and less volatility. A loss in one investment will be offset by profits in others. "Cast your bread upon the waters, for after many days you will find it again. Give portions to seven, yes to eight, for you do not know what disaster may come upon the land" (Eccl. 11:1-2).

Diversification should be done in three ways:

By asset category—Ninety-five percent of your investment results will be determined by diversification of asset category, such as stocks, bonds, cash, T-bills, or real estate.

By asset allocation—Allocate a specific investment within the category. For example, if you are investing 20 percent in real estate, do not invest all your money into one piece of real estate.

By time period—Invest in different time periods. An effective way to accumulate money is to put a certain amount in each month (dollar cost averaging).

It is important to remember that economic cycles are a fact of life. But wherever you enter the cycle is inconsequential. If you stay for the long-term, you will make a profit. Short-term investors usually lose. "He who gathers money little by little makes it grow" (Prov. 13:11). An important factor to consider is matching the time you actually have available with the amount of time it takes for a particular investment to operate. Several investments, such as annuities, IRAs, and zero coupons, need an appropriate amount of growing time in order to produce profit.


Investors often make an investment with one objective in mind—to lower their taxes. However, that alone is not a valid objective. Investment planning requires that you first make a good investment and then consider the tax consequences. Every decision that causes a reduction in taxes has a corresponding cost associated with it.

If you receive a tax refund, either some unusual circumstance has occurred late in the year or you are a victim of poor planning. As a believer you are required to pay taxes. But many people fall into one of two pitfalls. They either have a short-term perspective on taxes, or they will do anything to reduce them. To give the government use of your money is poor stewardship, and you should never withhold more taxes than is necessary.

There are four possible ways to help ease the "pain" of taxes legally:

Time your expenses. Ask yourself if it is better to have your deduction this year or next year? There are legal ways to work certain expenses into the current year and income into the following year.

Shift your income. Give the investment to your children who will be taxed at a lower rate.

Use investments to your advantage. You may choose to place your money in a tax-exempt investment such as a tax-free municipal bond, a tax-deferred investment such as an IRA or a Keogh, or a tax-favored investment with certain tax advantages such as depreciation.

Take advantage of the tax law. Adjust your gross income through an IRA or Keogh plan; itemize deductions; use tax credits for child and dependent care; use special provisions, which require expert counsel; and use special opportunities in charitable contributions.

If you have a complicated tax return, you will need to hire an accountant or financial planner. You might ask the following questions of any potential candidates:

What are the exact services provided?
What do you estimate your fee to be?
How long will the planning take?
How long will you need to prepare the taxes?
May I consult you later?
Will you represent me if I should be audited?

If you are worried concerning an Internal Revenue Service (IRS) audit, it is helpful to know that less than 2 percent of all taxpayers are audited. But several things can make you more subject to an audit. Making mistakes in mathematical computations and listing items on the wrong line are probably the two most common mistakes made by taxpayers. Also, the IRS gives value to different items on the return, so a greater score on any specified item may be picked up by the computer. Some of these items are a high income level, large investment gains (or losses), and unusually large deductions; therefore, accurate records should be kept.

Often the problems can be cleared up through the mail. If they cannot and you are called into their office, you should prepare yourself in several ways:

Assemble all the documentation the IRS requests.
Have proof for every deduction you have taken.
Do not volunteer information; give only what they ask for.
Take your tax preparer with you, if possible.
Finally, relax.

Life Application:

Complete Worksheet 5-A, "Income Tax Analysis," which appears below. You will need a copy of last year's income tax return and various other information to complete it. Copy the figures from the return and estimate for the current year.


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