This faith and finance podcast is underwritten in part by Sound Mind Investing. For more than thirty years, do-it-yourself investors have relied on SMI for proven strategies and trustworthy guidance. SMI helps people build wealth so they can provide for their families, prepare for the future, and give generously. Learn more at soundmindinvesting.org. The field of behavioral economics has revealed something the Bible has been telling us for thousands of years.
Hi, I'm Rob West. What is that you say? It's that we're not nearly as rational as we think we are, especially when money is involved. Mark Biller joins us today to show us how biblical wisdom can help overcome some of the behavioral tendencies that work against us as investors. And then it's on to your calls.
At eight hundred five two five seven thousand, that's eight hundred five two five seven thousand. This is Faith and Finance, biblical wisdom for your financial decisions.
Well, we always learn a lot when Mark Biller's here. He's executive editor at Sound Mind Investing, a valued underwriter of this program. Mark, great to have you back with us. Thanks for having me back, Rob. Mark, you write in the latest SMI newsletter that the study of finance and economics has undergone a pretty radical shift in recent decades.
So, tell us what's changed. Yeah, Rob. You know, most of the dominant theory in economics and finance has always been based on the idea that individuals are perfectly rational actors. In other words, we always make rational financial decisions based on all the knowledge available to us that serves our economics self-interest. But newer economic research is increasingly showing that our decisions are actually often driven.
By our emotions, which often leads to counterproductive results.
So, spearheading this shift in economic and financial thought has been this field called behavioral economics, and the champions of that field have gone from being scorned initially to now winning Nobel prizes for their work. Wow! Yeah.
So, what I'm hearing is behavioral economics as a field may be relatively new. But you point out in the article that human nature really isn't new at all.
So why should these findings sound similar to Christians? Yeah, it's exactly right. You know, while the conclusions that are being reached by these behavioral economists in recent decades have surprised the rest of the economics field, they really aren't that surprising to anybody who's familiar with the scriptures. You know, a number of these key findings by behavioral economists. Are specific human weaknesses that the Bible has spoken clearly about for hundreds and thousands of years.
Well, let's unpack that. The first in your article is that our wisdom is flawed. What does Scripture tell us about that? Yeah, well, First Corinthians three eighteen tells us, "Do not deceive yourselves. If any of you think you are wise by the standards of this age, you should become fools so that you may become wise.
For the wisdom of this world is foolishness in God's sight." So that tells us pretty point blank: our wisdom is flawed, our motivations are impure. And then Jeremiah seventeen nine says, "The heart is deceitful." Deceitful above all things and beyond cure, who can understand it? Yeah.
Well, scripture also warns us about our emotions and our limited ability to see what's ahead. Right. It surely does, you know. Our emotions can overpower us. We see that regularly in markets, at market tops and at market bottoms.
This shouldn't be surprising to us. Paul tells us in Romans seven eighteen, "For I know that good itself does not dwell in me. That is in my sinful nature. For I have the desire to do what is good, but I cannot carry it out. And our vision is limited." James four.
Tells us now. Listen, you who say today or tomorrow we will go to this or that city, spend a year there, carry on business and make money. Why you do not even know what will happen tomorrow? What is your life? You are a mist that appears for a little while and then vanishes.
Yeah.
So if we know these weaknesses are a part of human nature, Mark, how should that change the way we approach investing?
Well, at SMI, we've long taught that individuals can become better investors by first understanding these counterproductive behavioral tendencies, and then learning how to moderate them by following time-tested investing practices that are rooted in scriptural principles.
So, SMI has always tried to weave practical ground rules and biblical precepts into our investment counsel. And there are three main ways that we address these common behavioral issues that work against long-term investing success.
Well, we're going to unpack those just around the corner. We'll talk about non-emotional selling guidelines. We'll talk about how you exercise restraint related to higher risk strategies. We'll also talk about diversification and much more. Mark Biller here today.
He's executive editor at Sound Mind Invest. Check out soundmindinvesting dot org, and then come back. Much more ahead. Stay with us. I was in ministry full time, and I was always looking for a way to integrate my faith with this new industry around money and finances.
This is Mark. He is a Certified Kingdom Advisor. As a CKA, one of the best things I offer my clients is trust in knowing that they're working with a professional that understands their values, and I think in all of the different challenges that clients go through, if we can go back to trusting God, then He'll make the path straight. You can find an advisor like Mark at findaaka. dot com.
Faith in Finance is grateful for support from Sound Mind Investing. If you have money in an investment account, you know sometimes the stock market can seem like a roller coaster. But it's possible to enjoy both profit and peace of mind as a do it yourself investor, no matter what's happening in the market. A short video webinar about that is available at soundmindinvesting.org. Financial wisdom for living well.
Soundmindinvesting.org. Biblical wisdom is the best defense against emotional investing. We're talking about behavioral finance today with Mark Biller, but using God's word as the backdrop. Mark is executive editor at Sound Mind Investing. He's also the senior portfolio manager at SMI, and you can learn more at soundmindinvesting.org.
That's soundmindinvesting. Mark, we were talking about our flawed human nature and how we can look to God's word to make sure that we're not acting emotionally with regard to our investing. And before the break, you mentioned there are three ways, in particular, that we can address common behavioral issues that work against long-term investing success.
So let's dive into those. I want to start with selling. You recommend. Non-emotional selling guidelines. What behavioral problems are those designed to protect us from?
Yeah, a strong selling discipline and and powerful selling guidelines are a key defense against what's called the endowment effect, and that is simply valuing something more highly than you should simply because you own it. It's a common tendency. These behavioral economists are all over it, and a strong selling discipline also protects us against what they call sunk costs. Which refers to the difficulty humans have in parting with something that they've invested in. You know, without these strong mechanical selling disciplines that we build into our strategies very intentionally, you know, we'd be just as prone as anybody else to falling in love with certain investments after they've had a big run of success.
Or another common problem investors have is wanting to. Keep holding on to bad investments a little bit longer, hoping that losing positions will get back to even before we can sell them. Those are both really bad ideas that hamstring investors a lot, and a big focus of these behavioral economists. Yeah, another recommendation is to exercise restraint in how much we allocate to higher risk strategies. Why is restraint so important, especially when it?
Comes to higher risk strategies. Yeah, it's because our emotions tend to swing so strongly based on what the market's been doing recently. You know, when markets are really good, it's so easy for investors to let their portfolios take on more and more risk because those riskier investments have been gaining so much.
So it's really important to exercise restraint in order to keep your risk exposure appropriate.
So at SMI, That means we limit our allocations to high-risk, high-return strategies like our sector rotation strategy, and especially so when those kind of high-risk, high-return strategies have been posting particularly big returns. This is really important, even if you have a good reason to believe that a high-risk, high-return strategy is going to be a really good performer over the long. And that's because of a powerful behavioral trait called loss aversion, which causes investors to feel the pain of losses roughly twice as much as they enjoy the pleasure of gains.
So even if it works out over time, you're going to feel those volatile downturns twice as much as you're going to feel the gains on the other side. Yeah, interesting. I know your third recommendation is strategy diversification. How does that help us manage the emotional side of investing? Yeah, well, using a combination of strategies is another way to combat that loss aversion we were just talking about—the pain of losses outweighing the pleasure of gains.
When we diversify among different strategies that excel in different market environments, it really helps us manage our emotions throughout the full bull and bear market cycle. You know, it's easy for listeners to understand why it might. Be emotionally painful for an investor to be in an aggressive strategy when the market is falling. But what we've found, Rob, over the years, is that it's almost as difficult for investors in a conservative strategy when the markets are rising and they feel like they aren't keeping up with the market.
So having a healthy blend of strategies in your portfolio can really help alleviate this. You know, with multiple strategies. Whatever the market's doing at the moment, hopefully you've got something in your portfolio that's working well, as opposed to being all in on any one approach. When your portfolio can just be wildly out of step for that season in the market. Yes, Mark.
It sounds like there's a larger stewardship principle underneath all of this.
So, what is the mindset you want investors to develop? You know, if you're going to be a successful long-term investor, it really helps if you can keep yourself from getting too high or too low, and that means mastering at least to some degree these behavioral issues.
So we try to run articles like this one we're discussing today pretty regularly to combat the problems that these weaknesses pose for investors. You know, ultimately, it's really Time-tested counsel that's grounded in these unchanging scriptural truths, and we're trying to present it clearly through that biblical lens. You know, the bottom line, Rob, really, I guess, is that we're emphasizing developing a stewardship mindset that's focused on growing wealth slowly but steadily. And of course, none of this means investing suddenly becomes easy.
So, what should investors keep in mind when markets and their emotions get difficult? Yeah, you know that's right. You know we often say at SMI investing is simple, but that doesn't mean it's easy. In other words, you don't really have to master all these incredibly difficult concepts. But even once you've grasped what you need to do, the emotional side is still difficult.
It's not easy. Markets are always going to be unpredictable. Human nature is always going to tug investors. In that emotional direction, so even when we know these principles, investing still really never becomes easy because we're always contending with that fleshly, emotional inner man.
Now that said, there is good news: the investors can approach the task of investing with confidence as long as they're applying God's wisdom to the subject. Mark, for do-it-yourself investors out there listening today, having a rules-based approach is really key, and and that's where SMI can come in, right? Yeah, we really think it is. You know, some people do make their investing decisions kind of as they go, but that really leaves you subject to being blown around by the emotional winds of the market. Whatever it's doing at the time, it's going to be a real battle for you to to stay the course.
So we think having that rules based process really just allows investors to kind of relax into the process. They don't have to. To make all those decisions in real time, constantly, they can just rely on those rules, trust the strategies, and let them take them over the long term to their financial goals. Excellent, folks! If you want to check that out, just go to soundmindinvesting dot org through the SMI newsletter in the mail, as well as SMI online.
You can have their system for your own investing, and they'll tell you what moves to make every step of the way. Again, it's soundmindinvesting dot org. Mark, thanks for your time today. Always a pleasure, Rob. That's Mark Biller, executive editor at Sound Mind Investing.
You can learn more about biblical investing principles. At soundmindinvesting dot org. That's soundmindinvesting dot org. We'll be back with your questions after this break.
So call right now eight hundred five two five seven thousand, or if you'd prefer to email your question, send it to us at askrob at faithfi dot com. Stick around. Are you a financial professional looking to grow your practice while offering advice that aligns with your Christian values? By becoming a Certified Kingdom Advisor, you'll gain the biblical wisdom and professional credibility to serve clients who are seeking faith-based financial guidance. Each year, more than seventy-five thousand people search for a Certified Kingdom Advisor.
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Thanks for joining us today on Faith and Finance. Hey, we have some lines open. If you've got a question today, go ahead and call right now. Eight hundred five two five seven thousand. Again, that number is eight hundred five two five seven thousand.
We'd love to hear from you. Tackle your questions today. You can get on the air quickly. Just call eight hundred five two five seven thousand. Let's head to North Carolina.
William, you'll be first up today. Go ahead. Hey, how are you? Thank you for taking my call. Absolutely.
My question is: My wife is sixty-eight, just retired. Thirty years of serving in the school systems, and I'm sixty-seven, still working. We have some money sitting in a four hundred three b. I think about forty-five thousand, and then she's got another account with thirteen thousand. And people are knocking on our doors about a fix.
Index annuity, and we don't know whether to leave it, to put it somewhere else.
So we're seeking information on how a fixed index annuity works, and is that something we should do? Hmm. Yeah.
Very good.
Well, first of all, these products are generally sold and not bought.
So what you're describing, where somebody's come and saying, "Hey, I think I've got something for you," is typically the way that works. But essentially, what you're talking about here is something that sits between a traditional fixed annuity and investing directly in the stock market.
So you give the money to an insurance company, the interest credited to the Annuity is partly based on an index like the S and P 500, so that would be a major index, stock market index. But the money is not actually invested in the index.
So, with a traditional fixed indexed annuity, a negative year for the index generally doesn't produce a negative index credit. The floor is typically zero. Percent, and so essentially, you get downside protection, but you get the upside of the market.
Now, where's the cost? Because anytime you get something like downside protection or a guarantee, there's a cost for that, and the cost is that you have to give up the upside in exchange, or some of it at least, in exchange for the downside protection.
So let me let me give you an example. Let's say the S and P five hundred. Goes up fifteen percent, the annuity might only credit seven, depending on its what's called participation rate. And they keep the eight percent difference, but if it goes down fifteen percent, the index, you know, credit might be zero rather than negative fifteen.
So the catch is that the insurance company controls how much of the market gain gets credited through the participation rate or the participation cap. The reason I'm not a big fan of these is those dramatic upside years. Where the market is up fifteen or twenty or twenty five percent, it's those years that usually give us these you know better average annual rates of return. Like if we look over the last hundred years, the S and P five hundred has done like nine percent a year, but it's because of those years at fifteen and twenty and twenty five. Even when you take the down years into account, those dramatic up years offset the down years and give you those nice returns.
So, I personally would rather you. Protect against the downside through proper diversification, and you know not have an insurance guarantee in order to protect it. The other thing is you're giving up some access to the money because there's going to be surrender charges if you need to get to it, and there's just a general complexity to these products that you know I'm not a big fan of. But let me stop there. Does that make sense, William?
It does. We've been doing some research, and love what you're saying. When you say you're not a big fan of it, we got a lot of trust in what you say, man, because you do this for the right reason. You know the Bible, and you know the biblical principles, so that's got a lot of weight. But we're already leaning towards that anyway.
We're in that research stage and trying to get good godly wisdom. Yeah, good.
Well, I I certainly don't want to be the definitive answer. I'm I'm just saying generally for most people, I'd rather you you know take a retirement account like a 403b, roll it to an IRA, let an advisor manage it for you, and you know take full advantage of the upside of the stock and bond market with the downside, but not have to take on the complexity and some of the other pieces that come along with an insurance product like this one. Listen, will. If you need an advisor to help you do some of that financial planning and even investment management for your other retirement assets plus this 403b, you can head to findakka dot com to find a certified kingdom advisor there in North Carolina. I think it'd be good as you all transition into retirement to really have somebody helping you think through how do we minimize risk, how do we get the income we need, how do we prepare for the future.
God bless you, my friend. Thanks for your Remarks about the program, and for being a faithful listener, I appreciate it. Quickly to Illinois, Tanya. I know you've been waiting patiently. How can I help?
Hello, Mr. West. I just have a really good question, and you can disconnect me once I ask. I saw something on my credit credit card that I did not open, and I just wanted to know is there a less bureaucratic way to go about going through TransUnion? Or how do I go about it?
What do I do? Yeah, I mean, if if it is in fact Tanya an account you didn't open, then it's identity theft, unfortunately, and so you need to act promptly. What I would do is first call the credit card issuer's fraud department using the contact information from their official website. Tell them that an account was opened without authorization and ask that it be closed or frozen and investigated.
So this would be the the Credit card issuer of the account you're seeing on your credit report that is not yours, and then as a next step, I would freeze your credit if you haven't already done so with all three bureaus: Equifax, Experian, TransUnion. It's a free service. You're going to add a PIN number to each one, and then no one will be able to open any other accounts without that PIN number. And then you would want it as a next step: file an identity theft report with the FTC. It's a simple website address.
It's ID. IdentityTheft.gov. That's going to create an identity identity theft report and recovery plan, and then I would dispute the account with the credit bureaus. You'll have to do it with each of them, but they have a process by which you can say this is not mine, and they would either have to provide the required documentation and verify that it is, or they would have to remove it. And that's ultimately what you want.
You also likely would want to go ahead and pull the other credit reports if you don't have all three. I would want you to have all three, and let's just see if this is appearing anywhere else, and if there's any others.
So if you have Experian, then go get TransUnion and Equifax, and vice versa. A last step is is put a fraud alert on your account that tells creditors to take additional steps to verify someone. Identity that's claiming to be you because you've recently been the victim of identity theft.
So I know that's a lot. Those are the steps: contact the credit card issuer's fraud department, freeze your credit, file identity theft reported identitytheft.gov, dispute the account with the credit bureaus. Pull all three credit reports, and then put a fraud alert on it. I hope that helps, Tanya.
So sorry this is going on. We appreciate you being on today. Thanks to Devin, Sandy, Taylor, and everybody here at FaithBuy. We'll see you next time. Bye bye.
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