Although the Bible isn't an investing guide, its truths about human nature and life in a fallen world offer insights that can help you avoid common, potentially costly investing mistakes.
SMI's Mark Biller and host Rob West discussed a few of those insights on Faith & Finance last week. Mark and Rob also took questions from callers.
Click the play button below to listen. Scroll down to view the transcript.
Faith & Finance Live airs weekday mornings on American Family Radio. A different version airs weekday afternoons on Moody Radio.
(More radio appearances by members of the SMI team can be found on our Resources page.)
Transcript
Rob West:
The field of behavioral economics has revealed something the Bible has been telling us for thousands of years.
Mark Biller joins us today to show 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 800-525-7000.
This is Faith & Finance on American Family Radio — biblical wisdom for your financial decisions. (opening music ends)
Well, it's always a treat when Mark Biller stops by. He's executive editor at Sound Mind Investing. He's the senior portfolio manager at SMI, a valued underwriter of this program. And he's going to be sticking around today for the entire broadcast. So this is a great opportunity. If you have questions about the market, your portfolio, perhaps some of the decision-making behind the investment decisions you've made, or you just want to know where this economy's headed and how that plays into your plans.
Mark is here today. We will prioritize those questions on topic — so investing-related questions 800-525-7000. That's 800-525-7000.
Mark, great to have you back with us.
Mark Biller:
Thanks for having me back, Rob.
Rob West:
Mark, you wrote in the latest SMI newsletter that the study of finance and economics has undergone a pretty radical shift in recent decades. So let's start there. What's changed?
Mark Biller:
Yeah. Well, most of the dominant theory in economics and finance has historically been based on the idea that individuals are these "perfectly rational" actors. In other words, we supposedly always make rational financial decisions that are based on all the information and knowledge that's available and that always serve our economic self-interests.
But newer economic research has increasingly shown that our decisions are actually often driven by our emotions. And, not surprisingly, that often leads to counterproductive results.
So spearheading this shift in thought in the field has been this new emerging field of "behavioral economics." And the champions of this new field have gone from being ridiculed and scorned initially to more recently winning Nobel Prizes for their work.
Rob West:
Wow. Yeah. So as you said, the idea of behavioral economics as a field may be relatively new, but you point out in the article that what it tells us about human nature isn't new at all. So as Christ-followers, why should these findings sound familiar?
Mark Biller:
Yeah, that's exactly right, Rob. While the conclusions that have been reached by these behavioral economists in recent decades have been really surprising to the economics field, they really haven't been that surprising to anybody who's familiar with scripture. And that's because a number of these key findings are actually based on specific human weaknesses that the Bible speaks really clearly about.
Rob West:
Let's look at those, Mark. The first is that "[human] wisdom is flawed."
Mark Biller:
Yeah. Our wisdom is flawed. And 1 Corinthians 3 tells us, "Do not deceive yourselves. If any of you think you're wise by the standards of this age, you should become fooled so that you may become wise. For the wisdom of this world is foolishness and God's sight."
So that kind of gets to this idea that our wisdom is flawed.
And then you compound that by the fact that our motivations are impure. Jeremiah 17 tells us, "The heart is deceitful above all things and beyond cure. Who can understand it?"
Rob West:
Yeah. Scripture clearly uncovers all of these ideas. It also warns about our emotions and our limited ability to see what's ahead, right?
Mark Biller:
Yeah, absolutely. Our emotions regularly can overpower us — and we see that in markets. Whenever the stock market especially is at a top or at a bottom, people react very emotionally. No surprise. Paul told us back in Romans 7, "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's good, but I cannot carry it out."
So even when we want to do the right thing, our emotions make it hard for us to do that.
And then to the point that our vision is limited, James 4 tells us, "Now listen, you who say today or tomorrow we'll 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're a mist that appears for a little while and then vanishes."
Rob West:
Yeah, that puts it all in perspective.
So if we know these weaknesses are a part of human nature, how should that change the way we approach investing?
Mark Biller:
Yeah, I think there are a couple pieces to that, Rob. SMI has long taught that individuals can become better investors — first, by understanding what these counterproductive behavioral tendencies are and then, following that up, by learning how we can moderate them, how we can put boundaries in place that will help us to follow the time-tested investing practices and rules that are rooted in scriptural principles.
So first we need to understand ourselves, then we need to put in these protective barriers or boundaries to kind of keep us on the right track.
And so we try to do that in our strategies. It's also why SMI has always tried to weave these biblical precepts into our investment counsel. And there are really three particular ways that we address some of these common behavioral issues that work against people's long-term investing success.
Rob West:
Let's dive into those. In just a moment, we'll begin taking your phone calls. So now is the time to call 800-525-7000. We have a few lines open with your questions for Mark Biller today.
Mark, let's start with selling. You recommend "strict, non-emotional selling guidelines." So what behavioral problems are those designed to protect us from?
Mark Biller:
Yeah. Well, selling guidelines, Rob, are a key defense against what the behavioral economists call the "endowment effect." And that is simply the tendency we all have to value something more highly than we should just because we own it.
So having a strong selling discipline is going to help us protect against that.
It's also going to help protect us against the idea of "sunk costs," which refers to the difficulty that humans have in parting with something that they've invested in.
Without these types of strong and, importantly, mechanical selling disciplines, we'd be just as prone as anybody else to falling in love with certain investments after a run of success, or on the other hand, wanting to hold on a little longer, hoping losing positions get back to break even.
And we don't have to go back very far to think of some really clear examples of this, Rob, right About a year ago, we were doing programs together about gold, which was just ripping higher, and lots and lots of people wanting to pile into gold after it had gone up so much. We were saying, "Oh, be careful. We're getting this kind of parabolic rise."
Then you go back about six months ago and it was the same thing with the semiconductor and AI stocks. And we were doing a program then about the parabolic bubble-like tendency of the market right then.
So having these built-in mechanical disciplines to not race in and not sell out in fear when the market's plummeting, those are really, really important baseline guidelines for investors.
Rob West:
Let's try to sneak in a few phone calls here along the way. Still a lot more to talk about related to this topic and the article at soundmindinvesting.org.
Let's go to Indiana. Alan, how can we help you, sir?
Caller:
Thank you for taking my call.
Rob West:
Sure.
Caller:
I have an equity and fixed-income portfolio, approximately 70% equities and 30% in fixed income. Most of those fixed-income instruments are ETF bonds.
My question is, in light of the interest rates likely going up, or the possibility of them going up, what would be the way forward that Mark or you would be able to help me with in terms of the existing bond ETFs I have? I noticed they've gone down about 2% or so in the last 30 days. So, hopefully that helps.
Rob West:
Yeah, very good. Do you have a sense of what bond ETFs you have in terms of duration?
Caller:
Yes, a great question. I don't know the portfolio average for the entire account, but I think most of them are intermediate, perhaps some as long as 10 years.
Rob West:
Mark, your thoughts?
Mark Biller:
Yeah, good stuff, Alan. So, first I'll lead off on a little bit of a hopeful note for you, and that is — it's no surprise people who've listened to me on these programs over the last few years are probably aware that I have not been a big fan of bonds. It's been a real challenge, really since COVID when interest rates started to rise.
For those who aren't familiar with how bonds and bond ETFs work, rising interest rates mean falling bond prices. So in COVID, interest rates bottomed out with the 10-year Treasury yield at about one half of 1%. That 10-year Treasury yield then over the last five or six years has gone up to over 5%. So as those interest rates have come up dramatically, bond prices have sold off and it's been a really tough ride for bond investors.
The hopeful part of that, Alan, is that with interest rates where they are today, we actually have good reason to expect that bond performance will be quite a bit better than it has been over this period when those rates were rising so much.
To go from half a percent to 5%, that's an enormous rise. And even if rates were to go from say 5% to 6%, that's a much smaller incremental move. Plus with bonds, you're always earning the interest rate that is attached to those bonds, which is over 5% today. So that's going to help buffer any kind of further losses from rising interest rates.
Some listeners are probably going, "Holy cow! Mark actually sounds like he's positive on bonds for the first time I ever remember." And that's fair. It's an ironic thing that as this asset class has done so poorly recently, it actually, ironically, becomes much more attractive. It's kind of like with the stock market. When it falls and falls and falls in a bear market, at a certain point, you look at how much it's down and you say, "Wow, that actually is starting to look attractive on the buy side."
So Alan, I guess the first point is just don't necessarily despair and go too far off of what you think really is the appropriate long-term stock/bond allocation for your portfolio.
And maybe we'll touch on a couple other points after the break.
Rob West:
Yeah, that sounds great. Alan, we'll let you go. You can certainly listen in. We'll get to the rest of Mark's thoughts after this break.
More questions ahead. Mark Biller here today. We're talking about investment, decision-making on Faith & Finance. Stick around.
Rob West:
Mark, before the break, we were talking about bonds, and I'd love for you to finish for our caller.
Mark Biller:
Yeah, it's worth taking a little extra time on, Rob, because understand it or not, right now, interest rates are at the heart of everything going on across markets.
We've had a really rapid rise in rates since about the end of August. The 10-year Treasury yield was about 4.6% then. It then shot up to 5.3%. That's a very fast move in a very short amount of time. It's backed off a little bit since, but those ripple effects have definitely been felt across the stock market, especially smaller-cap stocks that are more interest rate dependent. So it's really worth understanding what's going on with these interest rates and what we can do as investors to defend against those.
So, like we were saying before the break, ironically, they're a little bit more attractive now, so we don't necessarily want to throw all the bonds out at this point, but there are some really easy steps we can take.
One of them you hinted at with Alan when he was on the call there, and that is look at the duration of the bonds that you hold. Right now, and really this is true most of the time, but especially right now, that intermediate-term bond market, which is roughly 7-to-10 year bonds, that tends to be the sweet spot for the bond market.
I say that because, historically, longer-term bonds — longer than 10 years — you get a lot more risk with only a little bit more return. So it's not a great trade-off. And on the real short-term end, you tend to not get nearly as much return as intermediate bonds tend to provide.
So that's a real easy thing that anybody can do who owns bonds in their portfolio: Check the duration, look for those good intermediate-term bond funds, that's 7-to-10 years, that's usually a good sweet spot.
Another really easy thing to do is our SMI Bond Upgrading strategy recommends four funds that have done real well through this period, have outperformed the U.S. bond index over that time. So that's a real simple way to try to home in on some better options.
And then the last one, Rob, that I would recommend if people are interested in digging a little further is there's a type of bond ETF — they're fixed duration bond ETFs. iShares iBonds is one that you can look up as a starting point. There are other brands as well. But what these do is they target a specific year that the bonds in that ETF expire in that certain year. So you'd be looking for something like iShares iBond 2029 or 2030.
And what those do is it's a lot more like owning a portfolio of actual individual bonds. It insulates you from rising rates and the interest rate risk that we've been talking about as rates go up, the bond prices go down. These do a lot less of that. So it's more like owning your own individual bond.
And so that can be an appealing way to kind of fight off some of this rising interest rate risk as well.
Rob West:
Yeah, that's all really helpful. I know this is a question that a lot of folks are wrestling with just given the declines that they've seen in this portion of their portfolio with bonds over the years.
Taking your questions today — 800-525-7000. Investing-related questions are the priority with Mark Biller, but we'll try to sneak in a few others as well.
We'll go to Alabama next. Gary, go ahead, sir.
Caller:
Good morning, gentlemen. So, you were talking about wisdom in financial decisions, and [I'll] try to give you a little backstory. I'm retired military, so I've got a pension. I've got good things going there. And since I've retired, gotten into income properties and I've bought storage buildings.
And I've been really lucky and favored by the Lord in my selling. I've doubled my money here. I've tripled my money there on dealing the property, selling them.
But then as I got bigger, as I got more stuff, more doors with regard to storage, I ended up buying a property and I didn't do my proper due diligence on this property. I'm like slave to it now.
I've got more income than I've ever had because it's passive income, that's great, but I've assumed this debt load, and I just guess — to take the moral of the story, is make sure you do your due diligence because I'm kind of teetering with this debt load that's seemingly out of control. And I bought some toys counting on a sale of a certain property and it hasn't sold. It's been on the market for a year. And actually the realtor who was listing it kicked me to the curb because, I don't know, I guess it's too small of a property for him to want to deal with, and there's not a demand. It's a rural location. So there's all these variables and I could go on.
And I know the solution isn't handled in a two-minute phone call with you guys, but certainly maybe y'all have some counsel or can double tap "do your due diligence when it comes to buying properties."
Rob West:
Yeah. Well, I appreciate your transparency and vulnerability, Gary. And I know this is going to serve as a reminder and encouragement to our listeners today. I would love to share some thoughts, and we'll get Mark's as well. We're up against a break here. We'll do that right after the break and head to more questions as well.
This is Faith & Finance. Stick around.
Rob West:
Great to have you with us today on Faith & Finance here at American Family Radio. I'm Rob West. Have you thought about the emotions behind your investment decisions? How is that impacting you? Well, behavioral finance has a lot to say about it, but it's not new. It comes from God's Word. We understand from the timeless principles in Scripture how our wiring and our emotions can affect every decision we make — certainly those decisions related to money and investments.
Mark Biller is here today. He's written an insightful article on this topic — biblical wisdom and how that intersects and is a defense against emotional investing. You can check it out at soundmindinvesting.org.
Before the break, we were talking to Gary. Gary is a former [member of] military. He's got a pension from his service. He also started investing in real estate, did very well, has had a double and a triple along the way. But then got into a property that, to his point, he didn't do the proper due diligence, and he's now paying for that. And other than just serving as a reminder to each of us on the importance of not getting ahead of ourselves, especially when we've had some early wins, just wondering if there's any advice for him.
And, Mark, I'll let you weigh in a second. I'll just say first, Gary, thank you for your service to our nation. Obviously, you've worked hard, you've made some wise investments, you've built substantial assets.
One — I'll say "bad" — real estate decision doesn't erase all of that. But I do think in terms of the practical steps here: number one would be let's really be on our guard against taking on any additional debt. I'm not hearing you're interested in that, but I just want to put that out there. Let's not try to invest your way out of this situation by purchasing another property or taking on another big risk.
I think it's always important — and I suspect you've done this — but get a complete picture of your finances. List every property, its realistic market value, the outstanding mortgage, the interest rate, the payment, the rental income, and operating expenses, and then identify which properties are helping or hurting. And then we could look at considering selling some assets to eliminate the debt. You mentioned the doubling and the tripling, and that's wonderful. Maybe we can turn some of those gains into the financial security that you're looking for.
And then it sounds like replacing that realtor — maybe it's not easy because of the rural nature of this property — but getting somebody fresh in there who's willing to really work with you and take this seriously and try to get this aggressively marketed in such a way that you could unload it and wind this down, especially if you're not looking to sell some things.
So I would say those are probably the next steps here as you move forward. Mark, anything else you want to add?
Mark Biller:
Yeah. As Gary was describing this, it really just made me think of what we mentioned earlier in the program, that idea of "sunk costs," that sometimes because we've put so much effort, blood, sweat, and tears into something like this property, it can be really hard to see clearly and really hard to get rid of it.
As you were just saying, Rob, sometimes you need to maybe even take a deal that doesn't seem like a great deal just to kind of get rid of the asset. The key to that sunk cost idea, and this is true with all of us, even in our just normal stock/bond portfolios, is asking ourselves, "If I didn't already own this, would I buy it today at this price?" And so I think there's a lesson maybe in there for Gary, where if you were to look at that objectively with outside eyes to see, okay, maybe this isn't a great deal, but if I can get out of it, rinse my hands of it, maybe that is my way forward.
I would also say, Rob, first and foremost, in a situation like this, always asking God for wisdom, he tells us he gives it generously to us without finding fault and then just asking him to show what the path forward should be. That's certainly step number one.
Rob West:
Yeah, very good. Gary, is that helpful?
Caller:
Tremendously. Thank you. Thanks, Rob.
Rob West:
All right. Lord, bless you, my friend. Thanks for calling today and call anytime if we can serve you.
Let's see. Let's head to Alabama. Jackie, how can we help you?
Caller:
Yes. And thanks so much for helping me. I love it that you're both there for good advice, because I know, Rob, you always give us the right advice, but it's always good to hear from someone else too.
Rob West:
Sure.
Caller:
So thanks so much. So we're 76 and a half, my husband and I, and God has blessed us through a lot of saving and not spending to have like $300,000 in various cash available instruments, whether CDs, iBonds, et cetera. And then we would have about $800,000 in other money. And then our house is valued probably at $600,000.
And it's like, do we even need bonds? I don't think I've ever even gotten my bonds back from 2022. I have them in the Vanguard Total Bond Market [Fund], 5-to7 years. I'm about 60 / 40, 40% bonds, 60%... No, 60% bonds, 40% stock, but I don't think we're going to need this money.
And it's like, shouldn't I be for God's kingdom, putting it maybe into VYM [Vanguard High Dividend Yield ETF] or NOBL [S&P 500 Dividend Aristocrats ETF], the IRA type of money? Or maybe — Fidelity has something that's a five-star-rated Morningstar that is very good — it's 15% international and then it balances off 50/50, and it's done very well.
I mean, should I just let that money that's earned like 1% in the last 10 years just do that? I don't feel like a good steward of this money.
Rob West:
Yeah. Well, you sound very astute in all that you're thinking about and doing here, Jackie, so well done. Mark, what are your thoughts?
Mark Biller:
Yeah, those are great. Great questions, and a lot of people are asking that right now, Jackie, because bond returns have been poor and also because stock returns have been so good. And that's the piece that we have to always kind of put a little flag on because anytime the stock market has gone up a lot, as the stock market has the last three or four years since 2022, it becomes really easy to just extrapolate that in our minds and kind of forget that the stock market is the way more volatile market and that it's really easy to drop 25% of your value in your stock investments in the course of a year, 18 months, something like that. And so we don't want to get too far over our skis with the stock side.
Now I will say the one little caveat there that I heard, Jackie, is I don't even feel like I'm going to need this money. And in a situation like that, if you really are quite confident that this is money that maybe you're going to be leaving to heirs or something like that, that does allow you to extend your mental timeline with the money a little bit longer.
And that's important because we always say you shouldn't be putting money into the stock market unless you have at least a five-year time horizon and preferably a 10-year time horizon. And that's where people in retirement typically will say, "Well, my time horizon is quite a bit shorter, therefore I need to be getting more conservative."
So that would be the one reason, Jackie, that you might be able to say, "Maybe I don't go quite as conservative with my stock/bond allocation with this additional money as I have with the rest of my portfolio. If I really do think that I'm investing this for my heirs, maybe a 10-, 20-, 30-year time horizon, that can make a little bit of sense." So hopefully that helps a little bit.
Rob West:
Yeah. I think the other piece here is just the answering the question, how much is enough that we all have the opportunity to answer, and that can intersect both with our lifestyle spending, what we're spending monthly, as well as our lifetime accumulation.
And once we identify the fact that we have more than we need, one of the other benefits is we get to start aggressively increasing our giving, which, according to God's Word, Jesus said is "more blessed," which can translate into makarios — "happy-making." "It is more happy-making to give than to receive." So the joy we get from being involved in God's activity is just fabulous. And I think so often we think, well, we'll do our giving at death when in fact we could do some significant giving right now if the Lord has blessed you with more than you need. But Jackie, is all of that helpful to you?
Caller:
It is helpful. And one thing is we do not have long-term insurance. And so we never know how much is enough. Do you know? It's like my husband, the doctor said he's going to live till 95 or 100. Probably not me because I've had some serious things, but it's hard to know — with brain things, different things — it's like when do we say, "Okay Lord, this is set aside for you." And then we don't have children. And so it's like, "Okay, that's a hard one," I think.
Rob West
It is.
Caller:
To figure out what you should keep aside, not for me, but for him. So anyway...
Rob West:
Well, I agree, Jackie. And I don't mean to say that it is simple. I think it ultimately is an act of trust. It's a conversation between you and your husband and the Lord. And at the end of the day, we know it's not ours, it's all his. We trust him as provider and we need to find that healthy tension between saving and being prudent and having reserves to the unexpected. And at the same time saying, "God, I trust you as my provider and I want to give. I want to be a conduit of your provision into the things that are advancing the gospel and loving our neighbor in the name of Jesus." And there's not a right or wrong answer there and I can't tell you what that is.
We did produce recently a field guide that a lot of our listeners and certified kingdom advisors have found really helpful.
And it's really dealing with this one single question, how much money is enough? And it provides both a biblical perspective, some exercises and worksheets that you can work through to figure out the answer, and then some case studies of people who have actually done it that might be encouraging to you. I would love to put one in the mail to you, Jackie, if you would find that helpful.
Caller:
That's very kind of you. I was researching that it's average [of] $345,000 per person. One of us will probably need it. So I kind of go on that.
Rob West:
Sure, sure. Yeah, you're talking about long-term care?
Caller:
Yes. So I kind of go on that. So probably I figured it out in my own mind in a way. And your resources are important for others too.
Rob West:
Very good. Well, I appreciate you raising the question. Hopefully Mark's insights have been helpful to you, and we certainly appreciate your call today. If we can help further along the way, don't hesitate to reach out.
Mark, that's going to do it for us. Final thoughts here before we wrap up?
Mark Biller:
Y'know, markets are always going to be unpredictable and our human nature's going to tug at us all different directions. But if we can apply biblical wisdom to that, our investing decisions, it'll help keep us on the right track.
Rob West:
That's well said. This article is available for you folks. It's at soundmindinvesting.org.
While you're there, you can check out the Sound Mind Investing newsletter. It's been helping Christians who are do-it-yourself investors for decades manage their portfolios.
Also, the Private Client group is there that Mark leads. They'd be happy to serve you. Soundmindinvesting.org.
Mark, thanks for your time today.
Mark Biller:
Always a pleasure, Rob.
Rob West:
All right. Big thanks to Michael, Devin, Patty, Pat, everybody here at FaithFi that makes this possible. You want to support us — go to faithfi.com/give. And then come back and join us tomorrow! (theme music ends)
