BY DAVID J. DELUCCIA

It's the love of money that is the root of all evil. At least that's what Paul wrote. Then he added, "for which some have strayed from the faith in their greediness, and pierced themselves through with many sorrows" (1 Timothy 6:10). There are some, however, who have money and yet do not love it. But, those who love it inordinately--well, it will push them to evil.

If we look further, the scriptures also speak to those who are hasty in their attempt to have money. The wise man advises, "The plans of the diligent lead surely to plenty, but those of everyone who is hasty, surely to poverty" (Proverbs 21:5). In other words, if we are to live plentifully and comfortably in the world, we must be diligent in our business, and not shrink from the toil and trouble of it. We must pursue it carefully, improving all advantages and opportunities for it, yet not being hasty in it.

Understanding How Investments Work
Against the backdrop of the scripture quoted, I would like to share with you why it is so important to both understand how your investments work and why choosing to be socially responsible in your investment is equally important. 

Establishing and adhering to a sound and responsible investment plan can be one of the most meaningful decisions you make. Too often individuals get caught up in the emotions inspired by those who profit from ill-advised speculation or gambling on investments. Educating oneself and not relying blindly on outside advice is mandatory to the successful investor. 

As Christians how should our investments be structured? If "Asset Allocation" is both the art and science of deciding what percentage of your assets should be invested in stocks, bonds, and other investments, how will you know what the correct composition is for your portfolio? The advice in the scriptures, I will argue, is equally appropriate for guiding us toward doing the right things in life as well as in our investing procedures. 

Prior to beginning an investment program, two primary needs should be met. First, the investor should establish a cash reserve to meet unforeseen circumstances. Second, the investor should purchase insurance coverage including life, health, and disability.

Asset Allocation
Let's begin with some fundamentals. Asset allocation is the process of establishing what percentage of assets you wish to hold among various asset class choices. 

Initially you may a need to place more of your assets into Money Market funds to address a need such as an upcoming college tuition payment, a new house, or later for a retirement nest egg. Changing you asset allocation mix is commonly done on a longer-term basis and is known as "Strategic Asset Allocation." Approximately 85 per cent to 95 per cent of overall investment returns are attributable to long-term asset allocation decisions.

Understand Your Investment Horizon
Your investment horizon simply refers to the amount of time you have to grow your money. A longer time frame provides more opportunity for your dollars to grow or accumulate -- and more time to withstand short-term market downswings. When determining your investment horizon for retirement, keep in mind that you may live another 10 or 20 years beyond the normal retirement age of 65. That means it might not be a bad idea to consider maintaining some exposure to conservative stocks or stock indexes during retirement -- even if it's just to offset the effect of inflation.

Conversely, if you're saving for a new home or only have a few years before your child's college tuition bills start arriving, investing in stocks may not be as appropriate given the possibility of short-term fluctuations in value.

With any asset allocation, as you near the end of your investment horizon and your opportunities for recouping short-term losses decrease, it is advisable to consider shifting your portfolio to investments that seek to conserve principal, rather than those that seek to grow principal.

Risk Tolerance
Your capacity to live with the market's regular ups and downs is referred to as "risk tolerance." Your tolerance for risk will depend on your time horizon, your psychological ability to withstand periodic market downswings, and your financial situation.

If you have at least a five-year time frame, you should try to tolerate some volatility in your portfolio, as stocks may be the only assets capable of providing the capital appreciation you need. At the very least, your investment mix should outpace inflation. Rather than the speculation of owning a handful of stocks, a very attractive alternative is to own a stock index mutual fund that mirrors an equity asset class such as the S&P 500 Index. This enables you to have a much more diversified stock portfolio with lower costs and less speculation compared to individual stock selection. 

Creating an Asset Allocation
What's most important in creating an Asset Allocation is to select an investment mix that will enable you to satisfy your goal in the time you have, at a risk level that is acceptable to you. Focusing in on your time horizon and risk tolerance will put you on the right path to an appropriate asset allocation.

Once a decision is made pertaining to the overall structure of your asset allocation the individual investments must be selected and purchased. Scripture guidelines suggest eliminating investments not congruent with church philosophy. Not only is your asset allocation decision important, but to eliminating investments often referred to as "sin stocks" demands equal attention. 

Investing with Adventist Values.
The Adventist church disapproves the use of alcohol and tobacco, discourages the use caffeine and meat products, and warns against the ills of pornography and gambling. Companies representing these industries may have investment potential, but because they are not in harmony with the religious and health principles of the church, they should be avoided and excluded from investment.

Can investing with Adventist values, excluding some of the more widely known stocks such as Phillip Morris and Seagram LTD, be successful? The answer is yes! In fact, the accompanying table shows that over the last seven years investors who avoided companies whose industries are not in harmony with the religious and health principles of the church have done remarkably well. 

I invite you to eliminate "sin stock" investing as a part of your criteria. We should not only be prudent with our asset allocation choices, but should also be disciplined in the screening of our investments. Could a dedicated Adventist truly be pleased if they made a profit investing in tobacco companies while knowing the dire effects of smoking cigarettes?

If the politicians in Washington respond to the power of your vote, your voice can also be heard on Wall Street by avoiding investment in securities that are not socially responsible. As the chart reflecting Adventist Values illustrates, doing the right thing never hurts.

Summary
Ronald Reagan once advised when dealing with matters of great national importance, "Trust but verify." Educating oneself and not relying blindly on outside advice is the most important thing one could do in addressing personal finances. 

Those involved with selling investments derive their income from your decisions. Fees and commissions are part of Wall Street. Understanding them and their consequences on your portfolio's performance is vital. 

Begin your investment thought process by not wanting to get rich quick. Take a sensible well-thought out approach that addresses risk and return. Adopt the wisdom of Solomon. Then trust but verify.

David J. Deluccia is senior vice president of Capstone Asset Management in Houston, Texas. 1-800-262-6631  x232

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