Last Sunday, we talked about the problem with The World’s message. Loving money and believing The World’s message keep us from serving God. Additionally, The World can offer us no eternal reward and the Stuff it tells us to buy can’t be taken with us when we’re dead.

       Today, we’re going to begin talking about the solution to the problem with The World’s message. We’ll only get through part of it now, but we’ll finish up the discussion next Sunday.


Where Does the Problem Start?

       In Mark 7:21-23, Jesus clearly tells us where the problems of greed and envy start:

       ²¹ For from within, out of men’s hearts, come evil thoughts, sexual immorality, theft, murder, adultery, ²² greed, malice, deceit, lewdness, envy, slander, arrogance and folly. ²³ All these evils come from inside and make a man ‘unclean.’

Mark 7:21-23 (NIV)

       Greed and envy come from within—they’re heart problems. These aren’t the kinds of heart problems that can be fixed by taking the right kinds of medicine, getting enough exercise, or eating right. Greed and envy are reflections of our deepest motives, desires, and attitudes. Humans are inherently prone to these kinds of thoughts because Sin infects every area of our lives. The only way we can get these things out of our hearts is to let God come in and take over.

       Every first Tuesday for the past six months at my Bible study, we’ve had a guest speaker named Butch Marvin. One of Butch’s favorite sayings is that God doesn’t want your money, your good works, or anything else you think you can offer Him. God only wants your heart—because once He’s got our hearts he’ll get everything else in our lives.


Renew Your Mind!

       For God to fix our hearts and get rid of all the evil things that can come from within us, we have to fully accept Jesus and let Him live in us. That means we have to give up our lives, our hearts, our selfish ambitions—everything! We need to ask God to change our hearts and the way we think. We need to ask Him to keep us focused on His Ways instead of The World’s ways.

       ² Don’t copy the behavior and customs of this world, but let God transform you into a new person by changing the way you think. Then you will learn to know God’s will for you, which is good and pleasing and perfect.

Romans 12:2 (NLT)

       God can rid our lives of greed and envy and teach us to be content, if we’ll just ask Him to change the way we think. Only then can we truly understand the great gain that comes from contentment and begin to see God’s perfect will for our lives.

   ³⁶ Turn my heart toward your statutes
       and not toward selfish gain.

Psalm 119:32 (NIV)

       We can start the process of renewing our minds and becoming new people by simply praying to God. David’s simple prayer here is a great way to start—simply asking God to keep us focused on Him and not on This World.

       Next Sunday, we’ll talk about the next step in this process: getting God’s view on our lives, money, and the things of This World.









Want to read the entire Bible study series on Contentment? Download your free copy of Contentment Is Wealth: A Bible Study on Contentment now!

       This week’s Carnival of Personal Finance was hosted at MoneyNing. Smiling is the theme, so I thought I’d keep it going by sharing some of my favorite articles and some fun pictures.







   •   Jim at Blueprint for Financial Prosperity talks about 5 Things He Wishes He Knew When He Graduated.













   •   Tough Money Love says Forget Stocks — Vanity Is on Sale!









   •   Chris at Stumble Forward asks, “Does Your Financial Planner Have Your Best Interest in Mind?“.

       Last week, we talked about a definition of Active Investing. This week, we’ll talk about Index Fund Investing and how it differs from Active Investing.


Characteristics of Index Fund Investing

       Just as I started last week’s discussion of Active Investing by describing its characteristics, we’ll being talking about Index Fund Investing by looking at its characteristics and the behaviors of Index Fund Investors.

1.  Index Fund Investors understand that stock prices change unpredictably based on unexpected news. Index Fund Investors know that no matter how much research you put into a company random events will occur that you could never have predicted. They also understand that free financial markets (no government intervention) are mostly efficient. All known and publicly available information is already reflected in current stock prices, and these prices change almost instantly as new information becomes available. These factors make it nearly impossible to “beat the market” (appropriate benchmark) without some dumb luck.

2.  Index Fund Investors understand that Market Timing, in any form, is a loser’s game. They understand that the bulk of stock market returns are often contained in the best few days—and missing those few days means your return ends up much lower than it would have been if you had just held tight. Index Fund Investors know that no one in history has a long term (10-20+ year) track record of being able to figure out when to get in or out of the market. They also realize that Market Timers end up paying more in taxes because of their excessive trading—often negating any gains they might have had from their activities.

3.  Index Fund Investors understand that it takes more than an S&P 500 Index Fund to be diversified. A true Index Fund Investor will have their portfolio split between several different asset classes: Large U.S. Stocks, Large Value U.S. Stocks, Small U.S. Stocks, Small Value U.S. Stocks, Large Int’l Stocks, Large Value Int’l Stocks, Small Int’l Stocks, Small Value Int’l Stocks, U.S. Short-term Bonds, U.S. Intermediate-Term Bonds, and Global Bonds to name a few.

4.  Index Fund Investors know that investment returns are related to the risk you take. They understand diversification is a way to lower risk, and they have a feel for their risk tolerance. They also understand the risk of not meeting their goals and are willing to take the risk necessary to achieve their goals.

5.  Index Fund Investors read and understand the academic research about free markets and investing. They know that university professors and Nobel laureates are proponents of Index Fund Investing because it has been proven and backed by academic research. Index Fund Investors know that nearly all of the academic research available points to Index Fund Investing as the superior long-term choice for investors.

My Definition of Index Fund Investing

       Index Fund Investing is an investment strategy backed by academic research and over 80 years of history. It doesn’t try to “beat the market”. Instead, it attempts to duplicate market returns by keeping costs as low as possible. Index Fund Investors don’t have to be as worried about the short-term fluctuations in the market because they match their portfolios to their goals based on their time horizon. This means they’re much more relaxed than Active Investors and have more time for the things they really enjoy in life.


       If you want more great information on Index Fund Investing and why you should consider it, check out Trent’s post at The Simple Dollar on The Chorus of Voices for Index Funds.

       Last week, we talked about The Lazy Tax (or the tax of idleness) in Benjamin Franklin’s The Way to Wealth. This week we’ll talk a little more about wasting time. Here is today’s quote:

       But dost thou love life, then do not squander time, for that’s the stuff life is made of, as Poor Richard says. … If time be of all things the most precious, wasting time must be, as Poor Richard says, the greatest prodigality, since, as he elsewhere tells us, lost time is never found again …

The Way to Wealth – Benjamin Franklin

Love Life? Then Don’t Waste It!

       If we truly love life, then we’ll quickly realize that when we waste time we are wasting our lives. What counts as wasted time? I can’t answer that question for all people as we’ll all value our time differently. But I think we can safely say any time that passes by when we don’t derive some value from it (however you define that value) is wasted.

       Once we waste time it’s gone. There’s no way to get it back. The average human in the world has a little over 578,500 hours in a lifetime (over 657,400 if you’re American). Waste one of those hours and you can’t really get it back. Sure, you can do things to try to make up for that wasted time. But in truth, there’s no way to recapture the value of the time you have wasted.

       Franklin’s admonishment to us is that we should never waste time—because wasted time is wasted life. If we really want to live a purposeful life and live it to its fullest, we must be on guard against wasting time.

       This week’s Personal Finance Bible Scripture comes from Matthew 16:26.

       ²⁶ And what do you benefit if you gain the whole world but lose your own soul? Is anything worth more than your soul?

Matthew 16:26 (NLT)

       Jesus is asking us to consider everything in light of eternity. What good will it do us if we gain everything in the world but end up losing our souls in the process? How happy are you going to be if you work extremely hard all your life so you can have an amazing house, nice cars, and two European vacations every year, but you end up with an unhappy family in the process?

       Or what if you give up your passion to take a job you really hate because you can get paid four times as much? Do you think early retirement from the job that makes you miserable is going to make up for the years you neglected your true passion? Most people don’t even manage to save that higher income so they can later pursue their passion. Lifestyle inflation creeps up and they end up working in a job they hate for 30-40 years.

       The things The World offers us often fail to satisfy us when we finally get them, and they often come at the cost of relationships and true happiness, satisfaction, meaning, and purpose. The Gift of Jesus allows us to experience true wealth in this life while revealing our true purpose as well. And we don’t have to sacrifice our relationships to receive that Gift. However, we can only fully receive Jesus’ Gift when we give up our own dreams, desires, goals, wishes, and The World’s message. To find the Good Life, we must give up this life and fully submit to God’s plan for us.

       Jason Zweig, a senior writer for Money magazine, is the author of a very interesting book called Your Money & Your Brain: How the New Science of Neuroeconomics Can Help Make You Rich. The book talks about how your brain can affect your money decisions, often detrimentally, and how you can learn to spot the problems you can create for yourself. It isn’t heavy in technical discussion, but it also doesn’t practically lay out exactly how you should invest your money. You should use it more as a guide to understand why it’s foolish to keep reading the investment news all the time and to help you understand why Active Investing is so widely used even though it has no academic research to stand on.

       Today, I just want to talk about a few excerpts from this book so we can understand why we tend to make the mistake of seeing patterns where there are none. This is often the case for those who believe in Technical Analysis or Market Timing or many other tenets of Active Investing. I hope this example can help you begin to see how our brain tricks us into thinking we can predict the future based on some pattern we see.


Humans Are Great at Finding Patterns

       Zweig acknowledges that humans are very good at finding and understanding simple patterns. This ability was extremely important to our ancestors and still serves us well today.

       That’s what helped our ancestors survive the hazardous primeval world, enabling them to evade predators, find food and shelter, and eventually to plant crops in the right place at the right time of year. Today, our skill at seeking and completing patterns helps us navigate many of the basic challenges of daily life. (“Here comes the train I have to catch.” “The baby’s hungry.” “My boss is always a butthead on Mondays.”)

Your Money & Your Brain: How the New Science of Neuroeconomics Can Help Make You Rich – Jason Zweig

       It’s really great that we have this ability – but only when we actually need it. When it comes to investing, obsessively looking for patterns in random data can be extremely detrimental to our investment performance. By trying to find patterns and use them to our advantage, we often do much worse than if we had taken the statistically superior route.


Pigeons and Rats – Why They Can Often Be Smarter Than Us

       Many people spend an amazing amount of time looking through tons of stock market information trying to find some kind of pattern they can use for a great new investment strategy. Even though the information is essentially random, we look for patterns that aren’t there so we can find a way to make even more money. In the process of doing all this, we often lose much more money than if we had just invested in a diversified portfolio of index funds.

       For decades, psychologists have demonstrated that if rats or pigeons knew what a stock market is, they might be better investors than most humans are. That’s because rodents and birds seem to stick within the limits of their abilities to identify patterns, giving them what amounts to a kind of natural humility in the face of random events. People, however, are a different story.

Your Money & Your Brain: How the New Science of Neuroeconomics Can Help Make You Rich – Jason Zweig

       Experimenters can test this by flashing one of two lights, green or red, onto a screen. The sequence is completely random, but 80% of the time they will flash a green light. They’ll flash the red light the other 20% of the time. (For example, a set of 20 flashes could be: GGRGGGGRGGGGRGRRGGGG. Another run might look like this: RRGGGGGRGGGRGGGGGRGG.) If you’re going to try to guess the next color to appear, your best strategy is to always pick green because it’s going to show up 80% of the time. Rats and pigeons generally use this optimal strategy when researchers reward them with some food for guessing the right color.

       Humans, however, tend to flunk this kind of experiment. Instead of just picking green all of the time and locking in an 80 percent chance of being right, people will typically pick green four out of five times, quickly getting caught up in the game of trying to call when the next red flash will come up. On average, this misguided confidence leads people to pick the next flash accurately on only 68 percent of their tries. Stranger still, humans will persist in this behavior even when the researchers tell them explicitly—as you cannot do with a rat or pigeon—that the flashing of the lights is random. And, while rodents and birds usually learn quite quickly how to maximize their score, people often perform worse the longer they try to figure it out.

Your Money & Your Brain: How the New Science of Neuroeconomics Can Help Make You Rich – Jason Zweig

To Get Better Results, Stop Trying So Hard

       Once you realize you have a tendency to seek patterns where they don’t exist, you can stop yourself from making stupid mistakes about your investments. Trying to pick stocks based on anyone’s predictions (yours or someone else’s) can easily lead to bad results. Companies can go down for a myriad of reasons you’ll never be able to predict no matter how much research you do. As Jason Zweig says, “No one can predict the unpredictable.” So relax, learn more about Index Fund Investing, and spend more time doing the things you enjoy instead of worrying about your portfolio.

       If you find that you can’t tear yourself away from Jim Cramer or endless hours of researching companies, try this suggestion. Keep 90-95% of your invested money in a diversified portfolio of index funds. Use the other 5-10% to try out Jim Cramer’s predictions or your own hunches, but don’t use all of your money for these “strategies”. Having a play money account can help keep you from making serious mistakes with your entire nest egg—as long as you don’t start believing you’ve just found the best investment strategy in the world. Give it a few years and you’re likely to always see the Index Portfolio outperforming your Play Money.

       There’s a ton more discussion and examples of how our brain can mess up good financial decisions in Jason’s book. So if you’re interested, pick up a copy at your local library or purchase a copy from Amazon.

       I often talk about a low-cost, tax-efficient, diversified portfolio as one of the keys to investment success. So what does such a portfolio look like? Here’s an example of a diversified portfolio with an overall allocation of 70% in stocks and 30% in bonds:





       You’ll probably have a few questions about the logic of this portfolio. I’ve put the answers to the questions I could think of below. If you have some questions I didn’t answer, leave them in the comments and I’ll answer them as soon as I can.


Why So Little in U.S. Stocks?
Why So Much in International Stocks?

Why Add Value Stocks?

What’s Up with the Bonds?
Why Aren’t There Long-Term Bonds?
Why Aren’t There Global/Foreign Bonds?
Why Aren’t There High-Yield Bonds?

So How Can I Invest in a Diversified Portfolio Like This?

       I highly recommend using Vanguard to invest if at all possible. This could mean investing directly through Vanguard or buying their mutual funds in your retirement or brokerage accounts. Why Vanguard? They are by far the lowest-cost provider of Index Funds in the industry. Additionally, they have a long track record of great customer service. If you invest directly through Vanguard, you can avoid commissions and many other fees (especially if you sign up for their e-delivery option).

       So which Vanguard funds should you use to replicate the diversified portfolio shown above? Here’s the list (starting at the top of the pie chart going around clockwise):

       A 70/30 portfolio using these funds and the allocation shown above would have a total expense ratio of only 0.25%. You would need to invest $54,000 to meet the fund minimums. If you have $54,000 invested directly at Vanguard in the allocation I provided, this portfolio will only cost you $135/year in investment management fees. That is just one reason why Vanguard is so great! (Note:  I do not work for Vanguard and gain nothing if you decide to use them except for the satisfaction of knowing I have helped someone save a ton of money and invest wisely at the same time.)


A Word of Caution

       Before you run off and invest your money with Vanguard or any other mutual fund company, I want to caution you first. I am in no way recommending that you invest in a 70/30 portfolio, since I do not know your personal situation. Your asset allocation is very dependent on your goals and somewhat on your risk tolerance (but not much). Exactly how you should invest also depends on where your assets are held and in what types of accounts. I highly recommend you talk with a fee-only, hourly financial planner if you’re uncomfortable with learning how to do it yourself. I also encourage you to do your own research if you’re skeptical of my endorsement of Vanguard. I’m sure you’ll find that they really are the best provider of Index Funds, but it will do you well to confirm it for yourself.

       In the future, we’ll talk more about how to figure out how much you should have in stocks vs. bonds. I’ll also discuss why you should use Index Funds and keep your costs low in addition to providing more background information so you can understand it all much better. If you have any questions, leave them in the comments and I’ll try to answer them as soon as possible!

       Last week, we talked about The World’s message – if we can just get more of what The World can offer us, we’ll be happy and satisfied. God has told us The World’s message is wrong and clearly shows us in the Bible that only His Message is true. Only God can bring us true happiness, satisfaction, and security.

       This week, we’re going to look a little more at why The World’s message is a problem.


It Keeps Us from Serving God

In Luke 16:13-15, Jesus tells us:

       ¹³ “No servant can serve two masters. Either he will hate the one and love the other, or he will be devoted to the one and despise the other. You cannot serve both God and Money.”
       ¹⁴ The Pharisees, who loved money, heard all this and were sneering at Jesus. ¹⁵ He said to them, “You are the ones who justify yourselves in the eyes of men, but God knows your hearts. What is highly valued among men is detestable in God’s sight.

Luke 16:13-15 (NIV)

       If we’re focused on The World and the things it offers, then we’re effectively serving Money. And Jesus tells us when we are serving Money, we absolutely cannot serve God.

       God knows our hearts, and if we value the things of This World above Him then we are detestable in His sight. Putting more faith in the “wisdom” of The World than in God’s Wisdom means that we have demoted God to a lesser status. And we Christians know that the greatest commandment of all is to love God with all of our heart, soul, and mind – our entire being. If we place The World’s message above God’s Message, we cannot keep this greatest commandment.


It Cannot Provide an Eternal Reward

       In Psalm 49, David does a wonderful job of explaining why we shouldn’t believe The World’s message. The wealth of This World cannot save us from death; and once we die (as we all must), we cannot take any of it with us. Slowly read this passage and reflect upon it as you ask God to reveal the lies of The World and teach you His Truth.

   ¹ Listen to this, all you people!
   Pay attention, everyone in the world!
   ² High and low,
   rich and poor-listen!
   ³ For my words are wise,
   and my thoughts are filled with insight.
   ⁴ I listen carefully to many proverbs
   and solve riddles with inspiration from a harp.

   ⁵ Why should I fear when trouble comes,
   when enemies surround me?
   ⁶ They trust in their wealth
   and boast of great riches.
   ⁷ Yet they cannot redeem themselves from death
   by paying a ransom to God.
   ⁸ Redemption does not come so easily,
   for no one can ever pay enough
   ⁹ to live forever
   and never see the grave.

   ¹⁰ Those who are wise must finally die,
   just like the foolish and senseless,
   leaving all their wealth behind.
   ¹¹ The grave is their eternal home,
   where they will stay forever.
   They may name their estates after themselves,
   ¹² but their fame will not last.
   They will die, just like animals.
   ¹³ This is the fate of fools,
   though they are remembered as being wise.

   ¹⁴ Like sheep, they are led to the grave,
   where death will be their shepherd.
   In the morning the godly will rule over them.
   Their bodies will rot in the grave,
   far from their grand estates.
   ¹⁵ But as for me, God will redeem my life.
   He will snatch me from the power of the grave.

   ¹⁶ So don’t be dismayed when the wicked grow rich
   and their homes become ever more splendid.
   ¹⁷ For when they die, they take nothing with them.
   Their wealth will not follow them into the grave.
   ¹⁸ In this life they consider themselves fortunate
   and are applauded for their success.
   ¹⁹ But they will die like all before them
   and never again see the light of day.
   ²⁰ People who boast of their wealth don’t understand;
   they will die, just like animals.

Psalm 49 (NLT)

       I especially like the last three verses. How often do we admire the wealthy for their success? Yet despite all their success, if they trust in their wealth they will die just like wild animals. God is the only one who can save us from death, and He can only do that if we give up believing The World’s message and seek His Truth.

       Next Sunday, we’ll start talking about how we can ignore The World’s message and begin understanding the Truth.


Want to read the entire Bible study series on Contentment? Download your free copy of Contentment Is Wealth: A Bible Study on Contentment now!