Editor’s Note

These are unusual times and we have decided in this issue to address two important questions related to the current financial crisis. Some ask how the church is handling its finances during the present global financial turmoil. Though circumstances and practices necessarily differ in other parts of the world church, a reassuring overview of how church entities in North America are managing funds is provided by GC Treasurer Robert E. Lemon. Another article looks closely at inspired counsels related to money and the end times, pointing out that things will get far worse than they are now and casting doubt on the insinuation made by some that financial ruin is upon us and that now is the time to sell everything. We hope that you will find this material both timely and helpful.

Pick up almost any magazine or newspaper, or turn on the television or radio, and it is almost certain that you will find news about the financial markets and current economic situation. In my thirty-some years of working for the church, I cannot remember a time when all the normal economic theories seemed to be of so little help. Questions arise constantly regarding the investment of both church and personal funds. Where can one put money so it is safe? Why would the church have any funds in stocks when they seem so risky? Are my retirement funds safe? We need to make sure that we’re not spending more time worrying about our earthly investments rather than making investments where the markets do not decline (Matt 6:19-20).

We are frequently asked what types of investments are best. Usually the questions are asked with a focus on the riskiness of the investment without consideration of the anticipated time frame for use of the funds. Stocks are much more volatile and go up and down with the business cycles and so are risky investments for money that will be needed in the short term. But over a longer time frame where the growth of the investment is important they can become a very good investment. The General Conference’s investment policies at one time were primarily directed at defining what investment instruments (government securities, bonds, large cap stocks, etc.) were appropriate for investing funds held by denominational organizations for various purposes. In recent years, the policy has been shifted toward evaluation of the time frame over which the funds will be invested and the role investment returns play in fulfilling the purposes for which the funds are held. Our investment policies remain conservative and call for well-diversified, prudent investments with social screening to eliminate industries not in keeping with our principles.

We get questions on both sides of the issue of investing in stocks: Why do we invest any tithe and offerings in stocks when the markets may go down and we may lose money? Or, on the opposite side, Why are we so conservative and invest so little in stocks when they could provide more income for the Lord’s work? The General Conference’s funds are conservatively invested with approximately 12% in equities (stocks) and 88% in fixed income (government securities, bonds, time deposits, etc.). The North American Division retirement funds which do not belong to, but are held in trust by, the General Conference have a much higher percentage in equities due to the longer time frame for use of these funds.

We tend to think of risk as the possibility of losing some or all of the original amount invested. That should be the primary concern when the funds are for church building projects, operating funds to be used within the next year or two, or funds held in trust for others. But there is also an opportunity cost which must be considered – that is, what the funds could have earned if they were invested in a way that, over longer time periods, have provided higher returns. Retirement funds, endowment funds, and depreciation funds for replacement of buildings would be examples of funds with rather long time horizons that have a very high opportunity cost if invested too conservatively. One hundred dollars invested in more secure and less volatile fixed income investments (91-day T-Bills) on December 1, 1986 would have increased by approximately $171 through November 30, 2008 having earned an average of around 5% per year. That same $100 invested in stocks (the S&P 500 index) would have increased in value by $855 through December 31, 2007. Even with the decline of 38% in the S&P 500 during 2008 the increase would still be $495 through November 30, 2008. So the opportunity cost of investing in fixed income instruments instead of stocks over that twenty-two year period, even with the recent major decline in the stock markets, would be approximately $324 – that is more than three times the initial investment! It would take considerably more tithe and offerings to fund the retirement plans than is normally provided by fixed income investments if some of the funds were not invested over a longer time period with the expectation of a higher rate of return. Also, student endowment funds could support far fewer students over the long term if invested too conservatively.

We could wish that the Lord would provide a Urim and Thummim to use when making investment decisions, but we know it would not be good for the church or for us personally. It would be too easy to start depending on exceptional earnings and even to use the information for personal gain and miss out on eternity.

There can be a temptation to try to become investment advisors to our members or organizations even when we are not qualified. It is not wise for pastors or leaders to get involved in promoting investment schemes or investment opportunities. Great harm has been done to God’s work by leaders who have involved themselves in this way. As pastors and leaders we need to keep our eyes focused on things of eternal value.