You can’t be too safe

It has become a key phrase in our society:  “You can’t be too safe.” 

This notion when it comes to raising children prompted Lenore Skenazy to write Free Range Kids, a book and now a blog.  In it, she reminds us that kids need to go out and play and have fun.  If they end up with skinned knees or a knot on the head, they’ll survive.  It’s what kids do.  The alternative is for kids to sit home and play video games.  After all,  childhood obesity may be a safer alternative than a bruise or a scrape.

This notion is also true when it comes to investments.  I was working with one church that was developing its investment policy.  It was the most conservative I had ever seen and I asked them about it.  By email I received the following response: 

“When one of our members gives money to the endowment, their number one concern is that this money will forever be there and we can do nothing to risk that the value would ever go down.”

Obviously I don’t know his potential donors as well as he does, but I took exception to what he is saying.  I do not believe that people give the church money with the purpose of making sure it is there forever.  I believe they give it to help the church do kingdom work.

This does not mean that the principal should be invaded casually or that we should considering absurdly risky investments hoping to double our money overnight.  But a responsible investment policy is likely to yield between 5% and 8% every year.  This is money that is available to support the missions of the church.  

A church that invests in CDs as a way to be “safe at all costs” is only making 2% at the very most.  Last year our Balanced Fund returned more than 10% and our Conservative returned more than 5%.  Is there a chance that one or both of these funds could lose money in a year?  Absolutely.  But over time a church with a stronger investment strategy will come out much further ahead.

Think about how that foregone interest multiplies over time.  A fund making 8% will double every 9 years if there are not withdrawals.  Invested at just 2%, it will take 36 years to double. 

But the endowment committee that is not willing to risk anything is, in Free Range Kids parlance, choosing childhood obesity over a skinned knee.

Clearly risk tolerance is an issue that each church must consider on its own, not one that I can come in from the outside and decree.  But I think we need to realize that there are just as many risks in being too conservative as there are in being too aggressive.