Tuesday, Feb 27, 2024

Listen to Rebbi Yitzchok Before You Invest Your Money

By Rabbi Shmuel Lefkowitz

 

Many people sold their houses in Brooklyn and other places and invested their money with the expectation that they would be receiving ongoing income for life. Most people invested with reliable investors, but the returns are not coming in as expected. Others actually invested with unscrupulous people and lost a lot of money.

What does the Torah say one should do when they want to invest money?

Rebbi Yitzchok said: “A person should always divide his money into three parts: a third in land, a third in business, and a third let him keep by him in reserve” (Bava Metziah 42a).

The Maharsha explains the financial logic of this division based on principles that we are familiar with today. Land is safe because it can’t be stolen. Commerce has the highest return but also the highest risk. Finally, money must be left liquid for unexpected expenses.

Investing a third of your money in land, a third in business, and keeping a third in cash can be a well-rounded investment strategy for several reasons.

Investing in land provides stability and a tangible asset. Land tends to hold its value over the long-term and can appreciate, making it a potentially lucrative investment, but its return can be low.

Investing in a business can offer growth potential and the opportunity to generate substantial returns. By allocating a portion of your funds to a business venture, you participate in the potential success and profitability of that enterprise. But such investments also have the highest risk.

Keeping a third of your money in cash provides liquidity and a safety net. For example, until about a year ago, keeping money in a savings account didn’t provide much of a return. But today, those who have cash are now able to get between 4 and 5% interest in a savings account.

Rebbi Yitzchok is saying that by diversifying your investments across land, business, and cash, you spread your risk and minimize the impact of any single investment’s performance. Each asset class carries its own unique benefits and risks, and by maintaining a balanced allocation, you position yourself for potential gains while mitigating potential losses.

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