For the one who has will be given more, and he will have more than enough. But the one who does not have, even what he has will be taken from him.”
Not sure how many of you know, but the money-grubbing, greedy Financial Advisor – Money Maverick – is a Christian.
Obviously, this isn’t a Christian lecture. This is a finance article. It’s about money.
And the lesson is - if you have very little money, its probably going to get taken from you!
The reason why I’ve brought up the above verse is much like fables (if you’re an atheist who absolute refuses to read beyond this point), even if you don’t believe in what’s going on – there’s a very specific moral that stories can tell you.
The Parable of the Talents*
In Matthew 25:14–30, a master who was leaving his house to travel entrusted his property to his servants.
According to the abilities of each man, one servant received five talents, the second servant received two talents, and the third servant received one talent.
The property entrusted to the three servants was worth 8 talents - where a talent was a significant amount of money.
Upon returning home from a long absence, the master asks his three servants for an account of the talents he entrusted to them.
The first and the second servants explain that they each put their talents to work, and have doubled the value of the talents with which they were entrusted; each servant was rewarded:
‘Well done, good and faithful servant. You have been faithful over a little; I will set you over much. Enter into the joy of your master.’
— Matthew 25:23, New English Translation
The third servant, however, had merely hidden his talent, had buried it in the ground, and was punished by his master:
“…Take the talent from him and give it to the one who has ten. For the one who has will be given more, and he will have more than enough. But the one who does not have, even what he has will be taken from him.”
— Matthew 25:24–30, New English Translation
Well...that was harsh
The last verse is sometimes known as the Matthew Principle (since it came from the book of Matthew) but fascinatingly enough, it’s a law that is intricately woven in life.
You cannot avoid it and attempts to avoid it will end in inevitable failure.
I'll demonstrate with some familiar/secular/technical/social examples.
The Matthew Principle is also known as
1) The Pareto Principle, or more commonly known as ‘The Rich get Richer and the Poor get Poorer’. It explains itself, but basically - the more you have, the easier it becomes to get even more, and it creates a positive cycle. Similarly, the poorer you are, the more likely you are to create negative cycles.
2) The 20/80 rule: which tends to show in natural law. For example, 20% of the population use 80% of the health resources. 80% of the crimes are committed by 20% of the criminals. Similar to the Pareto Principle.
3) Price Movement Distribution, which is lognormal and NOT normal. This is also the foundation for Growth Investing: where a huge range of penny stocks will tend towards zero while stocks that begin to climb will continue climbing exponentially.
[Because a stock cannot fall below zero, penny stocks tend to make smaller movements that have a higher probability of moving negatively - while stocks that have began to scale even a little dramatically increase the probability of further increasing.]
4) The lognormal phenomena is reflected even in something as simple as Facebook comments on a post – the more a comment is made, the more comments will be made after it. If no comment is made at all, it is far more likely the post will just die (so please comment on this post).
In other words, the Matthew Principle takes over many areas of your life, where you will invariably encounter it.
This is evident in how the Matthew Principle inevitably creeps into every single facet in life, as demonstrated above.
And I don’t know about you, but I wasn’t fond of the idea of ‘even what little he has will be taken from him’.
I think if I took a poll of everyone reading this, you certainly would not describe yourself as having ‘a lot’ (financially, anyway).
So…at face value, the core tenet of the principle is simple.
And that tenet is:
“If I don’t have a lot, I’m screwed.”
Overcoming and using this principle
Thankfully, once we confront the specifics of the Matthew Principle beyond face value we realize that this is not a call to get inevitably screwed.
It’s a call to action.
Let’s look at the evidence.
‘The first and second servant explain that they had each put their talents to work…’
- Matthew 25: 19 - 23
‘The third servant however, had merely hidden his talent…’
- Matthew 25: 24 - 25
What does this imply? Well - at its core, people who are extremely talented and capitalize on that talent typically become successful, while people who do not utilize a talent tend to lose it.
You have to use what resources you have to the best of your ability, or you risk losing those resources.
If this sounds familiar, it’s because the Matthew Principle is happening at this moment – where we experience a core inflation of almost 2% and even higher relevant inflation.
Food [2%+]? For every Double McSpicy that’s $3.30, it’ll be $7.20 in 16 years (and yes, this actually happened! Sobs. ☹ ).
How about Education [Inflation: 6%+]? For every newborn son you want to send to local university – his fees are likely to be at least $90,000 by Age 24 – over 3 times the present cost of a local degree today!
Healthcare [Inflation 5%+]? For every $10,000 treatment cost in a local hospital – is likely to be twice that much in 12 years!
That’s the Matthew Principle at work – where the decision to stay stagnant leads to an inevitable tilt towards the negative.
Obviously, there are economically principles at work for WHY the inflation is happening, but the decision to leave cash in a tin box at home, for example - will cost you as time goes by.
Statistically speaking, this is something that the poor tend to do more, or something that separates the rich from the super-rich.
If you insist on not taking any corrective action, your money will be taken from you.
It’s a pretty tough life, but you only have two options.
If you take no action and hold onto your cash, you’ll eventually lose it. That’s a fact.
But if you act today, you could combat inflation through a regular savings plan or investment plan. You have to use the resources you have to the best of your ability, or you inevitably have them eroded before you.
On a 7% net annualized investment*, which I can construct for you with no issue – that’s 140 times the amount of interest you make a year with a savings account. You can also do this for your CPF OA, which makes a paltry 2.5%, and an SRS account, if you have any.
Which means that across a 10-year period I can help you make more interest in 3 days than you would otherwise make for the entire year.
Of course, you also have a wide range of DIY Options. But if you're unsure and would like someone to walk you through it patiently, then drop me a message and we can talk about it.
I can’t promise any miracles, but I can prevent the Matthew Principle from taking your money away from you – if you’re willing to take action today.
"To those who use well what they are given, even more will be given, and they will have an abundance. But from those who do nothing, even what little they have will be taken away."
-New Living Translation
*Investments are not guaranteed. Past performance is not indicative of future performance.