- I’ve heard that the Talmud dictates how to invest money. Does Jewish law really dictate individual investment policy?
- The Sages of the Talmud gave a great deal of useful practical advice, together with the spiritual motivation, and one issue they discuss is investment. One prominent theme is diversification to cope with risk. A Midrash learns this principle from the conduct of the patriarch Yaakov, who when threatened with attack divided his family into two camps:
Rav Chiya Rabba said, the Torah teaches right conduct, that a person shouldn’t place all his money in a single position. From whom do we learn? From Yaakov, as it is said, “And he divided the people with him, and the flocks and the herds and the camels into two camps, and he said, If Esau falls upon one camp and smites it, the camp will remain will escape”. (Genesis 32:8-9) (1)
Even more specific advice is found in the following Talmudic passage:
And Rebbe Yitzchak said: A person should always have his money at hand, as it is written (Deuteronomy 14:?) “And bind the money in your hand”. And Rebbe Yitzchak said, A person should always divide his money into three: one third in land, one third in commerce, and one third at hand. (2)
The Maharsha (a well-known commentary on the stories of the Talmud, from the 17th century) explains the financial logic of this division based on principles we are familiar with today: Land is safe because it can never lose all its value, but its return is also low. Commerce has the highest return but also the highest risk. Finally, some money must be left liquid for unexpected exigencies.
However, it is clear from the various commentators that the “three thirds” idea is not a hard and fast rule, but rather an application of the general principle to diversify investments considering long-term safety, long-term return, and immediate needs and opportunities. The rabbis were not in the business of giving investment tips, but rather of placing our monetary affairs in the context of a total religious lifestyle.
Specifically, prudent investment is part of a broader religious ideal of temperance, prudence, and generally adopting a long-term approach to planning our life. Maimonides explains:
It is forbidden for a person to disown or dedicate all his property and thus become a burden on others, nor should h sell a field [a productive asset] and buy a house [for his own benefit only], or sell his house [which is durable] and buy moveable goods. Nor should he engage in commerce with the money from his house [risk his house on business ventures]. . . The general principle is that a person’s goal should be to have his property succeed, to supersede that which is temporary with that which is durable, and his intention should not be to have momentary enjoyment or to benefit a little [now] and lose much [later].
As a result of the revelations following the financial crisis, many people have become aware that much of the so-called “investment industry” was not really oriented towards increasing our long-term quality of life, but rather towards the kind of behavior Maimonides condemns: making a quick buck or looking for immediate gratification. The rabbis were not interested in the details of our investment portfolio, but rather in the overall approach to life that is reflected in it.
SOURCES: (1) Midrash Bereshit Rabba on Genesis 32:8 (2) Babylonian Talmud Bava Metzia 42a (3) Maimonides’ Code, Laws of Right Views, 5:12. The Hagahot Maimoniot glosses specifically relates the “three thirds” rule to this statement.
Credit: Rabbi Dr. Asher Meir, Business Ethics Center of Jerusalem