In this discussion board, the concepts viewed in modules 3 and 4 will be explained,
compared, and applied to the Parable of the Talents that Jesus taught His disciples.
Money Market Instruments
In the finance and investment world, there are multiple tools that help individuals and
businesses to interact with money; these are called money market instruments. According to the
textbook, Money Market Instruments are typically called cash equivalents, or cash for short,
since they are typically issued in short term, with high liquidity and low risk (Kane et al., 2019,
p. 26). In other words, this type of instruments are those that companies use for their transactions
in order to be able to give an amount of money that will eventually (short-term) will become
cash added into the recipient’s books. In the Parable of the Talents, one can infer that the Money
Market Instrument used was the parable.
Fixed Income/Bond Instruments
According to the Financial Dictionary, a Fixed Income Instrument is a “security with a
guaranteed return.” (2012). In other words, these type of instruments are different from Money
Market Instruments because they are usually not short term, but rather long term. In the class’
textbook, the author explains how this instruments can compromise the fixed income market
since they do not always end up being a fixed amount (Kane et al., 2019, p. 32). Additionally, an
article published by Risk, explains how the bond market has randomness as one of its traits
(Garrido & Okhrati, 2018, p. 19). In other words, this instruments, such as bonds, do guarantee a
return, but it could potentially not be a fixed return as expected. It is evident that in the Parable
of the Talents, the talents was not this type of instrument since it did not guarantee a return in the
future, and it was not long term.
Equity Investments
An equity investment could be defined in many ways, since equity can be present in
various ways in a company. According to BlackRock, an equity investment is “money that is
invested in a company by purchasing shares of that company in the stock market. These shares
are typically traded on a stock exchange” ("What are equity investments?," n.d.). Additionally, a
study published in the Journal of Asset Management says that even though it is possible to invest
in equity with a low risk, it could mean a low return as well; in other words, a higher risk could
represent a higher return (Russo, 2016, p. 264). This means that investing in equity could be like
getting into a big ship in an uncertain sea, but landing into a new island with many riches.
Mutual Funds
According to the textbook, Mutual Funds are managed portfolios in which the securities
are continually bought and sold (Kane et al., 2019, p. 86). The U.S. Securities and Exchange
Commission defines Mutual Funds as “a company that pools money from many investors and
invests the money in securities such as stocks, bonds, and short-term debt” (Investor.org, n.d.).
This means that in mutual funds, there are managers that monitor the investment portfolios in
which will generate return. The servants are a great example of how a mutual fund generically
operates. They managed the talents of the master and needed to look for opportunities to invest it
and generate more.
Derivative/Option Investments
According to Alan Farley, a derivative investment is a contract within two or multiple
parties with an agreed value based on other securities or assets set prices (2019). On the other
hand, an option investment is a category of derivative investments. The Balance describes is as
“contract that gives its owner the right to buy or sell securities at an agreed-upon price within a
certain time period” (Amadeo & Boyle, 2021). In other words, the master in the Parable of the
Talents gave the servant the right to use the money given, for a certain period of time.
Risk Mitigation, Risk tolerance, and Return Expectation
All of the different types of investments and financial instruments will always involve a
risk. Whether it is a high risk situation, or a low risk opportunity, investments will always
manage risk. This is why it is severely important for managers of funds, and portfolio managers
to know what is the amount of risk their investors are willing to tolerate in order to get the return
they are expecting, so that they can responsibly use the money to generate that return. It is
important to highlight and mention again that risk does go hand-by-hand with return, when
projected and executed properly.
The Parable of the Talents is a perfect example of what the consequences of investments’ returns
look like. It is amazing to see that those that did invest the money, and managed to generate a
return on the investment where able to celebrate and enjoy with the master, but the master took
away the talent from that on servant that did not do anything with it. It is important that
Christians, especially in the business world, and specifically in the investments market, know the
important of good stewardship of money, and the important of responsible management so that
whatever God gives you, you can multiply it, so that the Lord can tell you “You have been
faithful over a little; I will set you over much. Enter into the joy of your master.” (ESV, 2001). It
will always be rewarding to use what God gives you, so that you can reap more for His glory.
References
Amadeo, K., & Boyle, M. (2021, January 28). How do options work? The Balance.
https://www.thebalance.com/options-definition-3305952
English Standard Version. (2001). Matthew 25:14-30. ESV Bible. https://esv.org
Farley, A. (2019, June 29). Knowing the differences between derivatives and options.
Investopedia. https://www.investopedia.com/ask/answers/070615/what-difference-
between-derivatives-and-options.asp
Fixed income instruments. (2012). TheFreeDictionary.com. https://financial-
dictionary.thefreedictionary.com/Fixed+income+instruments
Garrido, J., & Okhrati, R. (2018). Desirable portfolios in fixed income markets: Application to
credit risk premiums. Risks, 6(1), 1-23. https://doi.org/10.3390/risks6010023
Investor.org. (n.d.). Mutual Funds. U.S. Securities and Exchange Commision.
https://www.investor.gov/introduction-investing/investing-basics/investment-
products/mutual-funds-and-exchange-traded-1#:~:text=A%20mutual%20fund%20is
%20a,buy%20shares%20in%20mutual%20funds
Kane, A., Marcus, A., & Bodie, Z. (2019). essentials of investments (11th ed.). McGraw-Hill
Education.
Russo, A. (2016). Low-risk equity investment – From theory to practice. Journal of Asset
Management, 17(4), 264-279. https://doi.org/10.1057/jam.2016.13
What are equity investments? (n.d.). BlackRock.
https://www.blackrock.com/us/individual/education/equities
Richard,
I want to start by saying that you did a good job contrasting and comparing the Parable of
the Talents and the topics and concepts applied in the previous chapters, and in this discussion
board. I want to highlight the fact that we both coincide in the fact that the talents were the
money market instrument that the Master used in the Parable. I also liked how you make a note
on the importance that time plays in the money market concept. According to an article from the
Economic History Review, money market instruments have been able to transform risky private
debts, into highly liquid and safe financial instruments (Accominotti et al., 2021, p. 4). Part of
the reason why I believe money market instruments have the ability to do this is because of their
capacity on becoming cash in a short term condition. As you mentioned, the Parable does not
really give a defined period of time on how long the master was long, but we can agree in the
fact that those that generate more talents definitely used not only their resources but also their
time to be able to make this possible. The word of God says that “Poverty and disgrace come to
him who ignores instruction” (Prov. 13:18, ESV, 2001). I believe that those servants that succeed
were able to do so because they were disciplined with the instruction that was given to them.
In the contrary, you also mentioned that risk played a key factor in the Parable. I agree in
the fact that risk is present in every transaction, especially when it comes to investment. It is
important to highlight that every market has its own levels of risk as well. According to an article
from the Journal of Economic Physiology, risk is even present in savings accounts, as it is
evident in some cases from 2008 (Sachse et al., 2012, p. 437). This means that, the servant that
thought that there was less risk in keeping the talent instead of investing it was wrong, as it is
evident not only in the predictions and results of the article mentioned above, but also as it is
written in the Parable. It is very important to see and to know that higher risk most likely will
result in higher return, and many scholars seem to agree that higher return is seen in investments
in short terms such as money market instruments. To end, I could not agree more with you that
us investors, we need to analyze the risk of keeping the money and not investing it. It is key that
all factors that generate risk are evaluated, and that investors know their hurtle rate as well so
that they can indicate how much risk they are willing to take.
References
Accominotti, O., Lucena‐Piquero, D., & Ugolini, S. (2021). The origination and distribution of
money market instruments: Sterling bills of exchange during the first globalization†. The
Economic History Review, 1-30. https://doi.org/10.1111/ehr.13049
English Standard Version. (2001). ESV Online Bible. esv.org
Sachse, K., Jungermann, H., & Belting, J. M. (2012). Investment risk – The perspective of
individual investors. Journal of Economic Psychology, 33(3), 437-447.
https://doi.org/10.1016/j.joep.2011.12.006
Ryan,
Thank you for such a great explanation and comparison of the concepts from the previous
chapters and the Parable of the Talents. Even though, a s you said, we do not know what type of
investment the faithful servants did, and all we know is that they traded it, we can definitely
understand that the those two servants were diligent and efficient at managing the master’s
money. This concept of investment can also be applied in the Kingdom of God, not only for
Christians to be good stewards of their money, but also to make sure that all the resources the
Lord has given us are being used and not kept selfishly or in fear. I believe there will be one day
where God is going to ask us what we did with the resources, talents, and even material things,
for the expansion of His kingdom. I also would like to add that it is interesting to see how the
Master “cast the worthless servant into the outer darkness,” (Matthew 24:30, ESV, 2001). In the
new world, and looking at it from a business operating pint of view, it is not seen nowadays as
good customer service to send a client away or be rude today. However, an article form The
Review of Financial Studies says, “mutual fund managers who are turning away potential
investors in their funds, that message may be a signal to consider a firm's other offerings or
watch for future reopenings” (Bris et al., 2007, p. 953). I would like to hear your opinion in this
subject. Would you think rejection is a good way to give clients the message you intend to give
them?
On another note, you mentioned that there is some benefits on investing long term in a
mutual fund. You also mentioned how short term investments potentially represent a higher risk
since they depend on multiple variables. Personally, I have not invested short term in many
investments in the securities market; the few investments I have made have all been long term,
and I have had positive results, but not as great as I expected. However, an article from the
Electronic Commerce Research and Applications journal says, “Prevention investment plays the
most significant role in protecting clients from attacks and is more attractive to potential clients”
(Feng et al., 2019, p. 13). This opinion contradicts the argument not only from my previous
paragraph, but also it adds to this paragraph with the fact that no matter if the investment is short
or long term, investing in prevention is ultimately stronger than investing for the sake of
investing.
I believe that it is good to save and protect your goods for a future need, as it is written in
Proverbs 2120; however, I also believe that saving is different from being irresponsibly foolish
and not take advantage of an opportunity, especially when your job is to create more for some
else that expects a return in their invested money.
References
Bris, A., Gulen, H., Kadiyala, P., & Rau, P. R. (2007). Good stewards, cheap talkers, or family
men? The impact of mutual fund closures on fund managers, flows, fees, and
performance. Review of Financial Studies, 20(3), 953-982.
https://doi.org/10.1093/rfs/hhl017
English Standard Version. (2001). ESV Online Bible. esv.org
Feng, N., Wang, M., Li, M., & Li, D. (2019). Effect of security investment strategy on the
business value of managed security service providers. Electronic Commerce Research
and Applications, 35, 100843. https://doi.org/10.1016/j.elerap.2019.100843
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