FIRE.060 Sum of the Parts

It’s NEVER just one thing that matters.  It’s how the pieces of everything add/work/multiply together to give a higher—or much higher— output.

I grew up in the 80s.  I was really into hard rock music.  Yeah, I knew some of the bands had a couple cool songs, and of course, I knew some were just boring or totally lame.  But some of the music was amazing.  Some of the music has stayed with me throughout life.  Some of the bands still play shows and some also create new music—some decent, some not so much.  What makes up a band?  Think about the term “band.”

When a member (one piece of the collective group) leaves and starts a new band or solo project, often it never really becomes a long-term successful career.  It doesn’t seem to matter how talented or even how popular that person was, sometimes their past success was due to the combination of efforts.

Some members of broken-up bands fell on hard times, very hard times…I’m thinking how this can relate to “asset classes” or worse, bad asses from the group. (Wasn’t that super-creative wording skipping the ‘t’?)

Your financial situation is a giant collection of individual decisions.  These decisions work together to form a group of decisions and deliver an outcome.  They can add/multiply together to have more drastic outcomes.  Imagine buying a cool old classic car that uses a lot of your money and leaves you little cash for old-car repairs.  That may subtract your money into a bad decision.  Or buying an ETF/mutual fund and re-investing the incoming dividends.  Neither the breakdown of the vehicle, or the distributions of dividends are in your control, but they add/multiply together changing the overall outcome of your initial decision—at least in a financial respect.

The collection of your decisions add together.  Acquiring loans for items over time will add together putting pressure on your financial situation.  Acquiring assets that have a positive return may over time increase your net worth.   Acquiring speculative assets may even add to your life stress, by not knowing the future outcome.

There is a reason many wise people suggest doing things in moderation.  A little of this, and a little of that, could very possibly balance out too many one-sided decisions.  Writing post this made me realize again how risk adverse I tend to be in many areas of my personality.  We’re all different.  We make different decisions, but all these decision/parts combine into something, the sum of things.

 

As in music, it’s very possible that sectors of the market may change over time and those “assets/classes” may fall out of favor.

One crazy example:  there was once a TV channel called Music TV that played music 24 hours a day.  It was a hugely popular TV channel that shaped a generation.  Today that business (channel) still exists but it is NOTHING like it was 30 years ago.  Things change, even if the name remains the same.

Take a moment when you are facing a decision to understand the immediate impact and give some thought to its future impact.  Some decisions may seem less than optimal now, but be excellent you’re your long-term plan…some (many) just the opposite.

 

*** Nothing in this article is to be construed as financial advice.  I am not a financial planner, nor do I pretend to be.  You should always consult your own professional when seeking advice.

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