It's the Whole, Not the Parts - Old Peak Finance

It’s the Whole, Not the Parts

February 1, 2018

2018_whole not parts

It’s the Whole, Not the Parts

February 1, 2018

One key to financial success is keeping the big picture in mind. It's not easy.

Here are three situations we see frequently. When you take a moment to reflect, the right approach is obvious. But in the heat of the moment, it's not always so simple.

Situation: You just got a big bonus and need to determine how to invest it -- US stocks, non-US stocks, bonds or something else?

The "parts" response: Look at what has been doing well recently, and buy that -- or, if you're a contrarian, buy whatever has done poorly.

The holistic answer: Check your financial plan to see what percentage you have targeted for different kinds of investments. Then see where your total portfolio stands currently. Buy whatever kind of investment you're "light" on.

Situation: Your friendly insurance agent has a new product (life, annuity, disability, etc.) at a great promotional price.

The "parts" response: Who doesn't love a bargain? How much can I get?!?

The holistic answer: Check your financial plan. Do you have enough of that type of insurance? If you do, give it a pass ... or potentially see if you can cancel what you have without penalty to replace it with the new, superior policy.

Situation: You would like to sell a fund because it has a high annual expense ratio. But if you do, it will create a tax bill on the gain. Do you sell?

The "parts" response: Don't sell. Why create a tax bill?

The holistic answer: Compare the tax bill to what you could save annually with a lower-cost fund. Also, think about your tax rate this year vs. in the future. Do the calculation, then decide.

It's human nature to focus on an immediate problem, avoiding the bigger picture. That's especially true when thoughtful analysis requires time or when you may get an answer you don't like. But you're always better off taking a holistic view.

This article is not intended to provide tax, legal, accounting, financial, or professional advice. Readers should seek advice from qualified professionals who can review their specific circumstances. Old Peak Finance endeavors to provide information that is accurate and current. However, we cannot guarantee that this information has not been outdated or otherwise rendered incorrect by new research, legislation, or other changes. Old Peak Finance has no liability or responsibility to any individual or entity with respect to losses or damages caused or alleged to be caused, directly or indirectly, by the information contained on this website.

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