The Wisdom Of Finance

The Wisdom Of Finance is a fascinating book that identifies the differences and similarities between the world of money and life experiences like relationships, showing how principles from each of these can benefit each other.

When was the last time someone told you to not put all your eggs in one basket? I’ve heard this recently regarding my income streams and also as I began investing in stocks recently.

It makes sense, too. If you’ve got your life savings in just one investment and it tanks, you’re out of luck. A wide variety of various types of stocks, in contrast, is much safer.

But did you ever consider that diversification might also be a principle that can benefit your life? Think about varying your educational experiences, friendships, and plans.

Education, for example, isn’t something we often think about when considering this principle of finance. But think about how, if you want to study history, taking an economics class might help you see why early traders valued their goods as they did.

You really never know what classes are going to be useful after you graduate, so try to differentiate as much as you can.

Diversification of the types of people you associate with can also make a big impact on your success. Investors look to three types of assets that you can classify the people in your life with:

High-beta assets are risky but have a high potential for gain, like someone you work with.  Low-beta assets don’t have as much opportunity in them, but keep you safe, just like your closest friends. Negative-beta assets, like gold, don’t increase your worth but keep it stable in crises, just like your family.

When AOL and Time Warner merged in 2001, venture capitalists considered it “the single most transformational event” in the history of business in the US. But by 2009, after years of frustration, the two officially separated. And although you might not think of it, there are some hidden lessons from this that can benefit your relationships. The first is that you’ve got to properly examine your potential partnerships before entering into them. AOL’s financials were hiding accounting fraud, and Time Warner missed this because they failed to take a close enough look beforehand. In your relationships, you must dig deep to make sure there’s nothing that will come between you in the long run. Consider whether you want kids, or if you’ll enjoy living together, for example. Also, don’t seek a relationship just to fill a hole in your life. Time Warner was merging with AOL because they felt behind with technology. If you similarly try to find someone to make up for what you lack, it could lead…