Can't Decide? Split the Difference

I love Vietnamese food. The big date in my home is a short 7-train ride out to Thai Son in Jackson Heights. For those of you that live in New York, they have two affiliates in lower Manhattan: Thai Son & Nam Son. Excellent food for the price, can’t do much better around here.

As well-winterized Vietnamese fans go, we love Pho (beef broth soup). Between my wife and I, it’s hard to choose between the grilled chicken and the grilled pork chop variety. This argument dominated our dating conversations until we ascended to a great policy: She orders the pork, I order the chicken, we each give half of our dish to the other person. If I’m lucky, I get to eat her leftovers as well, but that’s a separate deal...

Pork Chop

Chicken

If you’re getting hungry right now, I apologize.

When we split the chicken and pork chops, we get a nice return on a diversified investment. Here are some of the advantages we reap:

• The lifestyle benefit of variety.
• Some bone-in meat for flavor, and some boneless meat, great for throwing directly into the soup.
• We get the price average of both options. They are often within a dollar of each other, but a small benefit of only going halfway.

Here are some downside risks we are hedged against:

• Bad pork day (some pork is just bad).
• Bad/raw chicken day (nearly raw chicken is gross, some is just bad).
• If quantity is off, we can balance the scales.

This is one of my favorite investing strategies. I first learned about it in regard to currency exchange. I had about 1200.00 Euros from an overseas job in college. I was twenty-one years old, and had very little financial knowledge. I called my ‘Responsible With Money’ friend. He said to redeem 400 Euros / month for three months. I successfully rode the $0.05 - $0.10 changes in exchange rate. In the same week, he recommend this book, which changed my financial life forever. All in all, pretty good friend.

The strategy is incredibly useful with stocks, etfs, and investments traded (often quickly) on an exchange. With the recent fall in oil prices, I have split my oil royalty purchases over several weeks. Other general cases: Not sure which day to buy? Split the difference. Not sure which of two funds to choose? Split the difference. Not sure how to allocate to this asset? Do half the maximum allocation (i.e. Split the difference).

Okay, I can already hear the accusations, and yes I know, this technique does break down a bit with real estate. More specifically, depending on your strategy. Nonetheless, there are a few good cases, particularly for beginners:

Own two properties in a non-local metro, deciding between two managers? Why not hire both?

• At the end of a year, call the tenants and see what their feedback has been. The next year, move all the business to the better manager.

Not sure what class of properties to focus on? (A, B, C). Why not try two or all three different classes?

• By the end of year (or several) you will have a much stronger opinion on how the market works with each property. You may also be the beneficiary of happy appreciation accidents. Or, you may protect yourself from the flaws of a certain asset class in the area.

Want to partner and want to purchase on your own? Do both.

• For me, this is a major no brainer. I am going to need people and insight to help me on larger deals. For the sake of my own financial security (and sanity), I’ll always be happy to own a few things free and clear.

Want to pay some cash flow into paying down loans? Why not pay half your cashflow?

• Many people (like me) who invest primarily for retirement and wealth building, but don’t necessarily need the money today, like paying down debts and obligations. It’s a standard debate in wealth building, so I suggest going halfway.

Got a 2-year goal in mind? Split it into two one year goals.

• Standard practice in software development. Every problem is actually just compose of smaller problems. We break it down to the point where we can produce a solution in a few hours.

* For anyone: by no means do I suggest jeopardizing relationships and professional ethics for the sake of ‘Splitting the difference’.

Leave some comments. How have you split the difference in your investing?