Chess is a game of strategy. Each piece possesses different potential. When you see new people playing chess they typically use their strongest piece, the Queen, to maximize its ability. However, as a player becomes more skilled they realize that it is not about the strength of one piece, rather it is utilizing the strength and specialty of each piece and having them work effectively together. Sometimes, moving the pawn can make the queen more powerful.
Traditional financial planning looks at your plan like a file cabinet. Each asset/piece is looked at individually, much like a novice learning the game of chess. In particular, people are encouraged to focus on their retirement plans (401k, IRA, Roth IRA, etc.), much like the overemphasis that is placed upon the Queen. Overemphasis of one asset, much like the overemphasis of one piece adds too much risk to the game and dissipates our overall power.
The media and many advisors often ask us to take undue risk with assets like our retirement vehicles and our home. Because of things like government control, tax concerns, and liquidity, too much pressure is put on these assets to perform their best.
Consider the advice that is typically given. Be sure to pay off your mortgage as soon as possible because you will save money by not paying as much in interest. Also, be sure to place as much money as possible into your retirement plans to get that “necessary tax deduction”. Separately, much like the drawers of a file cabinet, each piece of advice makes sense. However, when you subject these decisions to the true economic scrutiny they are filled with contradictions. On one hand, you are spending one dollar to remove a tax deduction; on the other, you are spending a dollar to gain a tax deduction. This is like driving a car with one foot on the gas and one on the break. This is not having your assets work in a holistic and synergistic fashion.
Chess masters know how to utilize the strengths of one asset to counterbalance the deficiencies inherent in the others. By being able to step back and take a perspective on the advantages and disadvantages of all of our financial vehicles, a sound financial plan can create efficiencies. It can redirect lost energy caused when we unnecessarily and inadvertently waste our money because we do not understand the true financial consequences of all of our economic decisions. Having all of your assets working together creating efficiency is much like the design of an internal combustion engine. Without an efficient plan, you may eventually arrive at your destination, but it will take an awfully long time.