You’re probably familiar with the Swiss Army knife.
It’s a pocket knife.
But it’s also a screwdriver. And a corkscrew. And a bottle opener. And a toothpick. And maybe a whole lot more.
Maybe you also know the Leatherman series of tools.
While they hold some similarities to the Swiss Army knife, they’re more tool than knife.
I own both a Swiss Army knife and a Leatherman. I keep them in my vehicle and use both regularly for all sorts of stuff.
Generally, I would consider these multi-tools.
You get a lot of potential utility from a single tool.
I think there are financial multi-tools as well.
For instance, a simple low-cost, broadly diversified portfolio of 3 exchange-traded funds (ETFs) is, in my opinion, the best way to build wealth.
It also provides the ability to distribute wealth during retirement in a cost-effective and tax-efficient manner.
It can even be a great tool to pass wealth on to future generations.
But wait, there’s more.
Cash can be a great money multi-tool.
If you have a sufficient cash reserve sitting in a safe, liquid account like savings or a money market, it can help you in all sorts of ways.
A cash reserve can prevent the need to use credit card debt for unplanned expenses.
It can allow you to increase deductibles on your insurance policies which will result in lower premium costs.
And it can help you maintain your lifestyle if there’s an interruption in your income for a period of time.
There are many other examples of money multi-tools. What are some you can think of? Hit reply and let me know.
But a word of caution . . . there are folks out there that will attempt to sell you a “multi-tool” that’s really just something that’s been duct-taped together. For instance, I think insurance and investments work well independently of each other. However, there are armies of agents and advisors out there who want to duct-tape insurance and investments together via “permanent” insurance and annuities and tell you that you get the best of both worlds.
In most situations I encounter, term insurance is often the best, most appropriate and least expensive life insurance you can buy. Because it’s pure life insurance without any bells and whistles bolted on. And without any unnecessary costs and fees layered in.
With the exception of Reese’s Peanut Butter Cups, why do you need to combine 2 things that work perfectly well on their own?
Again, there are likely dozens of other examples of not-so-great financial products that are sold as money multi-tools. Keep your guard up.
I’m personally a fan of keeping things simple and straightforward. And simple can be just as effective — oftentimes more so — than complex, duct-taped-together products and strategies.
Especially when it comes to your money.