Flexibility is probably the most misunderstood of the nine investment elements. Webster's Ninth New Collegiate Dictionary defines flexible: "characterized as a ready capability to adapt to new, different or changing requirements." Thus, an investment's flexibility rating helps you measure its ability to keep pace with your changing financial goals.

As we've seen already with the elements of risk and management, the amount of flexibility you require in an investment will vary depending upon your age, knowledge and position in the wealth cycle. [editor's note: For more information on the wealth cycle, see "Jerry's Corner" in the August, 1992 edition of Financial Advisory.] And, as you move through your financial life, your need for flexibility in investments will change.

Let's start our discussion of flexibility by reviewing how we use the chart to the right. Remember, we rate each investment category on a scale from zero to ten. A "zero" means this investment rates poorly, meaning it lacks flexibility. A "ten" would indicate an extremely flexible investment.

We've rated limited partnerships as the least flexible of the seven categories of investments we scored. Here's why: as a limited partner, you have almost no control over this investment; someone else (the general partner) has complete responsibility for the return on the investment; and, there is generally no ready market for the sale of your interest in the investment.

This, then, can be our working definition of investment flexibility: control, responsibility and a ready market. Keep in mind, it is the combination of all three of these factors that makes for flexibility. Thus, if an investment affords you only one or two, but not all three, it should not rate well in flexibility.

Passbook savings accounts provide a good example of how this combination of factors works in determining flexibility. There is certainly a ready market for savings and money market accounts; the bank will always "buy back" your investment. However, when you put your money in a bank, you have absolutely no control over how the bank invests your dollars, nor any responsibility for the rate of return you receive. As a result, we rate a savings account as inflexible.

Your own home, on the other hand, is a much more flexible investment. You have almost complete control over this investment on a day-to-day basis, evidenced by the fact that you live there, you can add-on within limits, and you can change the nature of the investment by renting out a portion or all of the property. Of course you are also largely responsible for this investment's ability to produce a satisfactory return, depending on how you care for it, maintain it, or improve it. Finally, there certainly exists a ready market for residential real estate.

Regarding the last item, do not confuse a ready market with liquidity. While your home may not be extremely liquid–quickly convertible to cash–there does exist a ready market. There are always buyers looking for homes.

Like the other eight investment elements, flexibility is dependent on all of the other elements. The flexibility of any single investment will carry a lower rating if it doesn't meet your needs in the other eight areas. Further, remember that this is a personalized rating system–your time, knowledge, abilities and place in life will cause some investments to rate higher on your flexibility scale than they would for someone else.

Your financial goals are seldom fixed for life. Circumstances change requiring you to revise your strategy. Knowing the flexibility of your investment choices will help you determine their compatibility with your potentially changing goals.

Elements of Investment
Elements	Savings & Money Markets	Stocks	Bonds	Limited Partnerships	Real Estate	Commodoties	Home
Risk	8	6	7	2	5	2	9
Management	8	7	7	9	4	5	7
Flexibility	4	8	7	1	5	2	7
Liquidity	-	-	-	-	-	-	-
Cash Flow	-	-	-	-	-	-	-
Rate of Return	-	-	-	-	-	-	-
Appreciation	-	-	-	-	-	-	-
Leverage	-	-	-	-	-	-	-
Taxes	-	-	-	-	-	-	-
Total	-	-	-	-	-	-	-

The Elements of an Investment
Part III – Flexibility

Select Additional Articles from Jerry's Corner The Investment Way of Life Four Cornerstones of Success Excuses... More Excuses The Wealth Cycle Investment & the Wealth Cycle An Economics Primer The Life Cycle Creating A Saving Culture Entrepreneurialism A Fortune in Your Hands Look to the Pros - Introduction - Part I - Insurance - Part II - Stock Broker - Part III - Real Estate - Part IV - Attorney - Part V - CPA The Priorities of Life - Introduction - Part I - Health - Part II - Career - Part III - Relationship - Part IV - Home Elements of Investment - Introduction - Part I - Risk - Part II - Management - Part III - Flexibility - Part IV - Liquidity - Part V - Cash Flow - Part VI - Rate of Return - Part VII - Appreciation - Part VIII - Leverage - Part IX - Taxes

Moorman and Company, an accounting and personal financial management firm based in Palo Alto, serves the San Francisco Bay Area, Peninsula, and Silicon Valley from Hillsborough to Saratoga-Los Gatos, including Atherton, Menlo Park, Los Altos, Los Altos Hills, and Cupertino.