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PE vs KE
Written by Steve | Published: |
In high school I had a Physics teacher that made learning about science really fun. He showed us real life examples on how Physics could be used in daily life.
Sad to say I don’t remember all the details but I do remember a few things.
In physics there are different types of energy. Two of which are called Potential Energy and Kinetic Energy.
Imagine a roller coaster at the top peak of the ride, but at a full stop. In this case the roller coaster has all the potential energy stored up to hopefully get through the rest of the ride.
As the roller coaster starts to come down the peak and accelerates in speed, the potential energy is transformed into kinetic energy.
In other words potential energy is “what can be” and kinetic energy is “what is.”
There is another factor when transferring energy from potential to kinetic and that is friction.
The amount of friction at work steals the potential energy from the object.
If the roller coaster had the brakes on all the way down the first drop it wouldn’t have enough kinetic energy to get back up the next hill.
So what in the world does this crude physics lesson have to do with your wealth?
Most money managers/financial advisors whatever you want to call them are focused on how big they can grow your nest egg. Although a larger nest egg has more “potential” to create cash flow payments to you in retirement. It’s just that potential energy.
What is vitally more important in retirement is how much cash flow or “kinetic energy” it will actually produce throughout your retirement years.
Lastly, to carry this analogy one step further friction that could steal your potential energy or nest egg in this example could be, market volatility or crashes, management fees, trading commissions, health care expenses, taxes etc.
Our focus is much different than most traditional advisors. We are focused on maximizing your cash flow in retirement and doing it in a way that brings you peace of mind so that you can focus on more important things in life.
In other words, we want you to enjoy the whole rollercoaster ride, not get stuck upside down at the top of a loop-de-loop.
We are expecting baby #5 any day now, so stay tuned for some more family updates!
