Functional Obsolescence

“Functional obsolescence” is a term used to describe stuff that people don’t want to buy because it’s no longer useful or cool, like iPhone 3Gs or cars that get six miles to the gallon. When things go out of style, whether it’s because their technology is out of date (looking at you, cassette players) or because trends have changed, their functional obsolescence lowers their financial value.

There’s a lesson to be learned here, whether we’re wearing our buyer hat, our seller hat, our investor hat, or that one blue hat with the funky design on the bill. As buyers, we might choose not to buy something that we know will be functionally obsolete within a year or two. Or we might decide to buy it anyway, like many of us do with smartphones, tablets, laptops, and even cars. As sellers, we should be aware that, if we’re trying to sell a house that was last remodeled in 1982 in a neighborhood full of newer, more modern houses, we’re probably not going to get top dollar. And as investors, we should keep a close eye on the long-term viability of any businesses we’re looking to invest in. Like all these new restaurants basing their entire menu on avocado toast and “fun” ways to prepare ramen. How long are those trends really going to last, anyway?

In some cases, it can be hard to predict when a good or service will become functionally obsolete. But if we can see functional obsolescence coming, we should use that info to help us make wise financial investment decisions. Or we could just sit on that house and wait for turquoise Formica counters and built-in three-foot-tall stereo speakers to come back in style.