Investment for the ordinary non-professional investor really is very simple: put your time and money into those assets that will deliver the greatest long-term returns. We will discuss quite a range of assets in this post series, but the first and the most important one of these is something that you already have: your own body/mind.
We live in an exchange economy where your ability to earn should be closely related to your ability to add value to society. Unfortunately, this is not always the case in the real world (1, 2), but let’s assume for now that we live in an ideal world where everyone earns an honest living by consistently contributing to the lives of his/her fellow man/woman. Therefore, the potential earning capacity of your most valuable asset (yourself) is determined by how efficiently you can contribute to society.
The net earnings you reap from this most precious asset of yours is determined by a number of factors such as education, skills, environment, health, reputation, goodwill and consumption habits. We’ll briefly look at the first six of these here, while reserving the last one (consumption habits) for the next post.
Basically, your education, skillset and environment represent your earning power. If you are to flourish in an exchange economy, it is absolutely essential that you can very efficiently provide a product or service that is in high demand. Investing in education and skills and setting up the ideal environment required to produce your particular product or service most efficiently will greatly increase your earning power.
Although they also affect your earning power, your health, reputation and supply of goodwill are more representative of your income security. If you are in excellent health, have worked long and hard to build up a highly favourable reputation and have earned the goodwill of many friends along the way, your services will always be in demand, no matter where the economy stands. It can be highly inspirational to see every day at work as an investment into your income security.
When viewing your body/mind as an asset, an investment in the factors of education, skills and environment represent an increase the potential rewards, while investment in the factors of health, reputation and goodwill reduce the potential risks. In the world of investing, risk and reward mostly go hand-in-hand, but the correct development of your greatest asset can lead to stock market-like returns with the security of a standard savings account.
Such a low-risk-high-reward investment really is the ultimate that any investor can strive for. Why not develop yourself into this perfect asset?