Best investment: yourself
I read a lot of investment books. I read mainstream books, where the author assumes the future is going to be a lot like the recent past, but I also like the "economic disaster" books where the author warns that something (government debt, globalization, inflation, energy crisis, stock market crash, real estate debt, hedge funds, derivitives, etc.) will send the economy off the rails. Their portfolio recommendations are so different (stocks, bonds and money markets versus gold, silver, and stockpiled food) that it's hard to find the right path. There is one thing, though, that's always a good investment: Yourself.
By investing in yourself I mean learning a skill. You might need to invest only some time, or you might invest some money as well for things like classes, books, and training materials. Any kind of learning might count, but I'm primarily thinking about learning:
- A trade that people will pay you to do
- A craft that lets you produce something people will buy
- A skill that you can do yourself rather than pay someone else to do
To analyze this as an investment, look at the same three things investment analysts use: liqudity, return, and risk.
Liqudity has to do with how quickly you can turn your investment into money if you need it. You can't just sell a skill the way you can sell shares in a mutual fund, but that's actually one of the upsides of a skill as an investment--it doesn't get used up. If you learn a skill that people will pay you to do you can always generate some cash when you need to. Even one that just saves you having to pay someone else can keep cash in your pocket.
The return depends on the skill and the context. A completely new skill probably won't have as high a return as focusing on whatever skills you already have and maximizing their earning potential, but return shouldn't be analyzed in isolation and it's wise to do both.
Risk is where this investment really shines. Diversification of skills reduces your risk the same way diversification among other investments reduces risk. Good-paying jobs can disappear for a lot of different reasons: technology can automate the work or make it unnecessary; globalization can shift the work to lower-paid workers; a change in fashion can reduce the amount of that work the economy needs. Keeping your primary work skills up-to-date can help, but there's no complete insulation from the vagaries of the marketplace.
Skills not only give you flexibility in a changing marketplace, but they especially come to the fore during times of troubles. A skill can't be stolen, expropriated, or lost in a lawsuit. Nobody is going to default on it or declare chapter 11. You'll never have to leave it behind when fleeing a wildfire, flood, hurricane, or war. You can carry it across international borders and tell customs officials "nothing to declare."
It's worth having some stocks and bonds. But it's also worth having some skills besides the main one you use to earn a living. A little diversification there can get you through troubles where neither a mutual fund nor a safety deposit box filled with krugerrands would help as much.
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