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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Myscha Theriault's picture

I concur, although I'm also a big fan of creating passive income streams in the event that health or other issues prevent me from using skills I have.

But when it comes to being able to start over with nothing, the greater your skill set the greater your chances of landing on your feet in a hurry.

Guest's picture

Two quick things.

Someday (after my fiancee has graduated) I will go back to college for my own personal improvement rather than pursuing a degree for increased monetary gain. This will be investing in myself and I'm very excited about it.

My brother took a part-time job at a winery because wine and its creation/production interest him a lot. Since then he has amassed a few thousand dollars that he's been unwilling to spend (he makes more than enough money at his "day job"). The idea and offer came to him to buy his own grapes and barrels and try his hand at making his own wine. Because it was something he was supremely interested in, that's what he spent his money on. I agreed with him that investing the money in himself was the best possible way he could have spent it.

Philip Brewer's picture

Passive income streams are great, but they inherently depend on some system continuing to function. That works fine in good times, but its risky to count on. As you say, you need skills you can depend on when you can't depend on anything else.

The other upside, as Todd alludes to, is that there's nothing better than earning your living doing work that is also your passion. If you can make money doing exactly what you'd want to do anyway, that's the best of all possible worlds. The problem is that society is set up right now to make that hard. Good jobs are all full-time, so it's hard to ease into something different. Saving for retirement seems to demand a high income now. Although people do it, it doesn't quite fit with the way the job market works to have a variety of skills and to use them and to keep learning new ones. It's worth doing, though, even if you can only do it around the edges.

Guest's picture

Having faced a few disappointments in my life, I felt that enough was enough. I decided to return to school which was the best decision that I've ever made. Not only am I learning new skills, but I've also gained insight into myself.

The more I invest in myself helps me face each new challenge which enables me to overcome any fears that I have.

Guest's picture

"Nothing to declare" - these same words i have heard in Brian Tracy's "Accelerated Learning Techniques". The audio program is incredibly effective, quite inspirational and very motivating. I've used it many times to get into shape for exams and it my grades showed enough improvement that the school gave me a scholarship. I might be an intelligent guy but i am lazy most of the time so i didn't keep using the techniques over and over. But when i have exams coming up i play the program and it does the job. It boosts my information retention rate and it makes learning enjoyable (i's weird). the program is 79,95$...and although it's worth every penny my personal belief is that such knowledge should be free and taught in schools.

ps. i acquired it frugally: downloaded it off the net many other tools for education

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