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Human capital as the best investment

5 Mar 2018,

There are many other ways how to invest than just buying and selling shares. For many people the best investment is to develop their own skills – human capital.

What is the human capital?

In addition to financial capital, there is another type of capital, at the beginning even more important one you can work with – human capital. Human capital is what you have learned, inherited from your parents, all your skills, knowledge from school, university and work, from courses, or books. This usually determines how much money (financial capital) will land each month on your bank account. Human capital can be defined as the expected income from our work or business activities. Therefore, the best investment you can make from the start is to invest in the education and development of your personality.

You must understand that you are investing in your own time and money, and in the future, you expect your salary or company profit or return on investment to be increased. On the other hand, you do not have to invest in human capital at all, you can start earning money straight away without further knowledge. This is on each individual decision (cost / benefit ratio).

How to invest in human capital

Education – this is the basis. Minimum is high school. Those who want to expand their horizons or focus more deeply on the subject will be also partly helped by university studies. However, you need to find those professors, who will teach you critical thinking. If you want high-quality courses from world universities for free, try Yale Open Courses, Harvard or Coursera courses.

Retraining courses – this is also an option. If you have not yet found, you can choose retraining. I also often recommend a book called “Designer of Your Own Life” that will help you decide what you want to do in your life.

Books – Without books, it just cannot work, at least with me. I read on the way to work, from work, wherever it is possible. For example, instead of watching TV. Haven´t you read Graham’s Intelligent Investor yet? It is the foundation, I strongly recommend it.

Courses – There are lots of high-quality courses where you can learn either basics or more advanced techniques for investing and trading or for any other field of interest. Focus on the lecturer, his experience, references, how long he’s working in the industry. Especially in the finances, there will be ” scammers” who do not respect given behavior or even make scams. I have personally seen and experienced a lot of such people, including persons who wanted to bribe me and get the confidential information from the company, well it was a lot of it and I could write the whole book about it.

Mentor or Coach – It’s always good to be surrounded by people with whom you can share your own experiences and learn from them. They may be your friends or financial experts to whom you need to pay for their services.

Example

Imagine a young man after a school that has got his first job. With a time, he wants to grow, so he reads books on management, coaching, teamwork, pays a leadership course, and in five years he already runs his own team and his salary has doubled. He has developed his potential, the investment in books and courses has paid off, and there is not much room left. Another option is therefore to invest the earned financial capital that will provide him with a future appreciation for the retirement or to sponsor his dreams. He can then read a number of books about investment, visit courses, meet experienced investors, and increase the probability that his investment will be profitable. With the time he decides settle his own business, learns to manage the company. His possibilities are unlimited.

How would everything look like in a simplified chart?

There are several important milestones – we can develop human capital for about 30 years, then the curve goes down until we retire. With the first work we get financial capital that we can invest and save. Financial capital is growing until we retire. Then we start to spend invested and saved money, so the volume is declining. It also depends on the lifestyle and the appreciation of the finances, so the curve will vary individually, on the contrary, for someone this curve will grow even during retirement.

 

Conclusion

Do not neglect the development of your human capital. It is good to realize what can we benefit from and how great this benefit is against missed opportunities (work x study). For example, college is good, but not necessary. I have a lot of friends who do not have a university degree and are many times financially more successful than those who have two degrees. Human potential has grown to a maximum, they can only invest in financial capital. What is important at the end? Do action, if you will only speak about it, you will not be able to move forward.

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