Invest in Yourself with a Portfolio Mindset
Build your assets, hedge your risks, and position yourself for returns
When it comes to money and managing our investments, we all prefer to be very scientific and measured. However, when it comes to our own lives, our approach is usually quite unstructured.
“Invest in yourself as much as you can, you are your own biggest asset by far.”
— Warren Buffet
One of the biggest experts in the investment world wasn’t just being motivational when he famously said the above words. There is a good reason for us to not only invest in ourselves but to approach the investment scientifically, as we would a portfolio of monetary investments.
How exactly do you think of yourself as a portfolio? This isn’t going to be a lesson in finance — so I am going to keep it simple and easy to implement.
Let’s break this down into three basic characteristics of a portfolio — the assets or the constituents of the portfolio, the risk, and lastly the reward.
The Assets — Skills, Networks & Experience
The fundamental of a portfolio is that it is formed by a combination of assets. I will categorize a person’s assets into three broad “asset-classes” within each you could have a varying number of constituents.
These are the innate as well as acquired qualities and abilities that you possess. They could be soft skills — communication, leadership, street-smartness, resourcefulness, adaptability, etc. or hard skills — coding expertise, writing skills, engineering degree, doctorate, construction skills, and so on.
Make sure you take every opportunity to add to your skillset in a scientific way. If you think of yourself as a generalist — learn a bit of everything that you can and build a “cross-domain” portfolio of skills focused on the breath. If you prefer being a specialist — focus on the depth of your skills i.e. become an expert on a certain subject matter, so you’re a go-to for that specific area.
The second asset class is the people that you meet and the networks that you build. A tremendous amount of learning that you will have throughout your life will come from people around you.
Learn to build strong, long-lasting relationships both on a personal and professional front. These will hold you in good stead as you navigate various parts of your lives. Having a few people to recommend you for a job, or having enough friends to call upon in a personal emergency, are all assets of very high value.
Every day of your life spent doing anything at all — whether it is a success or failure, counts for an “experience”. Your life is essentially a sum of experiences. Make sure you make your experience count.
The best part of doing anything is that the next time you do the same thing or something similar, you know what to expect and the pitfalls to avoid. Focus on gaining good, meaningful experience over time in whatever you do.
Whether it is handling a unique project, having to fill in for someone in a job that’s totally unrelated to yours, volunteering in a non-profit, filling in for your partner for their duties, being a handyman to fix something at your home — anything and everything counts and adds up.
Risks — Market, Concentration, Longevity
There are a variety of risks involved in investment, but since we’re talking about life here, I am going to focus on three risks that surely apply.
1. Market Risk
These are the extraneous factors that are beyond your control to a certain extent — a change in the job market, a recession, a personal crisis, or an unforeseeable situation.
These are largely out of your control, but what you can do is expect the worst and always have a Plan B.
If you’re going to be a coder, and the tech market crashes, build a set of skills that can land you something elsewhere. In personal life, if you’re planning your expenditure, spend only a percentage of what you earn and save for a rainy day. In your personal life, if you’ve got a family to take care of, buy insurance.
2. Concentration Risk
The risk of loss due to too much focus on one type of investment — in our case too much focus on one type of asset class or a subset of it.
Let me introduce you to a fundamental of portfolio construction — our friend, diversification.
“the process of starting to include more different types or things”
In simple terms — it is the act of NOT putting all your eggs in one basket. Learn to build a little bit of everything in terms of your skillsets, networks and experience. Acquiring a diverse set of skills across a variety of different domains is a useful thing. Professionally, it insures you against being too dependent on one job, field, or skillset. Personally, it broadens the dimensions of your personality — and no one likes a single-faceted personality!
3. Longevity Risk
The risk of essentially outliving your savings — in an investment world applicable for retired or near-retirement individuals. In our world, this relates to anyone who’s stopped building on their assets i.e. adding to their skills, network, and experience.
Never stagnate. Essentially, continue to evolve and learn and grow your horizons in whatever it is that you do.
“Anyone who stops learning is old, whether at twenty or eighty. Anyone who keeps learning stays young.”
— Henry Ford
As Henry Ford said, this risk catches up on you if you get “old” in the learning sense of things, so never grow old!
Rewards — Short-term and Long-term
If you keep in mind the basics of building assets and managing your risks, rewards should follow. However, some of these will be more immediate or short-term while others will start to reap benefits over time i.e. long-term.
1. Short-term Rewards
These are the quick and easy wins that keep us going and motivated. If you do the right things, these will come.
You take a crash course in writing, you immediately land more successful pieces in publications. You follow a diet, and you lose a solid 10 lbs over a month. Short-term rewards are great, and important fuels but they only have an instant gratification effect and don’t matter as much in the long-run.
2. Long-term Rewards
This is the stuff you want to chase. Let’s meet another important factor in investment — the power of compounding, defined by Investopedia as follows.
Compounding is the process in which an asset’s earnings, from either capital gains or interest, are reinvested to generate additional earnings over time.
Every skill that you learn, every experience that you gain, and every network that you build, adds up over the long run. Over a period of years and decades, the power of compounding allows you to build a solid portfolio that will continue to pay dividends in the long run.
So every small or big investment made in you, that may or may not have an immediate reward, will pay off over time when you least expect it!
So go ahead, treat yourself like the most important portfolio that you’ll ever manage. Happy investing!