Bucks: Why Most Investors Don’t Measure Returns Correctly

Carl Richards

Carl Richards is a certified financial planner in Park City, Utah. His sketches are archived here on the Bucks blog and on his personal Web site, BehaviorGap.com.

At least four things make up what I like to call our personal human capital: money, time, skill and energy. But when it comes to investing, we almost always focus on money and ignore the other three.

Last week I saw what can happen when I don’t allocate my own human capital wisely.

I had been spending a lot of time on Twitter, where I was having great conversations that were very helpful for my work. It represented an investment of time that had indeed paid off.

But when I caught myself interrupting a conversation with my 9-year-old son to check if someone had responded to my Twitter message about Wal-Mart, I was reminded that all investments represent a tradeoff. And in this case, the cost of using Twitter to advance my work was clearly too great for me personally.

There’s an old saying that you should take a look at your checkbook and your calendar to see what you really value as opposed to what you say you value, because the calendar and the checkbook never lie.

Dollars and cents are easy to count in the checkbook. Happiness, on the other hand, isn’t a line item in the ledger. It’s much more difficult to say we’re happier today than yesterday because we coached our children’s sports team instead of staying at the office an extra hour. But what about 10 years from now when our children talk about that great summer when you coached their team? Will we regret that lost hour at the office?

It may help to think of life in units—units of time, units of energy and so on. Each day, you take some of your units and exchange them for units of money. You then take those units of money and spend them on something. But every time you exchange a unit, there’s a tradeoff, and we often fail to look past the immediate return to the potential long-term consequences.

Going back to my Twitter dilemma, I still really like using it and believe it’s valuable. But every time I spend time on Twitter, it means I can’t invest those units, my human capital, somewhere else. So I find myself asking much more often, “What do I value more? A random discussion with a stranger or a conversation about the sunset with my 9 year old?”

You can substitute anything for my Twitter example. But the point remains that when it comes to our human capital, we’re not very good at judging the value of the tradeoff or even considering it in the first place.

Last week, on Harvard Business Review’s Web site, Umair Haque pointed out that “The ‘best’ investment you can make isn’t gold. It’s the people you love, the dreams you have, and living a life that matters.”

We live in a world where some ugly things can happen, but amazing things can happen, too. And it’s usually because of people investing something other than money. When tornadoes hit the country earlier this year, the stories that stood out were neighbors helping neighbors.

I didn’t hear one story of a stock portfolio digging someone out of a destroyed house.

Article source: http://feeds.nytimes.com/click.phdo?i=5dfc568e9b271d317be40c6ac4ff153d