Your Most Valuable Investment – Human Capital


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I had the privilege of speaking to a Grade 12 Economics class a few years ago and the experience affirmed my hope for the future. Judging by the depth of their questions, I know they will go far.

My talk centred on the $50 trillion dollars in the equity markets of the world. I was suddenly struck by a blinding flash of the obvious! The human capital value of the bright minds in classrooms throughout the world was immeasurable!

Investors judge a large part of the value of a company by its future earnings. Similarly, we must also measure our value by the present value of our earnings till the day we retire.

Take the example of a new graduate who hits the workforce at age 25 earning $50,000 per year. Assume that she loves her work and continually upgrades her skills. As a result, she grows her earnings by 5% per year until retirement at age 65. She is ultimately earning $352,000 in her retiring year.

The sum of her total earnings is $6,391,988! For you finance geeks, the present value of those earnings is $1,952,381 using a 5% discount rate. That’s another way of saying that this university graduate’s human capital value is worth close to $2 million!

Insuring Our Human Capital

Our lives are often worth so much more than our other assets. If that’s true, why on earth don’t we buy as much life insurance, disability insurance and critical illness insurance as possible?

Studies have shown us that Canadians are badly under-insured. Instead, we prefer to waste our money buying ridiculously-priced extended warranties on our smart-phones and TVs. Rather, we should cover the income flows that put a roof over our families’ heads and food on the table.

Why the disconnect? I blame misinformation, superstition and procrastination. Let’s deal with these three culprits right now.

  1. Misinformation. Many people believe insurance is expensive, scary and complex but they haven’t actually tested their theory. A good professional advisor can help you de-mystify insurance and tailor a plan to your budget. Myth busted!
  2. Superstition. So you think that by not talking about death, disability and critical illness it’ll go away? Tell that excuse to the family crushed by death or disability and needing to sell the house before the bank forecloses.
  3. Procrastination. When’s the last time you drove your car without insurance? Every day you wait exposes you and your family to catastrophe and insurance gets more expensive and harder to qualify the older you get. Now is the right time.

Perhaps it’s time to look in the mirror and recognize that the most valuable asset you have is staring right back at you. Click below to request a free quote.

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