I found it interesting that this post looked at assets beyond the typical wealth determinants of human capital, cash, and investments and at physical assets as a part of diversification. Physical assets are a great way to maintain wealth because, more often than not, real assets will hold their value or grow in the long term.
I think that many people underestimate the importance of human capital on overall household wealth and financial success due to the fact that many don’t realize how many factors there are that contribute to it. Things such as ability to work, interest in working, and earning potential play a much greater part (especially compared to investment diversity) than people realize.
Why is it important to consider wealth diversification across different asset types, and how does it differ from traditional investment diversification?
The elements of wealth diversification are broader than investment diversification. Investment diversification is one element within wealth diversification.
Viewing human capital as an aspect to a persons overall wealth is a great idea, because it is determining factor in future income. Typically wealth is viewed only in dollar amounts, and often surrounds stocks and bonds, so broadening this definition is a great concept.
The human capital aspect of this makes sense to me but how would one predict and factor in the risk involved in things like layoffs or market down turn? It seems like this would be hard to factor in and a very personal and not cookie-cutter externality to factor into risk management.
Agreed....But, one can model earnings disruption fairly easily in MaxiFi Planner, and if you mean a market downturn, how investment risk gives rise to living standard risk is another feature of the software.
Households have different sources of money. Salary is one. Bank checking and/or savings another. Maybe a 401(k), Roth, or IRA. The promise of Social Security retirement benefits.....So, when thinking about investment risk within a retirement plan or a non-retirement brokerage account, don't forget about the other sources of money..
It begins by knowing your wealth baskets, and the uncertainty of each......Human capital is a huge wealth contributor for most households. How risky is your job and for how long do you want to work? Are you amenable to switching jobs? Knowing the answers begins putting some texture to a wealth basket assessment....
One of the interesting ideas in this post is where human capital is considered part of wealth. Many tend to measure their assets with a narrow measurement, only counting financials and overlooking skills worth money. This is even more so a reminder that the growth of human capital is as important to accumulating long-term wealth as diversifying financial capital. This wider outlook lends itself to a more rounded form of personal finance.
I like how this post emphasizes the importance of wealth versus stock diversification and highlights wealth diversification as the more effective strategy. Wealth diversification broadens financial security by incorporating multiple income streams thus creating opportunities for long-term stability.
Thank you for sharing this! I like how it points out that wealth is more than just financial investments. The focus on human capital as part of diversification really makes sense.
I also found this post to be quite insightful. From these readings and class of course it makes me realize how little wealth diversification is talked about. Truthfully I didn't even realize how many methods of savings and investments there were and I thought a personal savings account checked all the savings boxes, but I am starting to see there is so much more to it.
I found this post to be very insightful. The importance of diversifying your wealth is a concept that is extremely understated. I completely agree with the claim that it is just as important, if not more important, as diversifying your investments. This explanation about human capital has provided me with a new perspective on long-term financial planning and the importance of viewing it as an asset.
Learning more about human capital, here and through the assignments we continue to do in class, has helped me better understand assets in general and how to be more financially conscious of them. While I still struggle with assignments sometimes, I still feel like I'm learning something new or gaining further insight into an idea I may have not been 100% sure about before. Remembering the basics this way, or aligning two ideas under the same ideal, definitely helps me remember bigger concepts in order to further comprehend the smaller ones. Thanks!
The perspective of human capital as an asset has really helped me shape the way I view financial planning. While before I saw my earnings as a supplement to the present, viewing them as human capital has allowed me to recognize the benefits of those earnings throughout my life.
I love the idea of viewing our human capital as an asset. I never intentionally thought about it before, but my greatest driver—and what I consider my biggest asset—is my ability to earn money, no matter the circumstances. Thankfully, I’m currently in a great position where I can earn money online.
I found it interesting that this post looked at assets beyond the typical wealth determinants of human capital, cash, and investments and at physical assets as a part of diversification. Physical assets are a great way to maintain wealth because, more often than not, real assets will hold their value or grow in the long term.
I think that many people underestimate the importance of human capital on overall household wealth and financial success due to the fact that many don’t realize how many factors there are that contribute to it. Things such as ability to work, interest in working, and earning potential play a much greater part (especially compared to investment diversity) than people realize.
Why is it important to consider wealth diversification across different asset types, and how does it differ from traditional investment diversification?
The elements of wealth diversification are broader than investment diversification. Investment diversification is one element within wealth diversification.
Viewing human capital as an aspect to a persons overall wealth is a great idea, because it is determining factor in future income. Typically wealth is viewed only in dollar amounts, and often surrounds stocks and bonds, so broadening this definition is a great concept.
The human capital aspect of this makes sense to me but how would one predict and factor in the risk involved in things like layoffs or market down turn? It seems like this would be hard to factor in and a very personal and not cookie-cutter externality to factor into risk management.
Agreed....But, one can model earnings disruption fairly easily in MaxiFi Planner, and if you mean a market downturn, how investment risk gives rise to living standard risk is another feature of the software.
How does the concept of human capital enhance our understanding of wealth diversification and its impact on personal financial planning?
Households have different sources of money. Salary is one. Bank checking and/or savings another. Maybe a 401(k), Roth, or IRA. The promise of Social Security retirement benefits.....So, when thinking about investment risk within a retirement plan or a non-retirement brokerage account, don't forget about the other sources of money..
How can individuals effectively assess and balance the risks across different "wealth baskets" to create a more resilient financial future?
It begins by knowing your wealth baskets, and the uncertainty of each......Human capital is a huge wealth contributor for most households. How risky is your job and for how long do you want to work? Are you amenable to switching jobs? Knowing the answers begins putting some texture to a wealth basket assessment....
One of the interesting ideas in this post is where human capital is considered part of wealth. Many tend to measure their assets with a narrow measurement, only counting financials and overlooking skills worth money. This is even more so a reminder that the growth of human capital is as important to accumulating long-term wealth as diversifying financial capital. This wider outlook lends itself to a more rounded form of personal finance.
More rounded and more accurate. Income matters.
I like how this post emphasizes the importance of wealth versus stock diversification and highlights wealth diversification as the more effective strategy. Wealth diversification broadens financial security by incorporating multiple income streams thus creating opportunities for long-term stability.
Thank you for sharing this! I like how it points out that wealth is more than just financial investments. The focus on human capital as part of diversification really makes sense.
Thank you for sharing your experience Gabriel.
I also found this post to be quite insightful. From these readings and class of course it makes me realize how little wealth diversification is talked about. Truthfully I didn't even realize how many methods of savings and investments there were and I thought a personal savings account checked all the savings boxes, but I am starting to see there is so much more to it.
Education mission accomplished!
I found this post to be very insightful. The importance of diversifying your wealth is a concept that is extremely understated. I completely agree with the claim that it is just as important, if not more important, as diversifying your investments. This explanation about human capital has provided me with a new perspective on long-term financial planning and the importance of viewing it as an asset.
Nice, Brooke. Wealth diversification is the same concept as investment diversfication, just more general.
Learning more about human capital, here and through the assignments we continue to do in class, has helped me better understand assets in general and how to be more financially conscious of them. While I still struggle with assignments sometimes, I still feel like I'm learning something new or gaining further insight into an idea I may have not been 100% sure about before. Remembering the basics this way, or aligning two ideas under the same ideal, definitely helps me remember bigger concepts in order to further comprehend the smaller ones. Thanks!
Thank you!!! The fact you are active learning personal finance economics will help in the long-run.
The perspective of human capital as an asset has really helped me shape the way I view financial planning. While before I saw my earnings as a supplement to the present, viewing them as human capital has allowed me to recognize the benefits of those earnings throughout my life.
I am pleased we hit the right tone for you. The ability to produce an income is the primary financial feature of most of our lives.
I love the idea of viewing our human capital as an asset. I never intentionally thought about it before, but my greatest driver—and what I consider my biggest asset—is my ability to earn money, no matter the circumstances. Thankfully, I’m currently in a great position where I can earn money online.
It is why every household needs to redefine their net worth as economic net worth = human capital + assets - liabilities..
If retired, economic net worth = net worth
Yes, absolutely, that's something most financial planners miss