If I ask you how you spend your money, that's a very different question than if I ask how you invest your money. Your goals for spending and investing are different, and as a result your actions for each are different. So isn't it strange that we talk about how we spend time, but we never talk about how we invest time?
The interesting thing about investing time is that the distribution is much more uniform versus monetary wealth. Most people probably sleep for around 6-8 hours and work for around 8 hours, giving them another 8-10 hours to either invest or spend. Finances range much more wildly. Some people have negative net worths, so they can't even begin to think about investing, whereas others have billions of dollars. That spread means that ideal financial investment strategies will range wildly. Because we have such similar amounts of time, though, maybe there are some general principles that will be almost universally applicable.
Before we get into those strategies, though, let's talk about what investing time means. I'd define it as devoting time to an activity whose primary benefit won't immediately be realized. School is one example-- you can have a lot of fun in school and benefit immediately from it, but you're really going because you believe that it will pay off when you graduate. I'd say that school is sort of like investing in real estate. You can always use it for something, it's historically been a good investment, but it's a lot of leverae in one big investment, and recently hasn't performed as well.
Spending time with people and building relationships is an investment, not because that process isn't fun, but because the benefits of having strong long term friends are even greater than the immediate pleasure of hanging out with them. This could be analogized to investing in art-- you get to admire it every day, but the value of it increases over time as well.
Going to the gym is in investment. No matter how many presses I do today, I'm not going to be stronger or bigger immediately. But if I continue to go to the gym, I'll become stronger over the long term. A good analogy for this might be a savings account, although I don't think that does justice to the returns of working out. You keep putting something in over a long period of time, and eventually it pays off and continues to appreciate.
Eating healthy is an investment that might be compared to ferreting away a twenty here and there from your paycheck. It can be a tough habit to create, but is only a minor inconvenience on an ongoing basis, and eventually turns into a huge benefit (you know... not dying when you're 75).
Producing work is an investment, just like starting a business. It takes a lot of effort, but produces better results than passive investment.
All learning is an investment. I separate this from school because although you can learn in school, its function is often more to create credentials than to build useful skills. Learning is like buying stocks-- learning any given skill may become very useful in the future or not at all, but by learning a bunch of skills you build a portfolio that will almost certainly be valuable.
These are just some examples off the top of my head. I'm sure that you could come up with a million more. The point isn't to catalog every possible use of time, but rather to illustrate the differences in each vehicle. With those differences in mind, can we come up with some ideas on strategy?
The first thing that comes to mind is that diversification matters. You never really know which investment is going to pay off, so you cover your bases by investing in all different areas. Just as someone could buy one stock and get really lucky (and rich) when it takes off, someone could rest their entire future on school. Maybe they get a perfect job that fulfills them, introduces them to amazing people, and provides for them for the rest of their life. That could happen-- but it's not the most robust strategy.
In traditional investing, there's this idea of rebalancing your portfolio. Every X amount of months or years you reallocate everything to maintain a balance between different asset classes. So if your bonds stay the same, your stocks depreciate, and your real estate appreciates, you sell some of your real estate and use the proceeds to buy more stocks. I won't get into the details here, but this is generally considered to be a good idea.
We could do the same with investing our time. If we spend a year and make a bunch of new friends and date a lot, maybe the next year we can take time away from that and put it where it's needed more. If our health declines one year, it's probably a good idea to refocus on it the next year.
I think it's important to realize, too, that there's such thing as a good investment, a bad investment, and everything in between. A financial investor must look at these things rationally and buy or sell based only on future prospects. If a stocks fundamentals are bad, it's can be correct to sell at a loss. I made this decision when I dropped out of school-- for my specific goals and desired lifestyle, school wasn't going to perform. So even though I had invested time and money into it, I dropped out. On the other side of the coin, I've advised people to quit pickup. For many people it's a great way to expand their social circle and build relationships-- but if you've been doing it for years without making significant progress, it may not be the best investment for you.
Pundits can argue all day long about different stocks, but they all agree on one thing: do invest, start early, and do it consistently. This hold true for investing time. Just as many people never invest money in their life, preferring to blow it on material goods and entertainment, and then find themselves unable to retire, many people spend all of their time rather than invest it, and put themselves into very difficult positions down the road. Each person has the right to come up with their own allocation between investing their time and spending it, but the most important thing is to be aware of the difference, begin investing early, and keep doing it throughout your life.
I think this might be the only time I've ever had an appropriate picture for a post about time management. It's the Mondaine clock from the Zurich train station that Apple copied (and got sued for using).
The thing about investing money is that it's pretty hard for an individual to do much better than 5-15% per year consistently, depending on your risk tolerance and connections (my best investments have been putting money to work with friends' businesses). Five to fifteen percent is pretty good, but it's inside-the-box thinking to stop there. What else can we do with our money?
As a disclaimer, I have a good portion of my money in investments that make a return like that. It's good to grow your cash and I'm not saying you shouldn't. But what if you diversify your portfolio beyond earning a financial return?
After all, the point of money is utility, so why aren't we thinking one step further and thinking about how we can earn the most utility on money?
I love to find situations where my capital is preserved, grows a little, or is consumed very slowly, but which yields me a lot of utility as a result. For example, I bought my RV for $18k, plus probably $15k over its life in repairs, and maybe another $6k in improvements. I sold it last week for $30k, so I lost $9k over the eight years I owned it.
Patri Friedman left this very smart comment on the convincing arguments post -
I’m pretty skeptical of whether researching investments is a good idea for non-professionals. Financial speculation is fun, but you are competing against specialists who have spent their whole lives studying the subject, have teams of researchers, and are betting so much that they can afford to buy the best computers, data, etc. I think almost everyone should just buy the Vanguard Target Retirement 20X0 fund.
The exception is if you’re in the startup world & you know people who you trust & respect who are doing startups, angel investing in them w/ 10%-20% of your income makes sense to me. At worst you’ll lose a little money & learn a lot about who to trust & how startups work. Another is if you know a city/region/country very well and want to own property there – ownership has advantages (ie we have done extensive customization of our cohousing community here in Mountain View) and since it’s such a big asset it’s definitely worth researching.
This is a great point.
I've been studying a lot of finance lately. One that I've really enjoyed is "The Intelligent Investor" by Ben Graham.