Consider the swings and roundabouts of investment

Press, 28 April 1981, Page 12

Consider the swings and roundabouts of investment

Diana Shand

M.B.A.(McGill)

During the next months I shall be talking about investment opportunities — how you can use your money to get satisfactory returns. Today, however. I want to make a few preliminary comments, and offer some words of caution.

You have a number of factors at your disposal which you can use in building up the earning assets in your portfolio. Economists talk about the factors of production. These comprise land, labour, capital.

Singly, or in various combinations, these are used to produce goods and services. At first it may appear we should consider only the same factors (or costs) when we come to invest. I believe this is somewhat dangerous. In economics it is important to be able to count and measure costs and results. It is easy to count tangible costs like money, materials, labouring costs — and tangible outputs like manufactured goods, generated electricity and crops.

Hence, we talk of costs and benefits in those tangible, measurable (quantitative) terms.

It is harder to be precise when using other terms needed to fully reflect

human involvement: qualitative terms. Anxiety, frustrations, pleasure, loyalty, lost friendships, gained skills — I have yet to see these on an IncomeExpenditures account. This then, is my first caution. While it is easy to be ruled by numbers and see investment in terms of financial costs and gains, we should not be- so limited in our conceptions. Let us remember the activities of human beings can be measured in nonmonetary terms. Our “factors of production” should count human costs, and include human values. Money still counts. After all, this column is called “Dollar Wise.” But for the individual, production also involves such things as: time, energy, and inheritance. And as with money, these have to be managed and budgeted, because we have limited resources! Time and energy are probably clear enough. But what do I mean by ’’inheritance"? By this I refer to an individual’s unique self and situation, that is health, skills and talents, sense of humour, family and relationships with them . . . Included is the more usual sense of inheritance — that of inheriting assets.

I am not only referring to money, property, inheritance . . . Try living in a “wealthy economy" for a while and you will realise that a tolerant society,' small communities, fear-free streets, pleasing views, clean air. and accessible natural recreation (such as our rivers, coast, mountains, and native forest) are quite extraordinary assets to inherit, or to squander. Mj’ second caution is again described in a term from economics. It is this — remember to count the “opportunity cost.” This is simply what you might have gained if you had chosen to invest in another way. Take your money from the bank and buy a house — and your opportunity cost is the interest you would have had the opportunity to earn. Spend your time with your family and the opportunity cost is all the money (after tax) you could have made in that time. Which you may, or may not, think ‘ as a less valuable return. So, when you go to invest, remember the opportunity cost, and count all the costs. Buying an old house and doing it up may involve more than dollars and cents. It may cost time and energy that might have earned

more in the long run. health and sanity, even your marriage. (The best of relationships just may not survive endless dirt. depressing shambles, and economic but seemingly fruitless attempts to resurrect the plumbing!). Finally. I ask you to carefully think out what you value when you count your returns. Money is merely a repository of value, and should be considered in terms of what you can buy. Money and material assets can be ‘sources of great joy (a “psychic” return) and further monetary income. But don’t neglect to spend time, energy, money, and inheritance in accumulating “human capital.” This can also bring both monetary and “psychic” gains. Bu human capital or assets I refer to skills, experiences, knowledge, the ability to appreciate non-material things, health, fitness, love and respect of family and friends ... No thief, nor court, nor economic downturn can take these from you. Once gained. you have major trusteeship of these things, and can use or lose them as you will. But, don’t forge't, no credit card office will be able to give you replacement.