Returns on Investment

Joke

I came across the following phrase (can't recall the exact words but should not be too far off) via some SMS joke:

人生最遗憾的事是人死了，钱还没花光。
人生最悲惨的事是人没死，钱却花光了。

Just in case the underlying message is not clear, let me punch in further with the following crudely drawn graph:

I assume most of us come to this world naked and debt free. For the majority (or is it minority now?) without access to FMS (father-mother scholarship), it's normal to take up some loan to see themselves through tertiary education, thus it could be well into a third of our life (point C) that we manage to pay off our debt and start to pile on our net worth.

The interesting thing about the phrase above is whether most of us will actually reach point D. I do hope to move on before reaching point D, and leave behind some inheritance, either to my children or some charity. But looking at current advance in medical science, chances are I'll survive beyond point D and have the medical bills drag me into negative equity.

We only live once

Depending on the state of maturity, one will begin to differentiate between wants and needs. But looking at life's many uncertainties (natural calamities, sudden illness, accidents, terrorist attacks etc), why don't I pamper myself or my love one a little more, so long as the want is affordable? Anyway, we only live once right?

Yes and No

The key to the answer is no one knows when he or she will depart. (Oops, I'm going to rule out suicide here) One can indulge in anything all he wants, so long as he is 'fortunate' enough to leave this planet before point D, but so long as the probability is material that he might survive beyond point D, it always make sense to be a little more prudent.

Returns on Investment

I'm not discussing the investment in the specific sense (equity, bonds, commodities etc), but investment in general - i.e. what one gets as returns for something one gives up in the first place.

How long I will live, I don't know and I'll just let fate have that juridiction. I'll just focus on my life and my love ones. Having said that, I would think it will make more sense to ensure an effective and efficient use of my resources, be it time, money or energy (e.g. my attention or effort). In other words, if time, energy or money are my 'investment', the product, services, accomplishment etc i.e. 'returns' I get back must be worth the hours, dollars or effort put in. Returns on Investment must be maiximised.

Tangible and Intangible

It is always easier to focus on the tangible:

• Investment: Money
• Returns: Material Goods & Services such as Car, Condominiums, Grand Piano, Concerts

But overlooked the intangibles:

• Investment: Time, Energy, Opportunity Cost (Could have done something or bought something else)
  
• Returns: Sense of accomplishment, Satisfaction, Unintended opportunities
  

Thus while it might look crazy to some (especially myself) why there are people willing to take up huge loans, slog themselves like a hamster on a jogging wheel, just to buy the Continental Car, the Condominium with the great view or for interest sake, a Grand Piano of respectable standard etc, we must understand that the perceived returns on their investment is huge.

Margin of Safety

It will be another matter altogether if the perception is wrong in the first place. To borrow an equity investment concept, it is beneficial to be prudent and 'invest' only when the estimated, perceived 'returns' is much more than the 'investment'. Should the 'returns' fall short of expectation, chances are the 'returns' is still higher than the investment, i.e. hopefully, it will still be money well spent or worth the effort. Saving one the trouble of banging the wall.

Conclusion

Every Return is valued differently by different individual, as long as by ones' standard, the returns far outweighs an affordable investment one puts in, his or her resources is optimised for the life he or she desires.