The forgotten asset
The aim of private financial planning is to look at a person’s assets as well as debts and to develop strategies based on individual goals and wishes in order to achieve them. Here not only the pure money investment, but also the credit management as well as the selection of suitable insurances play a role.
However, the focus is often on the investment side. In the best case, the existing asset structure is analysed and the client’s willingness to take risks determined as a basis. On the basis of this information, a portfolio is then compiled that can generate the return required to achieve the target and at the same time takes individual risk tolerance into account. The investments are explained in detailed discussions and much more detailed written elaborations: stocks, bonds, commodities – which sectors and countries, active or passive vehicles. Of course, a portfolio insurance should not be missing either, in order to avoid larger losses of the capital investments – also here numerous instruments are available and depending upon size of the fortune also here much consulting time is invested.
The structuring of the investment is certainly an important part of private financial planning and it makes sense to spend a substantial part of the consulting time on it – especially when more complex strategies are involved.
But: Within the scope of every consultation on private financial planning, occupational disability insurance is mentioned as a basic insurance. Why? Because a loss of income due to occupational disability* has such a significant influence on the further life and achievement of the client’s goals that even the best investment and the most perfectly structured portfolio in most cases do not even begin to lead to the achievement of the goals.
The earned income thus has an extremely large influence on a person’s life planning and financial goal achievement. The present value of all future earned income is called human capital in expert circles. The level of human capital is influenced by numerous influencing factors (level of education, remaining working time, etc.).
Especially for younger and less wealthy people, human capital is often the largest asset (they will ever own). Therefore, the question must be allowed why this aspect is often given no or only indirect attention in financial planning.
This is not an exact determination of the amount of human capital. It is a matter of becoming aware of this very important asset and of highlighting the sources of risk that threaten its value. These vary from person to person and some are immediately recognizable, others only at second glance.