Life portfolio value, \( lpv \) is a concept I am noodling with to help me achieve a more wholesome understanding of how savings, income, and enjoyment are related.
\(lpv = (fnet(number) * skex(years,skill) * (cash+stocks+realestate))/ hp\)
- Any health problems \( (hp) \) I develop affects the real value of my life portfolio. For example, if I start to suffer from one of the life style diseases (diabetes, heart, blood pressure), then it restricts how I enjoy my money and time.
- Family, friends and colleagues in my close social network \( (fnet(number)) \), have a real and measurable impact to the amount of opportunities I am exposed to in my life, and the enjoyment I can extract. They boost the real value of my life portfolio.
- Similarly, increase in my skills and experience \( (skex(years, skill)) \), have a boosting effect on the portfolio value.
- Finally, \(cash\), \(stocks\), and \(realestate\) capture the financial value of my savings and investments.
The question of relating cash, stock, and real estate investments still remains open. I consider:
- Cash on hand is a short term hedge on bad luck; which all of us will have sometime or the other in our lives. I like to have ~12-24 months of my living expenses be available in cash at all times.
- Stocks are a fine growth vehicle at the risk of being choppy returns for potentially long periods of time. I like to imagine that stock investments are locked at least for 5 years to have the compounding effect become true. I like to dedicate at least 30% of my overall portfolio to stocks.
- Real estate remains a long term holder of value for humanity in the modern era. I like to see around 70% of the portfolio devoted to real estate.
Each of these three classes of financial investments need to be diversified to achieve healthy growth at minimal risk.
The \(lpv\) equation guides me to:
- Maintain my health: physical and mental workouts, weight, nutrition, and sleep
- Keep learning: I love to work on new technologies and new challenges at work
- Adjust and re-balance financial investment ratios