What is Human Capital?
Background
Human capital is the present value of your future earning power—your skills, education, health and career prospects. Early in life it is often much larger than your investment portfolio.
Explanation
As you work, save and invest, you convert human capital into financial capital. This shift explains why young people can afford more equity risk and why older people nearing retirement need more stable assets. Understanding human capital helps you set savings rates and asset allocation by age.
Example
A 25-year-old software engineer with a small portfolio but strong career growth can comfortably invest mostly in equity. By 55, with far fewer earning years left and a larger portfolio, they usually shift towards safer assets and rely on accumulated savings for retirement security.
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