The Most Important Investment You are Probably NOT Making
If you have been invested in the stock market the past several years, you have probably done pretty well for yourself in terms of your financial return. Still, you have probably overlooked the most important investment you could possibly make with the greatest potential return: relationships. Social capital, or your relationships, is one of four types of capital you have and, for the reasons discussed below, is the one with the overall greatest return in your life.
The Four Capitals
Capital, broadly defined, is anything that can be used to create a valuable return. As individuals, we each possess three inherent forms of capital that we can deploy to create a valuable return. Each of these categories of capital cannot only be used, or invested with, they can be grown, or invested in. Financial capital, referring to traditional financial and material assets, is what most people think of when it comes to their assets or investments. However, financial capital only covers what you own. The other two types of capital each of us has consists of who you are (or your “human capital”) and what you can create (or your “creative capital”).
Human capital can be broken down into three subcomponents mirroring the concept of mind, body and spirit. First, there are your intellectual assets that can be ascribed to your mind, such as your knowledge, education, learned skills, training, etc. Then, there is how you were born, your body (or individual assets), which is comprised of your natural talents, gifts, capabilities, etc. Finally, there is your spirit (or spiritual assets), consisting of your passions, core values, spiritual beliefs, etc.
Unlike financial, human and creative capital, your social capital is unique in that it is neither possessed nor owned by you individually. Social capital represents resources and value that you have access to even though they do not belong to you.
“Creativity” is commonly defined as producing ideas that are both original and that have some value. Your creative capital, therefore, consists of the things you possess that can be applied towards producing original ideas and increasing their value. In order for an idea to have any value it must be expressed in some form or fashion. Therefore, creative capital consists of all forms of your original creative expression, including how you live your life (a form of expression that has increased in importance and value in the social media age where we record and share our daily lives). As for the assets that increase the value or impact of your original ideas, these include your public persona and reputation, as well as the size of your audience or fanbase (i.e., your reach).
Finally, in addition to what you own, who you are and what you can create, there is who you know—or your social capital. Social capital means your relationships—friends, family, colleagues, etc. Unlike financial, human and creative capital, your social capital is unique in that it is neither possessed nor owned by you individually. Social capital represents resources and value that you have access to even though they do not belong to you.
Positive Psychology and the Real Reason We Invest
Why do you invest? What is the return you are looking to get out of your investments, out of your life? Ask a room full of people what they want most out of life and the overwhelming response will be “happiness.” Ask a room full of parents what they most want for their children, and they will overwhelmingly say, “happiness.” In recent years the term “happiness”—often associated with one’s mood and sense of overall life satisfaction—has been replaced in most scientific circles with “well-being.” Unlike happiness, which is a single, measurable thing, well-being is defined as a construct consisting of several measurable elements, each of which contributes to well-being but none of which itself defines it. So, what most people want for themselves in life is to increase their own well-being, to flourish. What most parents want for their children is for them to flourish, to live a life of more well-being than they had.
Positive Psychology, the “science of well-being,” teaches us that there are five measurable elements that contribute to our overall well-being: positive emotion, engagement, relationships, meaning or purpose, and accomplishments (commonly referred to together as “PERMA”). Notice that money and material possessions (i.e., financial capital) are not on the list. That is because studies have found that once we achieve a certain threshold of financial stability—essentially, being able to meet our basic living needs—more money only slightly impacts our happiness and, more importantly, does so for only a very short period of time. So, if money does not buy happiness and if happiness (or well-being) is the goal, then why have and continually try to grow your financial assets? One word: opportunity.
So, what most people want for themselves in life is to increase their own well-being, to flourish. What most parents want for their children is for them to flourish, to live a life of more well-being than they had.
The elements of PERMA stem from the application of your human and creative capital. You will be most engaged in your life when your work centers around your passions, values and beliefs (spiritual assets) and utilizes your imagination and original ideas (creative assets). You will achieve your greatest accomplishments by developing your natural talents and abilities (your individual assets) into masterful skills (intellectual assets). Meaning, or purpose, is found where your human and creative capital intersect with the opportunity to apply these assets, to use these assets in service to something greater than yourself. Finally, your strongest and most valuable relationships will be made in pursuing your purpose because you will surround yourself with like-minded individuals who share your world view, mission, etc. All of this, of course, will make you feel your best and generate positive emotions. The problem is that applying your human and creative capital requires the opportunity to do so.
Investing to Create Opportunity
Opportunity is the elusive secret to fulfilling your life’s purpose. By definition, a purpose must be served. That is, there must be a reason or need it is filling outside of itself. Where your human and creative capital is most needed cannot be decided by you—it is up to third parties. So, in essence, your true life purpose—the reason for your existence—is not chosen by you, it is chosen by the life and world you were created to serve. The most you can do is focus on what you control—the cultivation of your human and creative capital—and look for the opportunities where you can best be of service.
All of your assets are valuable resources that can be used in order to create a desired return. The return most individuals ultimately desire is increased well-being, whether they realize it or not, which is made up of the five measurable elements of PERMA. Therefore, beyond meeting your basic living needs, your assets should be invested towards increasing PERMA, which stems from applying your human and creative capital. This can be accomplished in two ways. First, you can invest your assets to create opportunities where you can apply your human and creative capital. Second, you can invest your assets to increase the value of your human and creative capital, which will indirectly increase the likelihood of receiving opportunities to use these assets.
The most you can do is focus on what you control—the cultivation of your human and creative capital—and look for the opportunities where you can best be of service.
Financial assets can afford education, the financial freedom to accept low-paying or unpaid internships, a team of expensive advisors to guide you and help make responsible decisions, etc., all of which can increase your human and creative capital. Financial assets can also buy access to influential relationships and social circles and attract suitors that can lead to increased opportunities in life. In short, properly managed and deployed, money equates to opportunities that will increase PERMA.
The other way to create opportunity is through relationships, or social capital. As the old saying goes, “it’s not what you know, it’s who you know that matters most.” At the end of the day all opportunities come from other people, which requires you have some sort of relationship with the person giving you the opportunity. So, both financial and social capital can produce the opportunities essential to applying your human and creative capital, which will increase PERMA and result in your greater overall well-being. Social capital, however, is by far the better overall investment.
Why Social Capital is in a League of its Own
Social capital is at least the equal of financial capital when it comes to creating opportunities in your life. However, social capital has several unique features that make it the undisputed champion of all assets and investments:
Social Capital is a Natural, Sustainable Resource. Humans are a social species. It is in our nature to form relationships and bonds with others. Regardless of market conditions, global events, etc., relationships are always sustainable. In fact, they are often what support us through turbulent times.
Relationships Cost Nothing to Create. Meeting new people and forging new relationships costs nothing—it’s free! Where else can you potentially acquire an invaluable resource without spending money? All it takes is some preparation (it always makes sense to know who you are meeting) and the courage to introduce yourself.
Unparalleled Exponential Return. With every relationship you create, you tap into not only the resources of the individual you are meeting but also the resources of every individual that person knows, and every individual each of those people know, etc. The possibilities are limitless. Just think of the concept of “six degrees of separation”—the idea that each of us is only six or fewer relationships away from each other. If you know your purpose and know who you need to meet in order to fulfill that purpose, you can map out a clear path to finding and meeting that person.
You Will Actually Live Longer & Be Happier. This is the kicker. Not only are relationships free resources with exponential reach and value that can lead you to nearly any opportunity, they are also the key to your overall health and happiness (what other investment, resource or asset can do that)? The now famous Harvard Study of Adult Development—one of the longest studies of human life ever conducted, stretching almost 80 years—concluded that good relationships matter more than money, social class, IQ and even genes when it comes to living a long, healthy, and happy life.
Unfortunately, the reality is that your social capital has probably declined significantly in value over recent years due in large part to the use of social and digital media replacing old-fashioned in-person interactions and relationships. With fewer real and meaningful relationships, the opportunities to increase PERMA in our lives will also become fewer and our well-being will decline as a result. The very thing that we know cannot buy happiness—money—will become the primary resource we can rely on to create opportunities for increased happiness. This will obviously not work. Instead, we need to invest in building strong personal relationships, and the power of social and digital media to connect the world must be used as a steppingstone for cultivating these strong relationships, not as a replacement for them.
