Everything is an Investment

Investment

“Mental models” seem to be the latest and greatest thing. Popularized by folks like Charlie Munger, Ray Dalio, and even the Mental Model of the Month Club, they’re essentially a higher level way of looking at life’s challenges, situations, and opportunities. The 80/20 rule, aka the Pareto Principle, is one example.

I recently realized that I’d developed a mental model of my own that helps me make decisions. I don’t have a fancy name for it, but it’s really nothing more than considering everything an investment of some sort. This, then, helps frame decisions based on expected returns.

It came to me because a family member came to us for financial help, and our response was positive. I noticed that it was a quick and easy decision for us, and began to reflect on why that might be. The answer, for me at least, turned out to be that I considered this an investment; one of several that we’d made over the years. We felt like it was a worthwhile investment, both in terms of “past performance”, to use that financial industry phrase, but also in terms of how we expected the investment to pay off for our loved one.

There are many others — friends and family members that we love dearly — for whom we would not make the same decision, the same investment, or make it as easily.

The difference, I realized, was simply that the expectation of the return on the “investment” was high. Not in any personal sense (technically it was a gift we made), but to our family member the chances are that it would make a difference; it would do some good; it would enable growth. For the others the expectation wasn’t as high, if it was even there at all.

That framework is what made the decision easy.

I then realized that everything we “spend” is an investment: money, time, energy. We spend these things often without thinking (especially the later two), and often with an unclear expectation of what results we’re expecting. Treating them as the investments they are allows us to step back a level and take that into account.

The energy spent dealing with the life-long chronic complainer might not be a great investment. It could even be a net-negative on the psyche. That spent with the individual working hard to make the best of his or her circumstances, on the other hand, can be inspiring and energizing.

The time spent volunteering for an organization whose ideals you embrace might be a good investment if it appears that they will actually accomplish something or otherwise help you achieve your own goals. If it turns out they spend their time tilting at windmills, then perhaps your time is better invested elsewhere.

That later point is another case I realized where I’d long internalized this “everything is an investment” model. Years ago we elected to become significant financial supporters of an organization specifically because their track record and their approach was, itself, a positive investment the community. Similarly, I recently made a slight change to my volunteering efforts, shifting the allocation of my time (the “asset allocation”, to use the financial term) to more favor an organization that not only did good things, but from which I personally found myself growing in ways that I felt were a good return on my investment.

Like any mental model or explaination, “everything is an investment” can be used, or rather abused, to rationalize just about anything. But as an additional criteria, an additional way of looking at situations, I find it a valuable tool to help make decisions and invest all my resources as wisely as possible.


Update: immediately after posting this I noticed that my previous post about the cost of failure is another mental model useful for decision making as well.

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