Your time is valuable, and it should be included in calculations about your investment returns.
Whether you add or subtract value from your assets when you spend time on investment activities should also be evaluated. Some investors spend significant time on the wrong strategies. Instead of adding value, their efforts reduce their investment portfolio performance and degrade their financial welfare.
The personal process of financial planning and investing is life long, and is not just a one-time exercise. Personal situations and financial requirements change, as do the economy and the financial markets. Investment plans need to evolve periodically to remain current and appropriate.
When pursuing optimal investment strategies and controlling costs and taxes, you also need to establish a time-efficient system to monitor, adjust, and adhere to your plan.
This article introduces the concepts of an opportunity cost for your time and a value-added or value-diminishing wage for the time you spend on investment activities. It also discusses two other ideas: that more time spent on poor strategies will just cost you more and that scientifically grounded investment strategies tend to take less time to implement.
A customer comment from the sidebar: "VeriPlan is a big help. I'm in my mid 50's and have been a diligent saver and passable investor for many years. I am going through a work transition from salaried corporate employee to independent consultant, and my aging parents are needing financial help. Financial planning is particularly important to me and my family now. Thanks for making your product available. I've recommended it to a number of folks and will continue to do so." J.H. in Portland, OR
Find Home Financial Planning Software
A customer comment from the sidebar: "VeriPlan has been a very flexible home financial planning tool. It took me a few hours on a weekend to understand what VeriPlan could do and to enter our financial data. Our family financial affairs were scattered all over, and we lacked a comprehensive picture of what the future might hold for us. I wanted a clear understanding of our projected lifetime and retirement income, expenses, taxes, debts, real estate, financial assets, college investments, retirement investments, and everything else all together." S. L. in Altadena, CA
Discover Family Financial Planning Software
A customer comment from the sidebar: "You have done a great job of including the necessary instructions in VeriPlan, located close to where the modeling is happening. The thing I like about the VeriPlan User Guide is that it adds substantial additional commentary that I personally find very valuable. I was hunting for a capable and reasonably priced financial planning package, and VeriPlan is an awesome tool. The more I play around with it, the more valuable I find it. Your free user guide was what made me decide to get VeriPlan." C. A. in North Royalton, OH
Financial Planning Software for Individuals
A customer comment from the sidebar: "One of the stories that VeriPlan tells me is how much of my money could be lost to excessive investment costs. I just switched to some lower cost funds in my 401k. I loved updating VeriPlan with the new cost values just to see the red bar on the Total Assets chart get significantly thinner - quite a shocking difference." M. W. in Tulsa, OK
The Best DIY Retirement Planning Software
A customer comment from the sidebar: "I am extremely impressed with the depth of information that VeriPlan asks for and provides. VeriPlan seems much more detailed than one would expect for the very reasonable price. Although I am not a financial professional, I consider myself more financially educated than the most people of my age (62). I find that VeriPlan's depth to be just what we need for our retirement planning. I am glad I purchased it. Thanks." J. W. in Gainsville, FL
Financial Planning Software for Consumers
A customer comment from the sidebar: "I have been very happy with this software. I will put VeriPlan to work to help optimize our IRA to Roth conversions, while avoiding the IRMAA penalties if we can. We are in an opportunistic window for the next several years. I have been appalled by the lack of professional knowledge available with respect to the tax burden that will fall upon us when RMDs take effect. Most of the information I have found suggests that it isn't a problem. Luckily, this software will be of great benefit to chart our course." J. S. in Louisville, KY
Family Financial Planning Software
A customer comment from the sidebar: "I am a recently retired engineer, and I created a cash flow Excel spreadsheet for 25 years of retirement. So, I fully appreciate the data and potential variances that must be accounted for. Yet, mine is so very simple compared to VeriPlan. I love VeriPlan's concept of total control over inputs and parameters. Veriplan's objectives are very much like mine, but it has many, many more input and control options, and the price is spot on." L. G. in Southbridge, VA
Family Financial Planning Software for Consumers
A customer comment from the sidebar: "I've been using VeriPlan for a few weeks now, and it is everything I was looking for plus a whole lot more of what I didn't even know I needed. By simply switching VeriPlan to a state that does not have a state income tax, I can see how much I could save on traditional IRA distributions in retirement by moving to a state without income taxes. It is a real education in personal finance, and I think just about everyone would benefit from using this tool." T. H. in Silicon Valley CA
Financial Planning and Retirement Software for Home Use
Other articles in this Personal Efficiency category will develop these ideas in more detail. You will also find a list of these additional personal efficiency articles at the bottom of this page.
The scientific investment literature indicates that many of the activities that individual investors engage in do not produce superior results.
Very often, they have the opposite effect – especially after costs and taxes are considered. Only a relatively small subset of investment activities tends to produce positive value. Valuable strategies tend to be passive and not active, and they usually focus on reducing costs and taxes rather than attempting to beat the market.
When estimating the net contribution that you might make when you spend time on investing, you first need to estimate whether or not your decisions actually add value to your investments.
Because most individuals probably are not adding value with current strategies, they need to change their approaches. When you honestly evaluate your positive or negative value contribution and track your hours, you can calculate your positive or negative value contribution on an annual and hourly basis. The size of your portfolio also influences the size of your positive or negative hourly investment activity wage.
A customer comment from the sidebar: "VeriPlan's financial projection graphics simply lay out what the future might hold for my family. Also, VeriPlan is a very fast and automated financial investment calculator that allows me to change anything and to test alternate investment decisions rapidly. Its integrated documentation explains clearly how it works, and it also includes a wealth of well-researched personal finance and investment information that has been very helpful." T. F. in Muncie, IN
Find Home Financial Planning Software
A customer comment from the sidebar: "I do most of my own financial modeling, and I like the way VeriPlan generates “what if” scenarios that I like to compare, such as possibly buying a rental property, selling my house and renting, moving social security retirement age payment timing, and pulling out IRA money after taxes. Plus, I like VeriPlan for its automated projection of detailed investment costs. Thanks for making a great product." K. W. in Naperville, IL
Discover Family Financial Planning Software
A customer comment from the sidebar: "I am 10 years out from retirement, and I needed to start thinking more seriously about having enough to retire on. I'm following the suggestions of you and others in opting for more hands-on retirement planning. I am also using lower cost index investing. There are too many wealth management companies out there, all ready to charge an arm and leg for what should be straightforward financial planning work." G. B. in Smith Mountain Lake, VA
Financial Planning Software for Individuals
A customer comment from the sidebar: "Larry, Hello again! I've continued to work with VeriPlan, and the more I work with it the more I'm amazed at how much it does. It's an incredible decision support tool for my financial planning. Since I have already built a model of my lifetime finances, it is easy to test new ideas as they come to me. Thanks again." M. W. R. in Austin, TX
Family Financial Planning Software
A customer comment from the sidebar: "I first learned about the zero federal taxes on long term capital gains when under the 25% marginal income tax rate from working with VeriPlan a number of years ago. I’m no longer working but not yet receiving RMD’s or social security so my ordinary income is relatively low. So I’ve been taking full advantage of zero federal capital gains taxes by selling off my high expense ratio mutual funds which have a lot of capital gains built in since I’ve held them a long time and then I reinvest them in index mutual funds which don’t generate as much capital gains distributions. So the education that you and VeriPlan provide has saved me thousands in taxes, not to mention the expenses on high cost mutual funds. Thanks again." M. D. in El Paso, TX
Family Financial Planning Software for Consumers
Next, you can calculate your hourly opportunity cost, which quantifies the value of spending your personal investment time on alternative income generating or leisure activities.
By combining your hourly investment value contribution with your hourly opportunity cost, you can estimate the overall value of your personal contribution to your investment affairs. Usually this annual or hourly figure will be negative for an investor.
Finally, to estimate your overall investment efficiency, your personal value contribution and opportunity cost should be added to all the excess industry investment costs and unnecessary taxes that you incur.
Related Personal and Retirement Financial Planning Articles
