Human Capital

Human capital is a key concept in life-cycle investing. Human capital is simply the value of a person's labor income or earnings over the course of their lifetime. Technically, human capital is the present value of future earnings. For example, assume a person is 40 years old and plans to work for an annual salary of $75,000 for the next 25 years. Using a discount rate of 3.5%, the value of this person's human capital is $1,236,113.