Human capital

What it means

The present value of an individual’s expected future earnings, treated as an asset alongside their financial wealth.

The exam angle

Bond-like for a tenured professional and equity-like for a commission earner. The financial portfolio should lean against it, which is why concentration in an employer’s stock is doubly wrong.

Where it appears in the syllabus

• Private Wealth pathwayCFA Level III · exam weight 30–35% · Goals-based planning, tax efficiency, human capital, wealth transfer.
• Portfolio ConstructionCFA Level III · exam weight 15–20% · Equity and fixed-income portfolios, alternatives, institutions, trading costs.

Related terms

• Goals-based investingStructuring wealth into separate portfolios for separate objectives, each with its own horizon and risk tolerance,…
• Asset locationDeciding which account type holds which asset, so that heavily taxed returns sit in tax-sheltered accounts.
• Tax-loss harvestingRealising losses deliberately to offset gains elsewhere, while keeping the portfolio’s economic exposure broadly intact.
• Wealth transferMoving assets to the next generation or to charity, structured for tax efficiency and for the family’s intentions.
• Behavioural biasA systematic departure from rational decision-making, either cognitive — an error of reasoning that education can…
• Investment policy statementThe written agreement setting out an investor’s objectives, constraints and the rules the portfolio will be run by.