What's the ROI on investing in Y.O.U.?

@Money October 28, 2011: 11:00 AM ET
Figure out if your career switch is worth the investment by calculating your ROI.

Figure out if your career switch is worth the investment by calculating your ROI.

(MONEY Magazine) -- The key measurement in deciding where to put your money is the expected ROI, or "return on investment." History and the current state of the economy allow you to make an informed guess about how different assets or classes of assets will perform in the future.

Calculating ROI is straightforward enough: You take the final value of an investment, subtract what it cost you, and divide the result by your cost to arrive at the percentage yield. Buy a stock for $20 and sell it for $25 in a year, and your ROI is 25% (not counting trading costs).

What about calculating the ROI on you? More specifically, on the cost of reinventing yourself to better compete in the changing economy. Let's say you work in a shrinking industry and you want to make a mid-career switch into one that is growing. How do you figure out the return on that transformation?

This is a question that applies not only to the factory worker who sees jobs headed overseas, but to anyone who thinks the decisions he or she made about the future while in high school or college are no longer valid.

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Unfortunately, there's no straightforward calculation that can account for all the factors that go into making a career-switch decision. This isn't a straight financial investment, after all. Aptitude, what you value in life, and your family situation are all huge variables. Still, running a few numbers is a useful starting point.

Figuring the payoff

For purposes of this exercise, let's look at the ROI for a fairly senior manufacturing worker in Rhode Island who, at age 40, is trying to decide whether to retrain as a registered nurse.

Starting salary for an RN in Rhode Island is about $60,000. Our experienced factory hand makes $53,000. So the difference in salaries from the start is substantial, but not great. Our worker also has to invest to retrain as a nurse -- a minimum of a two-year associate's degree at a cost of at least $40,000, plus financing -- and will have two fewer years of income.

So is this transformation worth it? Well, let's also remember that manufacturing wages haven't been growing much for quite a few years; nursing's wage growth is healthier, and a nurse will have more opportunity for advancement. When you take all those factors into account, the ROI on that nursing degree is around 9% a year. That's about the same as the long-term return of stocks. (Note: This is based on a simple calculation you can replicate. The complex one an investment analyst would run will produce a slightly different result.)

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There's more to this picture, however. The number of factory workers in the U.S. is expected to shrink by 50,000, or 2%, between 2008 and 2018, according to the Bureau of Labor Statistics. Over the same period, the number of RNs is projected to grow 22%, to 3.2 million. The chances are much greater in manufacturing than nursing that you'll suffer a layoff and have to take a pay cut -- as 40% of workers let go and then reemployed since 2008 have done.

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"Knowing with some certainty that a sector has a rosier long-term future does a lot for your peace of mind and makes it easier to think about growing older in this economy," says Sylvia Ann Hewlett, founding president of the Center for Work-Life Policy.

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Still, Hewlett argues that switching into a field simply because it's growing could be "the kiss of death." Give up your job to invest in a career you end up hating, or that you're not very good at, and you'll have done yourself no small amount of harm.

And starting over can be difficult. There's the strain on the family budget, and the family, during retraining. And although RNs aren't at the bottom of the nursing ladder, our worker will be at the bottom of the RN ladder, pulling the worst shifts. The neat calculation that I've shown you doesn't account for all that. The easy math, though, can tell you if it's worth thinking about the hard stuff that comes with making over your work life.


If you're going to retrain for a new career, make sure you've got a good shot att a high return on your investment. Consider the manufacturing worker who wants to become a nurse.

Income over 25 years if they make the switch to nursing:

$2.4 million: While our worker gives up two years of earnings and must pay for training, the faster wage growth in the nursing field will yield much higher earnings over 25 years

$55,200: Two years' investment in a nursing degree

9.2%: Annualized return on investment

Income over 25 years if they stay in manufacturing and retain their job:

$1.8 million

Income over 25 years if they stay in manufacturing and get laid off

$1.4 million: And if the possibility of losing a job in a slowing field is taken into consideration, the argument for making a switch grows stronger.  To top of page

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