Investing strategy: Are you a stock or a bond?

Jun 2, 2014 | Allocation, Blog, Entrepreneurship, Investing, Wealth Management

Your job affects your financial life beyond serving as the source of your paycheck. It affects how your investing strategy, both in the short and the long term. Most people fail to take into account the nature of their work when looking at their asset allocation. Even though they think they’re looking at their asset allocation holistically, they are only looking at their bank and brokerage accounts. And they should be looking equally closely at their source of income.

Think of it this way: Are you a stock or a bond? Being an entrepreneur, for example, is analogous to owning a concentrated position in one stock – an inherently risky move. Contrast your situation to that of a tenured professor, who has long-term job security that’s as stable as they come. Or a government employee, who has a guaranteed future income stream in the form of pension. These jobs are analogous to bonds, the sleep easy asset class, because they have an embedded income stream of stability, and thus carry far less career risk.

Someone with a great deal of job and income security can afford to take on greater investment risk. Entrepreneurs may want to offset some of their risk–especially in the early years of launching a company–by placing their assets in less volatile holdings, such as fixed income. If both your entrepreneurial endeavors and your portfolio tilt toward risk, overall, you’re unbalanced. The ideal asset allocation should incorporate a holistic perspective of you as an individual–your career included.

In planning your portfolio, you should always seek balance: A healthy portfolio is a well-diversified portfolio. Across your asset allocation–portfolio and career–you should always shoot for a balanced distribution of risk. Ask yourself, are you a stock or a bond? And invest with that in mind.

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