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Consider Your Job In Asset Allocation

Here’s an idea I spotted in the lasted issue of Money Magazine:

Consider your job as an asset in investment asset allocation decisions.

The gist of the article was that when you’re young, your greatest asset is your human capital. That is, your ability to take your time and turn it into money (salary, commissions, etc.) is your greatest asset. As you get older and accumulate other assets, your financial assets will begin taking up a larger and larger piece of your portfolio. It’s the old adage of making your money work for you. As this happens, remember to treat your job and your income as an asset when you make decisions about your asset allocation.

For example, consider a young twenty-something analyst at a financial services company. Even in its heyday, you would probably consider that job more a small cap stock than a Treasury bond right? You work long hours, the work is at times unstable, but you have the potential to reap tremendous rewards. If you were, say, a tenured university professor, your job is more like a bond than it is a stock. Even in times of economic uncertainty, when a young analyst at a financial services company might fear for his or her job, students will still need to be taught and research will still need to be conducted – a professor is pretty safe (even if you don’t consider the tenure aspect).

How do you take that into account? Some places will tell you to consider your take home pay, compare it to your investment portfolio and try to balance your allocation that way. That’s a good approach but that depends on so many judgment calls (is your job a stock or a bond? Is it 100% either way or more 50-50? who really knows!?) but the one thing you can do is skew more conservative or more aggressive based on your analysis of your own job.

Just an idea to mull over. 🙂

(Photo: bullionvault [3])