Are you a stock or a bond?

In the past decade or so, financial planners have played with the idea that their clients’ careers should be seen as a type of investment. Now, you know that your skills and knowledge are valuable, but is this value more like a stock or a bond?

Stocks tend to have higher growth, but are more variable; that variability is risky. Bonds tend to pay nice and steady, but usually have a lower rate of return. This means less bang for your buck, but with a greater chance that your buck will come back to you.

My career is one that can have a pretty good payoff. But there are years (like 2008) when my take-home pay drops in half. And let’s not even bring up the years in the beginning when more money went into the business than came out of it. This year I could add several high-value clients and the income they bring. Or, I could lose some instead. In that way, my career is like a stock.

Back in my Navy days when I was tooling around under ocean waves my job was pretty secure. Not only was there a slim-to-none chance I’d get laid off, I couldn’t even quit. The pay and benefits were steady…very steady; not very big, but very steady. Back then, my career was like a bond.

Now that you’ve got the idea, what should we do about it? That’s where there is not much agreement.

Some believe that a client’s investment portfolio should be adjusted to take into consideration the kind of career they have. People with bond careers, like my time in the Navy, should take more risks with their investments and have fewer actual bonds and more stocks in their portfolio. Those that have more variable jobs (like what I have now) would take some stocks off the table in their investment pool and add in less risky investments. That way the extra bonds in the portfolio would offset the risk in the job.

Of course a career is finite. The older you get the less time you have to earn money doing whatever is you do. So we’d also need to complicate things a bit by adjusting the risk-return characteristics of a job across the worker’s career length. As careers wax and wane, we would have to adjust it even more when some skills are gained and some become obsolete.

Nobody agrees how to determine the initial and follow-up adjustments; people even debate as to whether the exercise is necessary. Nevertheless, it is an interesting concept. After all, diversification of investments is a well-researched and considered an essential part of investment management. So why ignore the primary source of wealth most of us possess: Our job?

Those interested in pursuing this line of thought might look at the works of Zvi Bodie, Moshe Milevsky, and Michael Kitces, whose recent blog inspired this article. Personally, I’m not sold on adjusting portfolios based on one’s career. But I am intrigued (have been for many years) so I’ll keep reading along with you.

This article was published under the title "Are you a stock or a bond?"

in the Wichita Falls Times Record News on March 17, 2014.