Should Your Career Influence Your Investment Strategy?

For many investors, career is an after-thought for designing and managing an investment portfolio. But your occupation matters for money management, more so than is generally recognized. 

The business outlook for your employer’s industry, the stability of your position, and other factors can be crucial inputs for customizing an investment strategy that’s right for you. As a result, overlooking one’s career can sometimes neglect valuable information for designing a portfolio.

Career details are important for portfolio design because a holistic profile of your financial situation enhances the ability to construct a plan that matches your objectives, time horizon and risk tolerance – variables that are unique to every investor. 

As an example, consider an employee at an energy company. In this case, the worker may want to downplay energy-industry exposure in her investment portfolio.  

The reasoning: Working at an energy firm already exposes the employee to her profession’s industry risk, such as the ebb and flow of fortunes linked to the cyclical changes in the price of oil and gasoline. If the investor also owns a conventional U.S. stock market index fund – an S&P 500 Index ETF, for instance – she already has a substantial degree of exposure to energy firms. On that basis, the investor may be over-exposed to risk factors in the energy sector by working at an energy firm.

A possible solution: customizing the S&P 500 exposure by lowering or eliminating energy stocks. Then again, the investor and her financial advisor may decide that above-average exposure to energy is an opportunistic plus. 

The larger point is that investors should be aware of risk embedded in their overall financial profile via the particulars of one’s career. Overweighting (or underweighting) energy or another sector may be appropriate, but such a decision should be active and informed by a particular strategy plan rather than as an oversight.

Another example of profiling career risk in connection with investing is deciding if your job is comparable to a stock or a bond. Consider a tenured professor at a university, which can be thought of as a bond equivalent. The professor enjoys a low risk of losing the position and so this career path is relatively immune to the economy’s business cycle – an attribute that’s similar to a government bond. By contrast, a manager at a corporation in the retail industry may be susceptible to layoffs when the economy slows or falls into recession – a risk that equates with shares in the retail industry.

The implication: the investor with a bond-like career can take more equity risk, such as a relatively high portfolio weight in an S&P 500 ETF. By contrast, our hypothetical investor who’s a manager at a company that’s dependent on the retail sector might consider a relatively low allocation to an S&P 500 ETF, or at least a lower exposure to stocks in the retail industry.

It’s not always obvious how (or if) your investment strategy should be influenced by your career. Much depends on your investment goals, time horizon, tolerance for risk and other factors. Working with a financial advisor can help you build and manage an appropriate strategy. 

For assistance in developing an investment portfolio that’s customized for you, contact The Milwaukee Company for a free consultation.