Simplicity In All Things Including Portfolio Management

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The weekly ETF column in Barron’s looked at research by Moshe Milevsky from York University in Canada that “believes an investor’s career—or “human capital”—is often her biggest asset and should be incorporated into her portfolio just like any other investment.” Someone whose career is more volatile like a salesman of some sort is more of an equity so their portfolio, the theory goes, should be more bond like and someone with more stability like someone covered by a union or tenure is more bond like and should tilt their portfolio to more equity exposure.

The article cites Enron employees as an example because the stock many of them held got wiped out and many lost their jobs. The article then went on to connect the idea to looking through ETFs to assess total exposure to company stock. If you work at a megacap company that has a large weighting in all of the broad benchmark indexes and you own shares directly then you should take the overall exposure into account. The article then cited an investment advisor who considers industry exposure in this context. For example, energy is about 6% of the S&P 500, so someone with 20% of their assets in energy by virtue of company stock may not want further energy exposure in their investment portfolio.

I am all for factoring in employer stock into the equation with a caveat being that the attributes of the stock be properly taken into account. An employee of a lottery ticket biotech company can probably own big pharma without threat of duplication and there will be countless other exceptions like this.

However, the idea that a job that is in the realm of being normal should dictate asset allocation strikes me as being very incorrect. I will concede exceptions (never say never) but if you’re 60 and either of your parents are alive then you need to plan on being around for a while. And if you are going to be around a while you probably want your money to last and that circumstance is far more important in determining a suitable asset allocation.

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