- Saturday 20 January 2024
Most employees in the Tech & Pharma industry hold a significant portion of their personal ‘wealth’ in the shares of the company they work for. Is that appropriate, and should you have an investment strategy that takes this concentrated holding & dependency into account?
Current methodologies for building tailored investment strategies look beyond simplistic ‘risk profiling tools’ and seek to incorporate time, objectives and holistic wealth for a better investor experience. While these approaches are sensible, there’s another, often overlooked, variable that is still often omitted — your job and remuneration. Not only does your chosen occupation have its own set of individual risk factors, but your industry/company will often match, or indeed drive in some cases, the performance of certain funds & strategies. For these reasons, should adjusting your portfolio based on your career be something you do?
Balancing your career with your investments
Before we can figure out whether you should adjust your investments based on your job, it can help to know what assets and markets are most (and least) correlated with the industry you work in. In research from 2015,a fascinating piece of analysis was presented, which you can find here.
The conclusion of this research was that a successful investment strategy should consider ALL other forms of wealth that you have access to, e.g. human capital/skills, housing, education. Though I have some issues with the study (it’s quite US-centric and the timescale a little short), I found it very useful for appreciating the relative differences in investing across industries.
For me, as someone who works in the financial industry, the research confirms that, alongside my pension and savings, my income and my personal wealth (i.e. the value of my business) are closely tied to the performance of the stock market. It also suggests that I should diversify my portfolio into commodities, while reducing exposure to property. Does this mean that I should sell all my equity funds? Of course not. The long-term strategy for my pension will remain unchanged and I’ll continue to buy predominantly global equity portfolios. However, in the shorter term, any thoughts of purchasing a commercial property for the business rather than leasing, for example, will be taken with greater consideration.
Picking the right investment strategy is never easy. However, you don’t do yourself any favours when you ignore how your strategy fits into your long-term financial plan. This is why your employer and industry should be considered when selecting a portfolio. If, for example, you work for a ‘Large-Cap’ technology company and receive lots of stock-based compensation, it is certainly prudent to reduce your exposure to similar technology companies as well. One sensible option is to diversify your other funds (pension, savings) across offer access to a broader range of global equities (in particular, Value and Small-Cap companies). The other is to divest your single stock exposure over time, particularly if you continue to receive new options on a regular basis.
Conclusion
Deciding to shift your investment strategy to offset the other risks in your life requires more than a simple Risk Profiling Questionnaire. Depending on your financial goals & objectives, and the nature of your wealth creation, building a prudent strategy involves looking at all of these factors together first and reviewing them on a regular basis.
If you need help building the right strategy for you and/or want clarity as to how your current strategy aligns to your long term financial plan, click the link below to arrange a free consultation
