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All Of Your Worth … Consider This Your Other Portfolio

by | Jun 23, 2010 | Articles

A recent article in the Wall Street Journal WSJ Article touched lightly on a subject that we have discussed for years and is now being discussed at much deeper levels in the financial planning profession.  Although most investment conversations are about portfolio returns and asset allocation, most people actually have two portfolios which generate returns.

At recent industry conferences in San Antonio and Chicago, entire sessions were devoted to issues around peoples’ career assets.  Broadly speaking, everybody begins with a very large career asset – the future value of all the earnings you’ll receive over a 30-50 year career for the work you perform in your industry or profession.  College graduates possess larger career assets – that is, their potential earnings are greater than people without a college degree – and any specialized training increases the value of your career asset.

Over time, as you move through your work-life, the career asset is monetized; this means you’re paid for the work you do.  As you monetize your career asset, some of that monetization is transformed into capital assets, your retirement/investment portfolio, which (theoretically, at least) grows over the course of your career.  One of the fundamental jobs of a financial planner is to make sure that you keep enough of the money generated by your career asset, each year, to eventually support you in retirement, or as we say, life after what you are currently doing.  The intention of saving and investing is to create more choices in future years (make work optional rather than necessary) and to support other goals and objectives.

The general terms and practices are called saving and investing, but it’s really a process of gradually turning your career asset into capital assets, so that when you decide to transition from your current working experience, and your career asset has been consumed, it’s replaced by the ever-growing capital assets in your investment portfolio.  Tragically, millions of people never retain enough of the money generated by their career asset  (never save enough) to create more future choices – like making work optional rather than necessary later in life.

Career assets are usually far more stable than the stock market; when the markets go down, you still go to work; when the markets go up, you’re still earning the same income.  But as millions have experienced in the recent economic downturn, your career, too, can be affected by upheavals in the economy.  When somebody is laid off, it interrupts the cash flow from the career asset, and raises a lot of “career asset management issues” that warrant conversation along with other portfolio conversations.  Practical questions to ask are: Are you working in a stable, growing industry or profession?  Should you, every year, reevaluate your skills and value in the marketplace?  When does it make sense to change jobs or careers, or get retraining?  How much of a return will you get on the cost of taking time out from work and paying for college courses or specialized training?  Are there free training opportunities that you should be taking advantage of?  Heart felt questions to ask are:  Are you enjoying your current work?  Is there another vocation you long for but are afraid to take the next step? What holds you in the job that you are in – just for the money?

Other issues make much more sense once you understand the career asset concept.  Life insurance, for instance, can be seen as a way to protect the future value of your career asset.  The same is true for disability insurance.  Theoretically (unless you have estate planning issues, which is another discussion), the amount of life insurance coverage you need decreases as you “monetize” your career asset over time.  But you may need to adjust your disability insurance upward as you reach the later stages of your career and earn more per year.

Our colleagues are joining us in looking closer at their clients who can’t wait to retire early, because they’re miserable in their present job.  What we know is that the solution may not be an early retirement, but either a renegotiation of the current job (less responsibility, less stress, maybe less travel, and also less income) or a career change to something much more satisfying. As more of your career asset is monetized, as work becomes more and more optional, many people are looking for a more fun and satisfying path to generate income.  We recently heard this statement: “help people shift from a great-paying crappy job to a crappy-paying great job”.  This is the practice of considering all of the wealth in your life – time, legacy, relationships, unique skills, creativity, and vibrant health, along with money.  This view is sustainable, in fact sufficient, and worthy of your exploration.

Considering this opportunity, work-life may be extended by a decade or more, putting less stress on the financial portfolios, putting more satisfaction and joy in life, adding new value and life to career assets, making a contribution to the world.  This broader view and practice is the proverbial: a win-win-win.

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