Beyond Stocks and Real Estate: Your Most Valuable Asset

Is your home your most prized possession? Perhaps it’s your retirement portfolio? Well, if you’re under the age of 55, there’s another asset on your personal balance sheet that often overshadows them both.

Most of our conversations about investments, whether professional or casual, revolve around portfolio returns and asset allocation. Yet, every working individual possesses not one but two portfolios that yield returns. This second portfolio is often referred to as your “career asset.”

Broadly speaking, when people enter the workforce, they bring with them a substantial career asset—an elusive but likely significant future value comprised of all the earnings they’ll accumulate over a 30-50 year work-life span. Typically, college graduates possess larger career assets, as their potential earnings exceed those without a college degree, and any specialized training further augments this asset’s value.

As time passes and individuals progress in their careers, they incrementally monetize their career assets by earning income. Some of this income is transformed into capital assets—savings, which are then invested in a retirement portfolio, theoretically growing over one’s career.

A fundamental task of financial planners is to ensure that each person retains enough of their career asset-generated income annually to eventually support retirement and fulfill other goals. Ideally, the annual returns from monetary assets will eventually surpass yearly salary income, making work optional and retirement financially feasible.

We often term this process as “savings and investing,” but in reality, it’s a disciplined gradual transformation of your career asset into capital assets. This ensures that when you decide to retire, and your career asset has been consumed, it’s replaced by continuously growing capital assets in your investment portfolio. Unfortunately, countless individuals fail to save enough from their career asset-generated income, making work a necessity even in later life.

Unlike the stock market, this career asset is typically more stable; you still go to work when markets plummet, and you continue earning the same income when markets rise. However, as many discovered during the last economic downturn, your career can be influenced by economic upheavals. Job layoffs interrupt the cash flow from the career asset, raising “career asset management issues” that should have been considered from the start:

1. Is your industry or profession stable and growing?
2. Should you regularly reassess your skills and market value?
3. When is it sensible to change jobs, careers, or seek retraining?
4. What’s the return on investment for taking time off work for courses or training?
5. Are there free training opportunities worth pursuing?

Understanding the concept of the career asset sheds light on seemingly complex financial matters. Life insurance, for instance, can be viewed as a means to protect the future value of your career asset, as can disability insurance. Ideally, as you monetize your career asset over time, the need for life and disability insurance coverage decreases.

Financial planners are now examining clients eager for early retirement due to job dissatisfaction. The solution may not always be early retirement but potentially renegotiating the current job for reduced stress, responsibility, or income, or even transitioning to a more fulfilling career. As more of your career asset is monetized, and work becomes more optional, some individuals seek enjoyable ways to generate income and extend their working years. Advisors are assisting people in shifting from high-paying, unsatisfying jobs to lower-paying, fulfilling ones, allowing them to enjoy their work for many more years.

This approach extends their work-life by a decade or more, alleviating stress on the retirement portfolio, infusing more fun into their lives, and adding new value to their career asset. It’s the holy grail of financial planning—a win-win-win situation.