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Are You an Asset in Your Own Portfolio?

Joanne Cleaver
Un trader al lavoro. REUTERS/Alessandro Garofalo

The typical investment portfolio is designed to minimize risk and deliver consistent growth over the long term.

But are you including yourself in your asset mix?

David Blanchett, head of retirement research for Morningstar Investment Management, thinks you should. Risks and rewards affect the future value of your career and your primary residence. Applying portfolio management techniques to assess the likely financial payoff of your career and house can help you understand how to invest in them now for the greatest return.

In a recently published paper, "No Portfolio Is an Island," Blanchett outlined approaches for counting career and home as dynamic factors for asset growth -- approaches validated by other financial advisors. "You should think of your wealth holistically," Blanchett says. "If you think of yourself as an entity with these risk exposures, how do you use your portfolio to make [your] overall wealth as efficient as it can be?"

Is your career like a bond? Everybody expects -- or hopes -- that hard work on the job will pay off. But most people also realize they must continually gain skills and be ready to segue into a new type of position or an emerging industry to maximize their chances of sustained employment. Staying employed is about more than earning a living today and saving steadily for retirement. It also heads off retirement-damaging financial crises that might force you to drain your retirement accounts to cover living or retraining expenses.

[Read: 5 Ways to Fund Your Passions.]

"Your ability to pivot into a new job will affect your retirement," Blanchett says. "If you are going to make a change, have more of your portfolio in cash" to pay for classes, certifications and a potential gap in income while you switch to a new position.

Conversely, Blanchett says, if you believe your position is as stable and safe as any job reasonably could be, that might free you up to take additional risks in your portfolio.

"The future value of your career declines as you age because you have fewer years to work," says Paul Winkler, a fee-based financial advisor in Goodlettsville, Tennessee. "If you have a choice between taking $50,000 and investing in yourself and your future earnings through a master's degree, or put the money into the market, consider the relative risks. Are you getting into a different industry, and so opening up more opportunities and thus minimizing risk?"

[See: 10 Risky Investments Billionaires Can't Resist .]

Getting a master's degree in philosophy is risky, Winkler believes. Getting a Master of Business Administration is still risky but more marketable. There's virtually no risk in getting a master's degree in computer science.

"Your confidence in your career and your willingness to make a change is a huge factor," Winkler says. "But it doesn't matter what the risks are if you aren't moving on them."

Shifting careers to gain more satisfaction and income only works when you make the move in sync with your other financial goals, says New York money coach Carrie Birgbauer. "There's a lot of magical thinking about career changing," she says. "Consider yourself an asset in your own portfolio: How will you source help and minimize costs to gain a sustainable investment?"

She's her own best example. A former kindergarten teacher, Birgbauer decided to segue into adult continuing education. But she fueled her retraining with income from a tutoring gig and did not tap her retirement savings. "I evaluate my annual costs and the profit and loss of continuing to invest in my career through professional development. So I go to one workshop per year and get the most I can out of it, instead of going to lots of events just to network," she says.

[See: 10 Steps for Retiring Entrepreneurs.]

Your house as a dynamic asset. Your home might appear to be a passive asset insulated from economic risk, especially if you have no plans to move.

But as any real estate agent will validate, the value of a house is all about location, location, location. What is the state of your local economy? Is your area vulnerable to the whims of a single industry or employer? If so, Blanchett says the value of your house would drop dramatically if that industry or employer implodes, forcing an exodus from your area that undermines home values across the board.

Potential threats to the value of your home can be offset by less risk in your portfolio, Blanchett says. "Build a portfolio that hedges those risks from the world you live in," he says. "Use your portfolio to smooth out the risks in the other parts of your world."

If all of this sounds too academic, try thinking of how everyday decisions about your house and career could affect your portfolio in the medium term, Blanchett says. "This gives you insight into how these decisions affect your other assets so you can manage risk accordingly," he says.

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