Most individual investors conform to the time-tested approach of establishing investment goals, structuring the portfolio, monitoring performance, and rebalancing accordingly. Portfolios are designed to meet future needs, while taking into consideration current requirements. Savvy investors know that a well-diversified portfolio is key to success. They also commit to a systematic approach that ensures their portfolios are aligned with their objectives.
With diversification as a central tenet, this portfolio-based approach can also be applied successfully to life and careers.
In 1960, global life expectancy at birth was 52 years. The typical life trajectory would have comprised an initial phase focused on education. This would have been followed by a linear career path (generally within one organisation), and thereafter retirement. Each of these phases would have been highly concentrated. In other words, as if 100% of the portfolio were in equities or bonds.
Today, life expectancy worldwide is close to 73 years, while in Singapore it is an astonishing 83.9 years. People are working well into their 70s while the average tenure in a job is hovering around 4 years.
A portfolio-based approach to life would include a blend of various asset classes at any given time, including learning, work, and leisure, as well as an array of subclasses such as side "hustles", hobbies, or charity work.
Many of the executives I work with have a life portfolio that is overweight on the asset class known as “the current job”. The day eventually comes to leave that job, and they realise they have not adequately invested in preparing for the future. As with financial investments, a portfolio that works for one individual is not necessarily appropriate for another. Here are four steps to constructing your unique life portfolio.
Step 1: Planning and setting objectives
Planning is the most critical element in portfolio construction, and this step requires deep reflection around priorities and values. It also requires a clear-eyed assessment of one’s risk tolerance and future aspirations. An unmarried 25-year-old student will have different obligations and objectives than a 50-year-old CEO with three teenage children, a mortgage, and aging parents.
It is also important to note that the returns one seeks from a life portfolio are not measured purely in financial terms. Personal growth and fulfilment, relationships, well-being, stature, and autonomy are all markers of success.
Step 2: Strategic asset allocation
Having articulated your objectives, the next step is to construct a model portfolio for your time. Everyone has the same 24 hours in a day. Moreover, no one has the ability to manufacture more time - it is a perpetually dwindling asset. The trick here is to be intentional about your approach.
How much will you allocate towards your job? How much will you invest in acquiring new skills? Laying the foundation for your next chapter? How much will you put towards family and friends? Health and wellness? Building relationships?
Keep in mind two fundamentals of portfolio construction: diversification helps to reduce risk; and, your approach should be designed with a view to the future.
Step 3: Implementing the plan
Putting the plan into action requires deliberate decisions, as well as sustained commitment. Focused on improving your health? Schedule time for exercise. Interested in serving the community? Volunteer consistently for a cause that matters to you. Keen on reinventing yourself and pivoting into a new field? Invest in attending a course (or two), and expanding your network. But do it now; don't wait for the "perfect time".
Step 4: Assessing and rebalancing
As with any investment portfolio, the next step is to monitor and adjust dynamically. Your priorities may change, and your risk profile may increase or decrease over time. Consequently, your life portfolio needs to continuously adapt to align with your changing requirements. Sometimes it takes a health crisis to realise that your “well-being” asset class might be underweight.
Taking a leaf from Warren Buffett’s investment philosophy, consider incorporating these four principles into the construction and management of your life portfolio.
First, don’t follow the crowd; focus on what works for you. Second, have a long-term mindset, rather than seeking overnight success. Third, don’t be afraid to switch gears. As circumstances change, make mindful adjustments to your portfolio. And finally, research and reflect. It’s your life, you owe it to yourself.
A version of this article was originally published in The Business Times on Mar 14, 2022.