Want to Guarantee A Comfortable Retirement? Marry a Nurse.

One of the most common lessons in investing is the need for portfolio diversification, to use assets with low correlations to reduce the volatility of a portfolio which might sacrifice some potential return in the short-term while providing for higher long-term returns by reducing draw-downs during equity pullbacks. It’s the first lesson taught in investing 101 and is so thoroughly incorporated into the language of financial professionals that it’s probably the only thing that literally everyone in the industry can agree on. But diversifying your investments is only part of the process so gather around for story time.

When I was in grad school, I took a capstone course that meet on Friday afternoons and ran for three hours so needless to say, it wasn’t particular well attended despite the fact the professor was fairly well known, the former dean of our business school and played tennis with a soon to be Fed Chairman from Princeton. One day not long before the end of the semester, the professor turned to the room and said to us, “I’m going to tell you how to make a fortune and live a comfortable retirement.” Well that managed to drag us out of our afternoon siestas and we looked onto eagerly, waiting for this bit of wisdom that could provide us with the wealth we needed to insure that we would never actually to use anything else we had learned there. Seeing our eagerness, he walked away from the board and in a perfectly flat voice said, “You want to enjoy your retirement? Marry a nurse.”

Saying we were stunned would be an understatement. Was this why we had sacrificed so many Friday afternoons when we could be making an early start of our weekends? But then he said, “Let me finish. You’re all going to work in finance or accounting when you leave here and I can guarantee that no matter how smart you are or how hard you work one day, the market will turn or your division will have a bad quarter. When that happens, you’ll be laid off. It happens to everyone, it’s part of the business and how the game is played.”

“So what happens then? The market pulls back and you’re laid-off. Well guess what, it’s worse than you thought because so much of your compensation is deferred in the stock of your employer and that’ll be losing value too…just when you need it the most (ask anyone who worked at Lehman about that.) And because you work in finance and think you know better than everyone else, your portfolio is 100% stock so what do you think is happening there?”

“Remember, your portfolio consists of two assets; the financial capital you’ve accumulated till now and your human capital that will be earned in the future. For most of you in this room, you have no financial capital but that doesn’t matter because the most important asset in your life is yourself; the knowledge you gained here will help you make more money when you graduate. From that higher starting point, you’ll earn more over the course of your working life and if you discount it back to today, the present value of those future earnings has increased dramatically. As you work and the years go by, the value of your human capital will begin to fall but your financial capital, everything you’ve saved and invested will grow and compound over time until you reach retirement. Then your human capital will be close to zero and your financial capital will have to meet the bills so you buy bonds, leave some in cash, put a little in stocks and hope you get that 4% real return to see you through.”

“So how can you protect your financial capital when you hit a rough patch in your professional life…marry someone in a completely different industry. My wife is a nurse, but who cares? Marry a teacher, lawyer, cop, just don’t marry someone in the business. Think about it; you marry a mortgage broker for Countrywide (don’t judge me, it was the mid-2000’s) and you both get laid-off during a pullback…what happens then? How are you going to make ends meet besides raiding your financial portfolio while the value of your human capital is falling? You’ll work again, but those future earnings will be lower and you’ll have less financial capital today to help plan for tomorrow.”

Marry someone who’s job isn’t dependent on whether stocks are rising or falling. It’s the ultimate portfolio diversification. When you stumble, they can be there to catch you and keep you (and your human capital) from falling and you’ll do the same for them someday.”

Remember, the most important asset in your portfolio is YOU so how can you better yourself to improve your earnings today and provide for tomorrow? So to all my readers I leave you with this; do you want to have a comfortable retirement playing golf or does your retirement plan consist mostly of “tender vittles?”



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