Diversifying Risk in Your Investment Banking Career

You’re no doubt familiar with the concept of diversification, investing in different asset classes, currencies, regions and management styles to minimize investment risk. But a professor at New York University’s Stern School of Business suggests that professionals should apply the same concept to their investment banking careers. In light of what’s happened recently, it’s hard to argue.

Dr. Orly Sade, an Israeli-born behavioral finance professor, advises her students to take into account where they live, where their life partners work, and how stable their overall field is in determining whether a particular job is a good fit.

People need to look at the big picture, Sade says, in an article in Haaretz. For example, you and your partner’s jobs are among your biggest financial assets. Prudent diversification suggests that the two of you should never work in the same company, or even in the same field.

And those juicy stock options? Better cash them in and invest the proceeds somewhere else, she says. A classic mistake made by many professionals, from Enron to Lehman Brothers, is investing too much in your own company. If the company goes bust, you’ve lost much more than your job.

If you think the company you’re working for has a great future, however, and you want to invest in it, then ratchet down the risk in the rest of your portfolio with more conservative investments in order to balance out this concentrated holding.

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