Life As A Bond: How To Manage And Make Money

With the stock market edging toward positive territory, you may be wondering what to do with whatever money you have left to invest.

Jonathan Clements, former personal finance columnist for The Wall Street Journal and now the director of Citicorp's financial advisory division, tells host Steve Inskeep that everybody could use a little bit of financial advice these days.

Clements, the author of The Little Book of Main Street Money: 21 Simple Truths That Help Real People Make Real Money, isn't a fan of a lot of the financial advice that is commonly given to the ordinary investor.

"I think one of the big problems out there is that a lot of financial advice is really very narrowly focused on stocks, bonds and mutual funds," he says. "And in fact, if people want to manage their money properly, they need to look at their entire financial life. And that means considering things like their debts, their real estate and maybe most important, the value of their human capital, which is the ability to pull in a paycheck. Getting that regular paycheck for a lot of people is sort of like getting interest from a bond."

For example, if you're just entering the work force and you're in your early 20s, then you're looking at 40 years of regular income. The source of that income, your human capital, can be thought of as a "big bond that you own," he says.

When it comes to diversification, Clements says, one of the things that is worth considering is investing "pretty heavily" in the stock market. Why? Because if you already have a regular income, you don't also have to maintain a lot of money in bonds and CDs.

Job security, however, plays an important role in this equation, and that's something that isn't so certain these days.

Clements says if your income isn't predictable — as might be the case if you're an aspiring actress or a salesman whose salary is based on commissions — then you'll want to be more conservative with your investment mix. He also says it's not a good idea to invest heavily in stocks from the same field that you work in. That way, if you lose your job and the industry you work in goes south, you're not going to see your entire portfolio tank at the same time.

"People should look at their finances and see, are they really, fully, properly diversified across their entire financial lives," he says.

Family background also plays a significant role in people's financial decisions. "If you look at how people manage their money, a lot of what they do is driven by what they learned as kids," he says. "If you're a parent, what you do with your finances is going to heavily influence your kids — [including] the things you say around the dining room table [and] the things you complain about."

Clements says his family all grew up with the story of his grandfather who inherited what today would have been a fortune of millions and millions of dollars. But his grandfather and his siblings blew it, he says. "We all grew up with this story of how the family fortune had been lost — and as a consequence of this, my two brothers, my sister and I are all incredibly careful with money."

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