Long Term Investment Decisions as a Mid-Career Professional

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Early and mid-career professionals display a unique set of characteristics and circumstances that should be the primary drivers behind determining their savings and investment plan. Understanding where you are in terms of your life cycle, career cycle and total capital can help you put together the framework necessary to determine which typed of investments you should consider for your long term investments.


Your Human Capital Far Outweighs Your Investment Capital (For Now) 

There are many ways to define “human capital”, but for this purpose of this blog we’ll define it as the present value of your (estimated) income of the next 20 to 30 years. At this point in your life it is most likely that your future stream of income vastly outweighs your current investment portfolio. You simply haven’t had as much time to save and invest.

This dynamic creates two important aspects of formulating your savings plan and investment strategy. 

  1. Proper insurance in the form of disability and life insurance needs to be implemented prior to investing. Your future income stream is your largest asset at the moment and needs to be protected from worst case scenarios.
  2. Investing aggressively (aggressive in this instance refers to your allocation to stocks) makes sense at this stage because: 
    • Investing weekly or monthly into stocks (also known as dollar cost averaging) can smoothen the volatile nature of stock markets
    • Your investment capital is a small percentage of your total capital (human + investment) 


The losses experienced this year, or even a more devastating loss of 50%, would have a minimal impact on your total capital at this point because your human capital is such a large portion of your total capital. In fact, beginning an investment strategy during a year like 2022 offers the potential for higher long term returns, as you are investing at lower prices than even a year or two prior.

Increasing “Risk” as A Periodic Saver

In most instances, investing a lump sum into risky assets produces better returns (although not always, dollar cost averaging comes in handy during severe downturns… hello 2008) because it offers extended exposure to risk assets. Unfortunately, most of us haven’t inherited millions of dollars, undergone an IPO or hit the lottery. While investing a lump sum may not be an option for you, there are ways to increase your exposure to risk assets in a cost efficient and diversified manner.

So How Can I Increase My Risk When I’m Young?

You can look into using exotic investment vehicles and leverage to increase your exposure to stocks and other risk assets that have outperformed over long periods of time. The strategies can get confusing, costly and are quite difficult to implement. This leaves the sane younger investor with a few options for taking some additional risk while they still have decades of time to ride out the markets. 

Utilize Factor Investing 

Stocks differ in a variety of ways, including characteristics such as size (small cap, mid cap, large cap, etc.)  and geographic regions (US, International, Emerging Markets). Academic research has shown that specific characteristics within stocks create additional risk and thus have higher expected returns. Exposing your investments to these primary drivers has historically (past performance is not guarantee of future returns) increased expected returns. 

  1. Company Size (Small vs. Large)
  2. Relative Price (Value vs. Growth)
  3. Profitability (High vs. Low Profitability)


Research by Dimensional Fund Advisors shows the historical returns and premiums generated by exposure to these characteristics dating back to 1928.

While generating exposure to these factors makes sense given their historical track record, there have been long periods of underperformance and enhanced volatility. There is also no guarantee that they will continue to out perform going forward.


The volatility can actually be a positive for younger investors who invest periodically, as more frequent negative swings provide opportunities to buy at lower prices. From a psychological perspective however, it may be quite difficult to ride out periods of underperformance and more severe swings in prices. Spreading your investments across different geographical regions and characteristics can provide a more balanced approach to your portfolio.


Diversification (despite the meme stock episodes, bitcoin and tech boom) is still king. While it is true that stock returns across the globe have become more closely aligned over the past few decades, spreading your investments across the globe, by size and by style still provides protection in the long term

When looking at your portfolio you want to have a mix of the following:

  • US stocks 
  • International Stocks
  • Emerging Market stocks
  • Bonds (yes, everyone should have some allocation to bonds) 


Once you have the geographical diversification it is also important to allocate to the factors that were previously discussed. Small cap and value stocks do provide diversification and deserve a place in your portfolio at this stage in your investment journey.

Putting It All Together 

Understanding where you are in terms of your total capital will allow you to see the bigger picture, and decide on a proper breakdown of the above mentioned investment categories. You have decades of time and earnings ahead of you, and your human capital is (most likely) a vast majority of your current total capital. These dynamics put you in a position to invest more aggressively at the moment. 

    1. Determine your appropriate exposure to stocks based on where you are in your life and your career, as well as your comfort level withstanding turbulent markets. 
    2. Diversify your investments across geographical regions, and use factors such as company size, relative price (value vs. growth stocks) and profitability levels to tilt your portfolio towards those characteristics that have provided greater risk, and thus, greater reward historically.
    3. Maintain your savings and investment plan diligently and reap the rewards of compound interest. Your savings rate is far and away the most important aspect of creating the future and lifestyle you are envisioning. 

While your current situation provides ample ability to take risk (in the form of stocks) in your portfolio, the behavioral side plays an integral role in determining your investment selection as well. 

2022 has been a good year to gauge where you personally stand with your ability to stomach market downturns. Have you panicked during the recent market downturn and sold your stocks? Does watching your hard earned 401(k) plummet in value have you vowing to never invest again? If so, maybe an 80% or 90% allocation to stocks isn’t in the cards for you, and that is ok. Bring it down to a level that makes you comfortable, but stay invested! Use times like this to test and adjust your investment strategy to one the one that works best for you. 

For those fortunate enough to have received an inheritance or other type of windfall, your decision making process is likely going to be different. As with all investment decisions, a detailed, well thought out and flexible financial plan should provide the reasoning and rationale behind why each and every investment is a part of your plan and portfolio. 


Disclaimer: The information on this site is not intended as tax, accounting or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement of any company, security, fund, or other securities or non-securities offering. This information should not be relied upon as the sole factor in an investment making decision. This content is provided “AS IS” and without warranties of any kind either express or implied. To the fullest extent permissible pursuant to applicable laws, Hereford Financial disclaims all warranties, express or implied, including, but not limited to, implied warranties of merchantability, non-infringement, and suitability for a particular purpose.

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