← Many Happy Returns
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- [00:00]
A
This episode is sponsored by Raisin uk, the award winning online savings marketplace. Compare open and manage competitive savings accounts from over 40 FSCs, protected banks and building societies with a single login. Use the Raisin link in today's show. Notes for a £100 welcome bonus. New customers only terms apply. If a ratings agency could slap a label on your career, what would it be? AAA backed by the faith and credit of you? Or more like single B with a negative outlook. Ultimately, your human capital might be the largest asset you own and it behaves like a bond.
- [00:44]
B
Does seeing your career as a volatile asset change how you think about saving, investing and employment? And in today's dumb question of the week, do I need income protection insurance? All right, let's get into it. So I think for most people, Romin, there's this tendency to view their portfolio, their investment portfolio, the stocks, bonds, cash they hold as entirely separate from their career and their salary. They sit in two separate buckets in their minds. But is that the right way to look at things? Because obviously one is kind of feeding into the other, isn't it? The career is funding the portfolio.
- [01:21]
A
Actually, the exception which I often see is where people work in a specific sector like the oil industry, where they can see that they're very exposed to that one sector and the price of oil and that they need to diversify away from it. Or if they've got huge exposure to the company via options, because some tech companies offer that and there they often say, look, I'm hugely exposed to this. What should I do to diversify?
- [01:47]
B
So there people can see that they have massive concentration, risk and it's the same risk across their portfolio and their career. But most people don't think that, do they?
- [01:58]
A
No, the average person would never ever make that link. And yet I think it's a real one.
- [02:05]
B
Certainly people's portfolios might go bad at the same time they lose their job. We've seen that in many recessions over the years.
- [02:13]
A
Yeah, and that's a risk that people don't usually consider. You know, they never think that they're going to be laid off. But if there was a really severe economic crisis, well, yeah, of course your job is going to be at risk. But unemployment rises. That's almost a definition of one of these recessions.
- [02:27]
B
But you said something really interesting in the opening, which was that your career or your human capital behaves like a bond. Now, Romin, I know you're liable to compare everything to bonds. It's just a core part of your personality. But in this case, what might you mean by that?
- [02:44]
A
Well, in terms of the cash flows, it looks a little bit like a bond. So for example, if you go to university, then you're going to have to pay for that education and many of us now have to do this. When I was at university you didn't really have to pay, your local council would pay. But nowadays you have that big outlay on day one. Well, that's like the principle of a bond. Then you go out and get a job, hopefully you get a better salary because of the education you got and you get a steady stream of income payments. Oh, wait a minute, that sounds very much like a bond. And if you're lucky, like I was and you've worked for a company for some period of time and then when you leave the company you get a big payout and that's your redundancy payment. So for me, investment banking looked very much like a high yield bond.
- [03:36]
B
I bet you were super pleased that your career mirrored a bond, given that you worked in fixed income.
- [03:42]
A
Yes, as I walked out of the building those were my precise thoughts.
- [03:46]
B
But I guess you could also think of this in terms of the time you're investing in something, right? You're putting huge amounts of your life into a career and you're getting these coupon payments as you go, if you want the salary and then hopefully if you're lucky, you get the principal back at the end, as in you get a load of free time in retirement which you can spend. So it's a bit of a tenuous link, but I know what you mean by it and I guess you could even work out the value today of your human capital, assuming you stay healthy, assuming and you work until you plan to retire. In theory, there is a net present value of all your future earnings discounted to today. I'm not sure what it would be. If you're a 30 year old and you've got 30 years career ahead of you, presumably with some pay rises along the line, you'd have to make assumptions about the discount rate and inflation and everything, but it'll be significant for most people, hundreds of thousands, maybe even millions.
- [04:39]
A
So here it is, here's our rough approximation of what you'd be worth. So let's say you start off with an income of 50,000 a year, you increase that by 3% a year, inflation's 2% a year, and we discount it back to today the 10 year yield, which is roughly 4.5%. Well, the total value of your future earnings is going to be just Under
- [05:00]
B
a million pounds in net present value based on that discount rate.
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A
Yeah.
- [05:06]
B
So I'm sure we've lost everyone, but what we're basically saying is your human capital might be worth a million pounds today, which if you're 30, is probably by far the biggest part of your portfolio. Just we don't think about it in those terms.
- [05:19]
A
I'll tell you what would be great is if you could sell that, if you could securitize it and then just invest it, wouldn't that be great?
- [05:26]
B
I remember seeing Warren Buffett and he went to talk to like a school class and he basically made this point. He said to the kids, like, how much would you take if I was to buy 50% of all your future earnings? And the kid started saying numbers and he was like, done, done, done. He was like, you're worth way more than you think.
- [05:49]
A
That's like buying people's souls. That's kind of evil.
- [05:53]
B
Yeah. I don't think he really went to contract stage with it, but it was just a demonstration of the fact that this human capital is valuable. But it's volatile, isn't it? For most people it's not like a triple A rated bond.
- [06:04]
A
Yeah. What we've assumed is that those cash flows will continue, whereas often what happens is those cash flows get truncated. Sometimes they fall in value rather than rising and sometimes they stop altogether.
- [06:17]
B
So does it really depend on what kind of career people are pursuing? Because some careers I'm going to guess are much more stable. If you're a doctor, you're probably always going to have work, it's probably always going to be relatively well paid unless you were to get ill or something. Whereas most careers aren't necessarily like that.
- [06:37]
A
Yeah. I mean I speak to all sorts of people. For example, if I speak to an actor, I know that their income is very chunky and sometimes they get absolutely unbelievable amounts of money if they're in some kind of big film. And then they have long dry periods when they may not earn at all. Sometimes they really come into fashion and they get lots of work.
- [06:58]
B
You get cast in a Marvel franchise and you make in the short term, you know, we went to a birthday party for my toddler the other day and there was these two superheroes there, like Spider man and I guess Spider Woman and they were doing backflips and stuff, spraying webs at the kids. And then we came home afterwards and my daughter was just sat there looking really pensive. I was like, what's up? What are you thinking about? She said, was Spider man wearing a thong. How do you even know what that is?
- [07:30]
A
But there are other people I speak to who are, for example, lawyers who are about to make partner. And there you go from a high salary to an unbelievably high salary. Or if you're a doctor, you don't get necessarily paid huge salaries, but you get these defined benefit pensions which are just incredibly valuable. So the shape of the cash flows is very much determined by your career path and what you work in. For some people it's very volatile and patchy. For other people it's steadily increasing. Some people it doesn't increase at all. And in investment banking it tended to be very high, but then it would suddenly disappear because you'd be laid off because there was some kind of crisis. Now that's assuming that you didn't get another job. Often what would happen is you just move to the bank next door. So it wasn't cut off for long. But you'd often end up seeing the same old people move from bank to bank and you'd see the same faces, which was always fun.
- [08:28]
B
But I guess not everyone is an employee. Some people are building a business and that's their career. And that behaves very differently, I think, from being an employee.
- [08:37]
A
Yeah, I've heard it described as the difference between buying a call option, so that's like setting up a business and selling a put option, which is like being an employee. So maybe we should just spell that out for people who aren't au fait with derivatives.
- [08:51]
B
Yeah, everyone in the investment bank would be going, oh, Romin, that's the perfect analogy. Maybe our listeners aren't going to get it. So, okay, let's start with the business owner. You said she's buying a call option.
- [09:05]
A
So what that means is if you buy a call option, you pay money today and potentially there's unlimited upside. So if your business is successful, then really the sky's the limit and you've got huge unlimited upside exposure. But on day one you're underwater because you've paid to start up that business and you're not going to get an income for some period of time. And there is a degree of luck when it comes to that business paying off. You know, I always think with pensioncraft I was quite lucky. And I think people underestimate the importance of luck when you set up a business.
- [09:42]
B
I remember you saying to me that you were quite close to throwing them the towel at one point and it was the fact that you had like one semi viral video which convinced you to keep Going, yeah, it was very
- [09:53]
A
touch and go for a long time. And you know, it's soul destroying when you make lots of videos and not many people watch them and looking back at them, some of them are quite good. You know, I'd say that the quality was quite high early on, but it takes a while to get going, to get the customers and to pivot into something which is going to be profitable. So from many people, remember that call option does not pay off and you make 100% loss as you do with call options because it doesn't reach that critical threshold. So that's your setting up a business version which is buying the call option.
- [10:28]
B
But you said it's quite different. If you're an employee, you're. What was it? Selling a put option.
- [10:34]
A
Now the difference there is that it's safer because on day one, instead of having to pay something, you're paid the value of the put option. So it feels like you're in a secure position. Unfortunately, when you sell a put option, you can make income while you sell those put options, but you keep all of the downside for the underlying company. So if the share price tanks, you've got losses down to zero.
- [11:01]
B
As in you could lose your job.
- [11:03]
A
Exactly. So that's the risk, which is you've got the downside and the income may
- [11:10]
B
not be secure and you've got a capped upside.
- [11:14]
A
Yeah. And that's the biggie, right, which is you haven't got that unlimited upside that you've got with a call option. You only participate up to a fixed amount, which is the income that you receive.
- [11:24]
B
Yeah. They're quite different scenarios, aren't they? So the business owner is kind of looking at delayed gratification and high volatility, whereas the employee is getting immediate payoff collecting those premiums, that salary, but is never going to become super rich.
- [11:40]
A
Yeah. And I think that's why it's such a good analogy. So when you tell someone who works on a security desk that they always kind of smile knowingly because they probably heard it before.
- [11:50]
B
I wonder if Warren Buffett went on to use this analogy with the 10 year olds. But maybe for some people nowadays it doesn't really sit neatly into those two buckets. If you're an employee whose compensation in large part comes from stock options, maybe that tilts you more into that kind of business owner mindset.
- [12:12]
A
Yeah. And again, I speak to many people, often from the US who are actually employed by one of the Mega Cap 7 companies. Some of them are actually working in AI in those departments. So they're very, very well paid. And for them, like you say, it's almost like they're a business owner. They've got the compensation which comes from having the very high salary, but they've also got potentially unlimited upside with the stock options which they receive, which are usually very generous. So I think you're right. I think that does blur the boundaries.
- [12:43]
B
But does it change how you should invest? Let's think of two people. One of them has the kind of AAA rated career. If it was a bond. They're a government employee, a judge, a doctor, a tenured professor, whatever it might be, where they're pretty sure their job's always going to be there. It's not going to suffer in downturns and barring catastrophe, they're going to make it through to retirement unscathed. So that's one bucket of people. The other side is the junk bond career. Maybe you're in sales and you're reliant on commission. Maybe you're one of these tech employees, a startup or you're an estate agent. These kind of jobs where they suffer in downturns, the income might be spiky, some of it might be in compensation that's uncertain and will only pay off if the company succeeds. That's quite different, isn't it? So I guess if you were trying to balance your portfolio instinctively, you might say those people with the safe careers can take more risk in their investment portfolio versus those with the risky careers.
- [13:48]
A
Yeah. And I think another aspect of this is if you do work in some of those safe careers, for example, the UK civil service, it's always been the case that the primary benefit of that is that you get these really amazing defined benefit pensions, which are bond like, as is your income while you work for the civil service.
- [14:07]
B
So therefore you're long bonds already.
- [14:09]
A
Right, Exactly. So I think for those kind of people, if you have got a lot of job security, well, you could take more risk with your portfolio and you're more likely to have an outcome where you've got the bases covered in terms of income and that means you can have more risk for the invested portfolio.
- [14:26]
B
But your career probably wasn't that, was it? As an investment banker, you knew that it was probably going to come to a sticky end at some point, hopefully with a payoff. But it was volatile, it was time limited and it was in a cyclical industry. How should someone look at their investment portfolio and maybe their cash reserves if that's their situation?
- [14:49]
A
I think there, it depends on where you are in your career. So if you're already running an equity desk at Goldman, well, you've probably got enough to tide you over forever. Whereas if you're just someone who started as an analyst at an investment bank, well, they cull the staff pretty radically, very regularly. So I'd be more worried in that kind of situation and there I'd be much more safe in terms of my investments. Whereas if I was the head of equities at Goldman, well, there you've got a big excess anyway, so you could take more risk if you needed it, which you may not at all.
- [15:27]
B
Because if your career is a junk bond, that's more correlated to equity.
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A
Right.
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B
Than safe bonds.
- [15:35]
A
Yeah. And that's a really good analogy because high yield bonds are closer to equity in the capital structure and if your job's more equity like, well, then you'll take less risk when it comes to investments, probably.
- [15:48]
B
As a hedge, certainly you'd want a bigger cash buffer. I think everyone knows that if you have a higher chance that you could be fired tomorrow, you want more than the standard six months in cash, I reckon, as an emergency fund.
- [16:00]
A
Yeah. When I was working at the investment bank, when I finally did get laid off, I had six years worth of cash so that I could have lived quite happily off that. And that was really handy because it gave me a buffer in order to be able to set up pensioncraft.
- [16:15]
B
And I remember you always saying to me instinctively, you're a cautious investor, you probably have too much in cash and bonds and stuff, at least historically. But then you went on to set up a small business which had a long Runway to making profit. So maybe that makes sense, even if that's not how you were thinking at the time. You just invested a load in a kind of equity equivalent by starting a business.
- [16:36]
A
Yeah. The payoff from the investment banking world allowed me to buy that call option and it gave me the safety in order to do it. So I think I had a kind of hybrid capital structure, you could say. When it comes to your cash savings, making sure your hard earned money is working for you is important. But chasing competitive interest rates can mean dealing with a mountain of paperwork. Meet Raisin uk, the award winning online savings marketplace. Instead of the hassle of opening multiple bank accounts across different apps and providers to get a better interest rate, Raisin UK lets you compare, open and manage competitive savings accounts from over 40 FSCs, protected banks and building societies all through a single login. What's more, new customers can claim a hundred pound welcome bonus. Simply register for an account using the code July 100 and open and fund a fixed rate bond of one year or longer with a minimum £25,000 single deposit by 31 July 2026. Don't let your savings sit idly in a low interest high street account. Visit the link in the description and use the code July 100 new customers. Only terms apply.
- [17:56]
B
Okay, so we've started to see things in the round now. We've kind of merged our thinking about careers and investment portfolios and how they're related and should play off each other. And we've primarily focused on, well, how much risk should we take in our investment portfolio dependent on our career. But what about the other way around? You're thinking about your career and how to shape that. Are there any unexpected considerations there?
- [18:20]
A
I think there are and I think the bond analogy here is again useful because if you are in a kind of industry where there's a lot of job insecurity, you should demand a premium in order to accept that income. Because unless you get the compensation, why would you accept a job which is more insecure when you could be getting an equal amount of money for something which is more secure? So that's the idea of a credit spread. If you want to buy a high yield bond and take the greater credit risk, which is the risk of truncation of the cash flows, you should be compensated for that. And if you're not, don't buy the bond, don't get the job.
- [18:58]
B
But what's weird is it doesn't usually work like that, does it, if you're an actor. Actors in general get really low pay because lots of people want to be an actor, but they're not getting that credit spread.
- [19:09]
A
Yeah. I mean, acting is a weird one because they're effectively what you're banking on is your own talent and also a huge degree of luck being found by the right talent agent and finding the right roles. So I heard an interview with Hugh Bonneville, who's Lord of the Manor in Downton Abbey, if you don't recognise the name. But he was saying that when he was at acting school, there were loads of people better than him, more talented, but he was just lucky. He just got the right roles.
- [19:35]
B
He's cuddly, that's what he's got. You know, he's Mr. Brown in Paddington. I've met him actually. He was lovely.
- [19:42]
A
Oh, he was nice in real life. Was he? But if you do speak to actors, if you do know some actors who are early in their career, they often have alternatives in case it doesn't work out because they're realist. You need an income while you're doing all the difficult jobs, trying to get that big break.
- [19:59]
B
There's also the point that a lot of the people these days that go into those volatile creative industries are from wealthy backgrounds. You see that all the time. The working classes tended to be cut out from music and from movies and all of that, because it helps to have a fallback option because the most likely scenario is you won't make much money.
- [20:19]
A
Now, interestingly, I have spoken to a couple of musicians and one of them was a composer and that was fascinating because he was telling me that when he writes music, a lot of his stuff is kind of ambient music. And now there's AI. His job could potentially be replaced by an AI, which could generate a similar thing.
- [20:39]
B
It's happening, definitely happening right now. The big music labels are licensing their catalogue to AI music startups like Suno. But I don't know how we got onto this. But maybe there's an interesting point here, which is that all careers probably are subject to disruption, maybe now more so than ever, because AI could come for
- [21:01]
A
white collar work, and in many ways it already has, I think a lot of junior roles which were involved in research, those are no longer required because AI can do that so effectively. But that in turn means that there will be new jobs which come to the fore, which you could apply for and which you could train for. And that's another really important point, which is about pivots. So, for example, when I started pensioncraft, I just assumed that I could create a mailing list and people would be clamoring to sign up for it and I could charge them for that mailing list. Well, guess what? That didn't happen. So I had to be willing to pivot and generate many, many videos before people signed up for our investment community. And I think in a career you should also be willing to make that pivot. So maybe think of this as rolling over your bond portfolio. So if you've got something like a gilt ladder or a corporate bond ladder, when one matures, you've got to buy another one. And similarly, I think many of us in our careers nowadays end up in a career ladder where you trade up from one job to the next job. It's no longer the case that you just work in one job for the whole of your life, get a very nice defined benefit pension, and that's it. Nowadays we just have to think about what happens after this gig ends.
- [22:20]
B
And I liked your point. You Made at the start of this section around how if you're going to take a job and it's risky, volatile, and you have a higher chance of getting laid off, then you want the equivalent of a credit spread, you want a higher salary in return for that. And even if you're working in one of those jobs, I think, or any job, really, and a competitor comes in and says, well, come and work for me, they have got to offer you a significant premium over your current salary, I think, to take it, because you give up all your employment rights for the first two years in the UK of employment, you don't get full employment rights for two years. That might change with the legislation going through now. But also you might not like it, you might not enjoy working for that new employer. So I think that uncertainty has to be rewarded. People don't tend to move jobs unless they're getting a significant pay rise. Yeah.
- [23:11]
A
Whenever I speak to young people about their career, I always say this. Never feel any kind of loyalty to your employer because they'll never feel loyal to you. You should try and trade up if you possibly can, because that's usually when you make your biggest increases in salary.
- [23:25]
B
And if any other podcasts want to come and poach me, I will be willing to talk to you. I do feel loyalty. It's weird. We're built for loyalty, aren't we? You just have to kind of set it aside.
- [23:36]
A
Yeah. I think it depends, though. I think there's a big difference between working for a big company and working for a small company. I think when you work for a small company, it's much more family, like in the sense that you know each other and it's kind of friendly, or at least I hope it is. Whereas if you work for a big company, it's faceless. They don't really care about you. You're just part of a big machine.
- [23:57]
B
But that big machine might be giving you stock options, which is always nice. But there is a real divide, I think, between how people believe you should handle that kind of contingent compensation. Let's say you've got these stock options, they vest and now you own a load of Google stock. If you work for Google, there's a real question, isn't there? Some people believe you should sell it straight away and diversify. You're already concentrated enough in Google, they're your employer. Whereas others think, you know, Google's onto a good thing here. Why would you get rid of all this stock you've just been given?
- [24:30]
A
I've got to say, I kind of go for the diversify option. So the reason why I say that is you're already long the company if you're employed by them. So if you do want to diversify, well, you wouldn't go for the same company's exposure. And there's always a tendency to drink the Kool aid if you're working for a company. Of course you think your company is going to do really well in future, but the reality is that you don't know. And you really shouldn't bet your future on the future of the company. I'd diversify as soon as I could.
- [25:02]
B
Yeah, I think I probably would too, provided the tax implications are reasonable. But you might think, oh, this is just a problem faced by very lucky tech employees. But maybe not. I think lots of people have a tendency to overweight their portfolio towards the things they think they know best. So maybe it's doctors buying pharmaceutical stocks. We've mentioned that example in the past. Or maybe it's people working in property buying REITs and real estate companies.
- [25:31]
A
Yeah, I see that all the time. And I think people assume that the knowledge they've got from their industry feeds through into making good stock selections. Whereas in fact, you don't really have any particular insight, particularly when it comes to valuation. If anything, your judgment's going to be clouded by the standard narratives in your industry.
- [25:51]
B
But even if you were good at stock selection within your industry, you're just doubling down on the same risk, which is not necessarily smart. If you're going like leveraged on the exact same factor, exposure, you're going to really amplify your drawdowns when that sector
- [26:09]
A
has a downturn, which inevitably happens. It happens for every sector. So I think that's just another argument for diversifying, if you possibly can, away from the sector in which you work. Another way of looking at these stock options is that it's a little bit like something called a payik note or payment in kind note, where instead of being paid cash by the bond, you're paid more of the bond debt itself. So that's the way I see these kind of stock options. In some cases, all you're doing really is being given a piece of paper which cost the company little, but which potentially could have a big payout for you, but it also might not. So we always hear about the positive stories when it comes to these stock options when you work for a company. But I'm always reminded of the company I worked for, an investment bank, where a lot of these options became almost worthless because the share price tanked because of the global financial crisis. So given the choice, I just go for the cash. But that's not always the choice you're given. You have to kind of show willing. You have to pretend you're immensely bought into the narrative around your company and receiving stock options is the way to do that.
- [27:22]
B
And we should be clear that when we're comparing a career to a junk bond, that's not a negative. Right? The nicer way to say it's a high yield bond, like people invest in these things because they offer a greater return than sovereign bonds. But you should know that you're taking more risk and you should be rewarded for that risk. Now, just to wrap up, let's go back to that definition we talked about at the start, where your human capital is extremely valuable, particularly early in your career. But I guess as you progress through your life, what you're doing effectively is converting that human capital to real financial capital. And presumably then your job is getting slowly less important relative to your portfolio. And this distinction of whether your job is safe or risky eventually becomes a bit irrelevant. It's all about your portfolio in the run up to retirement.
- [28:15]
A
Yeah, I think that's right. And it's kind of like pull to par for a bond where as you approach the maturity date, you get more certainty about the outcome, but the upside just becomes much lower. So at that point, I think you should really think about other options. You should think, well, have I got enough now to retire? And it's not going to be a huge cost to you to do that, as it would be if you retired when you're 20, of course. And yet what I often see is that people actually become more wedded to the job later on and they have this one more year syndrome where they say, no, I'll just do it for one more year, I'll stick with it. It's what I know. I kind of enjoy it. Whereas really you should be thinking about what your next stage in life is. Of course, if you love your job, stick with it. But I think other choices are sometimes interesting for people.
- [29:02]
B
Yeah, you love your job, so maybe you don't have one more year syndrome, but you do have one more bond syndrome. You're always tempted to add another bond to the pile.
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A
You've probably heard I'm a fan of bonds. Well, many of our investors in our community ask questions about bonds and it's a great resource for that kind of knowledge, where you may not find that elsewhere. If you want to learn more about joining our community, just go to pensioncraft.com/membership.
- [29:34]
B
Okay, today's dumb question of the week. Do I need income protection insurance? Now, right at the start here we have to say, obviously this is not financial advice, we never give financial advice. But let's look at this question. Now we've talked a lot about how you might see your career as somewhat bond like. And there's another aspect in which it might be like a bond which is that sometimes they go into default. And here it could be because you get ill or an accident causes you not to be able to work and your income suddenly dries up. Now the solution some people look to there is insurance.
- [30:09]
A
Now for some people this provides real peace of mind. For example, if you're the primary breadwinner for a household, well, there's a lot of concentration risk for that household in you. So if you did get ill or if you had an accident which meant you couldn't work anymore, you, well, you would want some form of protection such that the family's fortunes wouldn't suddenly take a dive.
- [30:32]
B
Now the way these insurance policies typically work is that in the event that illness prevents you from working, they'll provide regular payments that replace part of your income, maybe somewhere between 50 to 65%, and that will usually continue for a set period of time, maybe until you start working again or until you retire. Or maybe there's a hard cap like the end of the policy term. But there are some nuances to be aware of which shape both how much the insurance policy might cost you in terms of premiums and the payments you will receive. So there's often this kind of deferred period, like a waiting period after you get ill before the payments start rolling in. And you need to be able to bridge that gap if the terms of your contract with your employer aren't giving you some kind of payment in the meantime.
- [31:21]
A
And I didn't realise this, but it's not the same thing as critical illness insurance because what you get with that is a one off lump sum.
- [31:28]
B
Yeah. And that's usually very tied to specific conditions. Whereas income protection can be a bit more broad, but it can also be tailored in terms of the level of COVID So the most expensive one is usually to insure against your own occupation, which means that you know you can't do the job you're currently doing. But at the other extreme you could be insured only on the basis of any occupation. So that's just if you're too ill to do any kind of work, then the insurance policy kicks in, but then you're likely to get into an argument with your insurer where they say, well, you could do this job, surely. So it's much harder, I think, to make a successful claim.
- [32:07]
A
The reason why I never considered this was in the investment banking world, people always assumed you could just walk into another role. It was just assumed that you wouldn't get ill and that you'd be able to just find a new role.
- [32:19]
B
Maybe if you looked at the fine print of your contract, you might have had this insurance without knowing about it. Roming. A lot of people do. And that's one thing to check before you go and take out your own policy.
- [32:27]
A
Well, that's interesting. I didn't know that. So some jobs offer it as part of the role, is that right?
- [32:32]
B
Yeah, I know that some employers have it as a standard benefit, but we
- [32:35]
A
were talking previously about the credit spread, the additional income you receive for the hazards of your job. Presumably they'll know the insurance company, what the hazards are for your industry. And if you're working on an oil rig, then the chance of injury, I suspect, is much higher than if you're working at an investment bank.
- [32:54]
B
What was the biggest risk at the investment bank? Like you're bolstering a stapler at your head or what is it? Severe paper cuts?
- [33:03]
A
There was very little paper that crossed the desk.
- [33:05]
B
No, it's a paper moving business, not a paper storage business. Robyn. So you told me before, if you're moving all that paper, industrial grade paper cuts. But to be serious for a second, when might income protection be more likely to be a good idea? Like you said before, if you're the sole breadwinner or the main breadwinner and people are reliant on your salary to live, if you get ill, it could all go wrong. Also, if your employer is not offering enhanced benefits and they just do statutory sick pay in the uk, that's really low and not going to last for very long. Another thing is, what's your financial position? If you've got big savings, like huge savings, you're kind of self insured in a way, so maybe an insurance policy is less necessary. There's also, I guess, a distinction between whether you're self employed or an employee. How big a safety net is there? If you're self employed, presumably there's no safety net.
- [33:55]
A
At an obvious point, I suspect that the premium you pay is going to be proportional to your salary. So it is a little bit like tax in that sense. But look, the outcome that you really want to avoid is getting the insurance in the first place. And then when it comes time to make a claim, you realise to your horror that that your particular circumstances aren't covered by the policy. So it's really important first of all to shop around for the best premium so you don't pay more than you have to. But secondly, that you're really aware of what's in the fine print and what's covered and what's not.
- [34:29]
B
Yeah. And that you outline all your pre existing conditions and all that stuff before you sign on the dotted line. Because if there's a way to wiggle out of paying you thousands of pounds per month for years on end, they'll find it.
- [34:41]
A
Now I'm always telling people that they should think of things in the round they should consider buy to let properties. They should consider their pensions as well as their investments when they're thinking about overall risk. I think this is one more thing to throw into that pot in terms of overall safety, the income that you earn, and whether you've got these policies protecting you in the case of bad outcomes.
- [35:06]
B
Thank you for joining us for Many Happy Returns. Keep sending us your questions, no matter how dumb, @mhrnsioncraft.com and do remember to
- [35:15]
A
check out pensioncraft.com for all the information about our membership courses and investment coaching options.
- [35:21]
B
Many Happy Returns is a Pensioncraft production co hosted and executive produced by Romin Nikiza and Michael Pugh. This podcast is for informational and entertainment purposes and is not financial advice. We do not provide recommendations or endorse any decision to buy, sell or hold any security. We cannot be held responsible for any actions listeners may take and investors are encouraged to seek independent financial advice.