Why LGBT Couples Need to Diversify Assets

Many LGBT couples live in expensive coastal cities such as Manhattan with heavy real estate exposure or jobs offering company stock. Both members of couple need to coordinate to manage the risk of this exposure.

When thinking about your investments, it is important to consider the breakdown of your financial assets. If you have a huge percentage of your assets tied up in company stock, in one particular sector of the economy, or if you have a large amount of your wealth tied up in the value of your home, you may be subject to the risks of over-exposure. If the market goes down dramatically in the field in which you have a plurality or majority of your assets, this could be very detrimental to your long-term financial health. That is why it is important to diversify your financial portfolio. Diversification is a fancy way of saying that should put all your financial “eggs” in one basket. It is important to have a variety of types of financial assets in your portfolio.

Diversification is especially important for the LGBT community. Many cities with large LGBT communities are very expensive to live in, and therefore individuals have a great deal of their net worth tied up in real estate. Furthermore, many LGBT executives and employees have a great amount of their net worth tied in a particular companies stock. This can be a dangerous proposition, as you could be overexposed to risk if your companies stock becomes volatile and goes down in value.

Company Stock and Investing in Your Job Sector
Many executives feel a strong emotional connection to their companies and believe in the long-term success of their company stock. This belief, along with equity compensation packages, motivates executives to actively growth their companies. However, this emotional connection can also be detrimental if it causes an executive to hold an excessive amount of company stock without considering their overall portfolio risk level and tax implications of stock options and grants.

Even those below executive level often feel most comfortable putting a disproportionate amount of their investments in the job sector they work in. For example, someone working at a large financial company may invest primarily in financial companies, while a biomedical engineer might put their money into medical stocks. This would be a mistake, especially if you also receive company stock options.

Need to Diversify
The above advice can be summarized with a simple term-diversification. This means that one should have assets in a variety of different investment vehicles, from stocks, and bonds to real estate, in many different companies and sectors of the economy. The dangers of over-exposure to one aspect of the economy can be significant. A recent historical example of this was during the 2008 economic recession. For many people, real estate is their primary investment. When real estate values went down dramatically at this time, many individuals’ investment portfolios took a dramatic turn for the worst. Through diversification, one can most effectively reach their long-term investment goals while also minimizing risk.

Tags: LGBT Financial Advisory, Company stock and Gay Financial Advisor