[Terr_]

Tangentially: I think a lot of people forget/underestimate the degree to which the industries behind their job are ones that they need to diversify away-from.

In other words, a programmer should invest a bit more away from software than average, a realtor should invest a bit more away from properties than average, a coal-miner should invest a bit more away from energy and mining, etc.

If you have your job, you can weather a stock-downturn, and if investments are solid, you can weather a period of unemployment by liquidating some, but if both hit trouble simultaneously then that's much much worse.

[mancerayder]

That makes sense, and it probably should be said more. It's probably just because we invest in what we know. If you're a real estate broker, you have an interest in properties, you think about it all the time, so you'll buy your own properties, or invest perhaps in builder stocks. If you're in tech, well, I don't need to say it because that's most of us. If you work in the energy sector, I imagine you know a thing or two about transport and esoterica of speculative miners or drillers, etc.

[Terr_]

> It's probably just because we invest in what we know.

I'm mostly thinking of folks that will passively invest in a big broad index fund, and then assume they've reached the end in terms of balancing industry/sector risk.

[parpfish]

it's also why you shouldn't hold equity in your own company any longer than necessary (e.g., an apple employee shouldn't tie up the majority of their networth in apple stock).

[Terr_]

My go-to example is always Enron, and the impact on employees whose retirement funds were in their own too-awesome-to-fail employer.

Oh, sure, it's way worse because of the fraud-angle, but even if it had just been a more honest kind of mania, the arrangement was reckless and bad.

[parpfish]

stock options/rsus are a great example of some sort of cognitive bias (maybe it's the endowment effect?).

give somebody $1000 worth of shares in their company, and a lot of folks will hang on to them. but if you gave them $1000 cash to invest, they almost certainly would not choose to dump all of that money into their own company.

[Terr_]

Tax-law also makes is sticky: StockX -> Money -> StockY means a portion of is lost as capital-gains tax on the money step. StockY might be better... but is it something that will perform better-enough to be worth the switching costs? (At this point logarithms and spreadsheets start getting involved.)

In contrast, starting with Money and then choosing between StockX or StockY is an easier choice.