Overwhelmed by student debt and underwhelmed by your career choices? It’s normal to feel anxious. The economy is undergoing a radical transformation as technology changes the nature of work and some jobs disappear. To make matters more complicated, most industries are dominated by a handful of superstar, productive firms that shower their employees with most of the economy’s wage gains. If you work at these firms, you get more raises, learn useful skills, and get a stamp of approval that offers credibility throughout your career. If you don’t, your career and wages could stagnate.
Picking the right path has never felt more crucial to lifelong success. But fear not — you can make the right choice by applying some basic risk management tools to your most valuable asset: your future earnings.
The simplest and most effective risk management tool is setting clear goals. It can also be the hardest part because most people don’t know what they want. I still marvel at people I knew in college who at 22 knew they wanted to be an equity research analyst, have three children, and live in the suburbs. Many of them got all of these things. I don’t know if they are happy or not. But no doubt, possessing such clear goals increased the odds of getting what they wanted.
But most of us don’t have such clarity at 22, or even 52. And that’s fine. One way to find some answers is to think long and hard about what you want out of your career, rather than specific milestones and job titles.
Some say chase your passion; others say you need to grow up, get a sensible job, and develop fun hobbies. I tend to lean toward the passion camp with a big dose of realism. If your passion is fiction writing, there are ways to fulfill your passion and not be a novelist. What it is about writing that you love: Is it the process? Is it the creativity? Is it working alone? There may be paths that offer those things without taking on the long odds of writing novels — marketing, public relations, media, or teaching.
Consider the risks you face around your goals. Generally, there are two kinds of risk you need to manage: idiosyncratic risk (risk that may be unique to you or a specific job) and systematic risk (risk that applies to the whole economy).
An example of idiosyncratic risk is if you work at a company that goes out of business because of bad management. Or maybe you quit because it’s a bad culture fit. You can manage this risk the same way people do in investing — by diversifying your skills and job options.
An example of systematic risk is if you lose your job (and paycheck) if the economy goes into recession. This kind of risk can be more damaging because you may lose your job at the worst time: when the stock market is down, there’s more unemployment, and it’s harder to find a new job.
The good news is people who face more systematic risk tend to get paid more. This is one reason why jobs in finance pay so much — finance firms pay big bonuses when times are good and are quick to lay people off when times are bad.
Is it worth taking on more systematic risk for more pay? That’s a personal question based on your preferences and lifestyle. Some people prefer higher job stability to higher pay, the way many investors forgo big gains for a safer portfolio. Consider what risk you can tolerate.
These kinds of risk have always existed, but idiosyncratic and systematic risk have taken on a new dimension in the modern economy. There’s the systematic risk your job will disappear because it can be done by a machine. And there’s the idiosyncratic risk you’ll end up at a company that can’t compete. How you deal with these risks requires a more complex strategy.
Picking Your First Job
In his book How to Win in a Winner-Take-All World, New York Times reporter Neil Irwin argues that working for a particular kind of company is like choosing a type of stock. What’s right for you depends on your risk tolerance, your income needs, and what you can get. Picking one of these types of firms (or if they pick you) is only the first step, and like any investment strategy you also need a plan to manage risk.
Irwin argues superstar firms are the job equivalent of growth stocks — they dominate their industries and appear poised for more growth in the future. If you are lucky enough to land your first job at a superstar company (like Google, Walmart, or Gagosian), it can be a great start to your career.
But it would be a mistake to think it’s a golden ticket. These kinds of jobs are not right for everyone. There is less upside — the best time to join Google was its early days that are long gone. Superstars have already become large companies, and in order to succeed you must navigate their bureaucracy and politics and avoid becoming pigeon-holed in the same job function. Big superstar firms have lots of leverage over their employees, since they often have a culture where you are supposed to be grateful to work there. That means it can be harder to gain recognition, be entrepreneurial, and move forward within the firm. Also, just because a company is large and successful does not mean you don’t face some idiosyncratic risk. A superstar firm today may not be one tomorrow.
Another option is going to a start-up, which offers upsides if it is the next Google. Odds are it won’t be, but in a smaller firm you are less boxed into a certain role, have more responsibility, and learn new skills. Downsides include tremendous idiosyncratic risk — the odds are decent the start-up will fail. There’s also a chance it will be poorly run and you’ll learn fewer transferable skills and more bad habits. There is also the risk of years in start-ups where you are paid mostly in worthless stock options. Start-ups also pose more systematic risk because start-ups need external financing that is dependent on the business cycle.
A third option is what Irwin likens to value stocks: companies that are under-valued, perhaps past their heyday, and limping along in the middle of the pack (or even on their way down). The advantage of getting hired at these companies is they are more likely to give a young, ambitious person short on credentials a chance. You also learn a lot when a company is doing things wrong; knowing what does not work can be equally valuable. But there are odds you get lost in their bureaucracy since older companies can be more rigid and resistant to change. You also face a decent chance of losing your job.
If you had a crystal ball, the ideal career is to start at what will be a successful start-up and stick with it until it pays off. Then go on to another. But just like investing in the stock market, we don’t know the future of any one company, so you must take a chance. Your best bet is to go with the company that feels like the best fit, where you feel you’ll learn the most, and find good mentors. Odds are this first job won’t be your last, and you’ll work at all different kinds of firms over your lifetime. But getting the right start provides a good foundation to take the right risks and manage whatever a changing economy brings.
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