What should I do about employer / industry risk in tech?

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spae
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What should I do about employer / industry risk in tech?

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Tyler Aspect
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Re: What should I do about employer / industry risk in tech?

Post by Tyler Aspect »

Using 3x leveraged ETFs is not a part of the Bogleheads investment program. Stock options are not necessary. It is better just to accept a potential loss, since risk itself is a driver of returns.

I have previously mentioned the idea of doubling the amount of emergency cash from 6 months to 1 year in order to prepare for a possible economic down-turn.

Some other ways of risk reduction would be to sell off 3x leveraged ETFs, and to increase your bond holding from 10% to 20%. These would be the conventional adjustments.
Past result does not predict future performance. Mentioned investments may lose money. Contents are presented "AS IS" and any implied suitability for a particular purpose are disclaimed.
HEDGEFUNDIE
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Re: What should I do about employer / industry risk in tech?

Post by HEDGEFUNDIE »

Welcome. Sounds like you and I are in the same boat. I was thinking along similar lines as you a few months ago (viewtopic.php?t=275899)

Serious question: how much would it cost to buy puts to hedge against your exposure to tech?

For the rest of your portfolio, here is what I would hold, crafted to withstand a tech crash:

40% VMNVX (Global min vol), or if you prefer passive 20% USMV + 20% EFAV
20% Utilities
20% Emerging markets
20% EDV
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Watty
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Re: What should I do about employer / industry risk in tech?

Post by Watty »

spae wrote: Tue Oct 08, 2019 10:29 pm The boring part of my portfolio is basically 90/10 VTWAX (Vanguard Total World) / VTBLX (Vanguard Total Bond) ....

I'll be very comfortable in a decade.
Having your retirement money in 90% stocks might normally be reasonable for someone your age but you are in a very atypical situation. If you might retire in 10 years then you might want to have your retirement money invested more like an older person who will retire in 2030. The Vanguard 2030 target date fund is about 75% stocks and 25% bonds so you might want to use that asset allocation for your retirement money.

https://investor.vanguard.com/mutual-fu ... file/VTHRX

I would also question if all your money is actually retirement money if you do not already have a paid off house. This is reading WAY in between the lines but I would assume that you moved from an area with a reasonable cost of living to an area like the Bay Area which has a very high cost of living.

If that is correct then after a tech crash, or if you retire in ten years, I would assume that your fallback plan is to move somewhere less expensive and eventually buy a house there. Or you might also eventually buy a house for cash in an expensive area.

If something like that is true then part of your $1.4 million is not retirement money since it might be needed for eventually buying a house.

There are a lot of "IFs and assumptions" that you might clarify but if something like that is true then you should consider that future house money to be seperate virtual portfolio and invest it with an asset allocation which is appropriate for when you might need that money. You can look at the lifestrategy funds to get an ideal of what asset allocation you should use for that.

https://investor.vanguard.com/mutual-fu ... estrategy/#/
spae wrote: Tue Oct 08, 2019 10:29 pm I'm considering the idea of buying puts on tech stocks as a hedge against a tech crash but I'd like to know if there's something simpler I should consider before I start buying options.
I am not really up to speed on it but that might be something to look at for RSUs or company stock options that you cannot sell yet, if that is allowed.

If you are talking about a more general protection of your portfolio then what you are suggesting is called "portfolio insurance" and you can research that. My impression is that it is mostly a fad that comes back with new variations every few years. The big problem is that is costs money to buy the options and in theory at least whoever is selling you the options is pricing them high enough(or more likely higher) so that the cost covers the risk that you are trying to protect against. Be very skeptical about any portfolio insurance strategies that you read about. People have tried this for years so be sure to research the history of portfolio insurance so your can learn from other people's mistakes.
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spae
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Re: What should I do about employer / industry risk in tech?

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HEDGEFUNDIE
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Re: What should I do about employer / industry risk in tech?

Post by HEDGEFUNDIE »

spae wrote: Wed Oct 09, 2019 12:02 am
HF, I hadn't seen that thread. Thanks for the pointer. Are you holding that or is this something you're considering doing? I doubt I'll move to something that far from what I currently hold, but it does give me something to think about.
I am holding most of what I recommended. The only pieces I don’t have are the min vol funds. When I get to 7 figures investable assets I will definitely be adding them.
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Re: What should I do about employer / industry risk in tech?

Post by KyleAAA »

Just hold more bonds. Your savings rate is going to swamp your portfolio returns anyway.
BillyK
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Re: What should I do about employer / industry risk in tech?

Post by BillyK »

The tech sector is broad with many financially strong companies. If tech takes a downturn, they are not all going to behave the same. IBM has weathered more than a few storms since its inception in the 1880s. Tech companies such as Microsoft, Apple and other have large amounts of cash and will weather a market crash better than most companies. There are many strong and resilient companies within tech. Likely if tech crashes, it will also be a broad global crash across many sectors at once such as in 2008.

If you are worried about taking specific precautions and actions for a tech market crash, as other posters have mentioned it may be time to increase the fixed income percentage of your portfolio. You can't get much simpler than that.
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Watty
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Re: What should I do about employer / industry risk in tech?

Post by Watty »

spae wrote: Wed Oct 09, 2019 12:02 am I happen to be in the bay area but my team is remote and I could easily move anywhere in the U.S. and take no pay cut in the short term, a small hit in the longer term since it would make getting the equivalent raises difficult, but the delta in would probably be less than the difference in cost of living. My partner also has a portable job in tech.

We've mulled over the idea of moving somewhere cheap and buying a house, the last time we looked there was a house in a perfect location in a city we love for $150k. We'd almost certainly make a move like that if we retired. We haven't made the move yet because, while our current jobs are portable, they're not stable, and we'd have a hard time finding lucrative work from a smaller city if either of us lost our job.
You also have to be concerned about jobs getting harder to get as you get older.

I retired out of corporate IT in my late 50s so it can be done but I also saw a lot of people run into career troubles in their 40s and 50s when they could not find a new IT job when they needed one. This can really be a big problem for older worker in a recession when few companies are hiring. Some of this is plain age discrimination but a larger part is that even though an older worker can learn new skills someone with the same new skills that is just a few years out of college will be a lot cheaper to hire than someone with 25 years experience when only the last five years are relevant.

One other way to look at your situation is that you have a lot of risk in your job and career. It might be good to offset that some by having a more conservative portfolio.
spae wrote: Wed Oct 09, 2019 12:02 am ....if we moved to a city where we can get a house in a great location for $150k.
I'm familiar with several low to medium cost of living areas and while you can still buy a house for $150K in some places that may not be a realistic home that you would actually want to retire in.

The problem is that even though it is in a low cost of living area the costs of things like furnaces, lumber, etc cost about the same anywhere so it would be hard build a nice home for $150k.

If I was in your situation I would plan on spending something like $300K for a nice home if you eventually move and I would keep that money is a seperate house fund investing account.
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spae
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Re: What should I do about employer / industry risk in tech?

Post by spae »

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Re: What should I do about employer / industry risk in tech?

Post by Jack FFR1846 »

Your savings are above average for your age. I didn't have that kind of money until my mid 50's and didn't "really" start saving until then. I'm at about 2.5 now.

Continue with the "total" funds you're in. They mitigate issues in a company, an industry, a dip. Stay the course.

Some tech is in trouble right now. Hardware that touches China is in trouble. I could go on for pages on what is being done, but don't want to go down a rabbit hole. Staying out of tech stocks and in the "totals" is the way to avoid risk. Stick with it.
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Dottie57
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Re: What should I do about employer / industry risk in tech?

Post by Dottie57 »

Just a note. Apple and Microsoft pay competitive wages to programmers since they are able to hire people they want.
StandingRock
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Re: What should I do about employer / industry risk in tech?

Post by StandingRock »

If you're worried about losing your job just spend some time networking and improving your skills. If you're any good you'll be able to find another job. If you're way overpaid, just ride the wave and keep stashing. There's no magic bullet that will guarantee a straight line path through life for you.
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spae
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Re: What should I do about employer / industry risk in tech?

Post by spae »

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milktoast
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Re: What should I do about employer / industry risk in tech?

Post by milktoast »

I've been around for a few tech crashes. This is my advice:
- don't hold stock in your own employer. Don't do it. Don't. Don't hold stock in your own employer.
- save rather than grow your lifestyle
- be polite and helpful to everyone you work with. For people you meet in the top 10% of their area (eng, product mgmt, sales, management, etc.) connect on linkin and actually connect in person. If one of you move on, try to have coffee at least once every 18 months.

You'll be fine.
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Re: What should I do about employer / industry risk in tech?

Post by Dottie57 »

spae wrote: Wed Oct 09, 2019 10:47 am
Dottie57 wrote: Wed Oct 09, 2019 10:21 am Just a note. Apple and Microsoft pay competitive wages to programmers since they are able to hire people they want.
This is simply not true. At L63 senior, Microsoft median is about $225k/yr. This is a very good new grad offer at FB or Google or poor compensation for a new grad one or two years in. Someone who's "HiPo" at Microsoft, top 2% at L63 is looking at $350k/yr. The analogous out-of-band stock grants at FB for the top 2%, with stock price increases, would put someone at $1m/yr after a few years. Without historical stock price increases, that number would be well under $1m but still double what you'd see at Microsoft.

Microsoft has been hemorrhaging people for years since they're not competitive until you make partner or at least L67 and it's a good approximation to say that no one makes partner. If you look at hot new hires, like deep learning PhDs, they land approximately zero percent of hires that have offers at competitive companies.

Apple is better but still not in the same league as the companies I'm talking about for most people.
The results of Apple and MS say different.
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Re: What should I do about employer / industry risk in tech?

Post by HEDGEFUNDIE »

OP, what you're actually asking is about is the correlation of various asset classes to tech. Here you go:


Image


Depending on which tech company you are at, you're either in the Technology or Communications Services sector.

Total Stock Market is the most correlated to tech. You can either bury your head in the sand about that, as many of the three-funders here are apt to do, or you can actually do something about it. I applaud you for considering the second path.
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spae
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Re: What should I do about employer / industry risk in tech?

Post by spae »

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spae
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Re: What should I do about employer / industry risk in tech?

Post by spae »

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Dottie57
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Re: What should I do about employer / industry risk in tech?

Post by Dottie57 »

spae wrote: Wed Oct 09, 2019 2:03 pm
Dottie57 wrote: Wed Oct 09, 2019 12:45 pm The results of Apple and MS say different.
Have you somehow confused this thread about employee compensation in tech with another thread about the financial results of tech companies? I don't understand how this response could make sense otherwise.
Well if they don’t have excellent employees who are content with their compensation, They wouldn’t be doing so well. Employees leave. If they leave someone else takes their place - hence competitive.
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spae
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Re: What should I do about employer / industry risk in tech?

Post by spae »

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vrr106
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Re: What should I do about employer / industry risk in tech?

Post by vrr106 »

spae wrote: Wed Oct 09, 2019 2:20 pm
HEDGEFUNDIE wrote: Wed Oct 09, 2019 12:49 pm Total Stock Market is the most correlated to tech.
Thanks for pulling up these numbers. I suspected the correlation would be high simply from looking at what total stock market holds, but I didn't realize it's that high. The top N holdings are a list of major tech employers. Many mid-sized tech companies, like my current employer, populate the lower entries of the list. Every single tech company I know of that pays competitive liquid compensation is in the total stock market index, which is exactly the opposite of what I want in my portfolio.

Kyle's comments plus yours have convinced me that I should probably switch the assets that I'm holding in tax advantaged accounts to a bond allocation while I mull over what to do in my taxable accounts, where making changes will have tax consequences.
I understand the need to try and hedge since your current employers are in tech/healthcare but unless you are over exposed to your own company's stock, why would you even factor in where you are employed in your investment decision? If TSM is over weight in tech sector and tech starts to underperform, wouldn't the TSM sector mix change naturally over time to account for that?
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spae
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Re: What should I do about employer / industry risk in tech?

Post by spae »

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Re: What should I do about employer / industry risk in tech?

Post by HawkeyePierce »

I'm in a similar boat (high comp tech) and I've been strongly considering something along the lines of HF's portfolio.

30% NTSX (90/60 S&P500/Treasury ladder)
10% US small cap value
10% utilities
10% ex-US small cap (or possibly ISCF, ex-US small cap multifactor)
10% Emerging markets stock
10% Emerging markets govt bond
10% gold
10% EDV

I have not moved to this though. Still thinking it through.
vrr106
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Re: What should I do about employer / industry risk in tech?

Post by vrr106 »

spae wrote: Wed Oct 09, 2019 3:44 pm
Yes, but it will change after wiping out a significant fraction of my savings at the same time I'm on longer able to find lucrative employment.
I am in a similar situation - tech company, compensation well above average for a similar role in a non tech company etc. However, I don't view this as a complete outlier that needs a hedge - at least not anything as risky as shorting tech stocks or options. I'm in my 40s so I went through the dotcom bust very early in my career with a company whose stock went from $10 to $500 and then to $0.50, then had a period of consolidation with a lower paying although stable job and now back with a higher paying company. But I was fortunate to keep funding my 401ks and later my taxable accounts with index funds. I personally don't see the need to aggressively hedge against unvested RSUs and a high salary by looking for investments that are on the opposite spectrum, I'd rather treat the variation as the cost of doing business in tech. When RSUs vest and bonuses get paid out, I put them in indexes.
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spae
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Re: What should I do about employer / industry risk in tech?

Post by spae »

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Wannaretireearly
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Re: What should I do about employer / industry risk in tech?

Post by Wannaretireearly »

Maybe pick up some skills in related areas. Product Management, presentations, etc.
When push comes to shove, employers need 'all rounders' not just tech/gear heads.
As you mention very well, average eng groups with stellar biz models succeed. I.e. think/develop skills on the biz/product mgmt side, while your making the big coding bucks.

My 2 cents. Would you mind sharing the 20 to 30 companies outside FAANG who pay top dollar? I can guess a few, but would be good to know others.

I'm in an IT leadership role, so this info would be more useful for my Engineer wife. ( I'm always telling her she has much better prospects than me - proven by the recruiters chasing her ;)
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anoop
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Re: What should I do about employer / industry risk in tech?

Post by anoop »

@spae, you are spot on in your analysis with respect to jobs/compensation recovering after a bubble. Thanks also for a lot of compensation data. I kind of had an idea of what it was like, but you have put actual numbers to everything.
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Re: What should I do about employer / industry risk in tech?

Post by AlohaJoe »

spae wrote: Tue Oct 08, 2019 10:29 pm my income is mid six figures, and my annual expenses are mid five figures.
You are making $500,000 a year but spending $50,000 a year. You already have $1.4 million and no debt. Why will it take you a decade to get comfortable? In 12 months you'll have enough money to retire forever. The year after that you'll have enough money to retire forever and buy a brand new $300,000 house before you retire. The year after that....
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Re: What should I do about employer / industry risk in tech?

Post by Valuethinker »

BillyK wrote: Wed Oct 09, 2019 12:57 am The tech sector is broad with many financially strong companies. If tech takes a downturn, they are not all going to behave the same. IBM has weathered more than a few storms since its inception in the 1880s. Tech companies such as Microsoft, Apple and other have large amounts of cash and will weather a market crash better than most companies. There are many strong and resilient companies within tech. Likely if tech crashes, it will also be a broad global crash across many sectors at once such as in 2008.

If you are worried about taking specific precautions and actions for a tech market crash, as other posters have mentioned it may be time to increase the fixed income percentage of your portfolio. You can't get much simpler than that.
Tech sector downturns are brutal.

The companies may survive but a lot of the employees don't.

IBM appears to have a deliberate policy to manage out over 50 year olds via Performsnce Management HR systems. I have several friends who were caught out by this. In the USA there have been lawsuits (generally settled out of court with paper sealed). Mother Jones had an expose. All these employees were rated as above a average employees.

Tech is like Financial Services. Over 50 is rare except in top management.
international001
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Re: What should I do about employer / industry risk in tech?

Post by international001 »

Is shorting on a tech ETF (like QQQ) an option? Perhaps 5 years time frame?
ARoseByAnyOtherName
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Re: What should I do about employer / industry risk in tech?

Post by ARoseByAnyOtherName »

spae wrote: Wed Oct 09, 2019 3:03 pm The big success they're leveraging fundamentally comes from Windows, another successful business that's technically poor. The other major line of business they're leveraging for cloud is office, another business success that was technically unimpressive compared to the competition. If you want to argue that this shows that they don't need to pay competitively, that may be true, but also completely irrelevant to this discussion.

There's a lot of magical thinking in this thread.
The only magical thinking in this thread is you thinking that Windows and O365 is technically “poor”, either compared to the competition or in and of itself. Can you educate us on why you believe this?
vrr106
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Re: What should I do about employer / industry risk in tech?

Post by vrr106 »

spae wrote: Thu Oct 10, 2019 1:03 am I don't see why I should expect the market for my skills to come back. It might, but it might not.
This may be totally unsolicited advice not germane to the investment discussion, but in hindsight what worked for me was to grow my career on a management track as opposed to a technical track. Regardless of market performance, one needs to stay relevant and that's what worked for me and that was my hedge.
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Re: What should I do about employer / industry risk in tech?

Post by aristotelian »

I would overweight Low Volatility and Value. I am partial to Low Vol but possibly as a result of recency bias.
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spae
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Re: What should I do about employer / industry risk in tech?

Post by spae »

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spae
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Re: What should I do about employer / industry risk in tech?

Post by spae »

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HEDGEFUNDIE
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Re: What should I do about employer / industry risk in tech?

Post by HEDGEFUNDIE »

spae wrote: Thu Oct 10, 2019 5:48 pm
HEDGEFUNDIE wrote: Wed Oct 09, 2019 12:49 pm OP, what you're actually asking is about is the correlation of various asset classes to tech. Here you go:
I think should be more concerned about annual correlations than daily correlations for my use case, what do you think? This is from Jan 1997 to Dec 2018.

https://imgur.com/1vnlJtV

Relative to the daily, bonds are more strongly negatively correlated, especially treasuries. TSM no longer has the highest correlation, although it is high. Real estate and consumer staples have lower correlations, 0.09 for both.
I prefer daily correlations because:

1. There are more data points
2. Psychologically we experience the market in day-to-day increments. So we also react on a daily basis.
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spae
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Re: What should I do about employer / industry risk in tech?

Post by spae »

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