STEVE INSKEEP, host:
Now that the stock market seems to have recovered some of its previous poise, you may be wondering what to do with whatever money you have left. To get some advice, we've brought back Jonathan Clements. He is a former personal finance columnist for The Wall Street Journal. Now he works for the giant bank Citicorp. And he has a new book out on personal finance called "The Little Book of Main Street Money." Mr. Clements, welcome back.
Mr. JONATHAN CLEMENTS (Author): It's great to be with you, Steve.
INSKEEP: I have to ask if Citigroup or Citicorp hired you because they realized that they themselves needed some financial advice.
Mr. CLEMENTS: Oh, Steve that hurts, that really hurts.
(Soundbite of laughter)
INSKEEP: First, you get several billion dollars from the government and then you - no, no, no. That's not the kind of advice you're giving here. You said Main Street money. This is not about Wall Street money. It's about Main Street money.
Mr. CLEMENTS: And let's face it. I mean, everybody could do with a little financial advice these days.
INSKEEP: Well, we've been interested to read that you don't seem to like a lot of the financial advice that is commonly given to the ordinary investor.
Mr. CLEMENTS: Well, I think one of the big problems out there is that a lot of financial advice is really very narrowly focused on stocks, bonds and mutual funds. And, in fact, if people want to manage their money properly, they need to look at their entire financial life. And that means considering things like their debts, their real estate, and maybe most important, the value of their human capital, which is their ability to pull in a paycheck. Getting that regular paycheck for a lot of people is sort of like getting interest from a bond - so that, you know, if you're in your early 20s, you're just entering the workforce, you're looking at 40 years of regular income from your human capital, from this big bond that you own.
And if you're going to diversify that, one of the things you might want to do is invest pretty heavily in the stock market. You've already got a regular income. Hey, you know, you don't need to have so much in bonds and CDs.
INSKEEP: Although, of course, this is an era when suddenly, people cannot feel that confident that they will have a regular income. Even a job with security doesn't really have job security.
Mr. CLEMENTS: And that's why you need to think about your human capital when you decide how to build your portfolio. I mean, if you have a job where your income isn't predictable - let's say you're an actress who works sporadically. Let's say you're a salesman who's on commission...
INSKEEP: Or a banker who could be fired by the government at any moment, just to mention a possibility there - not to get too deep into...
Mr. CLEMENTS: Steve, you're on a roll here.
INSKEEP: I'm sorry. I'm sorry. It's just too easy a target. It's really not fair. But go on, Jonathan, please.
Mr. CLEMENTS: So if your income is not quite so predictable, clearly, you'd want to be more conservative in your investment mix. You also want to think about what your job is. I mean, let's say that you are working in the media, for instance.
Mr. CLEMENTS: Ah.
INSKEEP: There's an insecure job for you.
Mr. CLEMENTS: Yeah. Probably you don't want to take your investment portfolio and invest it heavily in media stocks. And, in fact, as you build your portfolio, you might even want to exclude media stocks from it because if you end up out of a job, you don't also want to see your portfolio heading towards zero at the same time because you invested heavily in media stocks.
INSKEEP: Oh, now that's an interesting point because lots of people get stock options in the companies that they're working for. You're saying, maybe you want to get rid of that and put your money somewhere else so you don't lose your job and your portfolio at the same time.
Mr. CLEMENTS: That would be an excellent idea. This comes up in all kinds of different ways. People should look at their finances and see are they really fully, properly diversified across their entire financial lives.
INSKEEP: How much does somebody's personality affect the financial decision they make?
Mr. CLEMENTS: That's a good question. I think, more often than personality, it's really background. I mean, if you look at how people manage their money, a lot of what they do is driven by what they learned as kids. I mean, if you're a parent, what you do with your finances is going to heavily influence your kids - the things you say around the dining room table, the things you complain about.
I'll give you an example. In my family, we have one big, compelling story, the story of my grandfather - my mother's father. He inherited what today would be millions of, millions of dollars, as did his siblings. And all of them blew it. His siblings blew the money on wine, women, and song, and my grandfather blew it on farming. So it took him longer to go through the money, but it still ended up in the same place, which was somewhere else. And we all grew up with this story of how the family fortune had been lost.
And as a consequence of this, my two brothers, my sister and I are all incredibly careful with money. And I would argue that if you talk to any of your friends and ask them about they how manage their money and then ask them about what they heard as a kid, the two will be closely correlated.
INSKEEP: So if you want to be in a frame of mind to save money and get your finances in order, think about an ancestor who really blew it.
(Soundbite of laughter)
Mr. CLEMENTS: I guess that's the moral of the story, Steve. Thanks once again.
(Soundbite of laughter)
INSKEEP: Jonathan Clements, it's always a pleasure talking with you. Thanks very much.
Mr. CLEMENTS: Thanks to you, Steve.
INSKEEP: He's the author of "The Little Book of Main Street Money."
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