The name Jakob Fugger may not mean anything to you, but Fugger, AKA “Jakob The Rich”, was the richest man of the 15th century, far wealthier than today’s billionaire titans such as Bill Gates and Jeff Bezos. One of the pillars of Fugger’s wealth was his idea of dividing his assets into four equal parts: stocks, bonds, real estate, and gold coins.

Investing hasn’t changed all that much. Investors still must choose an optimum asset mix—finding that sweet spot between risk and return, typically choosing between stocks and bonds.

Here’s a quick primer on stocks vs. bonds:

Conventional thinking says that a balanced portfolio with a mix of stocks and bonds has elements of both safety (bonds) and growth (equities). Like Jakob Fugger did, with age, we tend to shift more our assets to the safety of high-quality bonds.

In terms of how much to put into equities vs. bonds, one rule of thumb is to subtract your age from 100 to calculate the maximum to invest in stocks. (If you’re 50, then 50 per cent could be invested in stocks and the rest in bonds.)

Some financial experts have challenged this, arguing that greater longevity means longer retirement periods. Nest eggs need to last longer too, which should tilt the asset mix toward stocks which provide more growth.

Still others say that our psychological disposition should be the determining factor. Treasury bond returns are low, but these bonds have close to zero-risk, which allows nervous investors to sleep at night. However, the hidden risk is, if returns fall below the rate of inflation, a retiree’s buying power is eroded over time.

What to do? Fortunately, there’s a new, holistic way to approach asset allocation that takes an important factor into account: human capital.

Human capital is our capacity to earn money based on our knowledge, skills, talent, and experience. A younger person has a much longer runway of earnings than a more mature person. But how we earn that income is also important.

Some peoples’ earnings are more bond-like. Their salaries may not be sky-high, but the employment is secure, and they can expect small but regular annual increases. Even during a market downturn, the risk of job loss is very low. This could be a federal government worker or a tenured university professor.

On the other hand, people who work in the private sector, or who are self-employed or “giggers” have a variable income that is not as secure. Market cycles or even the whims of their bosses or clients can put their employment at risk. Their earnings are more like stock-like.

Should a senior federal employee and a self-employed consultant each have an identical asset mix? Finance academics would say no. Those with “bond-like” income can afford to take on more risk (i.e stocks), whereas those with a more precarious income should offset (“hedge”) their employment risk with bonds. This holistic approach should include the entire family. If both partners are tenured university professors, for example, they could afford to take on more investment risk than if they’re both circus acrobats.

Unfortunately, studies show that many families do not hedge their investments by diversifying their risk. One study at the Massachusetts Institute of Technology found that a large portion of a company’s pension plan was invested in the company’s own shares! And, perhaps due to familiarity, individuals tend to double-down on the stock of the companies they work for through employee share ownership plans and direct purchases. Should the company run into trouble, employees could lose not only their jobs but also the value of their investments.

Remember that a “balanced portfolio” is not always 60/40 or 50/50. By including your human capital into the equation, you may find that, for you, balance looks very different.

Rita Silvan, CIM™, is personal finance and investment writer and editor. She is the former editor-in-chief of ELLE Canada magazine and is an award-winning journalist and tv media personality. Rita is the editor-in-chief of Golden Girl Finance, an online magazine focusing on women’s financial success. When not writing about all things financial, Rita explores Toronto’s parks with her standard poodle.