A basic rule of investing is that you should build a diversified portfolio that includes different asset classes – stocks, bonds, cash – and different holdings within each class – stock in different companies, a bond ladder, CDs – to give you exposure to gains in different sectors and some downside protection when times get tough. That’s a great strategy for the money you already have, but what about the money you still hope to earn? Does your money come from different sources, or is your entire livelihood dependent on one stream of cash? What happens when the drought comes and the stream stops flowing?
Here are a couple of thoughts to consider on how you can start building some stability into your income portfolio (all of it in your household) and reduce the risk of dependency on your employer.
First, if you are married, look at ways to diversify careers and industries within your family. My wife just finished nursing school and is launching a new career as a Registered Nurse. I don’t work in healthcare, so we have some new found diversification (and an extra paycheck).
Second, brainstorm on ways to create alternative income streams. Unless you are in an employment situation that forbids outside business activities, chances are good that you have skills that you can turn into a side business. I have a close friend who turned a talent for woodworking into a small business making custom pet feeders. Another leveraged public relations skills into a side consulting practice.
Third, network like crazy and give freely of yourself and your knowledge. The more you do to help people with no expectation of return, the more likely you are to get help when you need it. You may also be presented with opportunities that would never have come your way otherwise.
Think about your income the same way you think about your investments. Remember those colorful pie charts that came in your 401(k) package? More color means more diversification. Is your income portfolio one color, or a safer and more satisfying rainbow?
Next up: Thoughts on brainstorming and turning the exercise into a business.