We are often told to “diversify our assets.” What we’re not often told, however, is to take this thought to its natural conclusion: we need to Diversify Everything We Can When it Comes to Money.
That means diversifying income streams, if possible. That means diversifying within sub-asset groups within your portfolio. It means diversifying where you invest your money or maintain your financial assets. Diversifying your retirement accounts. Everything. Here’s why….
BECAUSE EVERYTHING IS ALWAYS CHANGING! And because the past does not predict the future.
Here’s why else….
BECAUSE JUST BECAUSE SOMETHING WAS ALWAYS ONE WAY, DOESN’T MEAN IT CAN’T CHANGE AT THE BLINK OF AN EYE.
In Mexico in 1943, a farmer and his son stumbled upon a tiny crack in the Earth’s service. This tiny crack was the birth of a new volcano. The Paricutin Volcano, measured 1000 feet in height after only four months, and destroyed all of the surrounding towns and villages.
Can you imagine a volcano appearing in your backyard, without any prior warning, and eventually being more than 1000 feet high? If not, then why can’t you imagine the total collapse of the U.S. dollar? Or banks going bankrupt and the government not being able to give you the federally insured money you’re owed?
I’m not trying to be a doomsayer, I just want to point out that the unexpected can happen–and when it does it will often occur in the blink of an eye. Think about how you felt when the banks were about to go under and not pay the money market funds due their customers?
Amazon Affiliates Story
It’s not quite as fascinating as the Paricutin Volcano, but a lot of people are dealing with the death or near-death of their businesses in a way that was, even a few months ago, thought entirely impossible. What I’m talking about is the recent Amazon Affiliates scandal.
State governments have been desperate to raise money in any way they can. A few states, such as California or New York, have passed laws that require a sales tax on Amazon items. In order to argue that the company lacks “minimum contacts” (as any law student would call it, the International Shoe Case Issue”) with the state–and thus lacks jurisdiction over the company, Amazon has dumped every affiliate in those states.
What if your entire business was based on generating Amazon affiliate monies?
For example, what if you had a gift suggestion website, and the links largely went to Amazon? There are many businesses like this (I actually have one–although my state hasn’t been affected as yet), that are now finding overnight that a trustworthy and legitimate source of income–that was there for many years—has now suddenly disappeared.
Diversify Your Income as Well As Your Assets
Being married and having two incomes is a form of income diversification. Generating dividend or other passive income is another way to diversify your income stream. Starting side businesses, online or off, are great methods for creating more income streams. This way, if you should ever lose your job, you will hopefully be able to get by and endure through a prolonged job loss.
In todays world of little employer loyalty and ongoing tough financial times, this has become more essential than ever.
Dividend investing can be a great way to earn a passive income that will hopefully help you survive the lean times.
Having sufficient and diversified savings will also assist you in surviving job loss, sickness, divorce, or other rare and major problems that may arise.
Assumptions can be dangerous–and just because the sun has always risen each day doesn’t guarantee it will tomorrow. Protect yourself and your family by diversifying everything you can when it comes to money.
How do you diversify your assets and income?