There is information ad-nauseam about the need to diversify our investments - and rightly so in most scenarios. Spreading our investments across several sectors and investment types helps us to even out our risk and smooth out volatility over the long term.
However, most of us are holding a massive risk, unquestioned, socially acceptable and considered to be perfectly normal - even desirable. That huge risk is our job. Our job is a massive risk as it is often our ONLY source of income. This income is undiversified .... risky stuff.
Why is our job risky? Simply because if we lose it, we are stuffed. We do not have another source of income to tide us over or to smooth out the impact.
I'll leave you to think about the benefits of getting a second source of income. Ideally think about getting a third or fourth source of income too. These sources of income do not need to necessarily all be large.
An ideal diversified source of income from easiest to hardest might be:
- Dividend income from LIC's or broad-based Indexed ETF's.
- Income from bonds and annuities
- Royalty income from IP or publications
- Rent from investment properties
- Income from a small business
- Income from a second job
- Ebay et al
All of the above are worthy of consideration in a bid to diversify our incomes and safeguard us from the often-observed event of unemployment. Unemployment after all has the real capability to completely scuttle one's life.
Having diversified streams of income is simply respecting our future selves and arguably one of the most effective income insurance policies we can ever create for ourselves.