Properly Diversified Investment Portfolio
Any investment adviser will tell you that an investment portfolio needs to be properly diversified. This will help to ensure that your entire portfolio will not go down at the same time. With a diversified portfolio, when one investment is down, other investments will be up, and vice versa. By making certain that all of your investments do not go up and down together, diversification does two things:
- It reduces the chance of having a large decrease in your portfolio value, and
- It reduces the chance of having a large increase in your portfolio value.
Diversification smooths out the highs and lows in the returns of your portfolio.
How To Diversify Our Lives?
Just like an investment portfolio should be diversified, we should also make certain that our own careers and lives are diversified. By this, I mean that we do not want to have the success of our future career to be dependent upon only one factor. Whether it is a key relationship with someone else, or the reliance on a specific skill being needed in the future, or continued employment with a certain company, if your career success is connected to only one factor, you are at great risk. Because if that relationship ends, or that skill is no longer need, then your career will suffer great decline. In your life, if you are dependent on just one thing in order to be happy, you run the risk of great loss in your life. Whether it is your work, a hobby, your spouse, your kids, or anything else that is the only source of your happiness in life, if you have only one area of interest in your life, you are fully dependent on that one thing to be happy. If it is a person (your spouse, for example), your reliance on that person also puts a tremendous amount of stress on them because they are responsible for your happiness.
By having multiple interests and sources of happiness in life, and by having multiple skills and ways that your career can be successful, you can increase your chances that you will have success in your career and happiness in your life. It is unlikely that all of your skills will not be needed in the future or that something will happen to all of your relationships. And with multiple hobbies, relationships, and activities in your life, there will always be some part of your life that will bring you joy and comfort.
Diversification in 2021
As the tumultuous year of 2020 ends and we start 2021, now is a good time to take a look at both our careers and our lives overall and ask ourselves if we are properly diversified. For many of us, 2020 brought us change and challenges that we did not expect when the year started. So, we know that there will be change again in the future – whether it is in 2021 or a bit later. Now is the time to assess whether we have multiple skills and elements in our career that will enable us to survive a change in the company we work for, a change in the industry we work in, or a change in the larger economy. In our personal lives, do we have different activities, relationships, and hobbies so that we do not have to rely on any one thing or person? If we look at this honestly and determine that we are too reliant on one or two skills, people, or relationships in either our career or our personal life, let us make one of our goals for 2021 to be to diversify. This diversification will help us weather whatever it is that 2021 brings to us.
Brian Hock, CMA, CIA
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