Blog: Personal Diversification

Any investment adviser will tell you that an investment portfolio needs to be diversified, which helps to ensure that your entire portfolio will not go down at the same time; when one part of your portfolio is down, other parts will be up, and vice versa. Thus, diversification does two things:

  • It reduces the chance of having a large sudden decrease in your portfolio value, and
  • It reduces the chance of having a large sudden increase in your portfolio value.

Just like an investment portfolio should be diversified, we should also make certain that our own lives are diversified. If you are dependent on just one thing in your life 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 even your pets, 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) that also puts a tremendous amount of stress on that person because they are responsible for your happiness.

A diversified life is one in which you have many interests and many things that bring you joy. For most people this would include family, friends, work, hobbies, and activities. If you do not have a hobby, I would suggest you considering finding one (or two, or three, or more!).

Just like a diversified portfolio requires a number of investments, a diversified life needs a number of interests. For both investments and life, diversification increases long-term return and reduces the risk of a sudden loss.

Brian Hock, CMA, CIA