Diversification: Not Just For Your 401K

Being a Michigan Expat taught be a lot about finances and why they should come from multiple sources.

As a Michigan expat there is one thing that I know: Diversification should not be a strategy for just your retirement accounts. It should be a mantra for most areas of your economic life. Any Michigander past or present can give you any number of stories on what happens when you fail to diversify, and we need look no farther than our beloved Mitten to teach us that lesson.

What Michigan Taught Me

spooky-2813134_640I have always been an observer, and in high school and college it seemed to me that Michigan’s economy was not only almost entirely dependent on the auto industry, that particular base had developed a very severe wobble. Auto manufacturers were almost unbelievably out-of-step with larger trends. I distinctly remember when gas prices spiked right around 2005 to over $3/gallon for the first time. Companies like Toyota were taking advantage of the high gas prices to make fuel efficiency one of the most important and most advertised features, tapping into frustration consumers were all feeling at the pump. At the exact same time, GM was still rolling Hummers of every variety off the assembly line, which were lucky if they got 14 mpg. As the ads featuring these ridiculously large vehicles traversing mountain terrain rolled across my television, I could not believe that a large company could be that tone deaf. When GM filed for bankruptcy protection in 2009, I was not surprised.

In 2008 I was graduating with my Masters Degree, and the Great Recession hit full force. The state’s economy, which was already reeling like a drunk college student in the street, finally fell face down into the gutter. When your economic base collapses, bad things happen. I left the state out of necessity to try and find employment. In the meantime, the state decided to institute some rather draconian and distinctly un-demoncratic methods to respond to the effects of the recession on its major cities. In Exhibit A for why government should not be run like a business, they instituted Emergency Managers over cities who fell off the fiscal cliff. This Emergency Manager policy eventually resulted in the mass lead poisoning of the residents in the city of Flint.

If Michigan’s economy had not been, for all intents and purposes, entirely dependent on auto manufacturing, it could have weathered The Great Recession much easier. They have finally learned that lesson, and are now actively working to diversify their economic base. The same should apply to your own financial life.

Your Personal Finances

sky-2563733_640What would happen if you lost your job tomorrow? If your employer folded up, locked the doors and said they were done? If your employer were sold to another company, who proceeded to monetize their new asset by chopping off only the useful parts like a butcher and discarding the rest? Most of us, especially the Xennial/Millennial sets who have student loan debt and are making less than our parents were at our age, would be screwed.

If you’ve ever attended any kind of retirement planning education, have studied finance or have lived through The Great Recession, you’ve heard the mantra to diversify. You don’t want to be a Michigan. You don’t want all of your assets in one sector or one industry, where they can all be wiped out if that industry tanks. We accept that information when it comes to retirement accounts…but why do we ignore it when it comes to our income streams?

I get it…it’s exhausting to have to think about getting another job on top your 9-5. Especially if you have children, the idea of getting income from multiple streams seems beyond reach. There simply aren’t enough hours in the day. But the cold hard fact is that the country we are living in has almost no safety net, and what it does have is shrinking by the minute. Until we as a country make a different choice about what kind of country we want to live in, we are on our own when it comes to surviving.

Because of that, it only makes sense from a risk management perspective to diversify your income streams. If one source of income suddenly stops, you need at least another source to keep you afloat until you can replace it. Luckily, the development of the Gig economy can help you out. Developing a side hustle or two, while exhausting, is a smart move to help you build a more stable financial base for yourself and your family.

There are some benefits to developing a side hustle that are more than just financial:

  • It can help you discover new talents or skills you can use to improve your career.
  • It can serve as a creative outlet and keep you grounded when work gets stressful.
  • It gives you the opportunity to try out new things and new potential career paths, without the risk of changing your industry until you are confident in your skills.
  • It doesn’t have to be a chore; it can be something you already love like photography or music or graphic design.

Check out this great article from The Balance for more on how to get started diversifying your income stream.

It’s a Choice

choice-3006391_640The world we live in is full of choices that we need to make, and the results of those choices have profound effects on our reality. I don’t personally think it is a good thing that employees are being forced to should more and more risk for our survival and financial well being. It has negative implications not only for our physical and mental health, but also for greater economic health and national security.

But the important thing to remember is that our current reality is not carved into stone. It can be changed if we as a collective society were to make different choices about how we want to support people and where we want to spend our resources. Live in the current reality, but make choices for the reality you wish to see. With some hard work, self-education and lots of voting, the reality that forces employees to have to work so hard to diversify their income streams for the sake of survival and security could be relegated to the dustbin of history.







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