Comments on: Diversification

By: Steve Austin

Steve Austin — Sat, 22 Mar 2008 17:31:57 +0000

ERE, maybe an employer would consider it if you framed the full cost equation for them? You’d be part-time, so they wouldn’t have to foot the bill for your other benefits, would they? You’d be on your own benefits and retirement plans. So you could figure out what your effective total compensation is, salary + benefits. Then 1/4 that, and offer to work for 1/4 of the time without any of the benefits you get now. Also try offering to share or even give up your office, using empty conference rooms, etc. to do your 1/4 time work.

I wonder how you’d negotiate *when* to put in that 1/4 time. Would you want to do 2 hrs per day, or one 10-hr day per week?

By: Jacob

Jacob — Sat, 22 Mar 2008 15:29:19 +0000

@steve - yes, freelancing could cover it. I seem to be making $1000/month currently from working a couple of hours every other day or so.

@dollarfrugal - yup, DW could cover it too.

@all - from my perspective I am not interested in maximizing income. I make about 4 times as much from my career job as I need to spend to be satisfied. What I want is time and job security. In my particular career job security can be achieved by either being a genius (which I’m not and very few people are) or working around the clock (almost literally). Obviously the latter approach only works if a person has one single interest (you can have others, you just really can’t spend any time on them). It’s probably clear at this point that this is not the case for me I am not sure there are many companies that would accept a deal saying “Hey, why don’t you pay me a quarter of what you do now and in return I will only show up one quarter of the time”? This despite them getting a pareto optimal return: I’m not an assembly line worker, so clearly I would be trying 75% of my best ideas first in the 25% of the time I would be there.

By: Dollarfrugal

Dollarfrugal — Sat, 22 Mar 2008 15:22:11 +0000

Flexibility is another form of income, if you ask me…the fact that you could quit (or lose) two of your three jobs provides great peace of mind. Also, don’t forget to include your wife’s income stream…with your low cost of living, you could probably get by on her income alone, also…so maybe you could lose 3 of 4 of your income streams???

By: Adfecto

Adfecto — Fri, 21 Mar 2008 21:03:07 +0000

Income diversification is good when you can get it without sacrificing your overall earning power. As others have said, starting a business is a risky endeavor. You won’t find me quiting my job anytime soon to take up freelancing…

By: Steve Austin

Steve Austin — Fri, 21 Mar 2008 16:46:01 +0000

AJC, or you could read what Warren Buffett read: Graham & Dodd, Security Analysis, 2nd ed. (1940). As you know, Buffett is a proponent of concentration, leaving diversification to mutual fund managers, who cannot risk underperforming their flock…I mean…peers.

By: AJC @ 7million7years

AJC @ 7million7years — Fri, 21 Mar 2008 15:56:35 +0000

If you don’t know what you’re doing, diversification is fine (it’s what Warren Buffet recommends), but just make sure that you are avoiding typical Mutual Funds (high cost, 85% don’t outperform the market over time) and using low-cost Index Funds instead.

Even better, pick up a copy of Rule # 1 Investing by Phil Town and learn to invest like Warren Buffet invests (he has averaged a 21% compund return over 40+ years using similar methods).

By: Steve Austin

Steve Austin — Fri, 21 Mar 2008 15:17:36 +0000

ERE, does your freelancing income stream cover your expenses? (You said you could lose 2 out of your 3.) If so, that’s superb!

By: Steve Austin

Steve Austin — Fri, 21 Mar 2008 15:15:57 +0000

Contrarian take: why is losing a job a disaster when there is another job that can be had for the same salary (+/- 20%) with another employer? Think of the job market as both spatially and temporally diversified. You could work multiple part-time jobs (which I suppose is what, in the extreme, you call freelancing?); or you could work multiple full-time jobs over the years, or decades. Temporal diversification is useful (conceptually) in that second sense in that it prepares you to exploit spatial diversification: if you actively consider that you might want or have to leave your current full-time job, you will be mentally prepared to both get as much as you can out of your current job, and to have lined up (or be able to quickly line up) another full-time job thereafter.

By: Philip Brewer

Philip Brewer — Fri, 21 Mar 2008 14:56:22 +0000

The flipside of income diversification is income maximization.

Diversifying your earnings from work generally means earning less money–there’s usually going to be one thing you could do that will pay the most, and putting all your work effort there will produce the maximum income. Often that’s going to be your regular job.

During good times (when you’re likely to keep your job, and likely to be able to find another if you don’t), that’s probably the winning strategy.

If that weren’t true, income diversity would be an obvious strategy.

Clearly, it’s more complicated than that. Lots of alternatives to regular jobs have the potential to pay more–but only after substantial investment, or with considerably higher risk. But I still think it’s true that, adjusting for all the risks and costs, most people have one choice that produces the best return on work done.

I agree that choosing income diversity is wise–clearly the winning strategy during bad times–but it’s worth being explicit about the fact that it’s not the income-maximizing strategy during good times.

(Sort of the same thing is true of investments: Ten years from now we’ll be able to look back and point to the one investment that did better than any others over the period. But I think future investment performance is more of an unknown than future job performance. Most people can look at the various kinds of work they might do and give you a pretty good guess as to the risk-and-cost adjusted payoff of one sort of work versus another.)