Dont put all your eggs in one basket
James sat in the office and stared distantly ahead. He had just received a letter from the Human Resources department. He had been laid off. James had no other source of income, outside his job.
Iya Halimot owns a house in Sango Ota. She gets N1 million annually as rent. Aside the rental income, and the little she earns from petty trading, she has no other income. If anything happens to the house, she loses the bulk of her income.
Once she is short of money, she arbitrarily raises the rent. Or apportions the building into more self contained rooms. Sometimes she decides to collect rent several years in advance.
Remember the saying don’t put all your eggs in one basket ? It is an easy way of saying diversify. Spread your risk
Diversify your skillset
James was sacked because the unit he worked in became redundant. Its important that one diversifies, in terms of skillset. Never be content with the skills and certificates that got you the job. Aim to be proficient in skills that are in demand, so you will always have work.
Diversify your income and investments
Diversifying applies to both your income and your investments. If you have only one source of income, such as a salary or business, then you are vulnerable to anything that happens. If the company that employs you shuts down, you would be stuck.
If you are a business person, and the government comes up with new rules, then you would have to shut down.
The Central Bank of Nigeria (CBN) recently hinted at a possible move to stop providing foreign exchange for milk importers. Whenever that happens, it could lead to some departments in companies downsizing.
A diversified portfolio is one with a mixture of assets.
Other benefits
In addition to spreading risk, diversifying also helps in periods when one asset is doing poorly.
The Nigerian stock market for instance, is down 13.83% year to date. Treasury bills on the other hand, are still in positive territory. So an investor that owns mostly stock, would be down. An investor that owns both stocks and treasury bills, would be better off.
Diversification also applies to within a particular asset class. You shouldnt own only stock from a particular sector. The NSE Banking index for example is down 22.74%, far worse than the larger market. The NSE Insurance index on the other hand is down 14.73%.
Do you have a diversified portfolio? If so, when are you going to diversify?
Do you have any questions? Feel free to comment below.
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