61: Sorry, Multiple Businesses Don't Count as Diversification

If you’re a die-hard entrepreneur, you’re made to build, launch, and profit from the businesses you’ve thought up. And thanks to those businesses, you’re able to afford the life you want to live and do what you’re good at each day. But as you probably know, maintaining and running those businesses is hard work. When you stop working or clients dry up, those businesses can be a serious risk to your financial wellbeing.

 

In this week’s episode of Worth It, Dustin and Danielle are shedding a little light on this topic and explaining why building and owning multiple businesses isn’t the same as diversification… and how it can actually be a risk to your future financial wellbeing.

WHAT YOU’LL LEARN

03:05 Why you don’t want to be like the creator of the Fyre Festival

07:33 Why starting another business isn’t true “diversification”

08:22 The risk of starting multiple businesses

08:57 The true definition of diversification

09:08 The difference between utility and luxury businesses

09:48 Different types of asset classes  

10:20 How diversification can protect you and your family from bad times & personal disasters

15:44: How much you should be saving and giving

18:13 Which assets you can use to fund different savings goals
19:07 Why diversification needs to be a priority now, not later

 

THE DOWNSIDE OF MULTIPLE BUSINESSES

Basically, diversification means allocating money and “changing up” your income streams in ways that reduce risk. You want to have multiple sources of income and investments to make sure that you don’t have all your eggs in one basket. In this week’s episode, Dustin and Danielle use this definition to explain why owning multiple businesses is NOT a good diversification strategy.

Luxury vs. Utility Businesses (Hint: Still Not Diversification)

One of the main arguments they debunk in this episode is that owning many different types of businesses counts as diversification. As Dustin explains, entrepreneurs are likely to build businesses in the same skillset, industry, or model that’s been successful in the past — even if it’s seemingly an entirely different product or service.

On top of that, if the economy takes a hit and you’re operating three “luxury” businesses (products or services that aren’t necessary to get by), those three businesses are going to take a hit — and so are your income and savings. Even if you were to diversify between “utility” companies (products or services that are necessary for living, like food) and luxury companies, the businesses still depend on extra consumer cash to stay afloat. When the economy takes a nosedive, it’s often harder to find new customers, making it more expensive to do business.

Disasters and Downsides

But most of all, Dustin and Danielle explain how multiple businesses can be more of a burden than a blessing during times of disaster. Entrepreneurs tend to overlook the risks of owning multiple businesses when it comes to disasters of the personal, professional, or economical type. What happens if you get sick, or the office catches fire, or your dog dies? The momentum you’re responsible for in each of your businesses will decrease and you won’t be making the same amount of money. In this sense, no matter how wildly different your businesses are, your income is truly reliant on your ability to work

That’s why true diversification is so important, and why Dustin and Danielle are diving into it on this week’s episode.  

TRUE DIVERSIFICATION FOR LONG-TERM STABILITY

In this episode of Worth It, Dustin and Danielle dig into what true diversification looks like, including the types of income and investment avenues you have.

Yes, your business income(s) count as a spoke in your “wheel of wealth,” but what are the other ones? Do you:

• Own real estate?
• Have stocks or bonds?
• Have piles of cash on hand?
• Collect valuable artwork?
• Have savings or retirement accounts accruing interest?
• Own commodities (like gold)?
• Invest in bitcoin?

Each of these are different asset classes and they count as diversification. Having more than one of these assets gives you a safety net should anything happen to the others. Even in a major economic downturn or disaster, these different asset classes can be used to keep you (and maybe your businesses) afloat. See how that works?

DIVERSIFYING YOUR GOALS AND ASSETS

In this episode, Dustin and Danielle also give you some tips on how to better diversify your wealth, and also discuss the importance of financial goals. To meet your financial goals, including retirement or saving for your dream yacht, you’ll need to use different asset classes and short-term, intermediate, and long-term goals — called buckets. The “Bucket Strategy” can help you break down your financial goals and make it easier to see how different asset classes (rather than another business) can help you reach each of them. If you’re worried about investing and stocks, or don’t understand it, Dustin and Danielle have you covered with their Stock Market 101 Guide.

If you’re tempted to start another business to fund your lifestyle, or you want to use another service or product to create a “passive source of income,” this episode is a must-listen. While creating and building new businesses is what you’re good at, it’s also important to arm yourself with other tools. Diversifying your wealth means that you can do what you love everyday without worrying about losing it all.

RESOURCES & PEOPLE MENTIONED

• Stock Market 101 Guide
• The Bucket Strategy (Episode 004)
• Diversification
• Asset classes

CONNECT WITH DANIELLE AND DUSTIN

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• Connect with Dustin on Twitter: @DRGranger