Diversifying your income

Nobody would put all their savings into a single share. Too risky, we know that.

Yet that is exactly what almost everyone does with their income. One employer, one line.

Do the maths. Say thirty thousand euros of salary a year, for thirty-five years. More than one million euros to come.

Next to that, twenty thousand euros of savings weigh barely two per cent. Your biggest investment is you.

Economists call it human capital. Your ability to earn money in the years ahead.

And that capital is highly concentrated. One company, one sector, one city, sometimes a single job.

The worst is when salary and savings depend on the same company.

Enron was one of the biggest American companies. Many employees had their retirement savings in its shares.

The share was worth about ninety dollars in summer two thousand. By late two thousand one, less than one dollar. The company went bankrupt.

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The employees lost their jobs and their savings. On the same day, for the same reason.

The lesson goes beyond Enron. If your employer does badly, your employer's shares do badly too. At exactly the wrong time.

And it is true across a sector. A banker who owns only banks doubles his bet.

So diversifying means placing your savings far from your livelihood. What falls with your salary must not be your safety net.

But you can also diversify the income itself. And the best hedge is not financial.

It is transferable skills. What you know how to do, and that would be useful elsewhere.

Knowing how to write, sell, run a project, speak a language, use a widespread tool.

If your company closes, these skills go with you. They are your real insurance against losing your job.

Conversely, know-how that only works for one employer is a single line in your portfolio.

Other sources can top up, even small ones: a side activity, investment income, a second income in the household.

The aim is not to live off them. It is that a single shock does not cut everything at once.

Your portfolio does not stop at your securities account. It starts with your work.