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When Diversification Can Go Too Far

When Diversification Can Go Too Far

By Ryan Velez

Diversification is a virtue that has been preached by financial planners and experts for as long as their field has likely existed. While it may seem complex, it boils down to the classic adage of not putting one’s eggs in one basket. The idea behind this is to protect your financial holdings, so if one area suffers, for example, a stock market crash, you will still have money in other areas. Whether it’s bonds, real estate, or even gold, being diverse is a good financial habit. However, when you are an entrepreneur, like so many other aspects of your life, the rules change. A recent Black Enterprise article points out when to stick with your aim, and when to look elsewhere.

Sometimes, you need to keep your own skills and knowledge in mind. As an entrepreneur, you already have your own areas of expertise that you bring to the table, so take this same approach with your finances. For example, if you know real estate, don’t be afraid to take your money down that path. Some may tell you to do otherwise to expand what you have, but if you are confident and skilled, doubling down on your area of choice is a solid investment.

Keep this same rule of thumb in mind when it comes to putting together revenue streams. If you are a small business owner who may be a whiz in one certain field, don’t try to go to the other end of the world (so to speak) out of a desire to try and work a different angle. For example, if you are talented with business development, try to provide that expertise to others as a secondary revenue stream. How you do this may vary, whether it’s with a blog, book, or holding a series of seminars. Small business owners grapple with risk every day—don’t feel that you need to incur more when there are perfectly valid options still in your lane.

At the same time, it can be tempting to spread your reach, especially when you read about the successes of celebrity investors who have bolstered their coffers by doing the same. Take the example of NBA legend Magic Johnson.  Magic Johnson Enterprises owns or has owned, franchised branches of Burger King, Starbucks, and T.G.I Friday’s. He also founded Magic Johnson Theatres, as well as SodexoMagic, a company that provides food services to public schools in the United Kingdom and U.S. Marine Corps mess halls. The major difference between you and Magic Johnson? A $500 million net worth that can command the best consultants around. It is this added expertise that allows him to be successful in so many avenues, but remember, in the beginning, his fortune came from following his best skill: basketball. Make sure to take the same approach when choosing how to leverage your business’s finances.

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