Why Practice Diversification

By Scott Cunningham | Crypto & Things | 30 Aug 2020

Diversify, diversify, diversify. If it’s important, you should probably diversify it. Obviously, you don’t need two cars, but you do want to avoid single points of failure like only owning fiat wealth. Let’s break down what I mean.

Diversification is defined as a risk management strategy that mixes a wide variety of investments within a portfolio. Diversification should help you mitigate risk in whatever it applies to but mainly focuses on your finances. It shouldn’t necessarily cost you anything extra but will take more time to understand and operate. While it usually applies to investing, I think you can take it further applying it to where you trade assets, where you store them, and much more.

I don’t even touch on this in the video, but another aspect where I’ve diversified a great deal is on my social media. I’m actively using around 25 platforms in order to diversify my content distribution and to provide redundancy for my content if I were banned elsewhere. I guess in many ways diversification can act as a means of redundancy for you, but I’m sure not many people would look at it that way. And by redundancy I don’t mean pointless, I mean having backups and access to whatever it is. So in this case, my content has a lot of redundancy by existing in many places and it’s the exact same content.

While the many platforms I post on are how I’ve diversified my distribution to cover all venues which mitigates my risks. So this way the channels themselves are the diversified approach to my social media. For example, you could put all your energy into having the best Twitter channel ever, but then if Twitter bans you, you are done. Even if you back up all your tweets (redundancy), you still have no platform because you didn’t diversify your content distribution onto multiple platforms ensuring that losing any single platform has a much smaller impact on your overall social presence. Wealth would be treated the same.

Diversify who you consume news from, diversify the places you go to learn from, and the ways you learn. You can apply this to anything and it won't hinder you. It will only give you more information and help you see the bigger picture.

So for example, having two bank accounts generally won’t cost you more if you have the minimum balance, but it allows you to avoid issues that may occur with one of the banks. I would further suggest that you have money in both a small local bank and a larger bank with better online features etc. This will hedge against political and financial threats. While most people don’t consider ever losing their bank account, it happens a lot more than you might expect. And those people who may have been using Paypal and other payment gateways as a solution could and have been further financially cut off. A good example of this is sex workers being cut off from Paypal. To diversify your finances and protect your financial independence, you can use cryptocurrency.

Say your stock trading account is attached to your bank account so then you may want to trade on more than one exchange. Say you are investing in gold, whatever kind of gold you acquire given it’s bought from a legitimate source, it’s fine. However, where you store it is where you should really worry about diversification. If you store it only with the bank, you may run into the same issue explained above. If you only store it at your house, you could get robbed and now you’ll need better home security, etc. You can diversify a bit or you can get really in-depth with it to the point where you are spending more money to do so. Though I would say that having home security is something you should have anyway. The point really is that you are mitigating against any risks that may come your way to ensure that if something does happen, only a small portion of your wealth is affected by it.

In regard to cryptocurrency, when I’m lending crypto, I want to test out different lending platforms as well as I don’t have any expressed loyalty or trust in any of them solely. Even if you’re not worried about risk, this still exposes me to the benefits and drawbacks of 3 platforms I use giving me more access and experience with the full range of what is available to me. Diversification isn’t always just as a way to mitigate risk, but a way to expose you to more assets which can introduce different risks, but the idea again is your also getting to reap the benefits of each as well.

How diversified is too diversified? How far do you go to diversify your wealth? How do you diversify outside of finance? Let me know all of your thoughts on this in the comments below and don’t forget to like, share, and subscribe.

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Scott Cunningham
Scott Cunningham

I am the host of Crypto & Things and a huge social blockchain enthusiast using what I believe to be the next level of social communication. I make educational content, review platforms, and interview cool people. Links: http://www.scottcbusiness.com/

Crypto & Things
Crypto & Things

I am the host of Crypto & Things and a huge social blockchain enthusiast using what I believe to be the next level of social communication. I make educational content, review platforms, share my passive & crypto income journey, and most importantly, I get the opportunity to interview and chat with so many amazing people in the blockchain, cryptocurrency, and tech space every week and share it all with you. Links: http://www.scottcbusiness.com/

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