Are Side Hustles a Form of Diversification?

A commenter recently mentioned that she thought that side hustles are a waste of time.  And it is true, my ridiculous love affair with side hustles seems, at times, a little self-indulgent.  After all, my main hustle as a physician provides me a W2 wage well into the six figures.  How then can I justify spending my precious time managing a condo complex or selling artwork on the internet?  My hourly rate of return surely is much lower than my highly sought after, educationally heavy, skill set as a physician.  On the other hand, I’ve started to look at the side hustle as yet another component of asset allocation.  Side hustles are a form of diversification.

Let me explain.

We think generally of a few different asset classes.  In my playbook, there are paper assets (stocks and bonds), real estate, and personal capital (W2 wages and the business asset class).

I would say that side hustles are just another branch of the business asset class.

Professional Risk

We rely too much on our chosen profession.  This is especially true for doctors, lawyers, and scientists who often invest many years and countless dollars to attain their specialized skill.  This is fine and dandy for those who are lucky enough to sustain a long and fruitful career.  But what happens if your career is cut short?  What if you burn out as a doctor, become disabled, or decide that lawyering for a living no longer brings joy and satisfaction.

Side hustles are a form of diversification.  Just like you would not be advised to put all your investable cash into company stock, you wouldn’t be advised to put all your time and energy into your main profession.

Often professionals get stuck in their career unhappily for years because they have no other marketable skills or business ideas to carry them through a transition.

Even worse, market disruption can quickly upend a once lucrative career.  As a physician, it seems only a matter of years before computers, nurse practitioners, or physician assistants will be nipping at our heals.  Can you imagine being a long distance trucker right now?  Self-driving cars could decimate this profession.

Upside Risk

No matter how hard I work, I will only reach so many heights economically in medicine.  There is just so much I can make every year.  While I have been lucky to maximize revenues, there is a ceiling.  Side hustles are not only a form of diversification but can have an unlimited upside.  Ask James Dahle of the White Coat Investor.  His little side hustle now nets him seven figures a year, far in excess of what he earns as an emergency room doctor.

If you ever dream of hitting it out of the park, you have to be able to step away from working for someone else in the nine to five.

A side hustle may be your best avenue

Passion Play

My favorite reason side hustles are a form of diversification has nothing to do with money.  Side hustles also diversify knowledge and ability streams.  The skills I have gleaned, and the worldliness I have gained are invaluable.  Understanding the ups and downs of real estate, becoming an art mogul, and learning to be a leader in healthcare settings, are all skills that I learned from side hustling.

There is no better teacher than experience.  Sometimes, in order to gain that experience, you have to try something new.  On the side.  In your spare time.

In Conclusion

Side hustles are a form of diversification.  Not only important in asset protection, but also in the continuous process of learning skills and building knowledge.  While not absolutely required in the formation of wealth, I would say that any good risk management plan incorporates room for these ventures.