Side hustles are the best kind of asset protection

My oldest girl and I love watching birds.   We usually watch the birds right outside our backdoor while they eat from our bird feeder. As we were watching one day, it amazed me how comfortable the birds were jumping from post to post on the feeder or from branch to branch on the trees.  Often times at a distance taller than the bird itself. Why would they take this risk and what can that teach us about asset protection and side hustles?

It dawned on me that the reason they are so comfortable taking this risk was because they knew if they made a miscalculation when the jumped, they had wings.  Their wings served as a form of protection from another bird knocking them from the sky, slipping on the post they were trying to land on, or misjudging their jump.

Presumably, the more often these birds fly, the harder they flap their wings, and the bigger they jump – and get used to the risk – the easier it becomes to take the next risk. We can learn a lot from these birds about one of the best forms of asset protection: having a side hustle.

“Did I read that right?  Side hustles as a form of asset protection?”

Yes.  Yes, you did.  Today we will discuss how side hustles help produce an additional income stream, serve as diversification of your portfolio, and can even scratch the itch of speculation!  All of this serves as solid asset protection.

Let’s dig in.

The purpose of asset protection

On physician finance blogs, an inordinate amount of time is spent discussing asset protection.  Are discussions on disability insurance, life insurance, and umbrella insurance important?  Yes.

With the frequency that the topic is covered, though, you’d think that these catastrophic events must happen all of the time and to everyone!  That’s just not the case, though.

The reason they are so often covered is because life events like being permanently disabled or losing your life can be devastating for you and your family.  But these products are not the only way to protect your assets.

An additional income stream

Your biggest asset while young in your career is your human capital, or earning ability.  For this reason we should protect this income earning potential by purchasing term disability insurance.

While we are young and healthy it is also our job to use this earning capital to save for retirement. Remember, the reason that we prepare for retirement is that we anticipate at some point that we A) no longer wish to work and/or B) we plan on our current income stream drying up.

Retirement accounts serve as an income stream.  Side hustles do the same!  If you have side hustles in place – and do not depend on the income from them to live – this forms another protective layer to provide income when you need it.

Like the wings of the birds, side hustles minimize the risks that we take every day in life by giving us a buffer should we lose our job.  They can also help us retire earlier.

Examples of side hustles include medical expert witness work, writing a book, real estate investing, or even writing a blog.  All of these income producing endeavors can help produce income if job loss ever occurs.  The more passive they are, the more they can also count as supplemental disability insurance if you are no longer able to work.

Diversification is key

Ever heard of the saying, “A bird in the hand is better than two in the bush?”  The idea here is that a certain guarantee is better than two possibilities that might not work out.  Another way to deal with possibilities not working out is by having as many of them as possible.

While some ideas fail, others will fly.  This is called diversification – and side hustles might be one of the best kind, but I am getting ahead of myself.

In investing 101, we learn that diversifying is key to our success.  As an example on the importance of diversification let’s put yourself in someone else’s shoes. Say you were an employee of Enron back in their golden days.  As an employee, they gave you the opportunity to put all of your retirement money into Enron stock.  Given it’s track record for success, you just couldn’t see how this could be a bad idea. They are on the up and up.

Well, we all know how that story ended.  If you were that employee, you would have lost your entire retirement portfolio.  The reason?  You were not diversified.  You took all of your eggs and put them into one basket.  Failing to diversify is a personal finance sin.

What is the opposite of this?  Investing in a well-diversified portfolio so that when one part of the market zigs, the other part of your portfolio will zag.  An example would be investing in large cap, mid cap, small cap, international stocks, real estate, treasury bonds, and TIPS.

However, one form of diversification many sites spend much less time talking about is having a side hustle.  If you are earning money through a side hustle, this will almost certainly perform independently of the stock market – unless of course it is some form of income tied to market success.

Some speculation is good

For anyone who has read this site consistently, you know how anti-speculation I am.  I think taking unmitigated risk is unintelligent.  Just take care of the 20% you need to know to get 80% of the results.

Some say you can diversify your portfolio with as little as 20-25 individual stocks.  While I understand the premise (and the math here), I see this as pure speculation in those 20-25 individual stocks.  And I don’t think it’s smart.

What if one of those 20 stocks (or 5% of your portfolio) goes bankrupt?  How protected would you be then?  And why would you take this risk if you can simply take the market return and let that be enough?

It might surprise you then to learn that I do support one form of speculation, which is speculating on yourself.  The only risk there is in the amount of time and money you put towards something and your ability to provide a good return on investment.

I think it will serve you well to speculate on a side hustle for which you will be passionate enough and that has the potential upside of providing some additional income.  Of course, the more pans you have in the fire, the more likely one is to catch.

So, don’t just diversify your portfolio. Diversify your side hustles, too.

Take home

The take home here is simple:  Side hustles definitely can serve as an additional income stream, form of diversification, and asset protection.  It’s worth at least considering these possibilities.

The other unmentioned added benefit, of course, is that if one of your side hustles becomes wildly successful, then you will have a lot of interesting choices in your near future.  How much should I keep working at my main hustle?  Do I need less to retire?  Am I happier doing this or my main job?

All of these questions would be good problems to have, but you have to have a side hustle first!

Keep on hustlin’.  You know I will.

“The Physician Philosopher” is an anesthesiologist who blogs at his self-titled site, The Physician Philosopher.

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