When investing in yourself, diversify

Diversify your portfolio. That’s excellent investment advice — but it applies to many more situations than you might think.

After all, setting aside part of each paycheck in retirement funds or other financial assets isn’t the only way you invest now in anticipation of future returns. Indeed, unless you are fabulously wealthy or remarkably lucky, the most valuable asset you will ever own is your own human capital — the bundle of physical and mental capacities, knowledge, skills, and relationships that allows you to earn income and thus support yourself and your family.

Education and childrearing are forms of investment. So is the process of forming, deepening, and maintaining relationships with relatives, friends, and acquaintances. The concept of diversification applies just as well to human and social capital as it does to financial capital. If you put too many eggs in too few baskets, you subject yourself and your dependents to excessive risk.

In my own career, I’ve never relied on a single source of income. I keep pushing myself to learn new things, acquire new skills, and expand my circle of relationships.

I started writing this column for North Carolina newspapers when I was still an undergraduate, squeezing out time to write from a schedule already crowded with schoolwork and other part-time jobs. Later, while working as a nonprofit executive, I set aside time to write columns, magazine articles, and books. I also worked in broadcast media and began teaching, first for leadership programs and later for Duke University’s Sanford School of Public Policyand the Triangle Academy of Dance (my very first part-time job, back in the early 1980s, was teaching tap dancing).

I know many people work in occupations that don’t offer the flexibility I enjoy in mine. Still, just about everyone is good — or can learn to be good — at more than one set of skills valuable to an employer. Finding ways to develop and exhibit these skills represents a good strategy for maximizing income and minimizing risk.

Consider the findings of a study just released by the National Bureau of Economic Research. Its five authors, three based at American universities and two at Chinese ones, used data from the American Community Survey to track the employment and earnings of college graduates. Their hypothesis was that undergraduates who obtain double majors will fare better over time than their otherwise-comparable peers.

To be more specific, they figured that those with double majors would tend to weather economic storms better than those with only one major. That’s just what their study found: a 56% reduction in earnings “shocks” for double majors.

On the one hand, the authors wrote, “specialization in one field presumably leads to more human capital in tasks that are closely related to their college major.” If students major only in business administration, communications, psychology, or nursing and then enter their chosen occupations right after graduation, they might well make themselves more attractive to their initial employers.

For double majors, however, “investment in multiple fields may enable them to gain knowledge and skills across a wider range of domains, enhancing their versatility and adaptability in the labor market.” That may well result in higher earnings, fewer spells of unemployment, or other positive labor-market outcomes.

Now, the conclusion here isn’t that everyone ought to double-major in college. Indeed, as the researchers themselves note, the design of their study didn’t allow them to determine whether the reduction in risk for double majors was caused by their degree choices or merely reflects the fact that the kinds of young people who double-major are already predisposed to acquire and practice a wide variety of skills.

That’s good news, actually. It suggests that regardless of whether you are in a position to get two degrees — or are even at the age to be making such a choice — you will likely make yourself better off by a conscious strategy of continuously acquiring new skills and knowledge. Find new baskets. Fill them with eggs.

John Hood is a John Locke Foundation board member. His latest books, Mountain Folk and Forest Folk, combine epic fantasy with early American history.