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.
Good article (as usual). Several years ago, when my contract wasn’t renewed (due to being on the wrong side of a political battle); and after seeing several times what happened when a hospital changed anesthesia groups, I determined that I would never again be in a position where “one person can cut my throat” (figuratively….)
Ironically, my summer “side hustle” now makes almost as much as I make in the remainder of the year practicing medicine…and I do two different types of medicine (anesthesia, and aviation medicine). If any one of the three “legs of the stool” should wobble or fall off, I have the others to continue to bring income.
Flexibility (being willing to change your practice considerably, as you have done) and diversification (even within medicine) are key points I continue to emphasize to young docs. Both are enhanced by being FI, debt free, and living beneath your means.
I like the idea of the career “stool”. I think there needs to be at least three legs in order to not go tumbling down when things change.
I think they are for sure. And the more passive you can get a side hustle, the better “asset class” it will be. I focus a lot on my graphic arts side hustle because it can be 100% passive in the future (or now). Unlike my blog, I can just stop doing new content and my designs will keep selling, for a long long time. No promotion or marketing needed.
The graphic arts gig sounds perfect
I totally agree, in fact my only income is currently from my side hustles. I’m young enough to be happy with the risk which I know a lot of people wouldn’t and certainly didn’t give up a physicians wage to do it. And you’re right in that the best part is the doing it, no point in doing a side hustle you don’t enjoy or learn anything from! And the extra money I’m earning will go into more “stable” investments to help counter future risk.
The side hustles have became the main hustle. This allows a lot of flexibility.
Having multiple revenue streams gives you so many options, especially if you can live off of just one of them. It gives you freedom to walk away from a job you don’t like. It makes debt disappear. It means being able to absorb unexpected expenses. Best of all it creates cash that you can invest into passive income streams which makes you even more cash. Once you are bit by the hustle bug it is difficult to stop.
I knew this post would sit well with you!
I think there’s a saying that the average millionaire has about 7 streams of income. Side hustles in the sense of driving uber, or delivering pizzas aren’t really appealing in my opinion. They aren’t powerful side hustles.
If you can get those side hustles to be passive… That’s where the magic really happens. Cheers Doc!
Thanks Half Life…the comments on this post, including yours, have sparked the idea for tomorrow’s post!
Side hustles are definitely a form of diversification. Anytime you get additional income streams, you can weather your main stream drying up much better. My passive income streams allow me diversification but also allow me to take on a more aggressive allocation with stocks at my age because I can weather the volatility better.
Good point. A side hustle can help you take more risks in other parts of your life and lead to big payoffs.
As you saw from a recent post I’m in the middle. The diversification of multiple income streams is an absolute must. But honestly focusing on road to nowhere side hustles like dog walking or Uber can distract you from what might otherwise rocket your career. Mind you there’s nothing wrong with the money making of hose hustles but the particular ones I mentioned as an individual endeavor have limited upside and can hold back your career.
I agree. you have to choose a side hustle that has some legs to it.
It it side hustle, main hustle, or just plain hustle? Physician W2 has it’s upper limit but there is plenty of other ways to use medicine to generate dough. I added a finely tuned pain medicine practice on my anesthesia practice and for 10 extra hours a week doubled my money. I used the extra money to build myself a money machine. The hospital terminated our anesthesia contract, so I went 2 miles down the road and helped start a SDSC and took the top paying 1/3 of their surgical business by providing better cheaper service. Lucrative to say the least. Now working with a cardiologist to pull the cath lab out to a SDSC. Better cheaper service and by understanding the choke points you can franchise the movement from hospital to SDSC. If your worried about nurses eating your lunch, buy a gaggle and sell their services and live off the margin. Nurses are into paychecks not high finance. Worried about robots driving trucks? Buy robot stocks. Worried about AI, buy AI stocks. That one is my tip o’ the day. Buy AI. AI is fascinating. AI is all about tuning prediction to a high degree of precision, and understanding the right way to frame the question. That’s called knowing the future. Monte Carlo on steroids. AI is the next decades long creative destruction. All opportunity is in the future.
Gasem, I think you forget that the rest of us are not as smart as you and can’t always recognize the future trends. But I think what you are saying, is that your financial plan has to have many legs. Which is, of course, the theme of tomorrow’s post.
You could argue that not only are side hustles a form of diversification, they are the ultimate form of diversification. As physicians with relatively large primary incomes, there is a tendency to shrug and say, “That should be enough”. And, yes, a physician salary can get you to retirement, even early retirement on its own.
But there is a definite limit to what you can accomplish with just your primary income. Side hustles remove that ceiling, and provide you with a hedge against the loss of your primary income. What’s not to like?
Side hustles are also risk mitigation.
Many legs yes, but there are infinite legs from which to choose. Be like Mikey the AI and re-frame the question. The hunter-gathers picked up things and asked the question “is this food?” If not food they went on to the next thing. The correct sequence is, is this food? Can I make this into food? If the thing was a rock, it’s not food but can become a weapon which then becomes food. I’m totally on board with your diversity idea by the way. Given the state of affairs I think for the RE crowd some side hustle is as necessary to eating, as turning a rock into a weapon.
Yes. For RE I think side hustles are definite risk mitigation.
If you would do something for free, is that a hustle? I believe in leverage. Hustles seem quite tiring to me. It’s tiring just reading what people will do for the hustle. Thankfully, a lot of people find passion in their hustles.
I trained in a specialty. But I saw the limits in it when I saw that I needed to apply for a job. I was happy to return to family medicine. I could be self employed and could set my own hours, never need a job, etc. I could pick and choose whatever was lucrative at the time. I feel doctors already make enough. Just be efficient with how you use your income. Hustles take time and energy. I protect these two resources of mine carefully.
I think Side hustles are leverage whether you collect money or not.
Call me paranoid, but whenever I enter a room, I check for exits. Physicians can be lulled into a false sense of complacency with their sole W-2 job. Yes, in general a doc job is stable but you never know. The Deficit Reduction Act in 2005 really hurt physicians, especially radiologists. And many of our patients are Medicare. Do you want to depend on the whims of government legislators to determine your rate? Plus the local university and large private medical corporations are gobbling up private practices left and right, completely changing the referral landscape. Hospital C-suite execs can swap out a medical group or not renew a contract with little to no notice. The point is, we are not completely in control of our own destiny and that is why we need a backup plan. Enter the side hustle. The lazy side hustle is preferred like Doc G has shown. But everyone needs to identify more than one exit from a room on FIRE. Pun intended.
Exactly! We all new a few escape hatches.
There is something called the growth curve. As long as growth is sliding you up the growth curve things are groovy. There is a point on the growth curve where the second derivative of the curve turns negative. When the second derivative goes negative the rate of growth decreases and growth slows down eventually ceases and goes negative. This is why corporate bonds go from AAA to BBB. Everybody is leveraged and it’s the debt service that takes you out. Unless you make changes you’re hosed. To win you don’t have to crush your opponent you merely have to turn his second derivative negative and watch his eyes bug out in horror as he realizes his fate. It’s like that scene in Kill Bill where Thurman punches Carradine in the chest and sets things in motion. She turned his second derivative negative.
My solution to the C suite canceling my contract was to go into competition with the C suite. The thing about C suites is they are occupied by mindless MBA’s and not physicians who understand medical economics and the elasticity of medical practice. We built a SDSC 2 miles down the road and stole 1/3 of their surgical business, the paying 1/3. Better service for cheaper, eat my dust Mr MBA. I became my own weapon. This is the nature of hustle.
Millionaire Doc, I am beyond paranoid. I build back ups for my back ups. I was always rip-cord while working to bail whenever a position did not suit me. We are extremely fortunate in Canada to be mainly self employed in private practice physicians.
I see what you do MD mainly as investing. I will always invest. I get to use leverage while I am investing.
I have zero issue with side hustles. They are just not for me.
My husband used to be really into side hustles. He started network marketing companies, he thought he would invest in real estate like Rich Dad Poor Dad. The problem we met was that we were a young couple who also had young children. We only had so much time and energy.
When he focused on maximizing his career- he recognized the error of his ways. Everyone is different. Some people can take the smallest idea and turn it into fortunes. There are also some people who forget they have acres of diamonds already and should just focus on what they know. My husband and I could be shown a roadmap and still get lost. Our lives and our investments did much better when we recognized our Achilles heel.
I simply want people to be careful when they see something working for someone else to naively believe that it will work for them. That is why I AGREE that very lazy side hustles you would do without the promise of monetary benefit are the best hustles of all.
This week I learned how to run a jackhammer and lay concrete from my side hustle. I own rental property that is managed by someone else. But since I don’t have a real job anymore, retired from medicine to teach finance to doctors, I have asked the manager for first rights of refusal for any big projects that come up on the property. This time it was a broken pipe under the concrete slab in the bathroom. It was going to cost several thousand dollars to dig up the floor, replace the pipes and replace the floor. And they weren’t even sure when the demolition guys would be free. So I said for that kind of money my wife and I will do the job. We rented a jack hammer for $75 and bought some concrete for $20 and the job was finished in less than a week. We worked about 10 hours. I not only saved thousands on the job, but the job was done before the contractor could have even started, getting the unit rented sooner and making me even more money. It was also a little bit fun. But my back is not convinced about the fun part.
Dr. Cory S. Fawcett
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