Diversification of Income

I have a relative who has been working to get her company publicly listed for the past three years. Both her husband and her son works in the same company, and their entire fortunes (which was initially quite substantial) had been invested in the company.

I wish her the best for her sake, but to be honest, I would advice everyone I know to run away from the IPO offer if her company gets successfully listed. It has been making losses for the few years it has been in operation and frankly I do not see much future in it. There has already been several injections of capital from private sources as far as I am aware, but it has not helped matters. The public listing is her last hope of recouping her money. If it fails, it is likely her family will lose everything.

Both her husband and her are in their late fifties. Her son has worked for her since his graduation in a managerial position, and has not had any other working experience. All three of their livelihoods are at stake and wholly dependent on this one IPO.

We talk about diversification of portfolios and how not to put all your eggs in one basket. I have always believed that the same needs to apply on a bigger picture basis. If I were my relative above, I would have asked the son to work for someone else, and only join the family firm (if ever) when it is firmly on its feet. Not only would he be able to provide backup income if the family firm fails, he would be able to bring external managing experience and best practices from other companies to the table if he does come back into the fold. We all know what “in-breeding” does to a company.

My parents own a small fabrication workshop, and people have been asking since I graduated from University why I am not working for the family business. I made the decision not to for the same reason – not wanting to put all our eggs in one basket. My parents, myself and my sister work in three different industries, and in different employment capacities (parents are self employed, sister is a free-lancer and I am a full time salaried worker). I know that this arrangement has relieved a lot of stress for my parents in recent lull periods for their business and I have also provided ease for their cash flow problems several times.

If I ever get married, I would also try and make sure my husband and I will work in different fields, and may even go to the extent of changing jobs to ensure that. Diversification of income to the fullest!

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