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    Creative Commons License
    Rabble Rousing Random Ramblings by S Jagadish is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 Unported License.

    January 04, 2006

    Risk Diversification

    Somewhere in the corner of my brain, I've been thinking about 'Risk Diversification' in various scenarios. Some of the obvious examples which came to mind were:

    • Investors putting their money in multiple securities, banks etc.
    • Banks routing their funds into various channels: debt and equity markets etc.
    • Venture capitalists funding many companies
    • In a B2B scenario, firms using multiple vendors and a large client base
    • In a B2C scenario, retailers sourcing goods from multiple companies and selling to many customers
    • Companies having offices in multiple locations within a country and outside to protect themselves against sudden changes caused due to economic or political factors
    • Setting up offices in other locations because of floods or terrorism for that matter!
    • Customers preferring specific brands, but not averse to having a couple of alternate choices as well
    • Customers preferring to shop at one location, but being equally aware and inclined to purchase from alternate outlets
    • Domestic help having jobs in more than one apartment/house
    There're obviously many more such situations, but these are what came to my mind.

    I then realized that an organization's employees were probably among the few folks who could not do anything of that sort without getting into trouble with the employer. So what can employees do to hedge themselves? They can obviously look for another job while still at work. They can improve their various skills through training, self-learning etc. But to me, those seem more like backup plans rather than diversification measures. Is there any other section of society which cannot do risk diversification of any nature? I really couldn't think of any others. Ergo, salaried individuals are worse off than most others.

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