(FORTUNE Magazine) – Diversify, diversify, diversify: It's the Gregorian chant of the financial-planning priesthood. It's also sound advice, and no doubt you try to follow it. But if you're like most people, you haven't given much thought to using diversification to cut the risks inherent in your biggest asset. That asset is, simply, you--your earning power, which you expect to pay you returns in the form of wages for the rest of your working life.

One way to value your human capital is to figure what an insurance company would charge for an annuity equal to your expected earnings from now until retirement. By that measure, the human capital of the median FORTUNE reader--a 48-year-old with a household income of around $161,200--weighs in at roughly $1.3 million to $2.3 million. And that's too big an asset to ignore.

Diversifying away the risks in your earning power is far from an exact science. But John Heaton of Northwestern University says a good way to start is by writing down your expected earnings for each of the next ten years. Then consider how these numbers might change if various tradable assets were to take a turn for the worse. A swoon in your company's stock, for example, would likely coincide with a decline in your firm's financial health--and your own chances of getting raises or even holding on to your job. A dip in your whole industry might be worse, since you'd have trouble finding employment if you were laid off. As a result, financial adviser Harold Evensky tells clients to buy as little stock in their own firms as they can get away with while still taking advantage of special incentives. (If bonuses linked to profits constitute a big chunk of your pay, says Evensky, the advice is even more emphatic.)

Many Americans are headed in the opposite direction. A 1996 survey by Access Research found that of those employees whose 401(k)s offered stock in their own companies, about half took the offer, to the tune of 46% of their total yearly contributions. Even the median FORTUNE reader--who really should know better--has 39% of his equity holdings in his own employer's stock.

While you minimize company stock holdings, it might make sense to load up on other assets. If you're a real estate agent, for example, your earnings are likely to fluctuate inversely with interest rate hikes. Evensky suggests that you hedge by loading up on short-term bonds or a real asset fund that mimics commodity indexes. If you work for an exporter to Japan, tilt the international portion of your portfolio away from Asia, to steer clear of the Japanese economy.

In all your investing, guard against what the behavioral-finance experts call "familiarity bias." Evensky says he constantly meets clients who overinvest in their own industries because they think they have better information than the capital markets. Evensky doubts it. People grossly overestimate their ability to see values the market hasn't already recognized, says Evensky. In a David-and-Goliath situation like this, he says, "Goliath's going to win."