Watch my video, or read below for my best investment advice for business owners:
You're an Entrepreneur
Running a business takes confidence. In business, you often need to make decisions quickly.
You’ve got it all on the line, and you’re confident having stepped out from the edge of the cliff without really knowing where you’ll land.
But if you apply that mindset to investing, you might be risking more than you can afford, and some losses are unrecoverable.
To make sure you’re on track to get where you want to go, and to ensure that you are going to be able to grow your net worth over time, you want to mentally and physically separate your business from your personal assets.
You’re great at running your business, but don’t fall prey to a cognitive bias called Over-Confidence. Your entrepreneurial spirit can lead you astray when it comes to investing.
In contrast to the business world, where innovation is godlike, innovation in investments is often something to be wary of.
Don’t select investments that don’t already have a long and positive track record.
Just remember what happened with mortgage-backed securities!
In your mind, earmark the personal assets for the future, and decide that you’re going to be very careful about the risk you allow in that part of your financial life.
Focus on Wealth Building
The best way to be successful in growing your net worth over time is to find ways to pay yourself well, either in the form of salary or profit distributions, or to build companies you can sell, and to save the proceeds of the sale.
Then, consult with your financial advisor and your tax preparer about the best ways to save on your income tax bill. Don’t just open a SEP IRA because that’s all you know about. Make sure you are deferring the max into a company 401(k), profit sharing account, Solo K or other qualified account.
You can fund a Roth IRA if you’re able and you can always save in an after tax or brokerage account.
If you work with a financial advisor, make sure that person specializes in the needs of business owners.
The Best Investment Advice for Business Owners
As far as successful investing goes, over time, index funds nearly always beat most actively managed funds, and are less expensive and often less risky.
Remember that in your investments, concentration is more risky and diversification is your friend.
Make sure you develop an investment philosophy that can help guide you through good times and bad, so that you don’t make choices based on emotions.
Remember that investing is a science, not a guessing game.
If you have questions about the best ways for business owners to invest, you can find me at hilaryhendershottwealthmanagement.com, I’m happy to talk with you about creating your wealth plan, or offer you a second opinion on what you already got.