Am I Diversifying My Assets?

Answer...

The first point is that not all companies are successful so there is a need to have external or non-company related investments.  For many people this means investing in other companies in the same industry because something you know is more comfortable and more fun.  

But lets talk about some things that you need to think about in order to continue to build your assets and even diversify some of that single asset or concentrated risk.

• Build assets outside the business, using the business as leverage for funding a retirement plan. This can help you diversify your investment risk, reduce your taxes and help build your assets tax-deferred. This can also help you attract and retain employees.
• Establish personal emergency reserves outside the company. We do hate to see money sitting around, but that credit line is not always going to be available or the best choice.
• Establish a personal investment plan for college for your kids, and for accomplishing other specific financial objectives. It is great when you can finance unexpected financial needs like cars.
• Maintain a diversified portfolio. I didn’t say dull and boring, but diversified. You can have an aggressive diversified portfolio and still reduce the risk of owning your one major asset.
• Calculate or even estimate the value of your business if you were to sell it tomorrow and use it to gauge how you need to invest your overall portfolio.
• Invest to balance some of the risk in your business. If you are in a high tech business, buy funds that invest in some of those more established "old economy" stocks to help balance some of the risk. If you are in a manufacturing business, it may make sense to have more technology exposure.
• The key is to think about what really makes sense for you and your family in order to assure that you are able to meet your objectives for accumulating, growing and ultimately preserving your assets.
• Beware of the get-rich-quick investment schemes such as the film production company that really doesn’t exist. Many scam artists target business owners because you are risk-takers.
• If you want to trade stocks as part of your investment program set up a separate account and limit the dollars to less than 5 to 10 percent of your financial portfolio. Keep the balance of your investments in diversified long term focused mutual funds.
• Plan your overall financial future the same way you plan your business future. Create the vision, define the objectives and then make it happen!

People are risk-takers by nature, but usually calculate the odds of a successful landing before making the jump.

That is really what we are talking about here. No matter how good you are or how much you believe in your business, you need more. The odds of your overall financial success are increased significantly if you build that investment program outside the business to serve as your parachute. When you do decide to jump or if you have to jump, it will definitely be a softer landing.

by Diahann W. Lassus, CFP^®, CPA

back