Investing is often the key to retiring or moving on from a business. That’s why it’s important to seek out the advice of a financial professional when it comes to specific strategies. First though, there are some general investment strategies that are useful for small business owners to understand. Read on to learn more.
Strategy #1 - Think Long Term
When it comes to reaching your goals, especially your retirement goal, the short-term ups and downs in your investments account aren’t nearly as important as the long-term trends. Don’t get caught up in the here and now. Stay focused on your specific goals and objectives and keep them in mind whenever you make decisions regarding your investments.
Strategy #2 - Allocate Assets Intentionally
At the core of any investment strategy is asset allocation. It’s important to understand that different types of assets behave differently in different market conditions. Allocating with intention after doing your homework may enable you to capture returns whenever and wherever they occur. For example, when international stocks are performing well, large U.S. stocks may not.
You should aim to achieve a mix of assets, including your business (if you count it as an asset), that generates consistent growth.
Strategy #3 - Diversify
Diversification is the spreading of risk and reward. Essentially, diversification within an asset class recognizes that it is virtually impossible to know which particular stock or mutual fund is likely to outperform another. Broad diversification seeks to capture the returns of different types of investments in all of the sectors over time but with less volatility at any one time. If your business comprises the bulk of your assets, it’s difficult to achieve any level of diversification, which is why it is important to invest in assets outside of your business.
Strategy #4 – Rebalance
During market fluctuations, your asset allocation will change, which could cause your portfolio to fall out of alignment with your asset allocation targets. This could expose your portfolio to more volatility, and it can also limit your upside in asset classes that have increased in value. When you rebalance your portfolio, you sell off investments that have exceeded their target and buy assets that have fallen below their targets. That way, you always maintain your asset allocation target, and, equally important, you always buy low and sell high.
Set goals, allocate, diversify, and rebalance regularly. And, most importantly, don’t veer. Even a small mistake or temporary break from strategy can derail your financial future, which is why the best investment advice for business owners is to work with an objective, independent financial advisor in developing and implementing a sound, long term investment strategy.