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Should Entrepreneurs Invest Differently?

The Menashe Morley Group

Should Entrepreneurs Invest Differently?

An entrepreneur’s personal wealth is typically concentrated in a single asset: his company. Business owners devote themselves to assessing and taking risks in order to grow their enterprises, but too often they don’t apply that same focus to their personal assets. In fact, some of the attributes that make for a successful entrepreneur can be diametrically opposed to the imperatives of wealth preservation.

Many business owners may want to take a more disciplined approach to portfolio construction than other types of investors. This is partly because they may have more to lose, but also because many of the elements of a solid financial strategy can require additional care when there are significant assets tied up in a business endeavor. It’s important for entrepreneurs to ensure that their portfolio is tailored not only to their particular circumstances but also to the type of business they own.

You may consider yourself a risk taker generally, but risk taking in an investment context isn’t the same as it is in business. When you invest cash in your company, your decision is based on careful analysis of a market you know well. However, financial decision making in your portfolio is more in the market’s control.

An investment strategy aligned with your investment personality may help you stay invested when the market’s zigzag. Stress-testing a portfolio against a range of possible scenarios is one way of preparing for potential market turbulence; stress tests can help guard against counterproductive behavior which can reduce long-term returns.

Prioritize your goals by knowing your short- and long-term financial and life goals. When do you anticipate retiring, selling your company or turning it over for someone else to run? Consider your personal goals separately from your business objectives. See your wealth in terms of two distinct buckets. The first bucket is your entrepreneurial capital—your stake in your businesses. The second is a diversified portfolio that includes assets designed to compensate for the risk inherent in your businesses.

It’s important to make sure your portfolio contains enough liquidity to serve as a cushion against recessions, industry down cycles, or any rough business patch. Because the entrepreneurial bucket is likely highly illiquid (as it’s tied up in your company), you may want to build much more liquidity into your personal portfolios than a non-business-owner would. You may want to consider applying for a line of credit that serves as a form of liquidity insurance.

Business owners shouldn’t overlook disability insurance. An inability to work could end up reducing not only your family’s income but also the value of your business.

Finally, choose the right retirement plan. Some tax-qualified plans offer noteworthy benefits for business owners, allowing you to put away considerable sums while also helping retain employees via profit sharing.

Review your plan regularly to ensure you are making progress toward your goals. As business conditions change and life goals evolve, you may need to modify your portfolio to stay on track.


The Menashe Morley Group
The Menashe Morley Group

The Menashe Morley Group, serving the community for over 30 years: David Menashe is a Senior Vice President and Wealth Management Advisor, and Bruce Morley is a First Vice President and Wealth Management Advisor and John Naviaux is a Financial Advisor for Merrill Lynch, Pierce, Fenner & Smith Incorporated, a registered broker-dealer, Member SIPC, and a wholly owned subsidiary of Bank of America Corporation. Investment products are not FDIC insured, are not bank guaranteed, may lose value. The Menashe Morley Group can be reached at 858-381-8113.

©2014 Bank of America Corporation. All rights reserved. | AR85PVMY| 11/2014


Photo by Andy Templeton


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