Planning for a Sound, Long-term Investment Strategy as a Business Owner

The best investment strategy for business owners is a relatively simple approach that relies less on skills and knowledge and more on patience and discipline. By following three simple, proven investment practices, any business owner can develop and implement a sound, long-term investment strategy. But it must start with clearly defined goals. Working with a trusted advisor is the safest and quickest way to build an investment strategy built around your unique time horizon, so you can determine how much you need to invest, what rate of return is needed on your investment and how much risk you will need to take.

Practice #1: Asset Allocation

At the core of any investment strategy is the long-term mix of your assets. Understanding that different asset classes behave differently in various market or economic environments is the premise behind an asset allocation strategy; and achieving the right asset mix will enable you to capture returns whenever and wherever they occur. For example, when foreign stocks are performing well, large U.S. stocks may not. However, if your mix includes some of both, your portfolio will still benefit, and its overall volatility will be reduced.

Your asset allocation strategy should seek to achieve the optimum mix of assets, including your business (if you count it as an asset), that will generate constant returns.

Practice #2: Diversification

Diversification is the spreading of risk and reward within an asset class. Essentially, diversification is the practice of deliberate uncertainty, recognizing that it is virtually impossible to know which stock or mutual fund is likely to outperform another. Your Investment Advisor can leverage their expertise to craft and implement diversification strategies that best fit your portfolio.

Broad diversification seeks to capture the returns of different types of investments in all 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 create assets outside of your business.

Practice #3: Rebalancing

The third investment practice is rebalancing which is what keeps your overall investment strategy intact as the market fluctuates. Through market fluctuations, your asset allocation will change frequently which could cause your portfolio assets 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 will always be buying low and selling high.

Truth-be-told, investing “done right” is not that complicated – set goals, allocate, diversify, and rebalance yearly. Then rinse and repeat. And, most importantly, don’t veer from the strategy. It is so easy in fact, that the notion of simply doing it yourself can be tempting. However, the stakes are so high that even the smallest mistake or temporary break from strategy can derail your financial future. The best investment advice for business owners is to work with a trusted financial advisor in developing and implementing a sound, long-term investment strategy.

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