If you own a business and want to diversify your assets by investing in stocks, today’s online brokerages make trading fairly easy. However, stock investing is risky, especially in a volatile market. Here are four key considerations small-business owners should make before investing.
Understand Why You Want To Invest
Investing may make sense for non-business owners, particularly those who do not have a pension. By investing for retirement, individuals may enjoy the benefits of compounding interest and investment returns over a long time.
For business owners, the considerations are more complex. Businesses have many demands on their working capital. Using these funds to make investments–instead of using them for inventory, payroll expenses, or expansion–may have a significant opportunity cost. Before investing business funds, consider both your goals and your available capital to ensure that investing is an efficient use of your working capital.
Determine Your Strategy
There are nearly as many investment strategies as there are investments themselves. Some businesses may want to invest in new technologies like electric vehicles. Others may prefer bond funds as a possible source of relative stability in a volatile market.
Your investment strategy should reflect these factors:
- Your investment time horizon
- Your risk tolerance
- Your non-business investments
- Your business’s cash flow and tax liability
- Your business’s legal structure
A financial professional may help you evaluate your circumstances and design an investment strategy that reflects them.
Find a Business Stock Broker
A financial professional may work with a broker to assist you in trading stocks, analyzing your portfolio’s performance, and working towards making your investments tax-efficient. One important thing to know is that you do not want to combine your business investments with your personal ones. Instead, a business investor should have a separate business brokerage account to avoid any tax or legal complications.
Evaluate and Adjust Your Strategy Over Time
Unless your plan is to hold on to your investments for a long time, evaluating your business strategy regularly is important. Adjust your financial plan as circumstances dictate. Over time, some investments may outpace others, skewing your desired asset allocation. You may need to sell some of your higher-performing assets to rebalance your portfolio in situations like this.
Your financial professional might be a good sounding board when it comes to providing guidance on how to invest and adjust your plan over time.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.
Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss.
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
This article was prepared by WriterAccess.
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