Investment Portfolio Management for Entrepreneurs

Entrepreneurs are inherently risk takers, it’s part of our DNA. So how should you balance your investment portfolio when you are starting your next venture? Should your investments be balanced differently if you have already scaled your company? There are a lot of nuances in how you should have your money allocated, which are based upon your unique situation.

As someone who has investments, is a business owner and also specializes in working with entrepreneurs and business owners, it has been my experience that there are some commonalities we share when investing our money, especially depending on what stage of our business we are at. First, let me explain some fundamentals of investing and common strategies you can utilize. This will give you context and a base of knowledge for the tips specific to entrepreneurs.

Fundamentals of Long-Term Investing

Asset allocation: Arguably one of the most well-known and used strategies for investing your money, asset allocation is essentially the balance of stocks, bonds and cash in your portfolio. It is a strategy used to balance risk and reward, based upon your risk tolerance and time horizon, to help you achieve the investment returns you determine are needed to meet your future goals.

Diversification: Drilling a little deeper is the strategy of diversification, which is meant to further help you balance risk and reward. Using this strategy one would make sure to use a variety of stocks & bonds within their overall allocation. Diversification allows you to spread your risk over many asset classes and sectors versus being concentrated in one area.

Rebalancing: Once you have determined the asset allocation and diversification percentages for your portfolio, it is not something you just set and forget. Perhaps you are putting money in on a regular basis, also known as dollar-cost averaging, or the markets simply do what they do, which will affect your percentages. This is normal. Using the strategies above, you will own a variety of stocks and bonds, some will do well, some won’t, and this changes constantly. You have no control over this, however you can control your asset allocation, diversification and how often you rebalance your percentages. (For related reading, see: The Role of Rebalancing.)

Long term, using these strategies in combination has been shown to work very well. Although nothing is a guarantee of future performance, being able to control variables like these certainly can positively impact your long-term investment performance. What you need to determine is your risk tolerance and time horizon, these will help you figure out what your percentages should be and give you a baseline to work from moving forward.

4 Tips for Entrepreneurs on How to Balance Their Investment Portfolio

Being an entrepreneur, business owner, founder, etc. brings with it a unique set of challenges when trying to figure out how you should balance your investment portfolio. Here are some tips that may help you be better prepared:

  1. Consider being conservative: If there is a possibility that you will need to withdraw money from your IRA, 401(k), etc. to fund your business during the startup phase, then the last thing you need is the markets tanking just before you take out your money, leaving you with much less capital than you planned on. Thus, looking at a portfolio mainly comprised of bonds, or even money market holdings, will bring the risk way down for your portfolio. Although still not guaranteed, this could make all the difference when you need the money the most. Keep in mind that if you take money out of an IRA, 401(k), etc., there may be taxes and penalties to do so. Make sure you look into this before taking the money out. (For related reading, see: How to Be a Conservative Investor.)
  2. Find professional help: Entrepreneurs are already stretched for time. Thus they rarely have the time to review their investments, especially how they fit into the bigger picture of their ever-changing life. Having a professional to work with is essentially outsourcing a service that you no longer need to worry about, although still make sure to have regularly scheduled check-ins to make sure you are on track.
  3. Be selfish: Investing, figuring out your asset allocation, diversification and rebalancing strategy all can be a drain on your mental reserves. Entrepreneurs especially are already thinking about a million things for their business, so having your investments on your mind is simply one more thing chipping away at your mental capacity to get things done. So, be selfish. Set aside an hour, figure out what your investing strategies should be, put them into place, and then go back to doing what you love and are passionate about. Delaying decisions like this tend to be more of a distraction then just spending the time on them to begin with. 
  4. Treat your business as an investment: Have you made it past the stressful startup stage of your business? Are you starting to scale, measuring your business growth each year in multiples of X? Congratulations! However, this does present a new unique challenge and planning opportunity for your overall investment strategy. Your business is starting to dominate your overall net worth, growing faster than any other investment you own, yet it is also the riskiest and most illiquid asset you own.

Take Action

Now that you have a basic understanding of how you may want to balance your investments, it is time to take action. Take an hour out of your day to do some due diligence on your current situation and then map out a plan moving forward. If you don’t have the time or expertise, find someone you trust and have them help you determine what the best strategy is for your situation. Once you have done this, then implement it and monitor it moving forward.

(For more from this author, see: Protect Your Small Business From Cybercrime.)