Business Owners Should Re-Evaluate Their Investment Strategy

One of the common investment planning mistakes that I uncover when working with business owners is that their ownership in their business and/or businesses is often not accounted for properly in their overall plan. Most of us are very aware that there should be a proper balance between growth-oriented investments (stocks) and more conservative investments (bonds and market-neutral alternatives). However, when a business owner’s portfolio is reviewed, it is important to factor in the equity value of the company itself into the overall equation.

For example, a business owner who has $2,000,000 in equity in his or her business and a $1,000,000 investment account that is 70% growth-oriented ($700,000) and 30% conservative ($300,000) actually has dramatically more market and economic risk in his or her overall portfolio than someone who draws a salary. Essentially the business itself is a very large, very concentrated, illiquid equity investment that is often overlooked from an investment perspective. Effectively, the overall growth-oriented exposure is $2,700,000 or 90% of their overall net worth and the conservative portion is only 10% or $300,000 of their overall net worth.

Also, my experience has been that at times when the economy is weakest is when business owners are far more likely to need to draw on their reserves than when the economy is strong. Therefore, if a business owner with a situation similar to the one outlined above really wants to have a 70% growth, 30% conservative portfolio overall then he or she really should have $900,000 in conservative investments (90% of their investment account) and only $100,000 in growth-oriented investments (only 10% of their investment account). 

Because the markets are fully valued and they appear to have been most of the year, it is an excellent time for business owners to review their overall investment strategy and to make any necessary adjustments.

This article was written by and provided courtesy of Vaughan Scott, Senior Vice President – Investment Officer with Axiom Financial Strategies Group in New Albany, IN.  Visit our website at

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