Investing > Stocks/Bonds

Now is a good time to think about diversifying your investments beyond your business
JOYCE M. ROSENBERG, AP Business Writer. Associated Press.
Copyright Associated Press

NEW YORK (AP) _ For many small company owners, every available cent goes into their enterprise during the first few years of business. Personal portfolios, including stocks and mutual funds, just aren't a priority.

With Wall Street having tumbled to five-year lows, it might be time to think about doing the personal investing you put off while you built your business.

"This massive downturn can have a silver lining for business owners, because now they will focus on their overall financial picture," said Gary Schatsky, a certified financial planner in New York.

Some entrepreneurs who put their money into their businesses instead of the market might feel they made the right choice, given stocks' precipitous drop over the past two years. They might consider investing now to be the wrong move.

"In retrospect, they figure they've done a brilliant move by not going into the stock market, (but) it's probably not the best thing for some of them," Schatsky said.

"You should play to your strengths, but there's more to be said for diversifying your portfolio," he said.

For the squeamish, Schatsky's suggestion is to "start slowly, so you can hit your level of comfort."

A mixture of index and actively managed mutual funds are one way to begin, and no-load funds are best if you're looking for lower costs, he said.

But not everyone believes that diversifying beyond the business is the answer, even if stock prices are tempting.

Robert Reby, a financial planner in Danbury, Conn., says it might be better to leave the money with the company and put it to work there.

"I give a lot of clients advice that your best investment is investing in your business. Your return on capital if you buy another ice cream maker, since you control the risk, should be better than a conservative portfolio that returns 9 or 10 percent," he said.

But Reby also suggests putting money into a retirement plan _ either setting one up for your firm or upgrading an existing plan to allow you and your employees to save more. That will enable you to set aside money for the future and also save your business money on taxes.

By setting up a retirement plan, business owners "will have a 33 to 34 percent return by preventing that money from going on a one- way trip to Washington, D.C.," Reby said.

If you've never set up a retirement plan and your company is quite small, you'll probably want to think in terms of a Simplified Employee Pension, or SEP, or Savings Incentive Match Plans for Employees, known as SIMPLE.

The different plans, which also include more complicated 401(k)s and profit-sharing plans, have varying requirements and tax consequences. You should probably discuss which one would be best for your firm with a tax lawyer or accountant.

Business owners generally will be in a position to invest _ whether it's through their own portfolios or a retirement plan _ if their companies' cash flows are solid.

In choosing investments, owners should naturally follow the same guidelines that financial professionals set out for individuals.

Elaine Bedel, a financial planner in Indianapolis, said any money that you might need for your company in the near future should go into a more conservative investment for a short period of time. Six- month CDs or Treasury bills are options in that case.

"Try not to put it out to undue risk," Bedel said.

If you can spare the money for five or 10 years, the stock market may be a better choice.

Bedel says some owners have the cash, but leave it in their companies out of fear. She suggests drawing an appropriate salary, if you're not doing so already, or paying yourself a bonus.

"Having too much money sitting in the company and not earning anything doesn't make any sense," she said. "You're not doing your own best personal financial planning."

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