Entrepreneurs are known for taking risks. Diving headfirst into unknown waters with nothing but a business plan in hand and hope for the best.
However, when it comes to personal finance, most successful entrepreneurs opt for conservative investments. Why?
Because it’s all about balance.
If you’re business life is full of uncertainty, you want to balance that with stable investments that will cushion you if you fall. Especially if you’re business is in its growth stage and supports an entire family.
Here are four investments every entrepreneur should consider:
Bonds are known for being a non-volatile investment class, perfect for entrepreneurs whose daily realities include volatile financial ups and downs.
How do they work?
Bonds are essentially debt investments for a defined time period with either a fixed or variable rate of interest. When a business or government entity needs to raise money, they do so by selling bonds.
Each bond has a maturity date by which you receive back your initial investment, plus all the interest it has accumulated over the years–making bonds a relatively stable and attractive investment option for the conservative investor.
2. Untouchable portfolios
Day-trading can easily turn into gambling, which is riskier to run than your business.
Therefore, as an entrepreneur, if you decide to invest in the stock market, you should create untouchable portfolios. These are portfolios diversified with a mix of stocks, bonds and mutual funds located in accounts that are very difficult for you to access.
This will encourage you to take a long-term perspective and reduce your temptation to get into your portfolio for a short-term cash-infusion in case your business is struggling.
To add even more fuel to the fire, you can transfer the funds from your investment portfolios into your retirement account or your children’s education accounts. Gaining access to those types of accounts before their time come with large financial penalties, effectively reducing your temptation even further.
Gold is perceived as a commodity investment that rarely loses its value.
And, rightfully so. The price of gold has nearly quadrupled over the past 17 years.
Especially in recent times, many entrepreneurs have opted for investing in gold as opposed to stocks. This is because including gold in your investment portfolio can protect your returns against economic downturns.
For example, when there is a recession or high inflation, stocks and bonds tend to perform poorly. However, gold maintains its unique value and use as money throughout history. Therefore, it remains stable and balances out your portfolio, protecting you from the impact of economic recessions.
This may not be as obvious to some, but buying insurance is one of the best investments you can make as an entrepreneur. Insurance policies are a big piece of the personal risk management puzzle, and determining what type of coverage to purchase is crucial.
For example, life insurance can do more than protect your loved ones in times of crisis, it can protect your business as well. Purchasing whole life policies that build cash value over time will be invaluable to your beneficiaries who will receive both the death benefit and the money you’ve accumulated.
Additionally, you can take cash out of your policy before your death as collateral, if needed. Many financial advisors recommend cash-based policies because they build guaranteed value, are protected, highly liquid, and generate a decent return on investment.
5. Real estate
Investing in real estate is a broad term that encompasses both risky short-term investments and stable long-term investments. For entrepreneurs, the latter is always best.
With a little digging, it’s possible to find investment properties under $250,000 in value that generate simple positive cash-flow. Once you’ve spent the time up-front and done your due-diligence to find eligible properties and property management solutions, you can almost forget about them and just collect the few thousand dollars as a treat each month. And, the equity can be a huge advantage in the future as well.
However, it’s critical for you to conduct proper rental property research before making any purchasing decisions. The cash flow from an investment property depends on many factors and is therefore only a stable investment if these are all taken into consideration.
For example, economic factors can affect demand for a property. If a major employer in the region goes bankrupt or moves out of town, this can tank your property value overnight. Alternatively, if local employers seem to be doing well, are healthy and profitable with a newly renewed lease agreement on their office space, you’re probably in better shape.