Unlike individuals, small business owners have different factors to consider before they can choose investments. For example, if a business is fairly new, it may not be stable enough yet to plan for the long term. Also, owners often have other day-to-day financial commitments that could take precedence over investing. Here is a five-step process recommended for small business owners who have examined their current situation and decided that investing is a viable option.
1. Understand Short-Term Vs. Long-Term Returns
Before getting started, it’s important to understand the return potential for different types of stocks. There are small and mid-cap companies that often perform well rather quickly. Depending on the stability of the company, there is a higher risk of losing most or all of your return. For small business owners, experts advise investing in well-established large-cap companies.
Examples of companies considered large-cap stocks include Amazon, Apple and Microsoft. Although returns from a large cap stock portfolio fluctuate according to market highs and lows, the dividends can add up over time. Because large-cap stocks provide stable, long-term growth, they are better suited for small business owners who need to minimize risk.
2. Choose How You Want To Invest
Before purchasing stocks, plan an investment strategy either individually or with help from a financial advisor. Consider selecting a few individual companies or using a managed fund, which includes stocks, bonds and cash and equivalents. The various types of stocks in managed funds help to diversify a portfolio. Diversification balances risk versus payoff.
Large-cap stocks account for a portion of funds, providing stability. For small business owners, investors suggest using exchange-traded funds or mutual funds. Both types of investments include stable large-cap stocks as well as small and mid-cap stocks, which carry more risk but also have potentially higher dividends for short-term investing.
3. Find a Broker
If the investor is prepared to make trades without help, discount brokerage firms such as E-Trade may be suitable because they offer low fees for each transaction. Another option is to choose a full-service broker, who will not only execute transactions but will also provide expert guidance. There will be additional fees, however, for the broker’s meetings, research, updates and maintenance of the account.
It’s important to make sure investment plans match what brokerage firms offer. Some firms excel at stock trades, but may not offer services for cryptocurrency. You can get more in-depth information about brokerages, such as their required registry with the Financial Industry Regulatory Authority or FINRA. When researching brokers, learn their portfolio philosophy and compare their fees before committing to one.
4. Open an Account and Make Your First Transactions
Once an official account is open with a brokerage firm, it is time to start investing with an initial deposit. Most investment companies require a minimum amount to get started, usually $500. An important reminder for small business owners is they are legally required to have an official business brokerage account for investing; they cannot use a personal bank account.
Once your account is set up with a deposit, it’s time to make transactions on your own or with the assistance of your broker.
5. Monitor Progress and Make Adjustments If Needed
Refer back to your investment strategy when watching stock growth. If financial goals are for the long-term, changes may not be needed; just expect stock values to ebb and flow over time. If the goal is to make some quick gains with a short-term strategy, watch stocks more closely and make adjustments based on their performance to avoid significant losses.
With careful consideration and planning, small business owners can invest in stocks while maintaining their company’s financial obligations. Choose the right investment strategy and broker to deliver ideal returns on stock investments and help increase company profits.