The Rules of Thumb blog from MoneyThumb realizes that it takes a lot of guts to run a successful small business. It usually means putting in a lot of hours to make your business become what you envision. This means you don’t have a lot of time to focus on investments. We hope the following 6 investment tips for small business owners can help you learn more about investments and save you time:
Diversify Your Portfolio–Make sure you have a mix of stocks, bonds, and cash. In the long term, stocks usually provide a return of about 10% a year. That is actually enough to double your money every seven years. But it is smarter, for at least the first 5-10 years of starting your business, that the bulk of your investment goes into bonds. Though the return is less, around 5% a year, they are much less volatile or subject to change as stocks. As far as cash, though it will not grow much, it is advisable to make sure you have enough to run your business for a year.
Increase the Amount You Save–A healthy savings account is always a good idea, but especially when you own a small business. This is your insurance against trouble, and it can’t be said enough that there should be emergency funds, even if there is never a need for it, the peace of mind a hefty savings account offers is invaluable in the changing fortunes of time.
Minimize Taxes and Fees–The more an investment relies on investment income – rather than a change in its price – to generate a return, the less tax-efficient it is to the investor.
This great article from Investopedia, A Beginner’s Guide To Tax-Efficient Investing, is well worth a read.
View Investing as a Long-Term Game–To get the long-term gains you read about — 10 percent a year for stocks, for example — you have to leave your money in the market and reinvest all dividends and interest earnings. Many people who pull out of the market in downturns wait too long to get back in, missing the bulk of the rebound.
Use Indexing–Rather than try to pick hot stocks or bonds, a large class of mutual funds and E.T.F.’s simply buy and hold securities that reflect an underlying index, such as the Dow Jones industrial average or Standard & Poor’s 500-stock index. Many studies have shown this to be more successful than “active management,” largely because few active managers can consistently pick market-beating investments.
Avoid Options, Futures, and Forward Contracts–These aggressive, speculative instruments can turn huge profits-or suddenly become worthless. In the stock market, by contrast, the average investor makes money because the average stock rises in value over time.
Hopefully, the above 6 investment tips for small business owners will help you out. MoneyThumb also wants you to know that we offer a version of our PDF financial file converters specifically designed for small businesses. You can take a test drive here.