Investment Principals for Entrepreneurs #1
CONSIDER COMPANY EQUITY:
Entrepreneurs have a few additional items to consider when investing. Unlike most people who are employed by someone else, the self-employed are building equity in their company. This leads to the possibility that their investment portfolios could be too heavy on stocks. The amount of equity an entrepreneur has in their company should be considered when choosing investments.
For Example: If a person has 100k of equity in their company and another 100k to invest, then the portfolio should be looked as 200k invested and 100k already in equity. Therefore, based on the individual’s risk tolerance, the cash will most likely have a larger position in fixed income than expected.
If this money is going to be a portfolio that is 80% and 20% bonds that means 160k would be in stock and 40k into fixed income. However, the person already has 100k of equity in their company so of the 100k in cash, only 60k would go into stocks and the other 40k into bonds.
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