It's Your Money  

When it comes to finances, don't put all your eggs in one basket

Diversify investments

Many entrepreneurs are so focused on their business they don’t invest outside of their company. But they should.

Many business owners have a lot, if not all, of their wealth tied up in their companies. But this naturally exposes your entire financial future to a single sector and company. The old adage of “don’t put all your eggs in one basket” is forgotten. Unfortunately, it’s a lesson that many entrepreneurs don’t pay enough attention to—not because they don’t know that it pays to be diversified, but because they’re so hyper-focused on their business and its success. Even those who have an RRSP and a TFSA as well, typically have the majority of their wealth tied up in their company.

So how can entrepreneurs diversify away from their companies?

The first step is to make sure you allocate some of your salary to RRSPs and TFSAs at regular intervals – the idea of “paying yourself first” before reinvesting in your business. Consider automatic transfers from a main account into an investment account, which will allow you to save without even thinking about it.

The next step is ensuring that those savings go into diversified investments. If the money you invest outside of your business has a high correlation to your company’s revenue streams, you’re missing the point. This can be achieved through selecting investments that provide geographic as well as sector diversification.

For some business owners, this is easier said than done. Many buy investments in their own sector because it’s what they know. If someone owns an oil and gas service company, for instance, he or she might not want to hold a natural resources fund.

Even if that fund would make up a small percentage of an overall investment portfolio, add the business into the equation and that single sector could become an even more significant percentage of the person’s wealth.

Naturally, it helps to get professional advice, especially because business owners spend most of their time thinking about their business.

Consider using tax specialists as well as certified financial planning professionals to help make sure your wealth is being properly looked after.

In addition to ensuring you’re properly diversified, they can teach you the ideal way to structure your corporation which is a huge advantage with different investments strategies.

Ultimately, knowing that you’re not too concentrated in a specific sector and that your wealth is properly spread out, gives you peace of mind and allows you to concentrate on what you does best – grow your thriving business.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.

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About the Author

Brett, designated as a chartered investment manager and certified financial planner, is the regional director (Okanagan) for IG Wealth Management.

In addition to his “day job," Brett was appointed to the board of directors of FP Canada (formerly FPSC) in 2014, named as the board’s vice-chair in 2017 and took over as board chairman in 2019. 

Brett has been writing a weekly financial planning column since 2012 and provides his readers with easy to understand explanations of the complex financial challenges that they face in every stage of life.

Enhancing the financial literacy of Canadian consumers is a top priority of Brett’s and his ongoing efforts as a finance writer and on the regulatory side through the FP Canada board focus on this initiative.   

Please let Brett know if you have any topics that you’d like him to cover in future columns by emailing him at [email protected]

The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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