Investing outside your broking business

As you build and expand your brokerage, it’s important to invest as much time and resources as possible (including any spare cash) into the business. Reinvesting profits back into your business is an important aspect of growing your brokerage. But should you continue investing in the business when it’s in its prime?

If you were investing your money in the sharemarket, you wouldn’t keep ploughing all of your money into only one company. You would build a portfolio that included shares in a diverse range of companies spanning different industries and asset classes. But, when you’re reinvesting all your spare money back into your brokerage business, you’re effectively throwing all your eggs into the one basket. Sure, it may be your business, and you know it intimately and feel confident in investing in it. But, you should also heed the golden rule of investing – diversification.

Diversification – the key to successful investing
Diversification is the key to successful investing. By diversifying your investments into different companies, and across different asset classes, you’re reducing any potential risk. You may invest in a company that subsequently performs poorly for one reason or another, perhaps the current market conditions don’t favour that company at the time, but if you diversify, some of your other investments may be performing quite well. The result is a smoother investment return, and lower risk. The same can be said for different asset classes. For example, listed property trusts might not be performing as strongly as resources stocks or vice versa.

Protecting your assets
By investing outside your business, you can ensure that if you suffer financial difficulties within the business, you have other assets outside the business that you can rely on. These assets could either help you get your business back into a viable financial situation or ensure that you and your family remain financially secure.

How to invest outside your business
So if you want to invest outside the business, how do you go about it? There are a number of options available. You could invest in residential or retail or commercial property. You could invest in the sharemarket (if you have the knowledge and the time), or you could invest in a professionally managed portfolio such as a managed fund. Another option, which offers significant tax advantages, is investing in super. That way, if the unthinkable were to happen and you were to lose your business, the extra money you invested in your super would remain secure.

Investing outside your business should be a part of your long term business plan. Even if you’re not in a situation to do it now for one reason or another, it’s something you’ll need to consider at some stage.