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Don’t Bank Your Retirement on Your Business
Investing in your own business makes sense. Many businesses
achieve significant growth each year. However, when you consider that many
small businesses fold every year, it becomes clear that banking your
retirement solely on the success of your business might not be the best
idea. There is no guarantee that your business will continue to grow or even
maintain its current value. If your business is worth less than you were
counting on at the time you planned to retire, you could be forced to
continue working or sell it for less than what you were expecting.
Business owners often assume that their businesses will be
their main source of retirement funds, but that strategy can be riskier than
you think. It’s generally not wise to put all your eggs in one basket.
Broadly diversifying your assets may help protect against risk.
Diversification involves dividing your assets among many
types of investments. Putting all your money into a single investment is
risky because you could lose everything if the investment performs poorly —
even if that investment is your own business. Of course, diversification is
a method used to help manage investment risk; it does not guarantee against
loss.
Consider what would happen if you were planning to rely
solely on the sale of your business to fund your retirement, only to have
the U.S. economy fall into a recession about the time you planned to retire.
Although recessions happen infrequently in the U.S. economy, they occur
nonetheless. If one occurred when you planned to retire, it could affect the
sale of your business or the income it generates for you.
Likewise, there is no assurance that a larger competitor
won’t overtake your market, or that demand for your business’s goods and
services won’t weaken because of new technology, rising energy prices,
consumer trends, or other variables over which you have no control.
Your business is almost certain to provide some of the money
you need to retire. Building a portfolio outside your business can help
ensure that your retirement is not exposed to the same risks as your
business.
© 2007 Emerald Publications
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