Should Business Owners Manage Their Own Investments?

As an experienced business owner, you know how to make things happen. Where others see obstacles, you see challenges and opportunities. So who is better qualified than you to manage your own money? If you put your mind to it, can’t you manage your investments as well as, or better than, you can with professional help?

Unfortunately, the answer is likely no.

Surprisingly, the same skills that make you a successful business owner often backfire on you when it comes to investing. You’re probably very comfortable with risk, and too much risk can make you prone to outsize losses.

Also, to be a successful investor in the long term, you need time to learn about the behavioral side of investing, so you can avoid falling victim to it. For example, as investors, we all fight fear and greed. Fear kicks in when the market plummets, when we naturally seek to stop the pain by selling (usually at the worst possible time). Greed, on the other hand, makes people chase whatever’s hot today and keep chasing it even when it’s no longer a bargain. Whether it’s Bitcoin, tech stocks, or something else, we naturally tend to “run with the herd” and buy more only after the crowd is already in. This leaves us vulnerable to the other side of the cycle, when these investments eventually tend to come back to more normal valuations. We see this happen repeatedly, where someone makes a huge payday in one investment (such as tech stocks or Bitcoin), only to give it all back when the market cycle changes.

Yes, you can learn to fight these urges, but it takes a lifelong commitment to study and discipline that few individuals have time for.

Grim Statistics

Research backs this up. For over 25 years, the investor research firm DALBAR has been studying investor returns. And every year, their research found that individual investors significantly underperform the market:

  • For the past 30 years through Dec. 31, 2018, individual investors underperformed the S&P 500 by over 5.88% per year.
  • During that same period, individuals who invested in bonds did not even keep up with inflation.1

As Richard Bernstein, a former chief investment strategist at Merrill Lynch, put it,

What’s shocking is that simply by investing, most people actually made themselves poorer.

Compounded Losses

As a business owner, you’re used to getting results. You know what you know and can probably realistically assess your weaknesses, too.

But as financial advisors to many successful business owners for more than three decades, we’ve seen one troubling pattern. That’s a tendency to use what you know for investment.

Done very carefully in a risk-managed financial plan, this can be a good thing. But as a business owner, you’ve already got wealth concentrated in one area: your business. If you then “buy what you know” with investments, you can be in for a very rough ride if there’s an event that impacts your industry.

Here is an example. We have had clients in certain cyclical industries use their specialized insight to invest in stocks in their sector. While that sounds good in theory, when the industry hits a bump, their losses are compounded: their business declines at the same time their investments drop. If what looked like a small blip turns into a more serious industry downturn, that can put you in precarious situation.

Part of being smart with your money is acknowledging that no one has a crystal ball. That’s why in your financial life, you need prudent financial planning and investment management. That is even more critical for business owners who tend to carry more risk in their financial lives.

Can You Count on Selling Your Business?

As you can probably see, the odds are stacked against most individuals, and as a business owner, you’ve got even less spare time to focus on investments. But many business owners don’t worry about it too much and assume they can sell their business to fund their retirement.

Unfortunately, that’s another area where statistics don’t paint a pretty picture:

  • According to a U.S. Chamber of Commerce study, only one in five businesses that try to sell do so successfully.2

While you may be one of the few who does successfully sell your business, that doesn’t necessarily mean you’ll be able to sell it for the price you want.

Are You Missing a Critical Member of Your Team?

Given this reality, it’s smart to avoid mistakes and make sure every dollar you save is protected and working productively for you. This is where finding a good financial advisor can help. But to get the best results, look for someone who understands the unique needs of business owners so they can help you achieve your goals.

Here are some of the benefits you can expect when you hire a competent, qualified financial advisor who is well-versed in helping business owners:

  1. Financial Planning. A high-quality advisor will lead with financial planning. This is critical for business owners, since you want to make sure you are protected and avoid any blind spots. As importantly, financial planning will help you create a road map to the life you really want. You’ll have a clear action plan ahead of you to achieve your goals, which can keep you motivated to save instead of spend.
  2. Diversification. A good advisor can help you diversify your life away from your business. That way, if some unexpected event happens and hurts your business, your lifestyle will not be impacted. You should make it a goal to achieve financial independence apart from your business, and the right advisor can help you do that.
  3. Discipline. That advisor can also bring discipline to your investing. So instead of piling into a risky area and later giving back your gains, you can strive to generate more consistent returns. This is especially critical in today’s market, as the investment environment has gotten more complex.
  4. Avoid Expensive Mistakes. We’ve all been there: whether it was the emotional purchase of a vacation home or timeshare, or deciding to buy that expensive new car when our current one was still completely fine, we all have instances where we wish we could undo a bad financial mistake. Having an objective professional on your side can help you prevent those mistakes, and instead make prudent financial decisions in all areas of your life.

Just be sure to choose your financial advisor carefully. Like any important team member you select, this person should possess the right combination of expertise and experience. Don’t just assume all “financial advisors” are created equal. Look for those with significant experience helping other business owners navigate complex economic environments.

Building your business was a monumental challenge, and you prevailed. Is it time now to find the right team to help you achieve your personal financial goals, too?


  2. Leonetti, J. (2008). Exiting your business, protecting your wealth. Hoboken, N.J.: John Wiley & Sons.

Liza Brown

Liza Brown is dedicated to serving clients of Potomac Financial Services as President and Investment Advisor. She is passionate about helping individuals, families and business owners achieve their financial goals by combining risk-managed investing with protection planning. She earned her Bachelor of Science in Business from Virginia Tech, where she majored in Finance and graduated Magna Cum Laude.

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