As a small business owner, you work hard for your money and your money should work hard for you too. Here are some financial tips for your business and your life.
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Planning for your future
An investment plan is the foundation for building your financial future. A good plan can help you increase your savings and stay ahead of inflation. It can also help reduce your stress levels by mapping out a blueprint for the coming years. You might find tax incentives or advantages too, depending on how you decide to invest. With a solid financial plan in place, you’ll have more time to focus on your passion — running your business.
When you started your business, you likely had a dream of where you hoped it would be in five or ten years. Long-term thinking is important for investing too. Over time, your investments normally grow in value, this can give you the financial resources to expand your business or provide a steady income in retirement. Your investments can also give you peace of mind by helping to ensure you have a financial cushion for emergencies, or, for your children’s education.
There are many investment products and ways to invest.
If you have a diversified portfolio, it means you own a mix of different types of investments such as stocks and bonds. It also means you’re investing in different sectors or industries. Spreading your investment risk through diversification, helps prevent significant losses that can occur since similar investment assets tend to lose value at the same time.
Many do-it-yourself investors enjoy researching and buying investments on their own, but if you’re busy running a business, you may not have time to follow the markets. Exchange-traded funds and mutual funds offer access to many different investments, such as stocks, bonds and other funds in a single product. They are managed by professional money managers. Index funds can give you instant diversification as they mimic the performance of a specific index or benchmark, such as the S&P/TSX Composite Index.
Time horizon and risk
Time horizon is the length of time an investment is expected to be held before it is sold. If you hold investments with a longer time horizon, then the risk is usually lower. Investments like stocks are exposed to higher risks in the short term, but they have historically produced overall positive returns in the long term. A longer time horizon also gives your investments the time to recover from short-term losses.
You might consider investing in low-risk investments if you have a shorter time horizon. Savings bonds, money market funds and GICs offer modest, low risk returns, but they are easier to turn into cash. Higher-risk investments may appeal to you for their higher potential returns, but their values can fluctuate significantly in the short term, which can result in poor investment outcomes if you need to cash out before it can recover.
Working with a financial advisor
If you decide to work with a financial advisor, you can benefit from their expertise.
A financial advisor can help you develop an investment plan that meets your goals and suits your risk tolerance. Depending on their qualifications, some advisors offer additional services like financial planning, debt management, and tax and estate planning.