September 12, 2023

Stuff About Money: 8 Reasons Business Owners Should Diversify Their Wealth

17 minutes

Business owners often have the majority of their net worth tied up in their business. Does it make sense for them to diversify their wealth to protect their assets and achieve long-term financial security?

Erik Garcia, CFP®, BFA, talks about why it’s a bad idea to have all your eggs in one pocket and shares his 8 compelling reasons why business owners should diversify their wealth (reason #8 is the most compelling for him).

Episode Highlights:

Erik announces that the Stuff About Money podcast is now part of the Agency Intelligence Podcast Network. (1:33)

Erik discusses the importance of diversification for business owners to protect their assets and create long-term financial security. (3:10)

Erik explains that the first reason to diversify our small businesses is risk management, as spreading investments across different assets reduces risk and mitigates losses in market downturns or negative events. (5:06)

Erik mentions that the second compelling reason to diversify is the preservation of capital because if we manage risk outside of the small business, reduce volatility, and put our money elsewhere, we can preserve the capital and net worth we've created with our small businesses. (7:39)

Erik explains the third reason for diversification is retirement planning because diversifying and saving for retirement is crucial to avoid relying solely on the success of a business or its sale when it's time to retire. (8:15)

Erik shares that the fourth compelling reason to diversify your business is liquidity, as diversification helps you build liquidity outside of your small business because you can't sell it overnight like a stock. (8:57)

Erik explains that the fifth compelling reason for diversification is to seize growth opportunities. (9:30)

Erik mentions that the sixth compelling reason for diversification is for wealth preservation and smooth succession. (10:00)

Erik explains that the seventh reason is tax efficiency because it is a crucial reason for small business owners to diversify their investments and take advantage of tax-advantaged retirement plans to minimize taxable income and maximize returns. (11:33)

Erik shares the eighth reason to diversify from your small business is peace of mind because as business owners, we have a lot of pressure to make sure the business continues to succeed, especially in the insurance space. (12:07)

Key Quotes:

“As business owners, we should be actively looking for ways to diversify our wealth from our businesses. ” - Erik Garcia, CFP®, BFA

“Your small business is the engine of you creating wealth, you creating net-worth.” - Erik Garcia, CFP®, BFA

“Let's make sure that all of our eggs are not in one basket or all of our eggs are not in our right hip pocket that is about to smash into the piano.” - Erik Garcia, CFP®, BFA

Resources Mentioned:

Erik Garcia, CFP®, BFA

Xavier Angel, CFP®, ChFC, CLTC

Plan Wisely Wealth Advisors

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By Agency Intelligence

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