Diversification helps manage risk
Business owners often assume that their businesses will be their main source of retirement funds, but that strategy could 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 a profit or protect against the risk of investment 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. If a recession 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. By building a portfolio outside of your business, you are helping to insulate your retirement from the risks and market conditions that can affect your business.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is
historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly. The information provided is not intended to be a substitute for specific individualized tax planning or legal advice. We suggest that you consult with a qualified tax or legal advisor. LPL Financial Representatives offer access to Trust Services through The Private Trust Company N.A., an affiliate of LPL Financial.