At some point or another, most business owners I work with start to ask me about when they should get their first Short Term Rental.
Or what I know about cryptocurrency.
Or how much they should be putting in a retirement account.
They’re all great questions, and there are hypothetical answers to all of them, but the reality is that most of them still have a ton of meat left on the bone in their primary investment opportunities.
Those primary investment opportunities being their business and themself.
While a diversified wealth strategy can be a great idea, there are a few key points to remember:
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An investment in your business probably has a better return than almost anything else out there (assuming you’re succeeding). This return is both in cash flow and in asset valuation. If you strategically invest in your business successfully, you’ll be able to pay yourself more and you’ll have put money into the infrastructure of the business, both of which will add value to the business overall.
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The only true “passive” investments have an incredibly small return. Things like savings accounts and CD’s are truly passive. Put your money in and watch it grow (slowly). The stock market kinda does that, but it’s got volatility. Rentals are going to require your time and money to repair, advertise and manage (unless you pay a management company, which will diminish that return back down).
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You don’t want to get distracted. Think about all of the things you know about and have experience with in your primary business. Now think about how many years it took for you to get to where you are. Now, think about all of the time and energy it is going to take to understand those other investments you’re considering and realize that there are people in those investment streams who have been devoting all the time and energy you have to your business, but in that avenue. You’ve got a lot to catch up on!
This isn’t to say that diversification is a bad idea. It’s to point out that unless your primary business and market is absolutely, 100% tapped out, that you should probably focus on growing that first. Then, when you’re bored and have so much money coming in that you just don’t know what to do with it, branch out in some other investment opportunities.
At that point, when that is the case, you’ll end up wealthy beyond your dreams, because your primary business will be pumping cash into your other investments that will then compound over the years. But before that, if you’re going to scrape the last of your checking account dry to buy a rental property, when you should be investing in your business, you’ll end up hamstrung in both directions.