We all know diversification is important. We hear it all the time when it comes to our portfolio. Diversifying our finances, however, can include more than just our portfolio of investments. One of the things I love to preach to clients is that diversifying all of their assets can be as important as the investment portfolio itself. Just as I would be concerned that a client has too much of a single holding in their portfolio, I also worry when all of their assets are too concentrated in one area. Today, let’s cover the types of asset overconcentration and what we can do to make sure we are diversified in our overall financial life.
Most often, business owners are the customers who suffer from the highest overconcentration of assets. If I once heard âMy business is my retirement,â I have heard it a thousand times. As a business owner, I understand. I have spent 25 years building my business to its current state, and I clearly see its value as an asset to my future retirement funds (if you are a client, don’t worry, I don’t have no interest in retiring anytime soon.). Having said that, I can hardly assume that my business value will still be based on the same metrics as it is today. We have seen countless examples of very valuable industries that have been diminished either by disruptive technologies, like AirBnb, Uber, Zoom, Toys-r-Us, etc. or by obsolescence. You just can’t assume that your business will keep the same value in the future, which is why you need to diversify your assets. Business owners should invest outside of their own business in order to protect themselves, just like an investor would buy by investing in a diversified portfolio.