Social media works when you have a strategy: meeting other bloggers for collaboration is one of mine!
Christine Leibbrand is a runner, climber, writer, personal finance nerd, and Doctor of Sociology. When we started a conversation in Margaret Bourne's Facebook community for bloggers, I was drawn in.
Why? Because it's clear Christine is passionate about providing people with fun, yet informative content that can transform lives for the better. You can find her writing on health, wealth, and self-care on her blog Department of Adulting and follow her on social using the links at the end of the post.
Read Christine's guest post below and get a clear vision on adding investing to your entrepreneurial journey. Because you can do both: invest in your business and your future.
It's about achieving your life goals, whatever they are!
Necessary disclaimer: As a blogger, I use affiliate links sometimes! I may receive commission from purchases I share; it does not change your price but sometimes you might get a discount.
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Let's get started on investing as part of the entrepreneurial journey to achieve your life goals.
Disclosure: I am not a financial advisor or investment adviser. This information is solely for informational and entertainment purposes.
Many entrepreneurs start their journey with little roadmap of what the future will look like. After all, starting a business requires daring and initiative to chart little-trodden paths. This lack of a roadmap extends to how to invest for the future as an entrepreneur, especially if you are changing careers in midlife.
If you are an entrepreneur and have either left your W-2 job or never had one in the first place, how do you go about investing your hard-earned money so you know your future is stable even as your business is growing and changing? How do you balance investing in your own business with investing in yourself? And what do you do about that 401K you have with your old employer?
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Investing in Yourself
As an entrepreneur, the most important thing is to pay yourself first. That includes investing in your future. Even if there isn't much money left over after your expenses are paid, it's important to get in the habit of investing.
If you’ve previously had a W-2 job that automatically invested for you, you may not have built up this investing muscle. However, investing in the stock market is one of the only ways of reliably ensuring your savings beat inflation over time.
If you would like your financial cushion to last into your 70s, 80s, 90s, or even beyond, investing is crucial. So when you're early in your business ventures, you want to get in the habit of investing, even if it’s just a little bit at a time.
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How to Invest as an Entrepreneur
Luckily entrepreneurs have a variety of investment opportunities available for them. Entrepreneurs can open traditional brokerage accounts and invest their money in stocks, bonds, and more (for more info on opening a brokerage account, you can see this post from Department of Adulting). However, there are largely no tax or business benefits to these kinds of accounts.
If you are looking to invest for your retirement, you and your business may benefit from opening a retirement investment account aimed at entrepreneurs.
Many of these accounts are tax-advantaged (i.e. you can contribute pre-tax income). Plus, contributions are tax-deductible for some account types, which may save you and your business money in the long run.
As long as you earn income, you can still contribute to retirement accounts when you are semi-retired or own your own business. Moreover, if you had a 401K, you can either keep it with your old employer or roll it over into one of the investment options below.
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SEP-IRA
One of the simplest retirement investing options is a Simplified Employee Pension (SEP-IRA). Creating a SEP-IRA can be a great idea for sole proprietorships or small businesses because they're easy to open and allow you to contribute up to 25% of your pre-tax income. Plus, they're tax deductible. Moreover, you can adjust how much you contribute year-to-year, so you're not locked into a particular amount. The potential downside of this option is that you have to contribute the same percentage of compensation for all employees.
SIMPLE-IRA
Small business owners can also open a SIMPLE-IRA. A SIMPLE-IRA has a contribution limit of $15,500 per year for those under 50 ($17,000 for those 50+). With SIMPLE-IRAs, employers must match at least 2% of employees' compensation. While these contributions are tax-deductible, they may not be feasible for some businesses.
Solo 401K
If your business is made up of just you or you and your spouse, you can open a Solo 401K. Solo 401K's let you contribute the most of any option--up to 20% of your pay plus $20,500 in salary deferrals. Your spouse can make the same level of contribution as well, so this can be a win-win for very small businesses!
Traditional or Roth IRA
Finally, you can always invest in a Traditional IRA or Roth IRA on your own. A Traditional IRA lets you invest pre-tax income and pay tax when you withdraw money during retirement. A Roth IRA lets you contribute post-tax income and then you never have to pay tax on it again.
There are pros and cons to each. For example, if you are in a higher tax bracket later in life or if taxes increase, the Traditional IRA will lead to a higher tax bill. On the other hand, if you are in a lower tax bracket in retirement, you may benefit more from the Traditional IRA.
Many financial advisers recommend investing in both pre- and post-tax accounts to hedge your bets. Even if you think you'll end up in a lower tax bracket in retirement, many financial experts expect taxes to go up in the coming decades, suggesting the Roth IRA could be your best bet.
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What To Invest In
Safe Investment Options for Entrepreneurs
Once you've decided how you want to invest, it's important to know what types of investments to put your money in. Whether it’s for retirement or other goals, you should only invest in the stock market for goals that are 5 or more years away. In the short-term, the stock market goes up and down frequently. Over the long-term, however, the stock market has reliably earned great returns.
Keep in mind that if you are semi-retired or nearing retirement, you will still want most of your money invested. After all, you will hopefully have a very long, fruitful retirement! However, you can aim to move money you need in the next 5 years from the stock market to safer locations like CDs, high-yield savings accounts, and money market accounts.
When choosing investments, the first step is to ensure you have a diversified investment portfolio. For most people, one of the best investments is a broad market index fund or ETF based on the S&P500 or another large market index fund. These index funds or ETFs are automatically diversified investment funds that invest in the largest companies in the U.S. As companies enter and leave these indices, the funds update themselves. So you always know you are investing in some of the best-performing companies in the world.
Over its history, the S&P500 has returned, on average, 9.82% per year. These kinds of index funds are among the best ways to take the guesswork out of investing while earning safe, reliable passive income.
While mutual funds also offer diversified investments, they tend to come with higher fees and the same or lower returns as the S&P500. Consequently, financial experts don’t recommend them as much anymore.
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Higher Risk Investment Options for Entrepreneurs
If you have a higher risk tolerance, you can invest in index funds or ETFs that are based on small businesses or emerging markets, like the Russell 3000 or Emerging Markets Index. These funds come with higher risk and higher potential reward.
You may also choose to invest in individual companies. This is one of the riskiest and most time-consuming investment strategies. Following this strategy requires due diligence into the health of the company you're investing in. Most financial advisors recommend investing in individual companies with money you are okay with losing.
Finally, if you have extra money, you might consider investing in your education. Pursuing online courses and new educational content can be a great way of improving your greatest asset--yourself.
RELATED: This Free At 50 post on simplifying your life to keep motivated, focused and teed up for success.
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Final Thoughts
Investing in yourself is hard when you have a million other demands on your time and your own money as a small business owner. However, it's crucial to invest in yourself to ensure your financial future is secure, no matter what happens in your business and life. Regardless of how you choose to invest, the key is to invest consistently and often.
With time, you'll earn the highest return there is, freedom and opportunity.
Note from Daphne: when investing as an entrepreneur- you can achieve your life goals! Now that you have this article to bookmark, download my 6-Step Checklist to Escape the 9-5 here and get organized!
Reach Christine:
Blog: Department of Adulting
