Wealth Guide: Five Deadly Sins of Wealth Planning

Could you unwittingly be putting your future at risk?

Written by PROFIT staff

You plan your business meticulously but what about your personal wealth. Business owners are notorious for a lackadaisical approach to their finances. But do so at your peril. You could be risking your—and your family’s—future. Watch out for these classic mistakes.

1. Putting all your eggs in one basket

You wouldn’t bet your life’s savings on a single stock, so why would you count on your business alone to fund your retirement? Diversify your investments across a range of asset classes, industries and geographies, recommends Peter Watson, president of Oakville, Ont.-based Peter Watson Investments. That way, should your business falter or you’re forced to sell earlier or for less than you expected, you’ll still have a strong portfolio to retire on.

2. Do-it-yourself investing

Entrepreneurs dislike relinquishing control of their money, but studies show that self-managed investors perform worse than advisor-led investors, says Watson. Focus on what you do best — running your business — and delegate management of your investments to a trusted advisor who understands your unique needs and goals.

3. Not measuring results

What gets measured gets managed. Yet, while most business owners scrutinize the financial performance of their company, they don’t do the same with their personal finances, says John Nicola, CEO of Vancouver-based Nicola Wealth Management Ltd. Questions you need to ask yourself include, “What’s the after-expense return on my investments?” “What level of risk am I taking?” and “How much long-term, sustainable cash flow are my investments generating?

4. Tax-driven behaviour

“Business owners’ hatred of paying taxes sometimes clouds their judgment, causing them to get into investments that are dubious at best, and it gets them into trouble,” says Philip Evenden, a certified financial planner and owner of Burlington, Ont.-based Integrity Wealth Management. Avoid losses, audits and scams by ensuring your investment vehicles are legal and deliver more than just tax relief.

5. Neglecting your safety net

Buy-sell agreements, marriage contracts, retirement/succession and estate plans (including insurance, wills and powers of attorney) all provide a safety net that can protect your assets in tough or unforeseen situations, says Evenden. Too many entrepreneurs push financial planning aside in favour of day-to-day business, then find themselves unable or out of time or money to create the results they want.

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