Entrepreneurs should carefully calibrate their debt against a number of factors, including the volatility of the assets they borrow against, the borrowing term, and the path of interest rates.
Executives may similarly face restrictions on borrowing against their stock or options.
What diversification looks like
Having released capital to construct a more balanced portfolio, entrepreneurs will need to consider what this will look like.
This could mean diversifying their business itself by buying another venture. In an ideal case this could create a second fortune, but may also introduce a new set of idiosyncratic risks.
Holding liquidity is important for entrepreneurs, as they typically require more than the average investor in their pursuit of opportunistic business projects. We recommend that business owners hold three to five years’ worth of lifestyle expenditure in liquid assets, but no more.
A word also for entrepreneurs who maintain an interest in the stock market. Though investing in stocks of fluctuating value and in businesses where they have no control, business owners should not overestimate the volatility of stocks and underestimate their potential returns.
Owning a business does not mean avoiding stocks that offer high potential returns.
Tailoring is similarly important here, as some may wish to reduce their exposure to regions, countries or sectors where their business is significantly exposed. For bolder entrepreneurs, one approach is to invest in businesses that could disrupt their own company.
Whatever the case, going along the route of diversification offers entrepreneurs a more risk-averse route to maintaining their wealth.
Markets will continue to turn off the back of Brexit headlines or fears over fresh trade tariffs, but business owners have tools at their disposal to protect their interests.
Continuing to cultivate one’s own business is an entrepreneur’s natural impulse, yet, though it may seem counterintuitive, adopting a broader perspective is the best way to reduce risk and guard against volatility.
Caroline Simmons is deputy head of the UK investment office at UBS Wealth Management
