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Don’t plough all of your money back into your new business – Diversify

Starting your own business is an exciting adventure and one which is likely to take the majority of your time and attention. You hope of course that your new venture will be lucrative and that it will grow and become a great source of income. If you would like some advice on the subject of starting up your own business, visit the Gov.UK website.

In the beginning, launching your new enterprise is likely to take the majority of your financial resources, but when you are making out your business plan, you also want to consider what to do, as hopefully your success and income continue to expand. A lot of business owners are tempted to plough money back into their businesses to further growth. However, you need to be prudent.

Why you shouldn’t plough everything back into your new business

It’s easy to fall into the trap of ploughing every last penny back into a new business. The worry is that if you do this: (a) your business might fail and (b) if it does, you will be left with nothing. The wise new business owner should think about taking some of the profits and investing them elsewhere. In other words – diversify.

As an entrepreneur, you are obviously willing to take risks. That being said, if you want to tuck some money away in an investment, you won’t want the risk factor to be too high. On the other hand, you will want your investment to earn a decent rate of interest, so you may want to consider starting up a stocks and shares ISA.

Let a Robo-advisor take the strain

Being a busy business man or woman, you may think this is a crazy idea. If you are already up to your neck in muck and bullets from a business point of view, how can you free-up time to set up and manage a stocks and share ISA? It’s a good question and one which deserves a good answer. That answer is – pick out a Robo-advisor.

If you use the services of a good Robo-advisor, your involvement both in the set-up process and the management process will be kept to a minimum. All you have to do, once you have chosen which Robo-advisor to work with, is to complete a quick and simple, online questionnaire. This is mostly to establish your appetite for risk.

Having completed your online-application, the Robo-advisor will then suggest an investment portfolio that matches your appetite for risk. Once your portfolio has been agreed, most Robo-advisors will automatically manage it using a number of pre-set algorithms.

Is total non-involvement a good idea?  

From one point of view, a total non-involvement attitude is great if don’t want anything at all to do with your investment. But most entrepreneurs and business men and women are not happy to totally leave everything 100% in the hands of robots or their algorithms. If you put yourself in this category of person, then using an IFA like Moneyfarm, who add a human touch to their Rob-advisor service, is the way to go.

The portfolio set-up procedure at Moneyfarm is just the same as at any other Robo-advisor – nice, clean and quick. The difference is that if you want to take advice from a human advisor before you go-ahead, that option is open to you and you will reap the benefits of both worlds.

You get minimum involvement (zero if you prefer) if that is what you want because you simply don’t have time, but you have the comfort of knowing that their highly skilled human, financial experts are keeping an eye on, and overseeing, the performance of the algorithms.

Diversifying to minimise risk

Another key plus point with using Moneyfarm as your Robo-advisor is that they don’t use standard stocks and share to build your investment portfolio; they use ETFs. ETFs are similar to stocks and shares in as much as they are traded daily. However, their prices are updated every few minutes rather than once per day, so that if there is a sudden slump, your portfolio can be changed almost immediately.

The other good thing about ETFs is that they are made up of a cross section of shares across different companies in a variety of industries. This gives you inbuilt diversification, something we talked about earlier in terms of not putting all your financial eggs in one basket. In this case, the diversification means that your investment is safer. However, you do need to be aware that investments can go down as well as up.

A sound way of investing money from your new business turnover

Using a Robo-advisor for your ISA is a sound way of investing money from your business’s turnover. Your investment will earn far better interest rates than most offer savings vehicles, you can withdraw money should you need it for a business or personal emergency, and you’re not running a risk by ploughing everything, hook line and sinker, back into your business.

As a new business owner, you can concentrate on the essentials of running your business on a day to day level, safe in the knowledge that your IFA will do all the highly skilled rebalancing and monitoring of your investment on your behalf.

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