An Overview of Basic Investments – Setting the Stage for the Series

Over the last several weeks, I’ve been talking about insurance and risk management ad nauseam. Well, I am as happy to tell you that we are finished with that portion of the series, as you are to hear it. However, the show must go on, as they say, and we will now kick off the next part of our series – investing i.e. like stocks, bonds, etc. I’d like to begin by providing you with an overview of basic investments we have as business owners. I’m excited to talk about this subject.

 Follow Along With The Financially Simple Podcast:

Podcast Time Index For “Investment Overview For Business Owners”:

• 01:17 – Investment Overview for Business Owners
• 04:50 – The Four Types of Investments
• 06:00 – Qualified Accounts
• 12:05 – Non-Qualified Accounts
• 13:42 – Businesses and Real Estate
• 15:11 – Wrap Up

As a financial advisor, I have a fiduciary obligation to do what is in the best interest of my clients. But in today’s climate, many “financial advisors” act as glorified salesmen. If you are an advisor, you should advise on all of your client’s finances, not just the items that earn a commission. As a result, there are some states that are enacting regulations to govern who can use the title “financial advisor.”

Think about it, how many people are going to actually explain how to pay off your debts? What about how to finance your next car? These are the things that a true financial advisor is going to advise you on. Can we advise you on which stocks to buy? Absolutely. But that isn’t at the heart of our company for our business owner clients. Nevertheless, we must address investments because even we business owners must try and tame the beast we call Wall Street. That’s why I’ve chosen to introduce the investing series by gently wading into what I call the four investment positions.

Overview Of Investment Positions

There are four basic types of investments to consider. Each of them has its own merits, as well as their own individual risks. You might say, “Justin, I already understand stocks, bonds, mutual funds, and ETFs.” That’s great, but it isn’t even close to what I am discussing. As I see it, there are really just four types of investments for us business owners and they aren’t what you might expect. What we are going to cover today are qualified, non-qualified, real estate, and business investments. Without further ado, let’s take a look at these four positions.

Four Basic Types Of Investments

1. Qualified Accounts

Qualified accounts are accounts that have special tax treatment or specific designation. An example of a qualified account would be an IRA. Why is it qualified? Simply put, there is a benefit for using the accounts. With an IRA, you get a tax deduction allowing the account to grow, tax-deferred. A ROTH IRA allows you to deposit the funds after-tax and it continues to grow, tax-free. Other types of qualified accounts include SEP IRA’s, 401(k) plans, and some make the case that an HSA or HRA can be considered a qualified account. I have a client that has doubled their total revenue in the past three years. As a result, they were facing over $700,000 in taxes. Because of tax planning and utilization of qualified accounts, we were able to drastically reduce their tax bill. Click to go to my in-depth article about retirement accounts.

2. Non-qualified Accounts

Non-qualified accounts are those that don’t have any restrictions. You can place your money in them and take it out without any sort of penalty. The most common type of non-qualified accounts is checking and savings accounts. However, non-qualified accounts are so much more than personal banking accounts. I have a client right now that has invested a lot of his personal wealth into a massive guitar collection. He has some absolutely beautiful guitars in it, and just a few years ago, it would have sold for less money than it would today. So the value of his investment has actually appreciated. His collection is actually a non-qualified investment. Antique cars, firearms, gold and silver, these are all considered non-qualified investments.

3. Real Estate

Real estate is an area of investment that I have had quite a bit of experience in. I own a home and some farmland. I’ve held rental properties, sold minerals, and done just about everything you can think of involving real estate. I’ve never dealt in timeshares, but that’s another story.

4. Business

Business investments are something that we’ve touched on quite a bit in the past. Because of that, I am not going to spend a lot of time on it, but I will review a couple of these concepts as I continue this series.

What this means going forward…

As this series begins to unfold, I will discuss each of the four basic investments for business owners, in-depth. I’ll cover exactly how to utilize qualified accounts in order to maximize their impact. We’ll discuss the importance of non-qualified investments and how they can allow you to build wealth in more creative ways. We will review business investment principles and outline how to invest in real estate in ways that make sense to you and your business. In the meantime, if there are specific questions that you have about any of the material that I’ve covered and how it applies to you and your business, please, reach out to me.

Follow along to get the most out of our Personal Finance for the Business Owner series.