5 Investment Mistakes Entrepreneurs Often Make and How to Avoid Them

If you’re running a small business, then you might have picked up certain key skills. But you might struggle to apply these skills to the world outside of your business. This failure can result from specific biases and psychological blind spots – and it’s worth identifying what these are, and the mistakes that might stem from them.

Over-Concentrating Wealth in a Single Venture

Firstly, many entrepreneurs have an obvious place to reinvest the wealth that they accrue: their own ventures. When your money is being diverted into your own businesses, you’ll have complete control over it – or so it might seem.

The fact is that a single company, even if you operate it, can lead to greater risk. This is because a portfolio of this kind will lack diversity. If the industry experiences a downturn, then your investment will suffer in a way that you can’t avoid. The way to avoid this is by diversifying into many different asset classes.

Neglecting Personal Pension Contributions

You might assume that the ultimate success and sale of your business will fund all of your aspirations for retirement. But this is another way to introduce volatility and risk into your planning. You might also lose out on the safety and tax efficiency of a more traditional savings program.

Underestimating the Need for Liquidity

When your business is growing rapidly, you might be tempted to maximise it by reinvesting heavily in the equipment, materials, and people that you need to push things forward. But this can often lead to you neglecting your cash reserves.

A lack of liquidity can lead to problems when your circumstances change suddenly. What if a major client fails to pay promptly, or the market suffers an unexpected downturn? Having the cash on hand will help you to avoid taking on debt, or selling assets, when the time isn’t right.

Failing to Delegate Complex Financial Tasks

As an entrepreneur, you’ll need to be able to manage your time effectively. This often means knowing when you’re at the limits of your skill set, and bringing in professional help. After all, you can’t be expected to grasp arcane tax legislation, and keep an eye on global market shifts, while simultaneously overseeing the day-to-day running of your business. This is where wealth management services can provide essential advice.

Emotional Decision-Making During Market Volatility

At the same time, market turmoil can lead to various forms of irrationality among investors. Entrepreneurs tend to be comfortable with risk, and getting a startup off the ground often requires an ‘all-in’ approach. But this can lead to mistakes when it comes to investment. Panic, anxiety, or sheep arrogance might tempt you into making investment mistakes, and neglecting to build and abide by a strategy that’s cohesive and well thought through.

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