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A Fin24 user is not sure whether he should diversify into another business or opt for investments in property, bonds or shares. He writes:
I am a South African living abroad at the moment. My foreign wife and I own our business that has averaged growth of 14% for the past 11 years.
Ploughing all my cash into my business makes sense on one level, because where else could I get 14% annually these days?
However, putting all my eggs into one basket is risky. I was, therefore, thinking of buying similar businesses - because those are what we know well - around the world to give me some diversification.
How effective is this compared to the traditional investments of buy-to-let property, shares, bonds, etc?
Also,how risky would it be to buy another, different small or medium size business as an investor?
I regard this the same as buying shares on an exchange, but with the benefit of being able to jump in when things go south.
This is not so easy to do in the case of a company listed on an exchange - there is no gaurantee that the directors are acting in the best interests of the shareholders, for example Olympus, GM, Greece, Portugal, Ireland and Spain.
Gerrie van Biljon, executive director of Business Partners responds:
Investing money is all about what the perceived risks are and what the possible returns are.
Investing in bonds compared to in listed shares has a different risk profile to investing in a small business, especially if you do not control such directly.
Bonds may be a lower risk investment profile, but then the returns are normally not exponential either.
The same applies to property. Here the underlying asset underpins the investment with a more moderate return expectation. (These statements are made subject to a stable economic environment and when sound investments are made.)
The other option you mention is to either continue to invest in the existing business ventures or to invest in other small businesses.
An entrepreneur needs to find the balance between the risk profile and potential return. It, therefore, makes sense to utilise experience and expertise in the process.
To invest in another business (with limited or no direct control) in an industry that is foreign to them, may not be too wise.
To invest in a similar business elsewhere to spread the risk could be an attractive option.
Here you should consider the normal market forces such as consumer behaviour and patterns, operational control, market niches, competition and potential growth and returns.
In summary, you as an entrepreneur may not be satisfied to invest your capital in low yielding investments. Investing in a business with limited industry and local knowledge may be risky.
Using your current experience and expertise to your advantage could, however, be the solution.
- Fin24
Do you have a pressing financial question? Post it on our Money Clinic section and we will get an expert to answer your query.
I am a South African living abroad at the moment. My foreign wife and I own our business that has averaged growth of 14% for the past 11 years.
Ploughing all my cash into my business makes sense on one level, because where else could I get 14% annually these days?
However, putting all my eggs into one basket is risky. I was, therefore, thinking of buying similar businesses - because those are what we know well - around the world to give me some diversification.
How effective is this compared to the traditional investments of buy-to-let property, shares, bonds, etc?
Also,how risky would it be to buy another, different small or medium size business as an investor?
I regard this the same as buying shares on an exchange, but with the benefit of being able to jump in when things go south.
This is not so easy to do in the case of a company listed on an exchange - there is no gaurantee that the directors are acting in the best interests of the shareholders, for example Olympus, GM, Greece, Portugal, Ireland and Spain.
Gerrie van Biljon, executive director of Business Partners responds:
Investing money is all about what the perceived risks are and what the possible returns are.
Investing in bonds compared to in listed shares has a different risk profile to investing in a small business, especially if you do not control such directly.
Bonds may be a lower risk investment profile, but then the returns are normally not exponential either.
The same applies to property. Here the underlying asset underpins the investment with a more moderate return expectation. (These statements are made subject to a stable economic environment and when sound investments are made.)
The other option you mention is to either continue to invest in the existing business ventures or to invest in other small businesses.
An entrepreneur needs to find the balance between the risk profile and potential return. It, therefore, makes sense to utilise experience and expertise in the process.
To invest in another business (with limited or no direct control) in an industry that is foreign to them, may not be too wise.
To invest in a similar business elsewhere to spread the risk could be an attractive option.
Here you should consider the normal market forces such as consumer behaviour and patterns, operational control, market niches, competition and potential growth and returns.
In summary, you as an entrepreneur may not be satisfied to invest your capital in low yielding investments. Investing in a business with limited industry and local knowledge may be risky.
Using your current experience and expertise to your advantage could, however, be the solution.
- Fin24
Do you have a pressing financial question? Post it on our Money Clinic section and we will get an expert to answer your query.
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