NEW YORK (AP) — When the economic recovery finally arrives, many small business owners won’t try to rebuild their shrunken stock portfolios. They’ll be putting their money in what looks like a better bet: their companies.
Owners already have plenty of reasons for putting money into their businesses first, and those likely will remain when the economy picks up. For many, there’s the immediate need of boosting cash flow. But they’ll also be working on longer-term issues, carrying out expansions that have been put on hold and making capital investments they couldn’t afford during the recession.
Moreover, with the stock market on an uncertain path and other investments paying the slimmest of returns, small business owners believe they’ll make more money by investing in themselves.
Over the years, many small business owners have made their companies their primary and, sometimes, sole investments. Financial advisers and accountants counsel owners to diversify their holdings beyond their firms because of the reality that, if the business goes down, the owner is left with nothing.
But in the current economic and investing climate, that’s a harder sell than usual. Some owners believe putting more money into their personal portfolios would be, as the old saying goes, throwing good money after bad.
Chuck Wilson, a wealth manager with Doyle Wealth Management Inc. in St. Petersburg, Fla., said many owners are inclined to say, “This is my business, I know it and I know what I can get in returns from it.”
“More importantly, they’re in direct control of it,” Wilson said, noting there is a trust issue among business owners after they’ve seen the bets placed by professional investors devastate the stock market over the past two years. And, he said, they’ve seen other investors lose billions of dollars in the Ponzi scheme run by Bernard Madoff.
There’s also the issue of time and how long it will take to return a stock portfolio to its pre-credit crisis levels.
“It’s a very big sting to lose 30 percent of your portfolio,” said Jason Carr, who with his brother Rodney owns Softline Home Fashions, a Gardena, Calif.-based wholesale home furnishings business. “I think rebuilding is going to take a lot longer than usual. We need to be more secure.”
Carr said he and his brother believe their business is more likely to give them the income they need than investing in stocks will, especially with many portfolio managers likely to remain cautious in the months ahead.
He’s also well aware of the potential for more losses. “I’d rather make 1 percent in the checking account than lose 20 percent” by investing in stocks,” Carr said.
The Carrs already are putting more money into their company, investing in a distribution center in Canada. The company has showrooms in Los Angeles, New York, Atlanta and Montreal.
“We’re taking advantage of new markets and, hopefully, planting seeds for a better future when the economy turns around in a year or two years.”
