How does your business value adjust your risk tolerance?

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marquette
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Joined: Wed Oct 28, 2015 11:18 am

How does your business value adjust your risk tolerance?

Post by marquette » Mon Sep 11, 2017 4:26 pm

My question is if your net-worth is basically 80% related to the value of your business, how do you manage that 20%? Assume all the other checkboxes are being met as far as IRA, Emergency, etc... So if my natural risk tolerance skews toward an 80/20 3-fund portfolio, how would I weight the fact that the 80 is taken up by a single stock (my business)? Utilizing 80/20 on the 20% left seems too risky for me at least, just interested to hear others opinions.

jebmke
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Joined: Thu Apr 05, 2007 2:44 pm

Re: How does your business value adjust your risk tolerance?

Post by jebmke » Mon Sep 11, 2017 4:52 pm

FWIW I have always managed my financial assets (essentially liquid assets) as if all the other assets didn't exist. Other primarily consisted of real estate and NQ stock options. Mine probably never exceeded 25% of our total asset value. We did try to take into account (without specifically valuing) our human capital exposure and made some adjustments accordingly to the allocation of liquid assets.
When you discover that you are riding a dead horse, the best strategy is to dismount.

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AllieTB1323
Posts: 143
Joined: Tue Mar 24, 2015 10:17 am
Location: Desert Washington State

Re: How does your business value adjust your risk tolerance?

Post by AllieTB1323 » Mon Sep 11, 2017 10:30 pm

We owned a sucessful C-Corp privately held service business for thirty years and always valued it as a net zero in our net worth. Our investments were split 60/40. The rationale was the business at it's worst was worth the salvage value of the office furniture.

Nate79
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Location: Portland, OR

Re: How does your business value adjust your risk tolerance?

Post by Nate79 » Tue Sep 12, 2017 1:21 pm

The first thing is I would question how you estimated the value of your business. I would hazard a guess that most people do it wrong and grossly overvalued it.

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