Wealth Building Beyond Business: Creating a Personal Investment Strategy as an Entrepreneur

When I sold my first company at 32, I made what I now recognize as a classic entrepreneur’s mistake. For years, I had poured every dollar back into the business, believing that my company was the only investment that mattered. The sale gave me a seven-figure windfall, but I suddenly realized I had no strategy for managing wealth outside my business.

I’m not alone. According to recent studies, 70% of entrepreneurs have more than 80% of their wealth tied up in their businesses. While entrepreneurship can create tremendous value, this concentration represents a significant risk to long-term financial security.

In this guide, I’ll share the framework I’ve developed for building wealth beyond business—a strategy that has helped me and many other entrepreneurs create financial independence separate from our companies. Whether you’re just starting your entrepreneurial journey or already running a successful business, these principles will help you build wealth that transcends your company’s balance sheet.

Why Entrepreneurs Need a Personal Investment Strategy

Running a business doesn’t automatically make you good at personal investing. In fact, the skills that make you successful as an entrepreneur can sometimes work against you in the broader investment landscape:

The Entrepreneur’s Paradox

• Business Focus: You’re trained to pour resources into growth opportunities within your business
• Investment Reality: Diversification away from your business is essential for long-term security
• Business Focus: You maintain tight control over operations and decisions
• Investment Reality: Markets require patience and often perform best with less intervention
• Business Focus: You seek outsized returns through innovation and market disruption
• Investment Reality: Consistent, compounding returns often outperform high-risk bets over time

The statistics underscore this challenge. A 2025 study found that while 90% of startups fail within their first five years, a diversified investment portfolio has historically delivered positive returns over any 20-year period. Your business represents a high-risk, potentially high-reward investment—but it shouldn’t be your only one.

The Three Phases of Entrepreneur Wealth Building

Your investment strategy should evolve with your business journey. Here’s how to approach each phase:

Phase 1: Early-Stage Business (0-3 years)

During this phase, cash is typically tight, and most resources go toward building your business. However, establishing good habits now pays dividends later.

Key Strategies:

1. Create separation between personal and business finances– Pay yourself a modest but consistent salary
   • Establish separate emergency funds for business (3-6 months of operating expenses) and personal (3-6 months of living expenses)
2. Maximize tax-advantaged accounts
   • Open a Solo 401(k) or SEP IRA even with minimal contributions
   • For 2025, you can contribute up to $23,500 to a Solo 401(k), plus employer contributions up to $69,500 total
3. Start small but consistent investing
   • Automate a small percentage (even 1-5%) of your income to investments
   • Focus on broad-market index funds with low fees

Case Study: Sarah, a software consultant, started investing just $200 monthly in a total market index fund while building her business. After three years, this habit had not only built a $8,500 portfolio but established the discipline for more significant investing as her income grew.

Phase 2: Growth-Stage Business (3-7 years)

As your business stabilizes and generates more consistent income, you can begin building more substantial personal investments.

Key Strategies:

1. Increase your personal investment rate
   • Aim to invest 15-25% of your personal income outside the business
   • Consider the “50/30/20 rule”: 50% of profits reinvested in business, 30% to personal investments, 20% to lifestyle improvements
2. Diversify across asset classes
   • Build a core portfolio of stocks, bonds, and alternative investments
   • Consider real estate as both an investment and potential tax shield
3. Begin tax optimization strategies
   • Explore the benefits of a defined benefit plan for higher contribution limits
   • Consider opportunity zone investments for capital gains management

Case Study: Michael’s marketing agency hit $1M in annual revenue in year five. Instead of upgrading his lifestyle, he maintained his $120,000 salary while directing 25% of profits to a diversified investment portfolio. By year seven, his personal portfolio had grown to $350,000—creating security independent of his business valuation.

Phase 3: Mature Business (7+ years)

With a successful, established business, your focus shifts to wealth preservation and optimization while preparing for a potential exit.

Key Strategies:

1. Balance business reinvestment with personal diversification
   • Gradually decrease the percentage of wealth tied to your business
   • Aim for no more than 50% of net worth in your business
2. Implement advanced tax strategies
   • Consider a family limited partnership or trust structures
   • Explore charitable remainder trusts for tax-efficient giving
3. Prepare for potential business exit
   • Develop a pre-exit investment strategy to deploy potential proceeds
   • Consider installment sales or opportunity zone investments to manage capital gains

Case Study: Jennifer sold her healthcare consulting firm after 12 years for $8.5M. Because she had already built a $2M investment portfolio, she could afford to be patient during sale negotiations and structure terms favorable to her long-term wealth goals rather than immediate liquidity needs.

Building Your Core Investment Portfolio

While every entrepreneur’s situation is unique, here’s a framework for creating your personal investment portfolio:

The Foundation: 50-60% of Investable Assets

• Broad market index funds: Provide diversified exposure to overall market growth
• Target allocation: 70% domestic equities, 30% international equities
• Recommended vehicles: Vanguard Total Stock Market ETF (VTI), Vanguard Total International Stock ETF (VXUS)

For 2025, with the S&P 500 trading at 22x forward earnings (in the 95th percentile of historical valuations), consider slightly higher international exposure than the typical 80/20 domestic/international split.

The Stabilizers: 20-30% of Investable Assets

• Fixed income investments: Provide income and reduce overall portfolio volatility
• Target allocation: 60% government bonds, 40% corporate bonds
• Recommended vehicles: iShares Core U.S. Aggregate Bond ETF (AGG), Vanguard Short-Term Bond ETF (BSV)

With yields on fixed income currently between 5-7%, bonds are more attractive than they’ve been in years and provide a meaningful counterbalance to equity risk.

The Diversifiers: 10-20% of Investable Assets

• Alternative investments: Provide exposure to non-correlated assets
• Options include: Real estate (direct or REITs), commodities, private equity, venture capital
• Recommended vehicles: Vanguard Real Estate ETF (VNQ), private REITs, angel investments in your area of expertise

The Opportunistic Bucket: 0-10% of Investable Assets

• Tactical investments: Allow for higher-risk, higher-reward opportunities
• Options include: Individual stocks, sector bets, cryptocurrency
• Approach: Only invest what you can afford to lose entirely

Tax Optimization Strategies for Entrepreneurs

As a business owner, you have unique tax advantages available. Here’s how to maximize them:

Business Structure Optimization

Your choice of business entity significantly impacts your tax situation:

• S-Corporation: Allows you to save on self-employment taxes by taking a reasonable salary plus distributions
• C-Corporation: Can be advantageous for reinvesting profits at lower corporate tax rates
• LLC with S-Corp Election: Provides liability protection with pass-through taxation benefits

Retirement Vehicle Maximization

Entrepreneurs have access to retirement plans with much higher contribution limits than typical employees:

Strategic Income Timing

As an entrepreneur, you have more control over when you recognize income:

• Year-end planning: Accelerate expenses or defer revenue across tax years
• Income smoothing: Balance salary and distributions to minimize overall tax burden
• Roth conversion ladders: Convert traditional retirement assets to Roth during lower-income years

Real Estate Tax Advantages

Real estate offers powerful tax benefits that complement business ownership:

• Depreciation: Shelter income through non-cash deductions
• 1031 exchanges: Defer capital gains by rolling proceeds into new properties
• Self-directed IRAs: Purchase real estate within tax-advantaged accounts

Balancing Business Reinvestment and Personal Investments

Perhaps the most challenging aspect of entrepreneur wealth management is deciding how much to reinvest in your business versus your personal portfolio. Here’s a framework to guide these decisions:

The Reinvestment Matrix

Evaluate business investment opportunities using these four criteria:

1. Expected ROI: What returndo you expect from reinvesting in the business?
2. Risk Level: How certain are you of achieving that return?
3. Time Horizon: How long until you realize the return?
4. Personal Financial Security: How secure is your personal financial foundation?

The 10/10/10 Rule

A simple rule of thumb many successful entrepreneurs follow: 10% of business profits to tax optimization

• 10% to liquid personal investments
• 10% to alternative investments
• Remaining 70% available for business reinvestment

This ensures you’re building personal wealth even while growing your business.

Common Investment Mistakes Entrepreneurs Make

1. The “All In” Mentality

The Mistake: Putting everything into your business because you understand it best.

The Solution: Force yourself to diversify by automating transfers to investment accounts on the same day you pay yourself.

2. The Liquidity Trap

The Mistake: Keeping too much cash “just in case” the business needs it.

The Solution: Establish specific cash reserves for business and personal needs, then invest the rest according to your time horizon.

3. The Complexity Bias

The Mistake: Assuming complex investment strategies outperform simple ones.

The Solution: Start with a simple, low-cost index portfolio before adding complexity.

4. The Control Illusion

The Mistake: Overtrading or micromanaging investments.

The Solution: Establish a rules-based investment policy statement and review quarterly, not daily.

5. The Network Effect

The Mistake: Investing in friends’ startups without proper due diligence.

The Solution: Limit “relationship investments” to a small percentage of your portfolio and evaluate them objectively.

Creating Your Personal Investment Policy Statement

An Investment Policy Statement (IPS) serves as your financial constitution—a document that guides decisions regardless of market conditions or emotional reactions. Here’s what to include:

1. Investment Goals: What are you investing for? (Retirement, children’s education, financial independence)
2. Time Horizon: When will you need the money?
3. Risk Tolerance: How much volatility can you emotionally and financially handle?
4. Asset Allocation: What percentage in stocks, bonds, real estate, and alternatives?
5. Contribution Strategy: How much will you add to investments and how often?
6. Rebalancing Rules: When and how will you adjust your portfolio back to target allocations?
7. Tax Considerations: Which investments belong in tax-advantaged vs. taxable accounts?
8. Success Metrics: How will you measure if your strategy is working?

Case Study: The Entrepreneur’s 20-Year Wealth Journey

Let’s examine how this strategy played out for one entrepreneur:

• David’s Business: B2B software company founded in 2005
• Initial Investment: $50,000 from savings
• Business Outcome: Sold for $12M in 2025

Year 1-3 (Startup Phase):

• Paid himself $60,000 salary
• Contributed $500/month to index funds
• Opened Solo 401(k) with minimal contributions
• Personal Portfolio Value (End of Year 3): $22,000

Year 4-7 (Growth Phase):

• Increased salary to $120,000
• Contributed $2,500/month to diversified portfolio
• Maximized Solo 401(k) contributions
• Purchased first investment property
• Personal Portfolio Value (End of Year 7): $280,000

Year 8-15 (Maturity Phase):

• Maintained $180,000 salary
• Contributed $5,000/month to investments
• Added defined benefit plan
• Built real estate portfolio of 5 properties
• Personal Portfolio Value (End of Year 15): $2.1M

Year 16-20 (Pre-Exit Phase):

• Reduced business involvement
• Diversified investments in preparation for exit
• Established charitable remainder trust
• Personal Portfolio Value (Pre-Exit): $3.8M

Post-Exit Allocation of $12M:

• $3M to tax obligations
• $5M to diversified investment portfolio
• $2M to alternative investments
• $1M to charitable foundation
• $1M to lifestyle improvements

By building wealth both inside and outside his business, David entered the exit negotiation from a position of financial strength and had a clear plan for post-exit wealth management.

Getting Started: Your 90-Day Action Plan

Here’s how to begin implementing your personal investment strategy alongside your business:

Days 1-30: Assessment and Foundation

• Separate personal and business finances if you haven’t already
• Establish personal emergency fund (aim for 3-6 months of expenses)
• Calculate your current net worth and asset allocation
• Open appropriate retirement accounts based on business structure

Days 31-60: Strategy Development

• Create your Investment Policy Statement
• Set up automatic transfers from business to personal investments
• Meet with tax professional to optimize business structure
• Establish target asset allocation based on your time horizon and risk tolerance

Days 61-90: Implementation and Automation

• Open investment accounts and implement core portfolio
• Set calendar for quarterly portfolio reviews
• Automate contributions to investment accounts
• Schedule annual meeting with financial advisor to review business and personal strategy alignment

Conclusion: The Entrepreneur’s Ultimate Advantage

As entrepreneurs, we’re accustomed to taking calculated risks and thinking long-term. These same qualities, when applied to personal investing, can create extraordinary wealth beyond our businesses.

The most successful entrepreneurs I know have built valuable companies—but they’ve also built valuable investment portfolios. This dual approach not only reduces risk but creates options: the ability to walk away from a bad deal, the freedom to start a new venture without financial pressure, or the choice to retire completely.

Your business may be your passion and primary wealth-building tool, but a thoughtful personal investment strategy ensures that your financial future isn’t tied to just one asset—no matter how promising it may be.

What steps will you take today to build wealth beyond your business?