How CEOs Should Invest Their Earnings

by / ⠀Entrepreneurship / December 19, 2024
How CEOs Should Invest
As a CEO, life is good. This demanding work requires countless hours every week, practically unlimited tough decisions, and ongoing stress. But at the same time, you get to choose your own hours, shape the business as you see fit, and hopefully, make a lot of money in the process. In pursuit of this challenging yet highly rewarding endeavor, many CEOs ultimately neglect their long-term investing strategy. But if you want to be financially successful in the long run, you must know how CEOs should invest their earnings correctly.

The Power of Investing

Why is it important to know how CEOs should invest? There are several reasons. First and most importantly, it’s a way of securing your financial future. You don’t know exactly how your life is going to develop. Your business may thrive for another 50 years or go under in the next few years. You may love being a CEO so much that you never retire or get burned out and feel like retiring early. Having a large nest egg means you’ll have far more options available so that you can thrive in a wide variety of conditions. Investing is also important so you can take advantage of the power of compound interest. As your investments accrue money, they’ll begin accruing interest on top of the interest you’ve already accrued. This results in the form of exponential growth, allowing you to make more and more money from even a limited initial principal.

Investment Options

So, what’s an overview on how CEOs should invest? There are several major assets worth considering, including:
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Stocks

One of the most popular assets to invest in is shares of stock. Purchasing a share of stock in a company essentially makes you a partial owner, even if you only own a tiny fraction of that company. If you choose the right companies, these assets should grow steadily while earning you dividends – which are regular distributions of company profit. Stocks are generally reliable, somewhat risky, and have a high potential for growth.

Real estate

You can also invest in real estate, which is considered very safe, though there can be some barriers to entry. One advantage of investing in real estate is the flexibility involved. You can invest in residential real estate or commercial real estate. You can invest in individual properties with the help of a property manager, invest by yourself, or invest in real estate investment trusts (REITs), which function more like stocks.

Bonds

Bonds are a very safe asset with a relatively low rate of return. They’re not especially sexy, but they can be a valuable addition to your portfolio to make sure it remains balanced.

Mutual funds and ETFs

Mutual funds and exchange traded funds (ETFs) allow you to invest in many assets simultaneously. For example, you might choose to invest in the entire S&P 500 or a mix of stocks and bonds to balance out the risks and rewards of each asset class.

Commodities

Another option for how CEOs should invest is to invest in commodities, which are fungible goods. Commodities can be somewhat volatile, but they’re also a good hedge against both inflation and stock market volatility.
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Alternative investments

And, of course, there are plenty of alternative investments to consider, including things like cryptocurrency and collectibles. Additionally, you should consider investing in the confines of retirement accounts, which confer special advantages upon investors. For example, with a Roth IRA, you can withdraw from your account tax-free after you reach a certain age. This can help you avoid taxes on your most lucrative investments, ultimately putting you in an even better financial position.

How Much Should You Invest?

Next, how much should you invest? Experts generally recommend that people invest 10 to 15 percent of their earnings as long-term savings for retirement. However, this is a general recommendation that isn’t going to fit perfectly with your financial needs or goals. If you want to achieve something specific or if you want to conform to specific standards, you’ll need to adjust this ballpark estimate.  For example, if you want to accumulate as much wealth as possible and retire early, you’ll need to save far more than just 15 percent of your earnings. If you have a long time to accumulate wealth and don’t care about the age at which you retire, you might get away with less. Keep in mind that you’ll also need to consider how much you’re earning. If you’re basically living paycheck to paycheck, it doesn’t make sense to squirrel away extra money for your retirement. On the other hand, if you make more money than you can possibly spend, there’s no reason not to save more.

The Necessity of Due Diligence

Before any investment, it’s direly important to do your due diligence. Our recommendations in this article are vague and general, and they’re not a substitute for professional financial advice. It’s your responsibility to understand your investing environment and each investment you consider properly and ultimately make the best decisions for yourself. Getting started with investing can be challenging, especially when you have a complicated business to run. But investing is practically non-negotiable if you want to build a strong financial future for yourself. Every CEO should have some investment strategy in place.

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About The Author

Editor in Chief of Under30CEO. I have a passion for helping educate the next generation of leaders. MBA from Graduate School of Business. Former tech startup founder. Regular speaker at entrepreneurship conferences and events.

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