Should businessmen invest in financial assets?

Recently, I reconnected with an old school friend after many years. As we caught up, we talked about life, our families, and the paths we’ve each taken. My friend shared that he had sent his daughter abroad for further studies, while his son stayed in India, as he hoped to pass on the family business to him. With an annual turnover close to Rs. 40 crores, my friend envisioned his son stepping into his shoes. However, he admitted to being concerned—his son seemed reluctant to join the business, partly because he resented how often his father was away, spending about 15 days each month traveling for work. His son didn’t want his own family to feel that same absence.

As our conversation shifted to investments, he surprised me by saying, “If I earn 17-18% on turnover, why should I bother investing elsewhere?” This isn’t the first time I’ve encountered this mindset. Many business owners believe that if they can generate high returns within their business, there’s no need to diversify or invest elsewhere.

To those with a similar perspective, I’d like to point out a few crucial considerations:

Market Competition and Uncertainty: With competition and rapid changes in the market, there’s no guarantee that today’s successful business will thrive tomorrow. 

Fluctuating Margins: Many industries face volatile pricing, and profits can quickly erode in both manufacturing and trading. Service-based businesses are also feeling the pinch, with tighter margins and increasing direct-to-consumer models that eliminate middle layers. 

Generational Shifts: Children who see their parents’ demanding schedules often grow up reluctant to follow the same path. A farmer’s child, for instance, may choose a stable job over the tough life of farming, having witnessed firsthand the hardships their parent faced.

Risks of Business Dependency: What happens if the business owner suddenly faces health issues, disability, or even death? Who will step up to run the business? And if there’s a manager, can they be trusted to operate with the same dedication without direct oversight?

These are just a few scenarios. Life can throw unexpected challenges our way. In such times, investments become our safety net. Think of income as flowing water and investments as water stored in a dam—save while you’re earning. And remember, investing in business is not the same as investing in financial instruments. Diversifying your wealth offers security that business alone cannot provide. Even if you have a big business empire, it is always wise to invest in financial assets like mutual funds, stocks, fixed deposits etc.