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 reasons are likely to 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 expansion plans that have been put on hold and making the 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.
Rami Hachamoff, who has an engagement ring business in Atlanta, has lost money in mutual funds, but he's not planning to rebuild his portfolio. Instead, he's already on the path he expects to take when the economy is healthier. He's withdrawing more money from his funds and putting it toward getting a retail location to help his company, Allure Diamonds, grow.
Hachamoff said the business he's in has become more difficult and competitive over the past three years, especially as engaged couples are looking for better prices on diamond rings.
"For me to capture as much of the market as I can, I really need to put myself out there" in a store in a good location, he said. And that will take a significant financial commitment.
Meanwhile, Hachamoff said of his stock investments, "to see this mutual fund that's already depreciated maybe depreciate even further is really not an option."
Hachamoff was also considering buying a home this year and was looking at foreclosed properties, but "I decided not to do it at this time and to use this capital and again put it back into my business."
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 that 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 that 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 are already 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 hopeful planting seeds for a better future when the economy turns around in a year or two years," Carr said.
