How to Invest While Starting a Business
Last updated: March 2026
Starting a business is exciting but financially risky. Many entrepreneurs make the mistake of pouring every dollar into their business while neglecting personal investments and retirement savings. This guide shows you how to maintain a healthy ETF portfolio alongside your business, set up tax-advantaged retirement plans for self-employed individuals, and protect your personal wealth regardless of your business outcome.
Recommended Portfolio Allocation
Projected Portfolio Growth
Do Not Put All Your Eggs in Your Business Basket
Your business is already a concentrated, high-risk investment of your time, energy, and capital. Putting all of your financial assets into it as well creates dangerous concentration risk. If the business fails, and roughly 50 percent of small businesses fail within five years, you lose both your income source and your savings.
Maintain a clear separation between business finances and personal investments. Keep your existing ETF portfolio untouched. Continue contributing to retirement accounts even if it means taking a smaller owner's draw. Diversification is not just a portfolio concept. It is a life concept. Your diversified ETF portfolio is your safety net if the business does not succeed.
Setting Up Self-Employed Retirement Accounts
Self-employed individuals have access to powerful retirement account options that can shelter more money from taxes than a traditional 401(k). A Solo 401(k) allows contributions of up to $23,500 as an employee plus up to 25 percent of net self-employment income as an employer contribution, with a combined maximum of $69,000 in 2025.
A SEP IRA is simpler to set up and allows employer contributions of up to 25 percent of net self-employment income, up to $69,000. The choice between Solo 401(k) and SEP IRA depends on whether you want the loan provision and Roth option of the Solo 401(k). Both provide significant tax deductions that reduce your self-employment tax burden.
Managing Irregular Income as an Entrepreneur
Unlike a steady paycheck, business income fluctuates. In good months you might earn double your previous salary. In lean months you might earn nothing. This irregularity makes traditional monthly investment contributions challenging. The solution is a percentage-based approach rather than a fixed-dollar approach.
Commit to investing a fixed percentage of your net business income, such as 15 to 25 percent, regardless of the absolute dollar amount. In a $15,000 month, you invest $2,250 to $3,750. In a $3,000 month, you invest $450 to $750. This approach scales with your income and ensures you are always building wealth, even during slow periods.
Maintaining a Larger Emergency Fund
Standard financial advice recommends three to six months of emergency savings. As an entrepreneur, you need significantly more. Target 12 months of personal living expenses in a high-yield savings account. Business income can dry up suddenly due to lost clients, seasonal fluctuations, or unexpected expenses.
This larger emergency fund prevents you from liquidating investments during business downturns. It also gives you the confidence to make bold business decisions without the desperation of needing immediate income. Think of your emergency fund as buying yourself time, the most valuable resource for any entrepreneur.
Keeping Your Investment Strategy Simple
As an entrepreneur, your mental bandwidth is consumed by your business. Your investment portfolio should be the opposite of your business: simple, automated, and low-maintenance. A three-fund portfolio of VTI, VXUS, and BND requires minimal attention and provides excellent diversification.
Set up automatic investments on whatever schedule works with your income timing, whether that is monthly, quarterly, or after each major client payment. Use a target-date fund or a robo-advisor if you want even less involvement. The goal is to keep your personal investments growing on autopilot while your attention stays focused on building the business.
Recommended: This beginner-friendly ETF course on Udemy covers everything from ETF fundamentals to building a recession-proof portfolio in 7 days.
Recommended ETFs
Action Steps
Separate business and personal finances completely
Open separate business bank accounts and never co-mingle funds. Your personal investment accounts should be untouchable for business expenses.
Build a 12-month personal emergency fund
Before launching or during early growth, accumulate 12 months of personal expenses in a high-yield savings account.
Set up a Solo 401(k) or SEP IRA
Choose the retirement account type that matches your needs. A Solo 401(k) offers more features; a SEP IRA is simpler to manage.
Commit to a percentage-based savings rule
Invest 15 to 25 percent of net business income into personal investments regardless of how much you earn each month.
Automate with a simple portfolio
Use a three-fund portfolio or target-date fund that requires minimal ongoing attention so you can focus on your business.
Review quarterly but do not tinker
Check your portfolio once per quarter to ensure contributions are on track. Resist the urge to adjust based on business emotions.
Frequently Asked Questions
Should I use personal savings to fund my business?
Use no more than 10 to 20 percent of your liquid savings, and never touch retirement accounts. The rest should come from business loans, investors, or revenue. Risking your entire financial future on a single venture is not prudent regardless of how confident you are.
What is a Solo 401(k) and who qualifies?
A Solo 401(k) is a retirement plan for self-employed individuals with no full-time employees other than a spouse. It allows both employee contributions up to $23,500 and employer contributions of up to 25 percent of net income, with a combined maximum of $69,000 in 2025.
How do I invest with variable income?
Use a percentage-based approach rather than fixed dollar amounts. Commit to investing 15 to 25 percent of every payment you receive. This automatically scales with your income and keeps you investing consistently through feast and famine cycles.
Should I invest in my business or ETFs?
Both. Your business investment provides potentially high but concentrated returns. Your ETF portfolio provides diversified, passive growth that protects you regardless of business outcomes. Think of your ETF portfolio as insurance against business risk.
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