The Diversification Myth: Why Buying Volatile Stocks Double-Dips Your Risk Profile

Every year, thousands of profitable small business owners sit down with retail financial planners who give them terrible asset allocation advice. The financial planner pulls out a standard risk questionnaire, assesses the business owner's income, and recommends a classic sixty-forty portfolio split between public stock market equities and fixed-income bond funds. The planner tells the business owner that dumping excess corporate profits into the stock market provides diversification away from their business operations. This conventional advice is based on a flawed premise that completely misunderstands the financial reality of small business ownership.