Selling Your Business? "Just Buy an ETF" Isn't a Plan for the Proceeds.

If you own a business and ask an AI chatbot what to do with your money, the answer usually sounds like this: buy a low-cost index ETF and leave it alone.

For a lot of people, that's fine advice. But business owners aren't most people. You likely have most of your net worth tied up in one illiquid asset, income that swings year to year, and a big tax event somewhere on the horizon. A single ETF wasn't built for any of that.

The ETF isn't the problem. Treating it as the whole plan is. Here's where business owners get caught.

1. You already own the most concentrated position you'll ever have

Investors talk about the risk of having too much in one stock. Most business owners have far more than that in one private company.

That changes how you should think about everything else you own. If your business is in construction, healthcare, or tech, your outside portfolio probably shouldn't double down on the same industry. A broad index fund doesn't know what your business does. It can quietly stack more of the same risk on top of the risk you already carry.

Today that issue is bigger than it looks. The 10 largest companies make up roughly 40% of the S&P 500 (Landmark Wealth, citing J.P. Morgan). If your company sells into the tech economy, "the market" may not diversify you as much as you think.

2. The biggest tax bill of your life deserves more than a one-time purchase

For most owners, the sale of the business is the single largest taxable event they'll ever have. How you prepare for it matters more than how you invest after it.

A one-time ETF purchase after closing does nothing about the tax. Planning ahead can:

• Build up losses before the sale. If you start a direct indexing portfolio years ahead of an exit, you own the individual stocks in an index instead of one fund. That lets you sell the ones that are down, bank the losses, and stay invested. Those harvested losses can later offset part of the gain from the sale.
• Move giving before the deal. Donating shares of the business, or other appreciated assets, to a donor-advised fund or charitable trust before a sale is agreed can avoid tax on that portion entirely. Timing is everything here. Once a deal is essentially done, the IRS may treat the gain as already yours.
• Check whether your stock qualifies for special treatment. Some C-corporation stock qualifies for the Section 1202 exclusion, which can wipe out a large share of the gain. The rules were expanded in 2025 and the details are technical, so it's worth reviewing with your CPA early.
• Shape how the payment arrives. Installment sales, earnouts, and stock-for-stock deals can spread or defer gains. Each has tradeoffs, so you want the investment and tax plan in the room before terms are set.

None of this works if you start thinking about it the week of closing.

3. After the sale, the risk flips

The day the wire hits, you go from too concentrated to holding a pile of cash and making a lot of decisions at once.

This is where a lot of owners make expensive mistakes. Some park everything in cash for years and lose ground to inflation. Others put it all into whatever's been working lately. Some get pitched a dozen private deals by people who heard about the sale.

A disciplined approach looks different:

• A clear target mix based on what the money needs to do now that the business isn't producing income.
• A plan for getting invested, whether that's all at once or over a defined schedule, decided in advance rather than on gut feel.
• Direct indexing for the taxable portion, so you keep harvesting losses for years after the sale to offset future gains.
• Regular rebalancing, so the portfolio doesn't drift into more risk than you signed up for.

4. Your income doesn't look like a paycheck

Business owner income is lumpy. A great year, a slow year, a distribution, a capital call. A single ETF can't respond to any of that.

Year-round tax management can. In a big income year, harvested losses and well-timed charitable gifts are worth more. In a slow year, it may make sense to realize gains at lower rates or convert part of a retirement account to Roth. Owners can also use retirement plans most W-2 employees can't, like cash balance plans, to shelter far more income than a standard 401(k) allows.

That kind of planning only happens if someone is actively managing the portfolio alongside the business, not just buying and holding.

What if you want to beat the market?

Plenty of owners are used to winning by taking calculated risks, and they want their portfolio to do the same. That's a fair goal, and it can be done. But the odds are worth knowing.

In 2025, 79% of actively managed large-cap U.S. stock funds trailed the S&P 500, according to S&P Dow Jones Indices' SPIVA U.S. Scorecard. And the ones that win rarely keep winning.

The more reliable sources of outperformance are:

• After-tax returns. For an owner facing a large sale, this is the biggest lever by far.
• Evidence-based tilts toward characteristics like value and profitability, held with patience.
• High-conviction, concentrated strategies, sized as a deliberate slice of the portfolio rather than all of it.
• Behavior. Not panicking in a downturn, and not chasing what just went up.

You already took one big concentrated bet by building a company. The portfolio is usually where you want a steadier core, with any outperformance-seeking strategy sized as a deliberate slice around it.

Who doesn't need any of this

To be straight with you: not every owner needs this level of planning.

• Your business is small and you're not planning to sell. If it's a lifestyle business that will wind down rather than sell, the biggest wins are usually in retirement plan design and steady saving, not portfolio engineering.
• Your exit is a decade or more away and your outside portfolio is modest. A simple ETF mix and consistent saving will do most of the work for now.
• Most of your investable money is in retirement accounts. There's no loss harvesting inside a 401(k) or IRA. Keep it simple there.

If that's you, buy the ETF and focus on the business. Revisit this once a sale starts looking real.

The bottom line

Buying an ETF is a reasonable place to start. It's not a plan for someone whose wealth is concentrated in a business and who faces a major tax event. For owners, the gap between good and great comes down to three things: accounting for the risk you already carry, preparing for the sale years before it happens, and managing taxes every year instead of once.

If you're a physician who owns a practice, much of this applies to you too. See our companion piece, Buying an ETF Is a Good Start. Here's Why It's Not a Plan.

Disclosure: This article is for educational purposes only and isn't investment, tax, or legal advice. Tax-loss harvesting and direct indexing don't guarantee better results, may defer rather than eliminate taxes, and aren't suitable for everyone. Charitable, Section 1202, and deal-structure strategies depend on your specific facts and should be reviewed with your CPA and attorney. Past performance doesn't guarantee future results, and no strategy can assure outperformance. Avance Private Wealth Management is a registered investment adviser; registration doesn't imply a certain level of skill or training.

Sources

• The Evolution of S&P 500 Top 10 Companies, Landmark Wealth Management (citing J.P. Morgan data)
• SPIVA U.S. Scorecard, Year-End 2025, S&P Dow Jones Indices