If you have sold a business and moved on to retirement or another career, it’s worth noting that a change in lifestyle should also trigger a change in investment styles.
Building a business can be an all-consuming job, and many business owners who invest make choices for the sake of convenience and simplicity. Many business owners buy mutual funds or exchange-traded funds (ETFs) for this reason. They may value the experienced management these funds offer, as well as their flexibility in creating a diversified portfolio.
Once the proceeds of a business sale are factored into a nest egg, it may be time to seek options that address a more complex financial picture.
Capital-gains tax liability is an issue every investor would like to have, since it means your investments are making money. But a mutual fund- or ETF-only portfolio may amplify that tax liability, particularly if those funds experience frenetic inflows and outflows. That can affect the average shareholder when a portfolio manager has to buy or sell shares of fund investments to meet redemptions or to put new money to work, creating potentially taxable events.
When you’re cash-rich after selling a business, alternatives to mutual funds and ETFs may be helpful. There are professional advisors who will assess your investment objectives and risk tolerance to help you select the best from the many available efficient and customizable options.
There’s no single path to an ideal post-sale portfolio, but it’s good to have access to an array of strategies. Remember that all investments carry some level of risk, including the potential loss of principal invested. They do not typically grow at an even rate of return and may experience negative growth. Each asset class has its own unique risks, and not all asset classes may be appropriate for your unique situation.
Pro Tip: In addition to creating a bigger pool of investable assets, a liquidity event may push a business owner or his heirs into a higher marginal tax bracket. This makes it especially important that tax implications are considered in the management of a revamped portfolio.
The bottom line: It has been a challenging few years for many business owners. Weathering the Great Recession was hard enough. Enjoying the fruits of your labor over the long term will take a little more work, but it’s worth it.
Investment products are: not a deposit, not FDIC insured, may lose value, not bank-guaranteed, not insured by any federal government agency.
Sick of missing out? Sign up for our weekly newsletter highlighting our most popular content!
You’ve made all the right financial decisions. You’ve saved, you’ve planned, you’ve invested. But what if your heirs aren’t quite ready for the responsibilities and tax advantages that go along with inheriting your dutifully funded IRA? Your best bet for control from the grave may be a trusteed IRA.
Surviving the Great Recession wasn’t easy for anyone, but it had a unique impact on business owners who were looking forward to retirement. One-third of small biz owners are over the age of 55 – primed to step away from the day-to-day routine. When the economy went into a tailspin, those trying to either sell or otherwise transition the ownership of their business had to keep working, even as the long slump made staying in business a struggle.
Small businesses that bloom usually succeed by filling a niche that no one else can, offering unique skills, personal service or a killer product. But they also often depend on the know-how of one or a few irreplaceable people. If tragedy strikes them, it can take down the whole firm.
Remember the wild days of the real estate boom when you could buy a house with nothing down? You still can. Well, maybe you can’t, but a very select group of wealthy buyers can.