{"id":119100,"date":"2023-11-06t11:56:08","date_gmt":"2023-11-06t16:56:08","guid":{"rendered":"\/\/www.g005e.com\/?p=119100"},"modified":"2024-08-27t17:00:45","modified_gmt":"2024-08-27t21:00:45","slug":"how-to-flip-the-switch-to-wealth-preservation","status":"publish","type":"post","link":"\/\/www.g005e.com\/2023\/11\/06\/how-to-flip-the-switch-to-wealth-preservation\/","title":{"rendered":"how to flip the switch to wealth preservation"},"content":{"rendered":"

\"businessman<\/strong><\/p>\n

at some point, entrepreneurs might need to change their risk perspective.<\/strong><\/p>\n

by anthony glomski<\/i><\/p>\n

after helping clients sell a business, it\u2019s crucial to focus on preserving wealth. this may require them to adopt a new mindset about their money, investing and risk.<\/p>\n

more: <\/b>how to outline your client\u2019s big picture<\/a> | your entrepreneurs need advice, but which kind?<\/a> | three ways to work together on wealth<\/a> | target the family ceo<\/a> | five challenges of liquidating a business<\/a>
\n\"goprocpa.com\"exclusively for pro members. <\/span><\/strong>log in here<\/a> or 2022世界杯足球排名 today<\/a>.<\/span><\/p><\/blockquote>\n

in the old world, you could choose not<\/strong> to help your clients with their investments. now it\u2019s expected that at a minimum you will understand their investment plan and overall retirement plan. you don\u2019t have to be the expert in every aspect of their financial plan, but you do<\/strong> need to make sure that all the different parts of the plan are aligned \u2013 and that all the other specialists working on behalf of your clients are aligned in their efforts.
\n
\nthat\u2019s how you provide significant value.<\/p>\n

when your clients realize significant wealth through a liquidity event, or are about to do so, they may suddenly find it quite easy to finance their current goals, desires and objectives. on the surface, they might feel like they have more money than they\u2019ll ever really need<\/strong> \u2013 perhaps a lot more \u2013 at least that\u2019s what their friends and family are implying.<\/p>\n

but that doesn\u2019t mean they no longer have to worry about having enough money to maintain their lifestyle in the long run. as hard-driving entrepreneurs or successful professionals for most of their adult lives, these types of clients will never be satisfied with the status quo. they\u2019re not going to rest on their laurels and adopt an \u201ci\u2019ve got all i need\u201d mentality. they have spent a lifetime building, creating, winning and always seeking more<\/strong>. that kind of drive is ingrained in their dna, so as their trusted advisor, the last thing you want to start doing is tell them to take their foot off the gas pedal and keep an eye on their fuel tank. you just don\u2019t want them to drive over the financial guardrails now that they have some serious horsepower under the hood.<\/p>\n

as a starting point, help clients realize that their money puts them in a unique position as investors. unlike the majority of people who invest in pursuit of maximum growth, your successful owner clients do not need to look to the financial markets or alternative investment opportunities to make their money. they\u2019ve already done that through their businesses.<\/p>\n

it\u2019s now time to focus on preserving<\/strong> the money they have earn, often by overcoming seemingly insurmountable odds. yes, growth may still be one of their financial objectives, but it doesn\u2019t necessarily belong at the top of the list. the biggest financial priority for your clients and their families now is to make sure their finances are managed intelligently so they don\u2019t lose what they have worked so hard to build. we\u2019ll look at what it means to make the smartest possible investment decisions in the wake of a business exit or other type of life-changing liquidity event.<\/p>\n

rethinking investment risk, post-liquidity<\/strong><\/p>\n

\u201cthe way to become rich is to put all your eggs in one basket and then watch that basket.\u201d \u2013 andrew carnegie<\/p>\n

that quote from andrew carnegie certainly rings true for successful entrepreneurs. their laserlike focus on one basket \u2013 their company \u2013 is what got them where they are today.<\/p>\n

but going forward, the single-minded approach that served them so well as business owners is probably not the best method for taking care of the wealth they have accumulated.<\/p>\n

my team and i believe that wealth preservation \u2013 not wealth accumulation \u2013 should now be their primary concern. consider that nearly nine out of 10 affluent individuals (88 percent) say that \u201closing their wealth\u201d is a major concern (source: aes nation).<\/em><\/p>\n

if you can help clients preserve their wealth successfully, they can maintain their lifestyle, help their extended family and leave a legacy \u2013 all while avoiding financial mistakes along the way.<\/p>\n

but the idea of investing to preserve wealth \u2013 rather than to make a lot more money \u2013 may require your hard-charging entrepreneurial clients to adopt a fundamentally different mindset.<\/p>\n

ok, so where do i start?<\/strong><\/p>\n

as a successful business owner, your clients have probably been quite comfortable with risk. over the years, being a risk-taker \u2013 hopefully a calculated risk-taker \u2013 has served them well, and they may see risk-taking as essential to generating results both in business and in the capital markets.<\/p>\n

but here is something i need you to keep in mind as your client\u2019s most trusted advisor: even if a client now finds herself with more money than she\u2019ll ever be able to spend \u2013 and therefore has no practical reason to take on significant investment risk \u2013 she may find herself drawn to \u201copportunities\u201d that carry with them a sizable probability of losing most, if not all, of the investment. it\u2019s part of her dna.<\/p>\n

your client\u2019s reason for pursuing high-risk investment opportunities may be to continue to grow their bottom line and satisfy their adrenaline fix. in fact, for many in your client\u2019s position, the money is secondary to the thrill of the challenge, the hunt or the competition. mark cuban, the internet billionaire and owner of the nba\u2019s dallas mavericks, speaks frequently about being unable to turn off his competitive engine. it can be very difficult to disengage from risk-prone behavior in favor of placing one\u2019s assets in \u201cboring\u201d strategies.<\/p>\n

when it comes to wealth preservation, your client\u2019s propensity to take risks can become a serious issue.<\/p>\n

what if clients believe they can afford the risk? <\/strong><\/p>\n

even if your client can now afford to lose significant sums in pursuit of huge investment payoffs, or even if they are in a position to \u201cspin the wheel\u201d without being impacted too severely by poor \u201ccan\u2019t miss\u201d outcomes, it\u2019s simply not the smart move. taking these risks can erode their ability to make a major difference with their money later in life \u2013 for example, by taking care of multiple generations of family members or by contributing to philanthropic organizations whose values align with theirs.<\/p>\n

your client\u2019s longstanding comfort with uncertainty might cause them to take on more investment risk than they realize they\u2019re taking \u2013 or intend to take. it is not uncommon for these successful individuals and families to concentrate 70 percent or more of their investable assets in stocks. but, if you look closer, you\u2019ll see that such investment positioning is often far more aggressive than it needs to be. would your client be okay (financially and psychologically) if their $20 million portfolio suddenly shrank to $12 million or even less? we\u2019ve lived through moments in history where this, and even worse has happened. and we will continue to have these \u201conce in a lifetime\u201d events. your client\u2019s risk allocation should be based on what truly matters to them<\/strong> \u2013 customized and bespoke to their unique situation \u2013 not an arbitrary percentage based on their age.<\/p>\n

consider the example of a physician who owned a lucrative independent medical practice. through his work, he learned a lot about pharmaceutical companies. he became so enamored of one pharma company in particular that he allocated his entire pool of investable assets<\/strong> to that company\u2019s stock. when i met with the physician, his stake in that company had lost 50 percent of its value. during our last discussion, he used the word \u201chope\u201d when talking about his investment strategy. if you take nothing else away from this story, remember that \u201chope\u201d is not a strategy.<\/p>\n

this example may seem extreme \u2013 but it\u2019s more common than you think. i have seen hasty decisions and poor advice lead to excessive stock concentration in failed investments like enron, bear sterns, lehman brothers, countrywide, fannie mae \u2013 the list goes on. these decisions have resulted in actual permanent loss and, in the most extreme case, the investor had to go back to work because of the damage suffered from his heavy concentration in a single failed stock.<\/p>\n

the worst part: not one of these investors needed to incur so much risk in order to maintain their lifestyle. in fact, they weren\u2019t even aware<\/strong> of the amount of risk they were exposed to until it was too late.<\/p>\n

ultimately, there are two powerful opposing forces at work as your clients seek to build a post-liquidity investment portfolio:<\/p>\n

(1) the entrepreneurial risk-taker<\/strong> who measures success in terms of the amount of growth generated, and<\/p>\n

(2) the prudent investor<\/strong> who desires to preserve what\u2019s been created so that money can be used for maximum benefit.<\/p>\n

essentially, this is every investor\u2019s dilemma \u2013 to balance risk and return. as we noted earlier, we believe that wealth preservation should be the primary post-liquidity concern of successful entrepreneurs.<\/p>\n

so, if a client can\u2019t invest in singular causes, how can they invest it? <\/strong><\/p>\n

when you have clients who are habitually drawn to high-risk investing, encourage them to fill this need through other outlets \u2013 in other words, encourage them to invest their time<\/strong> instead of their money in these pursuits. there\u2019s a lot to be gained by pursuing visceral hobbies, offering their expertise to friends in business and engaging in strategic problem solving for philanthropic organizations. conversely, they might earmark a small portion of their assets for a personal investment or \u201cventure fund\u201d so they can pursue their interests without risking any life-altering losses. it\u2019s important to continue to support their investment in themselves and in their businesses. i have always been a firm believer that the best investment an entrepreneur will ever make is in themselves. no one knows their company \u2013 or themselves \u2013 as well as they do.<\/p>\n

potholes on wall street<\/strong><\/p>\n

\u201ccompound interest is the eighth wonder of the world. he who understands it, earns it \u2026 he who doesn\u2019t \u2026 pays it.\u201d \u2013 albert einstein<\/p>\n

investing can be difficult at times. in one sense, we have every advantage over the long term to be properly compensated for the risk we take and to enjoy having the power of compounding on our side. along the way, however, we face tremendous obstacles thanks to our emotions, the media and attempts by the financial services industry to sell us the hottest new ideas and strategies. i refer to these obstacles collectively as the \u201cpotholes\u201d on wall street.<\/p>\n

consider the following headlines from 2007 when the stock market was establishing one of the most significant peaks in history (and right before everything crashed):<\/p>\n