Baby Boomers in Business…Soon to Exit….

I recently attended a fantastic 2-day conference on wealth management put on by the Southern California Institute (www.scinstitute.org). Here are some statistics – and you’ll soon understand that this is a crisis: Baby Boomers own 63% of the businesses in USA.  80-90% of the wealth is in their business. 76% wish to transition from their businesses in the next 10 years. This represents 4.5 million businesses, and +$10 trillion in wealth. However, only 49% have a transition plan. Of all the businesses that are put on the market to sell, only 30% are sold. Of all the businesses – only 30% of family-owned businesses make it to the 2nd generation and only 12% survive to the 3rd generation. The bottom line is this – very few plan and therefore are at significant risk of accessing the wealth in their business after sacrificing untold hours running their businesses. That’s awful! How can business owners exit their business? There are 4 “inside” options and 3 “external” options. Inside: Intergenerational Transfer, Management Buyout, Sale to Existing Partners or Sale to Employees. External: Sale to 3rd party, Recapitalization, Orderly Liquidation We are ignoring taking the company public (IPO) since that represents such a tiny percentage of companies. We urge all Baby Boomer business owners to strongly consider professional help with transitioning their businesses. Keep in mind that excellence in “exit planning” is simply excellence in business planning. The owner is growing the company, increasing profits, making it easier to run  – so they benefit now but also so they have a much better chance of a good outcome in exiting the business. We have access to the best resources...

Prediction Season

Please see the PDF found here and also read the introduction and conclusion below. Click the back arrow to return after opening the PDF. Prediction Season – December 2016 Introduction: The close of each calendar year brings with it the holidays as well as a chance to look forward to the year ahead. In the coming weeks, investors are likely to be bombarded with predictions about what the future, and specifically the next year, may hold for their portfolios. These outlooks are typically accompanied by recommended investment strategies and actions that are aimed at trying to avoid the next crisis or missing out on the next “great” opportunity. When faced with recommendations of this sort, it would be wise to remember that investors are better served by sticking with a long-term plan rather than changing course in reaction to predictions and short-term calls. <see PDF for the full article> Click the back arrow to return after opening the PDF. Conclusion: As the end of the year approaches, it is natural to reflect on what has gone well this year and what one may want to improve upon next year. Within the context of an investment plan, it is important to remember that investors are likely better served by trusting the plan they have put in place and focusing on what they can control, such as diversifying broadly, minimizing taxes, and reducing costs and turnover. Those who make changes to a long-term investment strategy based on short-term noise and predictions may be disappointed by the outcome. In the end, the only certain prediction about markets is that the future will remain full...

Wow – New Market Highs & Unpeeling the 401k Onion

As of December 9, 2016, “the markets” have been doing quite well. Keep in mind there’s a million ways to define the market. Our definition of “the market” is performing even better than the average person’s definition. It appears the “premiums” we employ for our clients – small stocks beat large and value stocks beat growth stocks are in favor, so our clients are enjoying higher performance in their portfolios. Upward moving markets happen! It may seem like a surprise, but since we cannot predict market movements – it’s actually not a surprise. We have no idea where the market will go or when it will go there. A year from now, it could be higher, lower or the same. (Choose one and you have a 33% chance of being correct, just like the celebrated Wall Street Forecasting “Experts”!) Our human behavior and biases make it difficult for the average person to be a great investor. After a notable market movement (or non-movement) has happened, as time passes, we begin to think we saw it coming. It’s obviously not true, but our minds play tricks on us. Also when we are in the midst of a market situation – we suffer “recency bias” – meaning that we over-focus on the present without seeing the bigger picture. Right now a lot of people are piling onto the market when we are at record highs. That’s not a problem as long as your commitment is 5 years or longer. We can help you “keep your cool” and make more money than most, by staying invested and highly diversified. The media and...

A Better Way to Report Market Status

One of the fundamental flaws in our culture’s approach to stock market monitoring can be found in how the “Financial Media” refers to “The Market”. “The Market” did this or “The Market” did that! The market is overvalued; the market is undervalued! What’s “The Market”?  Ah ha!  A very good question!! The most often quoted index is the Dow Jones Industrials – just 30 stocks. A tiny slice of the market – only large USA companies and only a portion of them! It’s amazing to me that we put up with this very poor coverage of the global markets. The S&P500 and NASDAQ are often reported.  Neither of these tell us what’s happening with small company stocks, developed countries outside of USA or emerging markets. How many times (I should keep a count!) has the the market been categorized as flat or down – when the US Small companies were up 1% that day as measured by the Russell 2000?  Did you know the asset class of Emerging Markets is up 17% this year? Of course not – the financial media apparently doesn’t believe in asset classes – yet that is how markets behave. Statistical studies have shown that 96% of stocks’ price movement can be attributed to their asset class. What would I do differently if I were in the financial media – to have an impact on increasing the knowledge base of US investors? I would start with instilling three indices in our culture: S&P500: 500 large US stocks – a major portion of the US large company stocks – represents behavior of large US stocks. Russell 2000: 2,000 small US stocks –...

Roth IRA for Hard-working Kids: Over $1M at age 65 tax-free!

Great idea: Act now to set your children on the path to have approximately $1.5M tax free at age 65. Savings from summer jobs starting at age 10 totaling just $17,100 by age 29 can set your children on a wonderful retirement plan. Harness the incredible power of compounding returns over 55 years! Do you have kids (grandkids, nieces, nephews) of any age that are working this summer earning income – or any time during the year? Do you wish for them a more secure future? Two words: Roth IRA. The most powerful retirement account available today. And we’ll help you get this going at no cost – as a public service. How do you turn $17,100 in contributions into $1.5M tax free? Click here to see what this looks like – graph and numbers both. Assumptions are listed in the next paragraph. Assume a child starts at age 10 and puts away $200/year, increasing regularly at the following ages/amounts: 12/$300, 15/$500, 17/$700, 23/$1000, 26/$2000 with the last contribution occurring at age 291. Further assuming an 11% annualized return2 – a reasonable return expectation for a small cap value fund. Click here to see recent returns of a Vanguard, DFA Small Cap Value Fund and related index – graph and numbers both. Note the higher DFA returns. This offer comes with EDUCATION. Your child will learn valuable lessons about hard work, long term commitment, saving, investing and compounding returns. I will be happy to meet with you and your child to explain how investing and compounding returns work. I will answer any and all questions. Note that it is...

How to have $200k to $760K more for retirement

Like most elements of personal financial planning, your 401(k) account requires ongoing attention and adjustments. Most 401(k) account owners from day one do not allocate their investments in an optimum allocation that will give them the best returns. Even those that do manage to allocate their 401(k) assets wisely; they don’t re-balance annually and/or are blindsided by minor and major changes in their 401(k) months or even years after the changes were implemented. In the utter busy-ness of our lives, it is easy to miss the announcements from HR on 401(k) plan changes. Finally, the most serious harm to our 401(k) growth is psychological – the so-called behavior gap which I have blogged about many times as it cannot be over-emphasized. I will address these issues one at a time and I also have graphs to illustrate how these problems can impact you financially in hypothetical scenarios. The first set of problems involve oversight and maintenance. Examples are: Failure to re-balance annually. Annually is an adequate frequency. However, if larger than normal swings have occurred since the last re-balance – then an extra re-balance is helpful since the re-balance accomplishes “selling high, buying low”. This gives an extra boost in returns over time. Failure to notice new funds being added and/or subtracted – and the subsequent re-design of your asset allocation. Asset allocation is a fancy term for the percent of assets you place in each fund. The plan may decide new allocations for you and even though they do a great job of attempting to inform you – in the chaos of life and flurry of information being flung at you – it...