After selling your business, how should you go about investing in other businesses? Making the transition from a successful business owner to a savvy investor can be tougher than most people think.
Why? Because the skills you used to grow your business can be quite different than the skills needed to protect and manage your wealth for the rest of your life. Think about it: When you grew your business, you knew your business. You ran it, you understood it. You knew what risks you could take, and when.
But after selling your business, the primary goal is to make your money last. That means that the same level of risk-taking you undertook before, and the idea of “doing it your way”, may not work now. In fact, spending time chasing down new opportunities or trying to “pick winners” yourself could put your nest egg at real risk. Instead of relying on a hot tip from a friend or from a social media advertisement, you should rely on Registered Investment Advisors.
What Will a Registered Investment Advisor Do for You?
As opposed to a Financial Planner or a Stock Broker, fee-based Registered Investment Advisors are Fiduciaries. This means they have a legal obligation to put your financial interests ahead of their own. As such, they will work very carefully with you to understand both your current and desired financial positions. With that understanding, they will craft a custom investment plan for you. Your investment plan will reflect your needs, wants, risk tolerance and lifestyle preferences.
How Should You Start Investing in Other Businesses?
If you want to grow your money beyond what a savings account will pay, or stay ahead of inflation, our experience has shown the stock market is the best place to grow your money, over time. Yes, we are keenly aware of the recent market volatility due to the economic impacts of the COVID-19 pandemic. However, as we discussed recently, situations like these come and go. But over time, because American businesses and their earnings-per-share continue to grow, investing in other businesses remains the best option.
Our investment recommendations often focus on dividend stocks. These are the shares of companies which regularly share their earnings with its shareholders. Dividends are usually paid out on a quarterly basis, but special dividends can be paid out at any time. Because these dividends are typically paid to shareholders as cash, recipients can choose to reinvest that cash or use it to cover living expenses.
Historically, total returns from dividend paying stocks have outpaced that of the broader stock market. This means that in addition to regularly generating cash for shareholders, the shares themselves have historically increased in value. With long-term returns close to 10%, that’s an investment win-win.
Are You Selling Your Business?
If you are beginning to think about selling your business (or have already sold your business), let’s talk. As fee-only, Registered Investment Advisors, we can provide valuable strategic advice and help you create investment income.
Anatoliy Cerevach is a Chartered Financial Analyst and a Portfolio Manager with Kunath Karren Rinne & Atkin, LLC. He has over 19 years of portfolio management and security analysis experience. Prior to joining KKRA, he was a Portfolio Manager and Research Analyst with Coehn & Steers. He holds an MBA in finance from Pacific Lutheran University. He is an active member of the CFA Institute and the CFA Society Seattle.