I hear from clients every day, and many of them ask me, “Hey, Justin. Should my investment strategies change if…..” And the “if” at the end of their question could be “if I’m retiring soon.” It may be “if I’m spending a fortune on my kids’ college education.” Or more importantly in my line of business, I hear, “if I’m selling my business soon.” Well, that all depends on you, friend. It all depends…
A client of mine, a small business owner, and I were talking about his ten-year plan to sell his business. Currently, we’re building up the sellable value in the business, but we’re not building up the value in his retirement accounts the same way. Like many business owners I know, he hasn’t really focused on his retirement accounts. In fact, their value is relatively small.
Then my client says, “So Justin, look. I’m selling my business in the next ten years. We are already working to that end. Should my investment strategies change – should I become more and more conservative in my (IRA and ROTH IRA) portfolio as I reach that ‘magical’ sale date?”
Usually, my answer would be, “Yeah, you probably want to start scaling that back.” But in this particular guy’s case, we projected he needed a 9% return on investment in his retirement portfolio, AND he needed the money from the sale of his business at a certain multiple in order to reach his “optimal” retirement goal. (For how to assess your minimum business sales price to meet your retirement needs, click here!)
Now when I say optimal, I mean that this guy wants to travel the world. He wants to spend lots of money. If he doesn’t sell the business for what he’s expecting or he doesn’t reach that exact 9% return, then is it the end of the world? No, he’s pretty solid and has a nice little business. But if he wants to achieve his monetary retirement goals, then he’s got to stay a little bit more aggressive.
So going back to my client’s original question that essentially asks, “Should my investment strategies change if I’m selling my business soon,” I would say, “It depends.” In this particular client’s case, he’s going to let his money ride in the more aggressive accounts for another two to seven years in hopes of achieving a higher return on his investment. He still has time to ride the market waves. Until he gets closer to retirement, it’s a matter of driving costs down as low as possible in his business and driving the return up as high as possible in his investment accounts.
However, if my client was trying to sell the business within the next two to three years, I would likely advise him to switch to a more conservative investment strategy to ensure he keeps his financial risk as low as possible.
“Always” is never actually always. Anything I tell one client doesn’t “always” apply to every client. That goes for anything that I say here. So if you’re ten years from hitting that retirement goal or you’re within that business era of getting ready to sell your business, speak with your CFP®. Go over the details of finding exactly how you should be invested in this particular, vital time of your life. If you don’t have a CFP®, reach out to me to see if I can help you meet your small business and retirement goals.
So, guys, this is Justin Goodbread with Financially Simple. Hey look, let’s remember to at least keep our lives, financially simple.