According to BizBuySell, a total of 9,093 businesses were sold in 2023.  An additional 2,384 businesses were sold in the first quarter of 2024. 

If you sold or are thinking of selling your business soon, you may ask yourself, how can I protect my wealth before, during, and after the sale of my business? What steps should I take to make sure my investments and financial plan align with my goals? How do I get started on a financial plan?

About a third of the clients we work with are business owners who come to us with these exact questions. They are so focused on building their business that they often do not have the time to concentrate on their investments or financial plans.

Here we address key steps to consider with your investments before or after the sale of your business.

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Investment Management

One of the first items to consider after the sale of your business is what to do with the proceeds of the sale. We recommend you list out your goals and build a portfolio to match those goals. Is there a specific goal you have that comes to mind such as providing income in retirement or purchasing a new home in ten years? What about the need to cover short-term expenses such as medical expenses? Starting with your goals is important because you can align your portfolio with your goals to determine an optimal asset allocation among various asset classes to meet your goals. 

In our work with clients, we aim to help them pursue an outcome that will meet their goals while taking on the lowest amount of risk reasonably possible to align with their risk tolerance. The reason we structure our portfolios in that manner is because it allows them to stay invested during market declines, so they do not miss future opportunities.

JP Morgan produced a report that studied returns in the S&P 500 from January 1, 2004, to December 29, 2023.  They demonstrated that a fully invested portfolio would have returned 9.7% per year and grew to $63,637 in that time. Missing the ten best days during that same period, however, would have reduced the return to 5.5% per year and resulted in a portfolio of only $29,154.

With short-term rates at higher levels versus recent history, you can earn income on short-term investments such as money market investments or short-term fixed income. This extra income might allow you to not overreach into riskier asset classes to pursue extra income.

Be mindful of your allocation weight to any one sector or company. Warren Buffett once said, “Be fearful when others are greedy” and we tend to agree. It might be fun to ride the wave of the latest meme or technology stock, however, momentum can change quickly so be mindful of your investment allocations. 

You should also measure your asset allocation (aka stock and bond mix) regularly and rebalance if your asset allocation is no longer in line with your risk and investment objectives. Large market swings can cause substantial changes in your allocation to stocks or bonds. Without rebalancing, your portfolio may no longer be optimal to meet your goals.

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Taxes

Another area to consider in managing your portfolio is taxes. If you have taxable and tax-advantaged accounts, you might want to consider which investments are suitable for each type of account. For example, if you are actively trading individual companies or holding an actively managed fund, you should consider holding those positions in a tax-advantaged account. 

The reason is that the taxes on investment gains are taxed at different rates based on the holding periods of the investment. If you hold a position for a year or less, you will be taxed at your ordinary income tax rate. If you hold a position for more than a year, you can take advantage of the capital gains tax rate which might be anywhere from 0% to 20%.

Finally, you should also consider tax loss harvesting. Tax loss harvesting means you offset realized gains in your portfolio with any potential losses from other parts of the portfolio. For example, let us say you realize a gain of $10,000 from an investment and are in the 15% capital gain bracket. The tax on that gain is potentially $1,500 (15% x $10,000). If you held another investment with a loss of $7,000 and sold that investment, you could offset the $10,000 gain with the $7,000 loss to create a net gain of only $3,000. The net capital gain of $3,000 ($10,000 gain - $7,000 loss) would create a potential tax bill of $450 (15% x $3,000). The potential savings is $1,050 ($1,500 - $450). 

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Insurance

Another area to consider as part of your wealth plan is insurance. If you have family members who are dependent on your income, make sure you have adequate insurance. We find the easiest to review coverage is to simply use a checklist to make sure you have adequate life, health, long-term care, property, and if applicable umbrella insurance. If you are a business owner, make sure you have liability insurance for the business and a buy-sell agreement in place. If your insurance policies are older, consider getting them reviewed by a professional.

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Estate Planning

Finally, the last key area to consider is estate planning. It is never too early to work on an estate plan. If you have assets that pass outside of your estate, such as a retirement plan at work or an IRA, consider reviewing the beneficiaries regularly and make any necessary changes to align those beneficiaries with your estate plan.

If you have an estate that is larger than the federal estate and gift tax exemption, in 2024, $13.61 million per individual, or $27.22 million for a married couple, consider strategies to reduce or freeze the value of your estate such as annual gifting, advanced trusts, family limited partnership or charitable donations. 

Make sure you have all the necessary estate planning documents in place such as a Will or Revocable Trust, Medical Power of Attorney, and Financial Power of Attorney. We find that a checklist and annual review of the necessary documents are a wonderful way to make sure you are covered in each area.

Savvy Wealth Inc. (“Savvy Wealth”) is a technology company and owner of Savvy Advisors Inc. (“Savvy Advisors”). All advisory services are offered through Savvy Advisors, an investment advisor registered with the Securities and Exchange Commission (“SEC”).  Material prepared herein has been created for informational purposes only and should not be considered investment advice or a recommendation. Examples presented herein are hypothetical scenarios and intended for illustrative purposes only.  They do not represent an actual client, investment or experience, but rather are meant to provide an example of investment process outcomes and methodologies.  An individual’s experience may vary based on his or her circumstances.