A Successful Business Owners Dilemma: How To Productively Invest Cash Profits?
Business owners have many legitimate complaints these days: taxes regulations competition from home and abroad cant find good people. The list goes on and on. Always has. Always will.
Yet the pride of the American capitalistic system is the successful family business. These entrepreneurs have found their way through around or over the seemingly endless obstacles to become a successful business owner. An SBO for short.
For the purposes of this article SBOs have excess funds to invest other than back into the operation of their business which produced the funds in the first place. Typically these excess funds are in one or more of three places: 1 still in the business 2 in their or spouses name or 3 in a qualified plan profitsharing 401k IRA or similar plan.
Over the years the quote that follows has been nicknamed the SBOs lament: I know how to make money in my business but when it comes to making money with my investment money either I dont have time to watch it dont know how to watch it or rely on my investment advisor. When the market is up my advisors do fine when its down they do lousy.
For the past couple of years the lament usually ends with Now the market is lousy or down or uncertain or similar words. What should I do?
Note: Yes yes millions of Americansother than SBOshave the same investment dilemma as SBOs: Where do I invest my money?
Now regular readers of this column know that your author is a tax planner: finding legal ways to avoid all types of taxesparticularly estate taxes. To do this requiresamong other thingsgetting my clients personal balance sheet.
Heres what I can tell you that the balance sheets reveal about the investments of SBOs and also other estate planning clients. Their success or failure in the stock market and a myriad of other investments in general mirrors the Dow Jones: happy on the way up and painful on the way down. Usually real estate investments are a winner.
Now what about that excess cash? Terrible results. Almost always the investments are conservative: divided between 1 CDs and money market funds 2 municipal bonds and 3 a zillion variety of annuities. After taxes and inflation your net earnings on 1 investments are typically less than 3 sometimes even negative. Those income tax free bonds 2 not only have a low rate of return but fall in value when interest rates rise. Annuities 3 could fill a large book to describe all the varieties and most of all the complaints from clients. Never not once has a client told me that he/she is happy with the results of an annuity. I would like to hear from a reader who has personally had a positive experience with any annuity.
As you can imagine almost every estate planning consultation with an SBOand other clientsrequires serious consideration concerning the clients investments: safety risk tax consequences rate of return and other factors. We discuss alternate investments considering among other things profitability risk and how taxed.
Currently the most popular alternative investment is Life Settlements. The following quote from The Wall Street Journal and USA Today and other sources tells you why LS are becoming such a popular investment.
Life Settlements has become a trillion dollar industry dominated by institutional investors including Berkshire Hathaway billionaire Warren Buffets company AIG and CNA. Their pursuit of this market is related to the degree of safety high yields in excess of 15 per year and the fact that a Life Settlement is not affected by market forces.
Life settlements are a very good option for the investor that has as his or her investment philosophy a desire for a secure safe and minimal risk investment It is for your nest egg money It is not considered a security by SEC. Therefore it is not normally provided as an investment option by stock brokers.
Of course your question is Can a little guy as opposed to an institutional investor invest in LS. Yes its all made possible by a small publicly traded on the NASDAQ company. Its average rate of return an LS investments has been 15.83 per year on average during the companys 16year operating history.
15.83 annual rate of return with minimal market risk is available for cash IRA 401k or other qualified retirement plan is available. This is for Accredited Investors only not for the little guy.
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About the writer:nbsp;nbsp;Irving Blackman is a very experienced CPA and lawyer. He is the founding Partner of Blackman Kallick the largest independent CPA firm in Illinois. He is also the founding Chairman of the Board of New Century Bank of Chicago.
He is the author of 8 books and is currently being published in 59 business trade publications in the USA.
His web site is www.taxsecretsofthewealthy.com.
If you want to contact Irv please call 8882783623.
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