Selling your business is a monumental achievement—one that likely took years of hard work, dedication, and passion. But once the ink dries on the sale agreement, another challenge emerges: What comes next? With a significant influx of capital, the opportunities are vast, but so are potential pitfalls. How do you ensure that the wealth you’ve built continues to grow and supports your future ambitions?
At Dunnigan Financial, we understand that this next chapter is just as critical as the one you’ve closed, and we’re here to help you make the most of it with our financial planning expertise. With more than 30 years of financial experience, here’s how we recommend taking investment action after selling your business.
Assess Your Financial Goals Post-Sale
The first step after selling your business is to take a step back and assess your financial goals to make sure you have all your other financial priorities covered before investing the proceeds from a business sale. It’s important to consider how this new wealth might align with your long-term objectives. Here are some key areas to consider:
- Retirement Planning: If you’re planning to retire soon and your business was your primary source of income, you’ll need to plan how to replace that income in retirement. Consider how much you’ll need to maintain your desired lifestyle, and whether your current savings, including the proceeds from the sale, are sufficient to meet those needs.
- Estate Planning: The sale of a business often triggers an update of the owner’s estate plan to accommodate the new wealth. You’ll want to ensure that your wealth is structured in a way that benefits your heirs and minimizes tax liabilities.
- Tax Planning: The sale of a business can have significant tax implications. Work with a financial advisor to understand the tax consequences of the sale and explore strategies for minimizing your tax burden.
- Investment Strategy: With new funds available, it’s important to develop an investment strategy that aligns with your risk tolerance, time horizon, and financial goals. Diversification, asset allocation, and market timing are all factors that should be considered when crafting your investment plan.
- Philanthropy: If giving back is important to you, the sale of your business can provide a unique opportunity to make a significant impact. Consider how you might incorporate charitable giving into your overall financial plan, whether through direct donations, setting up a foundation, or creating a donor-advised fund.
Taking the time to thoroughly assess your financial goals after the sale of your business will provide clarity and direction as you move forward. A well-defined plan will not only help you preserve your wealth but also aims to achieve continued growth and serve your future aspirations.
What Investment Options Can You Choose From?
Once you’ve assessed your financial goals, the next step is to explore the various investment options available to you. The proceeds from the sale of your business can be allocated across a range of investment vehicles, each with its own risk profile, return potential, and role in a diversified portfolio.
Understanding these options will allow you to make informed decisions that align with your financial objectives. Below are some of the primary investment options available to you:
Stocks and Bonds
Stocks: Investing in stocks offers the potential for significant growth, particularly if you’re willing to accept higher levels of risk. Stocks represent ownership in a company, and their value can fluctuate based on the company’s performance and broader market conditions.
Bonds: Bonds are generally considered safer than stocks, as they represent loans made to corporations or governments that pay regular interest. They provide a steady income stream and are less volatile, making them suitable for those seeking stability and lower risk.
Mutual Funds and ETFs
Mutual Funds: These are professionally managed portfolios that pool money from many investors to purchase a diversified mix of stocks, bonds, or other securities. They offer diversification and professional management but often come with higher fees.
Exchange-Traded Funds (ETFs): Similar to mutual funds, ETFs offer diversification by investing in a broad range of assets. However, they are traded on stock exchanges, like individual stocks, and typically have lower fees.
Real Estate
Real Estate Investments: These investments can provide both income and appreciation. Whether through direct ownership of rental properties, commercial real estate, or real estate investment trusts (REITs), real estate offers tangible assets that can serve as a hedge against inflation.
Alternative Investments
Private Equity: Involves investing directly in private companies, often requiring a longer time horizon and a higher risk tolerance. These investments can offer substantial returns in the long term but not the short term.
Hedge Funds: These funds employ various strategies to generate returns, including leveraging, short-selling, and investing in derivatives. They are typically only available to accredited investors and come with higher fees and risk.
Commodities: Investing in physical assets like gold, silver, oil, or agricultural products can diversify your portfolio and serve as a hedge against inflation and currency fluctuations.
Annuities
Annuities: These are insurance products that provide a guaranteed income stream, often used for retirement planning. They can be customized to provide income for a specific period or for life, making them a reliable option for those seeking security.
Tax-Advantaged Accounts
Individual Retirement Accounts (IRAs): Contributing to a traditional or Roth IRA can help you grow your savings tax-free or tax-deferred, depending on the type of account. This can be particularly beneficial if you’re focused on retirement planning.
529 Plans: If you have education expenses in your financial plan, a 529 plan allows you to save for college and other education costs with tax advantages.
Take Investment Action with Confidence
Understanding your financial goals and investment options is only the beginning. When investing after selling your business, it’s crucial to consider tax implications, as they can significantly impact your returns. Diversifying your investments is also essential to managing risk and improving potential returns by spreading your assets across various vehicles like stocks, bonds, real estate, and more.
However, navigating these complex decisions can be challenging, which is why working with a qualified financial planner is invaluable. Furthermore, working with a registered Certified Financial Planner (CFP) will keep you from running into scammers and worthless investments. Dunnigan Financial’s skilled team can help you create a tailored strategy that better positions your gains while aligning with your long-term goals. Contact us today to start preserving your financial future with confidence.
Disclosures:
Asset allocation does not ensure a profit or protect against loss.
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
Bonds are subject to market interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise. Bonds are subject to availability, change in price, call features and credit risk.
Stock investing includes risks, including fluctuating prices and loss of principal.
ETF’s trade like stocks, are subject to investment risk, fluctuate in market value, and may trade at prices above or below the ETF’s net asset value(NAV). Upon redemption, the value of fund shares may be worth more or less than their original cost. ETF’s carry additional risks such as not being diversified, possible trading halts, and index tracking errors.
Alternative investments may not be suitable for all investors and should be considered as an investment for the risk capital portion of the investor’s portfolio. The strategies employed in the management of alternative investments may accelerate the velocity of potential losses.
The fast price swings in commodities will result in significant volatility in an investor’s holdings. Commodities include increased risks , such as political, economic, and currency instability, and may not be suitable for all investors.
Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 1/2 may result in a 10% IRS penalty tax in addition to current income tax.
Prior to investing in a 529 Plan investors should consider whether the investor’s or designated beneficiary’s home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state’s qualified tuition program. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary. Please consult with your tax advisor before harvesting.
Investing in mutual funds involves risk, including possible loss of principal. Fund value will fluctuate with market conditions and it may not achieve its investment objective.
Investing in Real Estate Investment Trusts (REITs) involves special risks such as potential illiquidity and may not be suitable for all investors. There is no assurance that the investment objectives of this program will be attained.