A liquidity event is much more than an event – it kick-starts a new role in your life. Whether you finally converted your “sweat equity” into cold hard cash, have just received an inheritance, or have exited a successful business partnership, the event itself is the first step in a new phase of your life.
Before entering this new frontier of risk and opportunity, consider these steps to ensure this sudden inflow of capital serves your objectives for the long haul.
1. Build A Trusted Team of Advisors
While a liquidity event can bring you a new level of independence, a strong team of specialists is necessary to ensure the preservation and growth of your liquidity event derived capital.
A team of tax, legal, financial advisors and alternative investment managers will guide you through the process of building a game plan for your capital. Just remember you still call the shots; it’s up to you to direct the course of your financial ship.
2. With the Help of Your Tax Advisors, Build A Tax Plan That Serves Your Short-Term and Long-Term Interests.
When it comes to tax planning, your mileage may vary. Everyone has a unique tax situation, and it is imperative to build a tax-efficient and tax-compliant plan for your money.
This tax plan will help you in the short-term (income taxes), medium-term (capital gains taxes), and long-term (estate planning).
3. Build A Plan That Focuses on Wealth Preservation
Risk and return are the yin-and-yang of building a portfolio. As you start making your money work for you, devote as much focus to capital preservation as you do to capital growth.
A financial advisor that specializes in High Net Worth Individuals will help you build a portfolio that serves your risk and investment objectives well.
4. Assume Your New Role as a Passive Investor
The hardest transition following a liquidity event may be the evolution from active business owner to a passive investor. However, having your money work hard for you is anything but passive. To ensure long-term capital preservation and growth, you must still be at the helm, conducting due diligence and making the decisions when to pull the trigger on different investment options.
This new role may let you utilize your existing talents: the same combination of work ethic, wits, and persistence that helped build a successful business will come in handy when making the tough decisions. The advice of your financial and tax advisors will also contribute to your success.
5. As a Passive Investor, Leverage the Expertise and Experiences of Others
While there are many ways to make a fortune, there are just as many ways to lose one. Your success in previous ventures may be proof of great talents, but sometimes these talents do not translate into other fields.
For example, take private real estate. Real estate may be the world’s oldest investment vehicle, but that doesn’t mean it’s all a matter of “buy it and forget it.” Like any business venture, there is a steep learning curve that could take years of trial and error to master.
Why devote your scarcest resource (time) when you can devote it to opportunities better aligned with your core competencies? Leveraging the expertise of others (such as investing in Private Real Estate funds) may be your best option.
6. Incorporate Alternative Investments as Part of Your Portfolio
Public equity investments such as stocks and bonds are the most popular vehicles to put your money to work. However, in a world rampant with high volatility and market swings it may be beneficial for you to consider alternative investment vehicles such as private real estate.
Private Real Estate investments, managed by MLG Capital, have historically provided consistent, low-volatility returns not correlated with the public markets. Such investments may help provide both long-term growth and capital preservation, providing potential sustainability of the proceeds from your liquidity event.
7. Begin Assessing Alternative Investment Opportunities
Now that you have devised a tax planning strategy and a portfolio strategy, it’s time to assess individual investments. While your financial and tax advisors will play their part, you make the final call.
Deciding on an investment manager is a like deciding on any other type of relationship: it all comes down to trust. At the end of the day, do you have faith in the strategies, expertise, experience, and past performance of the prospective manager?
When you experience a liquidity event, the steps outlined above can serve as a guide to achieving your long-term goals.
If you have already executed some of the steps above (such as building a team of tax and financial advisors), you may be ready to consider alternative investment opportunities such as private real estate. If so, MLG Capital is more than happy to speak with you to discuss private fund and syndication opportunities that may fit into your growth and capital preservation strategy.