Small business owner, mid 30s, doing great, clueless with investments

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NowWhat
Posts: 10
Joined: Sun Aug 12, 2018 9:45 pm

Small business owner, mid 30s, doing great, clueless with investments

Post by NowWhat » Sun Aug 12, 2018 10:36 pm

Married, two young kids, mid 30s. I am clueless with investments and get paralysis from overanalysis. I watch the broad market daily but have extremely limited knowledge.

I own a small home remodeling company that has been growing well the last several years. Annual revenues were $1.89mm last year and on track for above 2.0mm this year. My gross margins are typically in the mid 20%s per job. Sometimes less sometimes more. I have almost no overhead and do my own books. It's a very hard business to scale well and I do not anticipate growing much beyond where I am. It leaves me a very good work/life balance to spend with my family and control of my day.

Annual income: $350-450k (in the last several years) - on track for upper end of that this year and perhaps the same next year (based on expected pipeline)
Mortgage: $926,000 @ 3.875%/30 year - $4,702/month - I paid $20,000 towards principle a few months ago. Currently about $3k/month is interest.
Approximate home value: $1,700,000 (I remodeled the home prior to moving)
Cars: 2007 SUV/2010 truck - both bought new/one owner - we anticipate buying my wife a car in the next 2-3 years
Other Debt: $0 - we pay our CCs in full monthly
Monthly/Annual expenses: (all in, including maxing out IRAs, insurance premiums, property taxes, whatever life expenses you can imagine): $17,700/month - $212,400/year

Investments:
My TD Ameritrade Acct (SEP IRA/etc.) - $118,000 - some stocks, funds (SWPPX, VFORX, ACEIX, VOT) - I just picked this stuff randomly after reading a few articles.
Wife's TDA Acct: ~$60,000 - I frankly don't know what this consists of
Money Market @ 2.0% - $200,000
Money Market @1.75% - $385,000
CD @ $2.05% (matures March 2019) - $68,000
My Company: $170,000 in cash (I push cash to money markets as needed, which I could probably move $70,000 now if I really wanted)
I expect to receive final draws on several smaller projects in the next month totaling maybe $80,000
Investments/cash/expected draws in 30 days: $1,081,000

Excluding existing TDAmeritrade investments and needed working capital I would say I've got about $750,000 of cash that's being completely underutilized. On one hand I feel lucky to say I have that cash and the other says I am a moron for doing nothing with it.

I guess this puts our net worth in the $1,800,000 - $1,850,000 range. With $755k of that being the home equity. We have no plans to move until our kids graduate high school or longer.

I know I'm likely doing better than average my age and I feel fortunate for that but I know I need to intelligently invest what I've got. I don't think I trust financial advisers any more than what I read online and am too ignorant to know where to begin. I don't know what I don't know and so I can't seem to take a first step. I illogically think to wait for some market correction but in reality all my investments are long term. I would anticipate leaving 12-18 months of cash for living and invest the rest and keep that 'ratio' into the future.

Thanks for reading and thank you in advance for any advisement.

mega317
Posts: 2470
Joined: Tue Apr 19, 2016 10:55 am

Re: Small business owner, mid 30s, doing great, clueless with investments

Post by mega317 » Sun Aug 12, 2018 11:29 pm

A couple of thoughts.

Yes you're doing better than average. I didn't do the math that carefully but it looks like you are counting in your net worth the investments, cash, and home equity and ignoring the almost million dollars you owe to a bank. That's a lot! You have a huge mortgage and possibly unstable income so I would be very careful with your spending.

I'm a fan of simplicity for everyone but even more so someone with little kids and their own business. I'd spend a little time on this site, the wiki, and a few good books recommended by this site, reading about the 3 fund portfolio. You are a perfect candidate to just start over. Honestly it's just a bunch of anonymous internet people but I would trust what you read here more than advisors. You'll get some conflicting advice and maybe a little bit of bad advice but if you take what you read on the whole it will be fantastic.

No reason to watch the market daily. That provides no useful information.

Cop51
Posts: 98
Joined: Sun Jul 09, 2017 12:42 am
Location: NJ

Re: Small business owner, mid 30s, doing great, clueless with investments

Post by Cop51 » Mon Aug 13, 2018 12:54 am

Do you have any other W-2 employees? You can really take advantage of the solo 401k max contributions of $55,500. Something to look in to.

gotester2000
Posts: 505
Joined: Sun Nov 12, 2017 1:59 am

Re: Small business owner, mid 30s, doing great, clueless with investments

Post by gotester2000 » Mon Aug 13, 2018 7:32 am

You need to cut down your mortgage and expenses - too much for an unstable income.

niceguy7376
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Joined: Wed Jul 10, 2013 2:59 pm
Location: Metro ATL

Re: Small business owner, mid 30s, doing great, clueless with investments

Post by niceguy7376 » Mon Aug 13, 2018 8:57 am

I am not an expert in recommending the investments to you as your situation is different than mine (income and expense levels, need to have cash for business etc).

For a highly market dependent job scenario, i would recommend a bit more of belt tightening and plan for rocky times ahead.

Based on your mortgage remaining, if you are NOT in HCOL, you are already spending a bit more than my preference.
Yearly expenses of 210K. How much have you been saving per year?
What has been your SEP IRA contribution limits? Does your spouse work outside of your business? Does she work in your business?

Would solo 401k be a better alternative so that you can have her help you and get a retirement account and SS credits to her record?
This might also help with backdoor roth. How would this change your salary and K1 amounts compared to current scenario?

How much cash do you leave within the company?

NowWhat
Posts: 10
Joined: Sun Aug 12, 2018 9:45 pm

Re: Small business owner, mid 30s, doing great, clueless with investments

Post by NowWhat » Mon Aug 13, 2018 9:16 am

Thanks for the reply. That net worth guess is including my debt.

I didn't say this in my original post but I do not want something to manage daily or weekly. I also posted without reading a lot of the information on here...but it's something I plan to do this week. Thanks again.
mega317 wrote:
Sun Aug 12, 2018 11:29 pm
A couple of thoughts.

Yes you're doing better than average. I didn't do the math that carefully but it looks like you are counting in your net worth the investments, cash, and home equity and ignoring the almost million dollars you owe to a bank. That's a lot! You have a huge mortgage and possibly unstable income so I would be very careful with your spending.

I'm a fan of simplicity for everyone but even more so someone with little kids and their own business. I'd spend a little time on this site, the wiki, and a few good books recommended by this site, reading about the 3 fund portfolio. You are a perfect candidate to just start over. Honestly it's just a bunch of anonymous internet people but I would trust what you read here more than advisors. You'll get some conflicting advice and maybe a little bit of bad advice but if you take what you read on the whole it will be fantastic.

No reason to watch the market daily. That provides no useful information.

NowWhat
Posts: 10
Joined: Sun Aug 12, 2018 9:45 pm

Re: Small business owner, mid 30s, doing great, clueless with investments

Post by NowWhat » Mon Aug 13, 2018 9:17 am

No W-2 employees, they're all 1099s. I max out my SEP IRA and have a Roth/Traditional (not a lot of money in them) prior to venturing into this.

Thanks for the reply.
Cop51 wrote:
Mon Aug 13, 2018 12:54 am
Do you have any other W-2 employees? You can really take advantage of the solo 401k max contributions of $55,500. Something to look in to.

NowWhat
Posts: 10
Joined: Sun Aug 12, 2018 9:45 pm

Re: Small business owner, mid 30s, doing great, clueless with investments

Post by NowWhat » Mon Aug 13, 2018 9:20 am

I agree, however, if the market value of my home is $1,700,000 the dirt is worth about $1,150,000. It's in a desired area that will endure over time. I would contemplate paying down my mortgage but the 3.875% rate is great and I suspect with even mediocre investments I would beat that.

A good portion of those expenses are run through my company. Maybe that doesn't make much of a difference.

I agree the income is unstable, which is perhaps semi-consciously why I've held onto so much cash. Sometime terrible could happen and I have multiple years worth of cash for living.

Thanks for the reply.
gotester2000 wrote:
Mon Aug 13, 2018 7:32 am
You need to cut down your mortgage and expenses - too much for an unstable income.

NowWhat
Posts: 10
Joined: Sun Aug 12, 2018 9:45 pm

Re: Small business owner, mid 30s, doing great, clueless with investments

Post by NowWhat » Mon Aug 13, 2018 9:30 am

Thanks for the reply. I don't have answers to all your questions, but:

My wife worked briefly after our first child was born and occasionally helps me. Nothing substantial.

I've been saving everything past my expenses, which would be $100+ annually. Last year my SEP IRA limit allowed me to put something around $35k (per my accountant), which I did. I intend to max that out annually. Not terribly important in this discussion but I didn't mention it in my original post - but we have 529s for both children, each with $10-15k per.

I pay myself $3,000/month. I am ignorant to a solo 401k?

I've had as much as $650k in the company and as little as maybe $90k. I realized when I had $500k+ just sitting there it was doing nothing and I needed to move it. The majority of my work is through client remodels which I receive draws. Typically 30/30/30/10. I typically put cash not needed in the business (profit based on me tracking expenses) to my MM accts. So, I leave as much cash there as needed. Occasionally when a larger job ends I will know immediately my gross income may be, say, $120k from a job yet that $120k has continued to sit in my business account. I now realize that doesn't need to continue. I am not currently doing any speculative ventures where I need a lot of out of pocket cash (or loan).

I hope this answered your questions. Thanks.
niceguy7376 wrote:
Mon Aug 13, 2018 8:57 am
I am not an expert in recommending the investments to you as your situation is different than mine (income and expense levels, need to have cash for business etc).

For a highly market dependent job scenario, i would recommend a bit more of belt tightening and plan for rocky times ahead.

Based on your mortgage remaining, if you are NOT in HCOL, you are already spending a bit more than my preference.
Yearly expenses of 210K. How much have you been saving per year?
What has been your SEP IRA contribution limits? Does your spouse work outside of your business? Does she work in your business?

Would solo 401k be a better alternative so that you can have her help you and get a retirement account and SS credits to her record?
This might also help with backdoor roth. How would this change your salary and K1 amounts compared to current scenario?

How much cash do you leave within the company?

Dottie57
Posts: 3938
Joined: Thu May 19, 2016 5:43 pm

Re: Small business owner, mid 30s, doing great, clueless with investments

Post by Dottie57 » Mon Aug 13, 2018 10:18 am

I am not an expert on your type of lifestyle. My last Salary was 110000. and I could not have been an entrepreneur with my own business.

That being said, it seems like your finances between personal an business are entertwined. Separate the personal from the business. I hope you have your business as an S-Corp in order to protect the personal.

An aside: my dad was a partner in a small animal practice. He didn’t have a salary but a percent of gross. He would fill the coffers every so often. After he became sole owner, the business was incorporated. He had a salary at that point and money situation became much more clear. Personal was personal and business was business.

My impression of your expenses is you live an expensive life. Make sure you have a lot of emergency funds. That house costs a lot each month and there is a recession in the future. When it comes is unclear.

Amp up your investments - taxable account. Maybe creating a personal balance sheet would make things more clear. I assume you do the same for your business.

HEDGEFUNDIE
Posts: 233
Joined: Sun Oct 22, 2017 2:06 pm

Re: Small business owner, mid 30s, doing great, clueless with investments

Post by HEDGEFUNDIE » Mon Aug 13, 2018 10:40 am

Are you in the Bay Area? That house value makes sense if so. Also a great place to be a general contractor (I’ve had people quote me $200/hr labor rates for handyman jobs).

The most important thing you need to figure out for your $1M pot of money is your stock/bond asset allocation. Nisiprius recently did a series of posts (you can search for “Matter/scatter”) that showed that asset allocation is the single most impactful decision in investing.

Normally for someone your age people would recommend going aggressive (90% stock / 10% bond) but in your case you (1) already have a significant amount saved up and (2) have a fairly volatile income stream which behaves similar to a stock. So I would suggest that you invest relatively conservatively (60% stock / 40% bonds for example).

The next question is what specific stocks and bonds should you buy? You say that you don’t want to be tweaking the portfolio all the time, and BH would agree with you. Go with the lowest cost broadest funds you can find. Total World Stock Index or Total Stock Market Index for the stock portion and Total Bond Market Index for the bond portion. And you’re all set!

Good luck and congratulations on the success so far.

CFOKevin
Posts: 106
Joined: Sat Jan 04, 2014 4:07 pm

Re: Small business owner, mid 30s, doing great, clueless with investments

Post by CFOKevin » Mon Aug 13, 2018 10:52 am

NowWhat,

Congrats on your success so far and on finding this forum.

I'd second a conservative-ish approach to your asset allocation (maybe 60/40?). And, just take the plunge. You are going to need the appreciation you'll get from equities to meet your financial goals. Then, do your very best to ignore all financial news.

It looks like your family is depending on you so I'd suggest making life insurance and disability coverage a priority. Maybe $3-5M in term life and a disability policy from someone who won't try to sell you any other insurance :) Wills and trusts, too. Don't put this off.

And, decide what your long-term financial goals are. I'm guessing it might be something like $200K pre-tax in retirement that starts when the youngest goes off to college. Using a 25x multiplier, that would be a $5M net worth required to pull that off. To get there, you'll need to keep saving aggressively, investing wisely and also position your business for an eventual sale. Good records and a willing pool of buyers are what you'll want to cultivate over time.

Good Luck,

Kevin
Last edited by CFOKevin on Mon Aug 13, 2018 5:03 pm, edited 1 time in total.

betablocker
Posts: 370
Joined: Mon Jan 11, 2016 1:26 pm

Re: Small business owner, mid 30s, doing great, clueless with investments

Post by betablocker » Mon Aug 13, 2018 3:02 pm

I own a business as well and try to match my asset allocation to the risk of my company. Stocks and REITS are highly coordinated with your business so I would say have a lower equity allocation, avoid REITs, and explore some alternative investments that aren't correlated with the markets. I invest in reinsurance and alternative lending in addition to bonds. Larry Swedroe has written a great deal about those if you want to search the forum. The second factor is the liquidity you need for your business. Do you have a business line of credit or a HELOC you can draw on for cashflow? If so I would start looking at moving some of your cash you take in from now forward into either equities (based on your risk tolerance) or something higher returning. Maybe another CD as well now that rates are higher? You can also break a CD and forfeit some interest if you have to. I also agree on the insurance point.

schrute
Posts: 216
Joined: Wed Nov 05, 2014 2:27 pm

Re: Small business owner, mid 30s, doing great, clueless with investments

Post by schrute » Mon Aug 13, 2018 7:10 pm

NowWhat wrote:
Sun Aug 12, 2018 10:36 pm
Married, two young kids, mid 30s. I am clueless with investments and get paralysis from overanalysis. I watch the broad market daily but have extremely limited knowledge.

I own a small home remodeling company that has been growing well the last several years. Annual revenues were $1.89mm last year and on track for above 2.0mm this year. My gross margins are typically in the mid 20%s per job. Sometimes less sometimes more. I have almost no overhead and do my own books. It's a very hard business to scale well and I do not anticipate growing much beyond where I am. It leaves me a very good work/life balance to spend with my family and control of my day.

Annual income: $350-450k (in the last several years) - on track for upper end of that this year and perhaps the same next year (based on expected pipeline)
Mortgage: $926,000 @ 3.875%/30 year - $4,702/month - I paid $20,000 towards principle a few months ago. Currently about $3k/month is interest.
Approximate home value: $1,700,000 (I remodeled the home prior to moving)
Cars: 2007 SUV/2010 truck - both bought new/one owner - we anticipate buying my wife a car in the next 2-3 years
Other Debt: $0 - we pay our CCs in full monthly
Monthly/Annual expenses: (all in, including maxing out IRAs, insurance premiums, property taxes, whatever life expenses you can imagine): $17,700/month - $212,400/year

Investments:
My TD Ameritrade Acct (SEP IRA/etc.) - $118,000 - some stocks, funds (SWPPX, VFORX, ACEIX, VOT) - I just picked this stuff randomly after reading a few articles.
Wife's TDA Acct: ~$60,000 - I frankly don't know what this consists of
Money Market @ 2.0% - $200,000
Money Market @1.75% - $385,000
CD @ $2.05% (matures March 2019) - $68,000
My Company: $170,000 in cash (I push cash to money markets as needed, which I could probably move $70,000 now if I really wanted)
I expect to receive final draws on several smaller projects in the next month totaling maybe $80,000
Investments/cash/expected draws in 30 days: $1,081,000

Excluding existing TDAmeritrade investments and needed working capital I would say I've got about $750,000 of cash that's being completely underutilized. On one hand I feel lucky to say I have that cash and the other says I am a moron for doing nothing with it.

I guess this puts our net worth in the $1,800,000 - $1,850,000 range. With $755k of that being the home equity. We have no plans to move until our kids graduate high school or longer.

I know I'm likely doing better than average my age and I feel fortunate for that but I know I need to intelligently invest what I've got. I don't think I trust financial advisers any more than what I read online and am too ignorant to know where to begin. I don't know what I don't know and so I can't seem to take a first step. I illogically think to wait for some market correction but in reality all my investments are long term. I would anticipate leaving 12-18 months of cash for living and invest the rest and keep that 'ratio' into the future.

Thanks for reading and thank you in advance for any advisement.
Gotta ask, what are you expenses that you spend $212,000 a year? Must be living a lavish live style.

NowWhat
Posts: 10
Joined: Sun Aug 12, 2018 9:45 pm

Re: Small business owner, mid 30s, doing great, clueless with investments

Post by NowWhat » Mon Aug 13, 2018 9:28 pm

They aren't intertwined, but my company pays for our health insurance, for instance.

You know it's funny, my wife and I really don't think we do, yet, our annual expenses are quite high.

Thank you for your input and help.
Dottie57 wrote:
Mon Aug 13, 2018 10:18 am
I am not an expert on your type of lifestyle. My last Salary was 110000. and I could not have been an entrepreneur with my own business.

That being said, it seems like your finances between personal an business are entertwined. Separate the personal from the business. I hope you have your business as an S-Corp in order to protect the personal.

An aside: my dad was a partner in a small animal practice. He didn’t have a salary but a percent of gross. He would fill the coffers every so often. After he became sole owner, the business was incorporated. He had a salary at that point and money situation became much more clear. Personal was personal and business was business.

My impression of your expenses is you live an expensive life. Make sure you have a lot of emergency funds. That house costs a lot each month and there is a recession in the future. When it comes is unclear.

Amp up your investments - taxable account. Maybe creating a personal balance sheet would make things more clear. I assume you do the same for your business.

NowWhat
Posts: 10
Joined: Sun Aug 12, 2018 9:45 pm

Re: Small business owner, mid 30s, doing great, clueless with investments

Post by NowWhat » Mon Aug 13, 2018 9:30 pm

We're in an affluent area in Texas. The median home price in the area is about $1.3mm.

Thanks, I will search Matter/scatter and you're right, I do not need to be 90/10 (or close to that) as my income is not stable.

I'll look at the Total World Stock Index --- thank you very much.
HEDGEFUNDIE wrote:
Mon Aug 13, 2018 10:40 am
Are you in the Bay Area? That house value makes sense if so. Also a great place to be a general contractor (I’ve had people quote me $200/hr labor rates for handyman jobs).

The most important thing you need to figure out for your $1M pot of money is your stock/bond asset allocation. Nisiprius recently did a series of posts (you can search for “Matter/scatter”) that showed that asset allocation is the single most impactful decision in investing.

Normally for someone your age people would recommend going aggressive (90% stock / 10% bond) but in your case you (1) already have a significant amount saved up and (2) have a fairly volatile income stream which behaves similar to a stock. So I would suggest that you invest relatively conservatively (60% stock / 40% bonds for example).

The next question is what specific stocks and bonds should you buy? You say that you don’t want to be tweaking the portfolio all the time, and BH would agree with you. Go with the lowest cost broadest funds you can find. Total World Stock Index or Total Stock Market Index for the stock portion and Total Bond Market Index for the bond portion. And you’re all set!

Good luck and congratulations on the success so far.

NowWhat
Posts: 10
Joined: Sun Aug 12, 2018 9:45 pm

Re: Small business owner, mid 30s, doing great, clueless with investments

Post by NowWhat » Mon Aug 13, 2018 9:33 pm

Thanks Kevin. I don't foresee a sale in the future but you never know. Life insurance is a good idea, thank you.
CFOKevin wrote:
Mon Aug 13, 2018 10:52 am
NowWhat,

Congrats on your success so far and on finding this forum.

I'd second a conservative-ish approach to your asset allocation (maybe 60/40?). And, just take the plunge. You are going to need the appreciation you'll get from equities to meet your financial goals. Then, do your very best to ignore all financial news.

It looks like your family is depending on you so I'd suggest making life insurance and disability coverage a priority. Maybe $3-5M in term life and a disability policy from someone who won't try to sell you any other insurance :) Wills and trusts, too. Don't put this off.

And, decide what your long-term financial goals are. I'm guessing it might be something like $200K pre-tax in retirement that starts when the youngest goes off to college. Using a 25x multiplier, that would be a $5M net worth required to pull that off. To get there, you'll need to keep saving aggressively, investing wisely and also position your business for an eventual sale. Good records and a willing pool of buyers are what you'll want to cultivate over time.

Good Luck,

Kevin

NowWhat
Posts: 10
Joined: Sun Aug 12, 2018 9:45 pm

Re: Small business owner, mid 30s, doing great, clueless with investments

Post by NowWhat » Mon Aug 13, 2018 9:35 pm

I have never considered stocks/REITs to be coordinated but it makes sense.

No, I don't have a line of credit or HELOC. I haven't found it necessary. I'll check out Larry Swedroe info.

Thanks.
betablocker wrote:
Mon Aug 13, 2018 3:02 pm
I own a business as well and try to match my asset allocation to the risk of my company. Stocks and REITS are highly coordinated with your business so I would say have a lower equity allocation, avoid REITs, and explore some alternative investments that aren't correlated with the markets. I invest in reinsurance and alternative lending in addition to bonds. Larry Swedroe has written a great deal about those if you want to search the forum. The second factor is the liquidity you need for your business. Do you have a business line of credit or a HELOC you can draw on for cashflow? If so I would start looking at moving some of your cash you take in from now forward into either equities (based on your risk tolerance) or something higher returning. Maybe another CD as well now that rates are higher? You can also break a CD and forfeit some interest if you have to. I also agree on the insurance point.

runner540
Posts: 690
Joined: Sun Feb 26, 2017 5:43 pm

Re: Small business owner, mid 30s, doing great, clueless with investments

Post by runner540 » Mon Aug 13, 2018 9:37 pm

I'm still confused about what assets and liabilities are on your personal balance sheet, and which are on your business balance sheet. I don't think you should count any of your business assets (cash) until and unless you determine it's in excess of what you need for operating the business (so not working capital), and pay it to yourself.

I would not be comfortable in a volatile industry with a few big ticket projects, and that big of a mortgage. How much of your $200k+ in expenses are discretionary and could be cut quickly if you needed to? I live in the DFW area and have seen the high priced homes in my area lingering a lot longer, with much bigger price reductions than the last couple of years.

NowWhat
Posts: 10
Joined: Sun Aug 12, 2018 9:45 pm

Re: Small business owner, mid 30s, doing great, clueless with investments

Post by NowWhat » Mon Aug 13, 2018 9:51 pm

I don't move the money around until a job is closed out and I know what I'll be netting.

I have a couple of larger projects ($300k-$1mm) and several smaller ones ($80-$150k) and feel like the smaller projects will continue to be my wheelhouse and endure even if the market slows up a bit. Everyone (referencing this smaller affluent area) wants to have a new bathroom and kitchen. Buying a $2-3mm house is a lot different. I'm glad I don't have one for sale.

I just replied with a quick breakout of several larger items in my annual expenses. Most aren't as discretionary as I'd like them to be...
runner540 wrote:
Mon Aug 13, 2018 9:37 pm
I'm still confused about what assets and liabilities are on your personal balance sheet, and which are on your business balance sheet. I don't think you should count any of your business assets (cash) until and unless you determine it's in excess of what you need for operating the business (so not working capital), and pay it to yourself.

I would not be comfortable in a volatile industry with a few big ticket projects, and that big of a mortgage. How much of your $200k+ in expenses are discretionary and could be cut quickly if you needed to? I live in the DFW area and have seen the high priced homes in my area lingering a lot longer, with much bigger price reductions than the last couple of years.

NJ-Irish
Posts: 22
Joined: Wed May 30, 2018 7:23 pm

Re: Small business owner, mid 30s, doing great, clueless with investments

Post by NJ-Irish » Mon Aug 13, 2018 10:24 pm

You might want to put some thought into segregating the following buckets of assets.

1. Business balance sheet - which include working capital, any upcoming capital expenses. Business “emergency” expenses such as insurance deductibles or similar.
2. Personal emergency fund. You seem like a good candidate for a 1 year emergency fund. Think through how you will handle job loss/business slowdown, health issues, property issues with your house or cars, personal lawsuits from others.
3. Illiquid assets such as house and cars.
4. Retirement assets.
5. Non retirement assets, and respective purpose. Such as college, debt repayment.

From there it will be easier to give investment advice. It’s hard to do right now because it looks like one giant pile.

Setting up some boundaries I think will help you, also, define your investment goals.

betablocker
Posts: 370
Joined: Mon Jan 11, 2016 1:26 pm

Re: Small business owner, mid 30s, doing great, clueless with investments

Post by betablocker » Tue Aug 14, 2018 12:11 pm

NowWhat wrote:
Mon Aug 13, 2018 9:35 pm
I have never considered stocks/REITs to be coordinated but it makes sense.

No, I don't have a line of credit or HELOC. I haven't found it necessary. I'll check out Larry Swedroe info.

Thanks.
betablocker wrote:
Mon Aug 13, 2018 3:02 pm
I own a business as well and try to match my asset allocation to the risk of my company. Stocks and REITS are highly coordinated with your business so I would say have a lower equity allocation, avoid REITs, and explore some alternative investments that aren't correlated with the markets. I invest in reinsurance and alternative lending in addition to bonds. Larry Swedroe has written a great deal about those if you want to search the forum. The second factor is the liquidity you need for your business. Do you have a business line of credit or a HELOC you can draw on for cashflow? If so I would start looking at moving some of your cash you take in from now forward into either equities (based on your risk tolerance) or something higher returning. Maybe another CD as well now that rates are higher? You can also break a CD and forfeit some interest if you have to. I also agree on the insurance point.
The line of credit comes in handy when a client pays you late or you need short term cash flow. If you have it, you have less of a need to keep cash in the bank. To clarify on stocks and REITs, your business is linked to the real estate market and to the economic cycle. Although REITs might not move exactly with the home market, I'm guessing they are highly correlated so you want to lessen assets that go down when your business does. I'm not saying have none but I would have less than the average person with a reasonably secure job.

mw1739
Posts: 481
Joined: Mon Mar 21, 2011 5:44 pm

Re: Small business owner, mid 30s, doing great, clueless with investments

Post by mw1739 » Tue Aug 14, 2018 12:36 pm

You may want to talk to your accountant about switching from a SEP IRA to a Solo 401k for 2019. You mentioned you "maxed" out the SEP at $35k last year. The 401k limit is $55k, which you could break down as $18.5k from you and $36.5k as an "employer match." This would allow additional tax advantaged savings and potentially save thousands in taxes each year.

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