Planning For Your Personal Exit

July 31, 2018

In the professional world of finance, everyone is seeking a perfect exit opportunity for their investment. Depending on the specific role, that exit may look slightly different. For private equity professionals and investment bankers, it can be selling an operating company. For asset managers, it can be selling an investment after their thesis came to fruition. Although these outcomes take a distinct shape, the key component to creating these successful exits is the disciplined and focused work that happens before the exit.

Like these investment exits, financial professionals are consistently progressing towards another type of exit- retirement. To ensure this personal exit is achieved, the same disciplined and focused work should be spent preparing for this next stage. We often find working with financial professionals that they do not set aside enough time to prepare and focus for their personal exit. Directing time on their career is of utmost important. However, if time is not spent consciously developing a plan, that perfect exit may end up proving elusive. We find that avoiding some of the common pitfalls below are a few of the foundational elements of preparing for a personal exit.

Managing Lumpy Cash Flows – Irrespective of the role, financial professionals all have the challenge of managing lumpy cash flows. To help smooth out these cash flows and create clarity, it is important to define a savings target. Without a defined goal, it can be easy to lose sight of how to effectively budget these large and irregular cash flows. Memorializing this goal also inherently keeps lifestyle spending from creeping into the need for future savings. Creating a strategy for each of the large payments, whether they are quarterly or annually, can create a smoother path towards achieving your goals.

Setting an Allocation and Sticking to It – Creating a long-term allocation is one of the most important decisions an investor can make. The balance of stocks, bonds, and cash drives more than ninety percent of long term returns. Focusing on maintaining this allocation and consistently investing cash savings can make a tremendous difference. According to a JP Morgan study, if an investor was fully invested in the S&P 500 from 1995 through 2014, their annualized return would have been 9.85%. If you missed even just the ten best days in that period, returns fall to 6.1%. As you can see, sticking to an allocation and consistently investing can help to ensure that your personal exit can be reached.

Managing Your Tax Bills – No one wants to pay unnecessary taxes, especially those in a high tax bracket. Implementing portfolio management techniques such as asset placement and tax loss harvesting can reduce the overall tax bill, while enhancing after-tax returns. These strategies are simple to execute, but take time and consideration to implement effectively. Combining these portfolio techniques alongside other tax planning tools, such as strategic charitable giving, can allow you to keep more of your hard-earned dollars.

Like any investment, the personal exit for financial professionals is heavily dependent on the planning and disciplined effort that is put into achieving their goals. It is all too common that the appropriate time and effort is not placed into establishing a solid financial foundation. Preparing for this one exit is the most important exit you will make in your lifetime. Just like in your career, spending time preparing for the exit makes it that much sweeter in the end.

Matt Kocanda, is a Wealth Manager at BDF and a member of the Investment Committee. The investment committee develops BDF’s overall investment strategy. Matt focuses on advising Financial Service Professionals through their complex needs – including cash flow, tax, or estate planning. Matt received an undergraduate degree in Finance from Indiana University.