I’m about to inherit a stake in a large family business. Does a traditional asset allocation still make sense for me?

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Derpalator
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Re: I’m about to inherit a stake in a large family business. Does a traditional asset allocation still make sense for me

Post by Derpalator »

retired@50 wrote: Wed Jun 23, 2021 3:52 pm
jomama341 wrote: Wed Jun 23, 2021 2:51 pm
retired@50 wrote: Wed Jun 23, 2021 2:32 pm
jomama341 wrote: Wed Jun 23, 2021 10:59 am So, you don’t think I should devote additional funds to bonds?
One thought popped into mind about the potential for bond holdings.

You didn't really specify where your current (30x) nestegg is located, account wise. Taxable, tax-deferred, or Roth (possibly a combination of all 3).

To avoid a "tax-torpedo" when RMDs begin (in a few decades), assuming you have any money in tax-deferred, you might want to slow down the growth of this money by holding bonds, just so you don't have another tax issue later on.

With a high annual income for the foreseeable future, you'll likely need a good quality CPA or tax adviser, or at least get familiar with some of the potential issues you'll be facing now and in the future.

Regards,
Last I checked, I’m about 80% taxable, 20% tax-deferred (tax-deferred is 50/50 trad 401k and Roth IRA).

Can you point me to some info about the tax torpedo you speak of? I’m not familiar with this idea. Thanks.
The tax torpedo can come about from a combination of Social Security income and Required Minimum Distribution (RMD) income when being forced to take money out of a 401k or Traditional IRA. This can often lead to very high marginal tax brackets for retirees. Current start of Social Security can start anywhere from 62 - 70 years old, and RMDs begin on tax-deferred accounts at 72 years old.

The basic idea is that if your tax-deferred account has a huge balance because it was invested in stock funds for 40+ years, then your RMD will be large, which is taxed as ordinary income. RMDs are calculated based on an IRS formula. If you don't do your own taxes this can be confusing.

See link: https://www.cnbc.com/2017/10/29/will-th ... ement.html

Regards,
You may avoid all of the above concerning the "tax torpedo". First, convert existing tax-deferred to Roth and any more contributions should be done as Roth. Over the next 30 yrs growth will be tax free, withdrawals will be tax free, and unless the law changes there won't be any required withdrawals on any schedule until those monies are inherited. :D Cargill?
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Sandtrap
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Re: I’m about to inherit a stake in a large family business. Does a traditional asset allocation still make sense for me

Post by Sandtrap »

OP: to your exact question: No and yes….

Why?

Consider anything involving the family business income and assets (personal finance) a diversification on personal income stream and personal assets.

Compartmentalize and, at least mentally and on paper, don’t commingle family businesss assets and cash flow with income assets you solely own as in your own business assets and income. (personal finance)

Actionably:
This is not an either or personal finance situation such as income from job employment and 401k pension and so forth.
So……
Treat your A/A and personal finance investment portfolio by itself.
Treat your personal finance in your business by itself.
Treat your family business as it relates to your personal finance by itself.

Read: “Life Cycle Investing” book version, by W. Bernstein to adjust your comprehensive “personal finance” strategy to fit “you” as far as stage of life, age, assets, goals, etc.

Your situation is unique so can’t be compared to a salary or wage earner without such extensive family or other business (personal finance aspect) realities.

j🌺
PM me as you wish.
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Somethingwitty92912
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Re: I’m about to inherit a stake in a large family business. Does a traditional asset allocation still make sense for me

Post by Somethingwitty92912 »

NYC_Guy wrote: Wed Jun 23, 2021 5:21 pm
Somethingwitty92912 wrote: Wed Jun 23, 2021 8:46 am I’d pretend like the family business doesn’t exist. If benefits come from it great. If not oh well.
I find these sentiments fascinating (not wrong but just so foreign to my thinking that it’s hard for me to compute).

My advice is to find assets that have a low or even negative correlation to my family business. I might even consider perpetually buying puts in a similar public business to offset risk.

I certainly would not ignore the most important and dominant part of my asset mix.
Okay, so my reasoning is this.

It’s not actually part of your portfolio. There’s a lot of moving parts, you don’t have sole control of the entity, it may or may not be what you spend the most of your time on.

Whereas this guys career, his actually portfolio, and efforts towards productive assets are elsewhere. So, essentially it’s free rolling if you keep it separate. If it sky rockets great your wealthy beyond what you can dream, if it crashes it doesn’t matter because the risk/reward wasn’t baked into the decision making of the rest of your financial life.

As a business owner I have found this to work. Different strokes though, ya know?
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Sandtrap
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Re: I’m about to inherit a stake in a large family business. Does a traditional asset allocation still make sense for me

Post by Sandtrap »

Somethingwitty92912 wrote: Thu Jun 24, 2021 7:01 am
NYC_Guy wrote: Wed Jun 23, 2021 5:21 pm
Somethingwitty92912 wrote: Wed Jun 23, 2021 8:46 am I’d pretend like the family business doesn’t exist. If benefits come from it great. If not oh well.
I find these sentiments fascinating (not wrong but just so foreign to my thinking that it’s hard for me to compute).

My advice is to find assets that have a low or even negative correlation to my family business. I might even consider perpetually buying puts in a similar public business to offset risk.

I certainly would not ignore the most important and dominant part of my asset mix.
Okay, so my reasoning is this.

It’s not actually part of your portfolio. There’s a lot of moving parts, you don’t have sole control of the entity, it may or may not be what you spend the most of your time on.

Whereas this guys career, his actually portfolio, and efforts towards productive assets are elsewhere. So, essentially it’s free rolling if you keep it separate. If it sky rockets great your wealthy beyond what you can dream, if it crashes it doesn’t matter because the risk/reward wasn’t baked into the decision making of the rest of your financial life.

As a business owner I have found this to work. Different strokes though, ya know?
Good points.
Well said.

Point of view and experiential context matters.
j🌺
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