You are probably at least familiar with the alphabet soup of common retirement plans: IRAs, SEP IRAs, and 401(k)s. But the retirement plan most Americans–including many small business owners–are looking forward to is the “NSW Plan”: Never Stop Working. There’s plenty of blame to go around for this sad situation. We’ve become too materialistic and have racked up credit card debt rather than investment account balances, and the economy just hasn’t performed the way we anticipated it would, so we haven’t realized the return on our investments that we were counting on. This creates two challenges. First, for those near retirement age, there’s a great need to make up for “lost time.” Second, for those who still have years to prepare for retirement, there’s a need to find alternative investment strategies in case traditional retirement investments continue to underperform. The good news is that between the Internet, global commerce, and changes in investment rules, there are more ways for small business owners and others to grow their retirement savings today. The second and third strategies discussed here apply to small business owners and virtually everyone else. But due to its importance, I want to start out with a strategy that applies only to small business owners.
1. Grooming your business
Many small business owners see their companies as their retirement plan. They figure they’ll sell when it’s time to retire and live off the money they make via the sale. However, far too many arrive at that day only to find that their business isn’t worth close to what they imagined it to be.
There are no “do-overs” when this happens to a small business owner. This means that the first thing you need to do is get an honest evaluation of the value of your business and a discussion of what you can do to improve its value. For example, if you’re too dependent on one or two clients, this will lower the value of your business, even if you think your receipts are quite healthy. The good news is that if you need to make changes, expand your operation, for example, changes in crowdfunding rules, along with some proposed micro-offering rule changes, make it easier for you to raise capital.
Small business owners have the greatest share of their financial equity and sweat equity in their companies, so enhancing their companies’ value should be the single item at the top of their to-do lists when it comes to financially prepare for retirement. Connect with an experienced business broker in your area to get the appraisal and advice you need. Making some of the structural changes to your business to improve its value can take a few years to implement, so the sooner you begin the process, the better.
2. Financial investments
Of course, many business owners along with most other working Americans will have part of their retirement savings in various financial investments. I doubt if the advice to “diversify” your investments will ever go out of vogue and today we’re fortunate to have more ways to diversify our financial investments than ever before.
Not long ago about the only strategy available to most typical retirement plan investors was to “dollar cost average” mutual fund purchases by buying the same dollar amount month after month. There are more options today and many of them come courtesy of the Internet. For example, I just mentioned the traditional once-a-month mutual fund purchase. However, savvy investors will have noticed that the well-connected have never taken that route. In fact, professional investors buy and sell whenever the time is right–whether that falls during trading hours, after trading hours, or even on weekends.
Many who are taking a “hands-on” approach to managing some or all of their retirement investments are finding that they can make extra money trading on weekends. Frankly, for small business owners who are often running in circles all through the workweek, having sources where they can manage and trade financial instruments, such as binary options over the weekend, can be a huge relief in terms of their busy schedules. Within a diversified portfolio, weekend and after-hours trading can make a lot of sense.
3. Hard money investments
In recent months, the various stock markets have been somewhat unpredictable. They have lost a lot of money, then regained it, then lost it, etc. Historically low-interest rates and programs such as the Federal Reserve’s “quantitative easing” have pushed these markets into unfamiliar territory. That has made some forms of extremely traditional investing more attractive–and by traditional investing, I’m talking about a strategy that goes back thousands of years: loaning money.
While everyone is guessing at what the returns of stock and mutual funds will be over the next year or so, loaning money on real estate can sometimes deliver double-digit returns. These are called “hard money” loans and they can boost many retirement accounts. These hard money loans often go to house flippers and other real estate investors who can’t get a traditional loan or don’t need a long-term traditional bank mortgage.
These are generally shorter-term loans, although they can be written up for terms up to several years. An investor funds the loan, which has been facilitated by a company that specializes in these kinds of loans. The investor gets a payment equal to the interest rate each month. As I said above, in the current market, some of these loans are earning double-digit returns on investor funds right now, so you can see how they can sometimes be a valuable addition to a diversified retirement portfolio.
Ultimately, with a hard money loan, the investor’s protection lies in the value of the property that’s being borrowed against. This makes it critical to work with a reputable company, and it’s even better when the investors understand the local real estate market themselves.
More financial requirements
I’ve focused on a few of the different strategies business owners can take toward their retirement planning. However, I don’t want you to think that this is the only area of your finances that you should be concerned about. There are other areas that you should discuss with a professional.
For example, in my experience, I’ve found that many business owners are unfamiliar with, or choose to ignore, the importance of life insurance…and sometimes the need for sufficient life insurance can suddenly upstage any plans you make for retirement.