The Taxable Investor's Manifesto. Stuart E. Lucas

      A subset of business sellers will pursue new businesses or other opportunities for focused investments that can be replacement engines for growth. Those new business pursuits do have significant failure risk, no matter how skilled the entrepreneur. So, for these “serial entrepreneurs,” I advise allocating a portion of the sale proceeds, ideally enough for a secure retirement, to diversified financial assets, managed according to the tenets in this book's first seven chapters. One business success does not guarantee the second one.

The first step on the road to success as a taxable investor is to build a wealth creation engine, almost invariably through concentrated efforts of time and capital. This chapter discussed key factors in diversifying some of the fruits of that effort into financial assets. For most people, accumulating financial assets is all about consistent saving and investing over many decades. It's about discipline and persistence. For a few, there is one highly impactful liquidity event, or at most a few events. In the latter case, making a timely transition, efficiently and effectively, is no small feat. There are many business, financial, and cultural factors to consider along the way – including investment, tax, and estate planning – to set yourself up to be a successful taxable investor in financial assets. Before we really dig into managing financial assets, we have one additional crucial topic to discuss that relates to everyone who has or will enjoy financial success. That topic is managing deferred tax liabilities.

KEY CHAPTER TAKEAWAYS

       A successful career converts the intangible asset of future promise into the tangible assets of income and, sometimes, business ownership.

       Regardless of career path, saving money early and consistently, and investing it in a disciplined, diversified manner is the most predictable method of building to a secure retirement.

       Business owners have a few ways to diversify: 1) they can do so within their business; 2) they can reinvest excess cash flow, including dividends or refinancing proceeds outside their business into diversifying assets, including financial assets; or 3) they can diversify by selling all or a portion of the business, paying capital gains taxes and reinvesting the net proceeds.

       Think twice before selling your business. Before deciding, carefully consider not only your current circumstances but also what will likely happen in the months and years after selling – across business, financial, and cultural dimensions.

      Note

      1 1 Early withdrawals from retirement plans, currently legislated as before age 59½, may trigger both standard taxes and penalties. Plus, the withdrawn assets lose the potential to continue growing without tax. So savers should consider assets contributed to retirement plans as inaccessible even if they are invested in liquid securities like stocks, bonds, mutual funds, and ETFs.