Rich in America Secrets to Creating and Preserving Wealth PHẦN 5 ppt

cent said their children were active. Finally, 54 percent intended to

pass ownership of the business to their children, 27 percent intended

to pass it to a relative other than their children, 17 percent wanted to

sell it to someone unrelated, 5 percent expected to dissolve the business,

4 percent wanted to pass ownership to their employees, and 10 percent

hadn’t yet given succession any thought.

Advice for Business Owners

Our experience at U.S. Trust has shown that one of the primary dis￾tinctions between those who own businesses and those who don’t is

that the business owners generally prefer that their finances unrelated

to the business provide them with as much security as possible.

They’ve taken so many risks to launch their own shop that they tend

to be conservative with whatever extra money they possess. In prac￾tice, this means they prefer an asset allocation heavily weighted toward

fixed-income securities, and they share a general skepticism about the

stock market. “If I’m going to take risks,” they say, “it will be in my

business. Anything outside of my business will be secure.”

For many of these people, their primary stock market experiences

involve investments based on cocktail party and country club tips.

Typically, they met someone on the golf course who recommended the

XYZ company, and they bought the company’s stock through a broker

who’s also a member of their club. Then, more often than not, the

investments failed to perform. Thus, because they were basing their

investments on informal advice rather than the expertise of a profes￾sional money manager, their stock market experience taught them that

it’s a gamble, and a bad one at that.

I know the CEO of a privately held financial concern whose com￾pany was one of the most successful entrepreneurial start-ups of the

1980s. He is worth more than $50 million on paper. He pays himself

a handsome yearly salary that handily covers his bills, but ultimately,

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all his money rests in his own company. He owns no stocks or bonds.

If any cash rolls into his life, such as a recent inheritance, he uses it to

pay off the mortgages on his homes. He sums up his attitude this way:

“As much as possible, I can control what happens to my company.

I can’t control what happens to any other company. Why should I risk

investing in something that I have no control over?” This approach

often holds even when business owners sell their business; they still

don’t want to buy equities or anything else that might put their capi￾tal at risk.

My recommendation to these people is to think about establishing

some liquidity outside the business. What happens if you make a bad

decision? Or if through no fault of your own something goes wrong at

your company? That could mean the loss of all your assets, if you have

no others. By putting all of your eggs in one basket, you place yourself

at greater risk than investors who are willing to use asset allocation to

create a diversified portfolio.

Concentrated Stock Positions

One of our clients, Ray, came to us with what we considered to be a

fairly wonderful problem. Ray had been working at the same public

relations firm for more than 30 years, and he had done very well.

Starting as a junior member of a small company, he slowly advanced

to a senior position, and when his company was bought by a much

larger firm, he stayed on as an executive vice president. That com￾pany was then bought by a still larger firm and, defying all odds, Ray

was named president of the new combined company. Ray’s problem

was that, due to generous corporate stock compensation programs,

his stock portfolio, which was worth $5 million, was 90 percent con￾centrated in his own company. Ray was fully aware of the potential

risk of having so much of his net worth tied to one company’s stock,

but he had been reluctant to diversify. He strongly believed in his

Investments 95

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