Chances are, as a top executive, a considerable percentage of your assets is invested in your business. That’s not unusual, says Frank Heil, director of wealth management for Fifth Third Bank in Columbus.
“It can be difficult for top executives to diversify,” Heil says. “If key people begin selling stock, what does that say to other stockholders?”
On the other hand, it is both appropriate and smart to protect your wealth, especially for an executive approaching retirement.
“There are SEC regulations and pressure within the company to hold its stock,” says Heil. “But if the ability is there to diversify, there are also tax considerations to keep in mind,” as long term capital gains taxes may make selling large blocks of stocks costly.
Exactly when and how to diversify depends on your situation and your age. Heil says a professionally managed stock portfolio can help reduce the risks involved with diversifying and help meet long-term goals.
“The goal is to preserve your wealth. Putting all your eggs in one basket is where the risk is,” says Heil.
Selling small amounts of company stock over a period of time can be a smart alternative — both for the executive and the company — to selling big blocks all at once.
“As you get closer to retirement, your investment risk should narrow,” Heil says. “A younger executive with several years before retirement can sell 10 percent of the company stock over the next 10 years.”
Heil advises executives to define what they want out of retirement to determine how much they need to attain that lifestyle. Then an older executive can sell the amount needed to meet that requirement, and keep the rest.
The goal is to preserve a portion of your wealth in conservative investments. Then, should something happen to stock prices, your family’s lifestyle is not affected. A professional asset manager can use this portion to create a mutual fund that minimizes risk.
“Some mutual funds can be expensive to get into,” Heil says. “Asset managers put together their own mutual funds selected to the risk tolerance and preferences of the investor.”
