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Identifying and Investing Wisely in Capital Events for Financial Freedom and Retirement
Achieving financial freedom and a comfortable retirement often hinges on how we manage significant financial milestones known as capital events. Understanding these events and investing the proceeds wisely can secure your financial future. This article explores various capital events, their implications, and investment strategies to maximise their benefits.
A friend of mine told me about his family visiting at the cost the one year they come by train broke and the next year the come in a fancy car. The father of the family was a diamond miner and he was either rich or broke. Imagine if he had the ability to invest in good times.
What is a Capital Event?
A capital event is a significant financial transaction that substantially impacts an individual's or business's capital structure.
We refer to it as hitting the Jackpot
These events can dramatically alter your financial landscape, providing opportunities for growth or necessitating careful management to avoid losses.
Common Types of Capital Events
Sale of a Business or Significant Asset
Selling a business or a major asset like real estate can result in substantial capital gains. This event often requires strategic planning to maximize the sale price and minimize tax implications.
Prevalence:
Less than 5% of the population will experience the sale of a business or significant asset. Wealth creators plan these events and create capital events.
Inheritance
Receiving an inheritance can significantly boost your financial resources. However, managing inherited wealth requires careful planning to preserve and grow the assets. Wealth passed on to next generations are often gone in the third generation.
Prevalence
Approximately 20-30% of people will receive an inheritance at some point in their lives.
That means 70 to 80% of people will receive nothing from previous generations. The biggest number we have seen in our practice is spouses inheriting, next children and the last people inheriting from strangers.
If your family is going to inherit educate them on what to do.
Having a bit of money is relative all the relatives appear. Their will also not be a shortage of financial advice.
IPO or Sale of Equity
When a company goes public or significant equity is sold, it can generate substantial capital inflows. This is often a once-in-a-lifetime event for entrepreneurs and investors.
Prevalence:
Less than 5% of the population will experience an IPO or sale of equity.
Sophistacated investors & wealth creators create these events and create huge capital events. The average person may work for a company where such an event ocur.
Retirement
Retirement is regarded as a capital event because it typically involves accessing a significant amount of savings and investments accumulated over a working lifetime. This event marks a major shift from accumulation to decumulation, where individuals must carefully manage their withdrawals to sustain their lifestyle throughout their retirement years.
At AS Brokers we help many people with investment advice at this point.
Prevalence
Around 50-60% of the working population will withdraw from retirement accounts.
Winning a Lottery or Large Settlement
Sudden windfalls from lotteries or legal settlements can provide unexpected financial opportunities. However, managing these funds wisely is crucial to prevent them from quickly dissipating.
I do not buy lotto tickets the odds are too low but if you do not have a ticket you cannot win.
Prevalence
Extremely rare, less than 1% of the population experiences significant lottery wins or settlements.
Sudden Wealth Syndrome
Many who receive sudden wealth struggle to manage it wisely, leading to rapid financial loss.
Divorce Settlements
Dividing assets during a divorce can significantly alter your financial situation. Ensuring a fair settlement and wise management of received assets is essential.
Prevalence
With divorce rates at 40-50%, many will experience asset division.
If you were dependent on your spouses income making good investment decidions are very important.
Big Business Deals
Securing a major business deal can inject substantial capital into your business, offering opportunities for expansion and growth.
Prevalence
A significant business deal is a rare event, generally affecting a small percentage of business owners.
Summary: The Role of Financial Advisors in Capital Events
As financial advisors, we frequently handle investment transactions stemming from various capital events. A significant portion of the investments we manage comes from individuals who have experienced capital events in their lives. Our role is to provide expert advice around these events, helping clients retain and grow their wealth rather than losing it due to poor financial decisions. By leveraging our expertise, we guide clients through strategic planning, diversification, and long-term investment strategies, ensuring they can achieve financial freedom and a secure retirement.
Conclusion
Capital events can be pivotal in achieving financial freedom and a secure retirement. By identifying these events and investing wisely, you can turn these financial milestones into lasting prosperity. Always seek professional advice to navigate these significant transitions and make informed decisions that align with your long-term financial goals.
If you are the beneficiary of a capital event or hit the "Jackpot" get in contact with us to invest it.
Albert Schuurman has been a financial advisor with AS Brokers since 1999, specialising in financial planning for business owners and high-earning individuals. His practice focuses on helping clients navigate capital events to make wise investments, with the most significant investments stemming from these pivotal moments in clients' lives.
The topic of the blogpost form part of my course Solving The Retirement Problem.
I used Chat GPT to assist me creating this bolgpost. I also use Canva and other tools to create the pictures.