Updated: Feb 15
Managing investments is all about timing and knowing the elements that impact the companies the investments lie with. At Peak Wealth Planning we pride ourselves in showing the power of good advice.
You may recall the period at the start of the Covid-19 pandemic. The lockdown was happening, daily presidential statement were being released, and the stockmarket dramaticlly dropped. Panic all but insued.
During this time I had a client in the final transition of retirement. Below is an example of how we helped our client in an Employee Stock Ownership Plan preserve more than $300,000 during the Covid-19 period.
Our Tailored Client Approach
One of our clients retired in 2016 with significant wealth in her employee stock ownership plan (ESOP). For the past five years we have offered her financial advice, managed her portfolio, sold stock back to her company, and moved the funds into a retirement account. The account is a diversified investment portfolio that distributes retirement income more than twice what she was earning in her last year on the job.
As we entered 2020, Covid-19 became the blackswan for many, taking a great toll on people’s lives, and causing massive disruption for businesses. My client’s company is a large global industrial manufacturing company. At the time, it remained to be seen how the company would fare with Covid-19.
As her trusted financial advisor with expertise in ESOP, we took a 3 steps approach to maintain our client’s wealth in this challenging time.
The first step is to leverage ESOP and its valuation process.
The company ESOP stock price is valued each quarter. At the beginning of 2020, our client had the ability to sell her final holdings of company stock (more than $1 million) back to the company at the value established December 31, 2019. This value was quite robust since the company had done very well during the decade.
A unique feature of ESOP plans is that it takes companies approximately 10 weeks to appraise the stock price for the prior quarter end. Once the stock price is determined by an independent appraiser, employees are allowed to sell shares back to the company at the prior quarter end price.
As you may already realize, our client is able to sell the company stock at a price determined 90 days ago (before Covid-19), with the benefit of today’s information and forecast.
"A unique feature of ESOP plans is that it takes companies approximately 10 weeks to appraise the stock price for the prior quarter end."
The second step is to perform Stock Comparison Analysis.
As we mentioned prior, Covid-19 has created massive volatility in the market. While the S&P 500 Index at one point lost all its gains for the last 2 years, stocks like Amazon and Walmart are at their historical high. The general consensus for regular investors is to not sell their stock at this time.
Given the Covid-19 pandemic, my client was concerned about the share price she might receive in future years. As her advisor, I considered this an opportunity to explore how the power of foresight could benefit her financial well being.
To assess her risk, we compared the drop in value of publicly traded companies in similar industries as a result of the Covid-19 pandemic and determined her stock would likely be valued much lower at March 31, 2020 and for the foreseeable future. We estimated the drop in stock price could cost her $300,000 or more.
"To assess her risk, we compared the drop in value of publicly traded companies in similar industries."
The third step is to take Quick and Decisive Action.
This new information solidified our decision to sell her stock back to the company at the 2019 valuation and move the proceeds into her diversified retirement portfolio. It is important to emphasize knowledge without action does not generate wealth. Decisive action paired with robust analysis does.
"Knowledge without action does not generate wealth. Decisive action paired with robust analysis does."
Our client was very happy with the analysis and action we took. Her diversified retirement portfolio is invested in a mix of stocks and real estate for growth as well as bonds for safety. Her retirement portfolio is designed to produce steady retirement income for the rest of her life while taking only the risk necessary to meet her needs.
Are you ready for the power of good & timely advice?
Peak Wealth Planning wants to help you produce a steady retirement income for the rest of your life. If you have more than $2 million saved and need help from a wealth manager, the Peak Wealth Planning team can assist.
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About the Author
Peter Newman is a Chartered Financial Advisor (CFA) and president of Peak Wealth Planning. He works with individuals nationwide that have accumulated wealth through company stock, ESOP shares, real estate, or running a business. Peter applies his unique background to help clients achieve their specific goals and enjoy peace of mind.
Peak Wealth Planning provides concierge services to meet your wealth management needs. Services include: financial planning, investment management, esop diversification, retirement income, insurance and estate planning advice, Peak Wealth Planning is a fee-based financial advisor based in Champaign, Illinois.