Customer Profiles: Asset Revesting Entrepreneurs

Asset Revesting Entrepreneurs

Fred is a fifty-six-year-old entrepreneur who owns a small construction company he started in his twenties. In the beginning, it was just him. He’d passed his state exam, got his general contractor’s license, and hired a few day laborers. It wasn’t easy trying to support his wife and newborn son, but he worked day and night to give them all a comfortable life.

Ten years in, his family had grown, and his business was thriving—he had three full-time employees and needed a bookkeeper to help him track receivables and payables. His marriage, however, was over. While he lived a modest lifestyle and saved as much as possible, child and spousal support payments gutted his income. Feeling his body beginning to slow down, Fred wanted to start making plans to sell his company in the next six or seven years. The problem with this plan is that his retirement savings are so much lower than anticipated he’s not sure selling his business is practical or even possible.

When a friend suggested Fred reach out to a financial advisor about investing money, Fred jumped on the idea. Fred met with a financial advisor at a large firm and agreed to work with her. Fred’s advisor was enthusiastic about his portfolio and assured him she would put his money to good use with a buy-and-hold strategy. She claimed this was the best strategy for his situation and was commonly used in firms like Schwab and Fidelity.

Severe market volatility and high-risk stock and bond choices by his advisor caused his assets to drop in value by 25% within the first two years. Beside himself with frustration and fear,  Fred stopped working with his advisor, sold all his holdings, and left the funds in cash while he decided what to do next. Devastated at what had happened, he was left with 25% fewer savings, zero confidence in the financial industry, and facing up to being unable to retire for at least another decade.  

To get back on track, Fred decided to increase his working hours to earn more money to max out his retirement contributions each year and still meet all his financial obligations. Because he didn’t know where to turn, he invested his retirement savings in a money market account, earning about 3 percent. Meanwhile, Fred took on more clients and jobs, including those he would not have in the past. Every day he felt more scared for his future, and due to his unrelenting schedule, his frustrations were intensifying.

One day, while showing a long-time client the recent improvements to his house, Fred simply broke. He walked over to a window, put his head against the glass, and tried to regain his composure. His client, being a friend also, ushered everyone out of the room and pulled up a couple of chairs. When Fred was steady, he turned around to find a quiet space and a person he trusted to talk to.

Once the whole story poured out, Fred’s client shared his own journey that went from near bankruptcy to comfortable retirement living. You see, he had gone through something similar to Fred: he’d lost a boatload during a temporary market downturn and, scared to lose any more, had sold out at the worst possible time. Like Fred, this client had grappled with business expenses and child and spousal support payments. But unlike Fred, the client had found a way to protect his capital and increase his odds of creating returns in any market environment while decreasing his odds of losses.

 Fred was shocked. He didn’t understand how his client had found a strategy that capped all potential losses at just 6% and created a comfortable return in a very volatile market when all others seemed to be losing their shirts.

 His client told him about asset revesting, a category of investing in assets that are rising in value only. Instead of keeping your capital invested in long-term positions that move with the market, the client explained that asset revesting relies on interpreting signals and selling assets when they are facing an imminent downturn, then moving the funds into different positions that are showing signs of imminent increases. If there was no asset that signaled an impending rise, then a cash position was taken.

Of course, there was no guarantee that every trade would be a winner, but one of the things that impressed Fred the most about the strategy was that it had a significant focus on capital preservation. His past experience with his financial advisor had led Fred to believe that no one had any interest in helping him plan for capital preservation. Knowing that he couldn’t afford to lose any more money, capital preservation was at the top of the list as extremely important.

 Fred’s client explained that he could further mitigate losses and increase the potential for returns by focusing his asset revesting strategy on ETFs—funds holding multiple instruments meant to mimic an index. Since indexes have more identifiable patterns, they are generally more reliable than individual stocks.  

The last aspect they covered was knowing what kind of investor Fred was. Odd as it sounds, once Fred took an online personality test and read through the results, he had a far better understanding of why he essentially put his retirement funds in the hands of a stranger rather than taking care of it himself. He also understood more about why he was so gripped by frustration and fear. Talking to his client once more, the final piece fell into place. Asset revesting meant that an asset beginning to fall would be sold, no if’s, and’s, or but’s. No waiting, hoping, and praying that it would come back to life and recover to new highs. No – the asset would be sold, and when it had stabilized and showed signs of strength again, it would be revested in.

After three years of asset revesting, Fred couldn’t have been happier with his portfolio. His investments had grown to a healthy level that was on track to provide him with a solid retirement income when he needed it. Market downturns had a minimal impact on Fred’s account and hardly concerned him anymore. The freedom from stress and worry directly affected his working relationship with clients as he was no longer wound so tight that their slightest question poked at his temper. Now he could find time to laugh with them and generally ended his day with a smile.

With his newfound financial security in place, Fred and his eldest son Norman, who had been working with him for years, signed off on the business transfer based on their agreed-upon terms. In ten years, the construction company would be entirely paid off and in Norman’s name. Fred gradually scaled out of the company, which did a lot to ensure that Norman would retain the clients they already had and be able to grow the company to its next stage. And on the first day of his retirement, Fred knew exactly who he would be taking out for a beer – the client/friend who had sat down with a grumpy, terrified man and told him that there was another way.