On June 6th, a little-known court ruling reshaped buy-sell agreements between business partners. Connelly v. United States involved two brothers, a business transition, and a valuation dispute.
The Supreme Court ultimately ruled that company-owned life insurance increases a company’s value for tax purposes.
Life insurance is a common funding tool in buy-sell agreements. When a partner dies, the surviving partner(s) use the death benefit proceeds to buy out the decedent’s estate. The policies can be owned by the partners (“Cross-Purchase”) or the company itself (“Stock Redemption”).
“The housing market is hot. Is now the time to sell?”
As time marches on and life changes, there are many homeowners who are thinking that soon they may want to make a change in their home situation. Whether the house is just too big, too expensive, too much to keep up or just looking for life enhancing move, a change is likely to happen. The real estate market is still a sellers’ market and house prices are pretty much at their highest point ever.
So, therein lies the million-dollar question, is now the time to sell? This is indeed a tricky question, and the answer depends on many factors.
A Monte Carlo Analysis is a randomized computer trial used to test various financial scenarios. The term originated during World War II, when scientists used random sampling to simulate atomic reactions.
A Monte Carlo Analysis offers a “stress test” for one’s long-term financial plan. The analysis simulates hundreds or thousands of randomized return sequences using historical risk and returns data. Next, the analysis considers the individual’s spending needs and accounts for necessary portfolio withdrawals. The end results show the financial plan’s sustainability under the best-case and worst-case market scenarios. Contrast this with a static analysis that applies a fixed rate of return for the duration of the plan. This simplified approach does not account for inevitable market volatility and timing risks.
The exact methodology depends on the planner. It is common to run 1,000 simulations and target a success rate of 80%. Put simply, this means the plan has sufficient resources to cover all spending needs in at least 800 of the 1,000 trials. Monte Carlo projections are by no means predictive. Rather, the analysis is intended to illustrate the random and unpredictable nature of portfolio performance. Any analysis is dictated by its inputs. Scrutiny should be given to risk, return, and spending assumptions to ensure the analysis adequately reflects the individual’s circumstances.
#MonteCarloAnalysis #InvestmentStrategy #FinancialPlanning #RiskManagement #PortfolioSimulation
Private equity involves investing in privately-held companies or acquiring public companies and taking them private through buyouts. Investors pool funds to acquire equity stakes, aiming to enhance the company's value over several years through strategic management and operational improvements.
Private equity firms actively participate in the companies they invest in, often implementing changes like restructuring, market expansion or M&A to drive growth and profitability.
These investments typically have higher risks due to longer investment horizons and illiquidity but offer potential for significant returns upon exit, usually through methods like initial public offerings (IPOs) or sales to other companies.
#PrivateEquity #InvestmentStrategy #CorporateFinance #BusinessGrowth #MergersAndAcquisitions
