Individual investor

Preventing a client from jeopardizing his retirement.


A shareholder was over-weighted in a high-demand company about to go public.

The company in question was a “rage of the day.” While the stock’s price at IPO placed it at a valuation above the industry group, the demand for the stock was very high. At the time of IPO, the stock had no options or other means to protect against a downward movement.


Look at the risk instead of the return.

While some advisors would analyze this company by questioning whether its earnings, P/E ratio, or other valuation metrics looked attractive for the future, we took a different approach. We focused on risk instead of return.

We began by analyzing the client’s goals using the Financial Goal Analysis (FGA), along with his current balance sheet. We learned that his other assets were limited to a few million dollars that would not generate enough income should he stop working. We also found further liabilities for various real estate holdings with significant interest costs.

We evaluated how much income our client would need if he could no longer work, and found that he had a desired income goal of $500,000 per year on an after-tax basis.

Our analysis showed that if the stock experienced an unexpected, significant drop in value, our client could no longer achieve his goals. So we presented him with two options: Accept the risk of failing to achieve his objectives by holding the stock for upside appreciation that seemed possible. Or sell the stock today and diversify the assets in an effort to reduce the risk of failing to achieve his retirement goals.

Our recommendation was to manage his risk. To do this, we advised him to gift some stock to a Charitable Remainder Trust and sell enough stock to ensure that he would net $500,000 after taxes. The gift helped offset the tax cost on selling the stock. And the reinvested proceeds paid the $500,000 in annual income he needed.


Fortunately, the client listened to our advice about focusing on the risk instead of the return. After initially appreciating, the stock fell to one dollar per share, literally wiping out fortunes. However, because our client had sold his shares – not at the very top, but at very reasonable levels – he secured his financial future against the drop in the stock price.

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