Actuarial Outpost
 
Go Back   Actuarial Outpost > Actuarial Discussion Forum > Finance - Investments > Non-Actuarial Personal Finance/Investing
FlashChat Actuarial Discussion Preliminary Exams CAS/SOA Exams Cyberchat Around the World Suggestions

2017 ACTUARIAL SALARY SURVEYS
Contact DW Simpson for a Personalized Salary Survey

Reply
 
Thread Tools Search this Thread Display Modes
  #11  
Old 07-12-2018, 12:57 PM
mathmajor's Avatar
mathmajor mathmajor is online now
Member
SOA AAA
 
Join Date: Dec 2010
Location: Nowhere in particular
Studying for Japanese
College: B.S. Applied Math
Favorite beer: La Croix Grapefruit
Posts: 9,129
Default

Quote:
Originally Posted by Colonel Smoothie View Post
Can't help you here. According to Exam 9, you're supposed to decide on an allocation between the market portfolio and the risk free portfolio, based on the point tangent between the efficient frontier and your utility curve. I'm not sure where an individual stake like this would fit in.
Plus you have to worry about timing the market.

__________________
FSA
Reply With Quote
  #12  
Old 07-12-2018, 01:39 PM
nonactuarialactuary nonactuarialactuary is offline
Member
Non-Actuary
 
Join Date: May 2008
Posts: 1,916
Default

Lay out all the cash flows under a few different scenarios, but I think I’d do it. Worst case scenario, some major news comes out tomorrow that kills the company, so your wife’s $50K investment goes to $0, and she’s out of a job: definitely annoying, but it doesn’t financially ruin you guys (she’d be out of a job regardless of whether or not she invested the $50K, so the true worst case scenario is only a $50K loss). Maybe more realistically, a worst case scenario could be a situation where her shares are only worth $25K ten years from now, but along the way, between the 3% dividends and the marginal salary bump associated with becoming a partner in the company, she more than offset the $25K paper losses. Chances are, she also more than offset the opportunity cost of not investing the $50K in some S&P 500 fund over the next ten years. Obviously, there’s upside potential too if the company stays flat over the period, and huge upside potential if it thrives. Unless you have major red flags about the company, it seems like a no brainer to buy into it, especially if you can do it without taking out a loan.

That said, subjective factors might change this analysis. When I was at a privately held consulting shop, partners had a ton of expectations on them, especially around travel. The new role might add a lot of unwanted stress and responsibility, and depending on her priorities in life, she might want to turn it down even if it’d put you guys in a better spot financially.
Reply With Quote
  #13  
Old 07-12-2018, 02:02 PM
Numbers Nerd's Avatar
Numbers Nerd Numbers Nerd is offline
Member
SOA AAA
 
Join Date: Sep 2001
Location: Midwest
College: University of Wisconsin
Favorite beer: Ale, Lager, you name it
Posts: 1,604
Default

Assuming that next promotion comes, I expect she'll have some period of time before the full $50k is required - e.g. 3 years. Her employer won't be wanting to impose a hardship on their new officer.
Reply With Quote
  #14  
Old 07-12-2018, 02:09 PM
Westley Westley is offline
Member
 
Join Date: Nov 2001
Posts: 27,032
Default

Quote:
Originally Posted by Numbers Nerd View Post
Assuming that next promotion comes, I expect she'll have some period of time before the full $50k is required - e.g. 3 years. Her employer won't be wanting to impose a hardship on their new officer.
Doubt this. I think this was why the personal loan was mentioned. Often the company itself arranges the loan to ensure that this isn't a direct hardship. Part of the point is to have the senior people mentally invested in the company, waiting 3 years doesn't accomplish that in the same way.
Reply With Quote
  #15  
Old 07-12-2018, 02:29 PM
my_alt my_alt is online now
Member
CAS
 
Join Date: Oct 2014
Posts: 62
Default

If you have access to the books (and the books are audited) it seems like a no-brainer. I assume the firm offers the personal loans that are common. If so, I wouldn't rule out going that route. The terms of the loan are probably favorable. In essence, you're just swapping cash comp for equity comp.
Reply With Quote
  #16  
Old 07-12-2018, 10:17 PM
Lusus Naturae's Avatar
Lusus Naturae Lusus Naturae is offline
Member
 
Join Date: Jul 2010
Favorite beer: Yes, Please
Posts: 921
Default

Quote:
Originally Posted by NormalDan View Post
I'd be pretty nervy about needing to invest 50K in a private firm
IIRC - this is normal for many private firms. If you don't want to buy in, you don't get promoted to officer, and you hit a ceiling in the company.

I'm a good 5 years at the earliest, 10+ years more likely, from even being considered for promotion to officer at my firm, and I know that entails buying into the company. I'm currently uncertain if I'd want to do that, but by the time that comes around I'll figure it out.
Reply With Quote
  #17  
Old 07-13-2018, 10:39 AM
radoaos's Avatar
radoaos radoaos is offline
Member
 
Join Date: Jul 2007
Posts: 3,750
Default

Is she a lawyer? Sounds similar to becoming partner in a law firm.

Just do it. Keep your accountant in the loop.
__________________
2012 / 2013 AO English Premier League Prediction Contest Champion!!!
Reply With Quote
Reply

Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off


All times are GMT -4. The time now is 02:25 PM.


Powered by vBulletin®
Copyright ©2000 - 2018, Jelsoft Enterprises Ltd.
*PLEASE NOTE: Posts are not checked for accuracy, and do not
represent the views of the Actuarial Outpost or its sponsors.
Page generated in 0.26436 seconds with 9 queries