Lenders & Advisors

Protecting The Assets You Create

January 17th, 2013 , Last Modified: January 17th, 2013
One of the most important insights sophisticated investors will share with younger individuals is a hard learned lesson.
The First Rule

One of the most important insights sophisticated investors will share with younger individuals is a hard learned lesson. The insight that is so valuable is the importance of the preservation of capital. The term hard learned is appropriate because so many people lose money in the process of chasing unrealistic returns.

Wise investing always seeks to ensure a return of capital as well as a decent return on capital. For most people, it takes a lot of effort and time to accumulate capital for investing. And it takes time and effort to replace capital squandered on an unwise investment. Risk is always a component of investing. However, no investment is worth placing one's financial stability at risk.

Protecting Assets from More than Investment Risk

In evaluating the investment climate today, there are many unknowns and possible scenarios. The reality is that there are always unknowns and risks that threaten the security of accumulated assets. Many of these risks have little to do with any specific investment. In a litigious society, any accumulation of capital is an enticing target for many unscrupulous companies and individuals. Many personal assets can be put at risk from accidents, business disputes and other factors.

Taking steps to place additional protection around assets and investments is a prudent step taken by an increasing number of sophisticated investors. Financial stability is a process, not a static situation.

The Use of Limited Liability Corporations

In the past two decades, the LLC has become an increasingly popular form of incorporation. The LLC was created to provide the protections of the traditional corporation with the tax treatment of a partnership. LLCs are also much easier to implement and maintain than a traditional corporation. There are fewer reports to be filed and simplified paperwork.

There are advantages to LLCs that go beyond providing the protection of corporate ownership of assets. An LLC has members rather than shareholders. Conducting business and transference of ownership interests within the LLC can be a major advantage. Likewise, there is significant flexibility in the allocation and treatment of profits and losses.

Inexpensive Protection through an LLC

The legal and administrative costs of establishing and maintaining an LLC are very reasonable. The cost factor combined with the many advantages result in many investors using multiple LLCs as a core strategy for their financial planning and security. A little investment of time with a knowledgeable attorney and CPA could pay significant dividends and enhance one's financial stability.

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