Protecting Critical Capital™

You have built your Critical Capital™ and are financially free from the need to work.  Your greatest financial concern is protecting your Critical Capital™.

Two categories of people are found in this stage. Those who know they've achieved Critical Capital™ and those who have achieved it, but don't know it.

Key Issues & Actions

The main risk in this stage is unnecessarily placing your Critical Capital™ at risk by having too much of your Critical Capital™ in your options or in your company stock. To give you some perspective on the acknowledged danger of over concentration, most Mutual Funds will not allow more than 5% of the total portfolio to be invested in one stock.

• Don't be one of those who has reached Critical Capital™ and doesn't know it! You've reached Critical Capital™ if your total capital (your personal investment portfolio PLUS your qualified retirement plans PLUS the net, after-tax value of your vested options) is equal to or greater than your Critical Capital™ .

• Determine how dependent your Critical Capital™ is on the value of your company's stock. If the value of your total investment portfolio EXCLUDING the value of your options and any company stock you own is equal to or greater than your Critical Capital™, you are not vulnerable. As long as those assets are prudently invested in a diversified portfolio, you have already protected your Critical Capital™.
  
  However, if your options represent a large percentage of your Critical Capital™, it's important to test how vulnerable you are if the price of your company's stock drops. You can do this by calculating how far the price of the stock can drop before your total capital drops below Critical Capital™. The Critical Capital™ Risk analysis will do this for you by showing you what happens to your total capital as the price of your company's stock declines.

• Protect your Critical Capital™. Exercise and sell enough of your options to create a diversified portfolio which is equal to or greater than your Critical Capital™. If this requires you to sell too many of your options, you may want to sell only enough so that your "worst case" scenario still enables you to achieve Critical Capital™ at an acceptable age. The Critical Capital™ Planner is designed to help you decide how to do this (see below).

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