Money Make-Overs: Couple Dream of Owning Own Business in Seattle
Ralph Kraft suffers from an ailment that to some can be debilitating. He calls it “middle management frustration.”
“I am near the top and make a lot of decisions, and I have developed a philosophy of how I want things done,” said Kraft, who is controller for Ropak Corp. in Orange. “I just have not been able to exercise that kind of authority.”
There’s the rub: how to have it all, give it up to chase a dream and then have it all again--on your own terms?
Ralph and wife Lori have been asking themselves that for seven years, ever since Ropak, a plastics manufacturer, moved them to Orange County from the Seattle area. Although Ralph Kraft, 39, is happy in his job and financially secure, his goal is to return his family to the Pacific Northwest and purchase a small plastics company. He is not picky about what widget he will eventually produce. He just wants the challenge of owning and operating a successful business.
The couple have been unsure how to achieve their goal.
“We don’t know what we are doing,” admitted Lori Kraft, 36. “There’s a lot of gray areas.”
Enter Richard Nakawatase, a certified financial planner at Financial Network Investment Corp., and Jeff Kilpatrick, president of Newport Securities. Both experts said that the couple’s strategy should concentrate on shifting their investments to increase earning potential.
The Krafts’ problem is unusual, Nakawatase said, because the couple appear to be set well into their retirement years. As a Ropak executive with stock options, a retirement account, annuities and other benefits, Ralph Kraft claims total personal assets of nearly $500,000. His annual salary and interest income total $86,700. The couple also own their Placentia home and have health and life insurance through Ralph’s employer.
The couple’s liabilities, including a $179,000 mortgage, total more than $218,000.
The Krafts’ investments are a bit risky because Ralph Kraft has a large portion of his money in Ropak stock, which could drop with the market. Other than that, Nakawatase said, the Krafts have no major stumbling blocks ahead if they continue on course.
“If you stayed with Ropak, you wouldn’t have anything to worry about,” Nakawatase told Ralph Kraft, who agreed: “I would be sitting pretty.”
Nevertheless, the Krafts are determined to strike out on their own within three years. To do so, they estimate, Ralph will need about $300,000 if he is to buy a small firm in the Seattle area.
Before meeting with Nakawatase, Ralph Kraft figured that his best chance would come when Ropak’s stock rises. That would mean liquidating almost all of his assets as well as paying off all of the family’s debts and having enough left over to relocate. It would also mean an uncertain future for the Krafts, who had not drawn up a concrete plan to make their dream come true.
After two meetings with the Krafts, Nakawatase laid out a five-year plan for them. It not only assures them a degree of financial security, it also makes certain that they will have the business capital they need without relying solely on the performance of the Ropak stock.
Factoring in a 3% annual inflation rate, Nakawatase adjusted to $347,782 the Krafts’ estimated price to buy a business. The family’s assets liquidated in five years would amount to about $332,068, including sale of Ralph’s 10,000 shares of Ropak stock. The difference between the two amounts--just $15,714--is small enough to allow the family to go ahead with their plan.
The estimated $50,000 in equity from the eventual sale of the house would go toward a down payment on a home in Seattle.
Nakawatase and the Krafts decided first to leave their Ropak stock intact, although the decision left the portfolio less diverse than Nakawatase likes to see.
As for their $26,000 money-market account, which earns between 3% and 4% in interest a year, Nakawatase suggested moving $15,000 of it to a tax-free money market account. The remaining $11,000, he said, should be invested in zero coupon, five-year municipal bonds with a tax-free equivalent yield of 5% to 7%.
In addition, Nakawatase suggested that the Krafts discontinue their $300-a-month investment in their current money-market account and put the money instead into a short- to medium-term government bond fund. He noted that, because the family has no bond investment, such a strategy would diversify the portfolio. Besides, he said, a government fund could yield as much as 6.5% a year.
Kilpatrick suggested a slightly different strategy. He said the Krafts could put the $26,000 in the money-market account into 2 1/2-year “pre-refunded” bonds. Five-year investments could lock the investor into lower yields, he said, adding that interest rates are bound to rise long before those investments mature.
Such bonds now yield about 4.5% but are more flexible in the long run.
The pre-refunded bonds, which are also tax-free and typically require a $25,000 investment, also have lower commissions and risk, Kilpatrick said, as they are backed by U.S. Treasury bills.
Kilpatrick also suggested that the Krafts invest $300 a month in a blue-chip stock mutual fund. As the nation comes out of recession, he said, renewed investor and consumer confidence could spur a new bull market.
Nakawatase said that in two years Lori Kraft might consider returning to work, investing the entire income to underwrite the move and purchase of the new business. She has been staying at home since the birth of the couple’s daughters, 3-year-old Emily and 1-year-old Madeline.
Other financial considerations, such as establishing college and retirement funds, can be considered once the family’s primary goal is accomplished.
The Krafts said that Nakawatase helped them put their goals in perspective and within reach for the first time.
“We have talked about this a lot,” Ralph said. “But that talk was more intangible than anything else. It really helped to have a third party, an outsider put the plan together. It was a very interesting process.”
Profile: Household Income Over $80,000; Wants to Start a Business
The Subjects
Names: Ralph Kraft, 39; Lori Kraft, 36; Emily, 3; Madeline, 1
Occupations: He, controller; she, homemaker
Assets: Home valued at $270,000; automobiles valued at $23,000; savings and money-market accounts valued at $28,734; stocks and mutual funds valued at $47,648; insurance and annuities valued at $62,954; trust deed valued at $1,000; other investments valued at $50,413. Total: $483,749
Liabilities: $179,502 owed on a home mortgage; $38,000 owed on personal loans; $1,100 owed on credit-card accounts. Total: $218,602
Financial goals: Short term--purchase an existing manufacturing company, move to Seattle area. Long term--save for retirement, college for children.
Advisers to Kraft Family
Name: Richard Nakawatase, 42
Title: Certified financial planner
Company: Financial Network Investment Corp., Whittier
Background: Has worked in the financial planning industry since 1980, specializing in retirement, insurance, asset allocation and investment planning. Undergraduate degree from Cal State Los Angeles; certificate of financial planning from USC’s College of Continuing Education; now working toward a master of science degree in financial planning at the College for Financial Planning in Denver.
Name: Jeffrey Kilpatrick, 40
Title: President
Company: Newport Securities, Newport Beach
Background: Graduate of UC Irvine, has bachelor’s and master’s degrees in business. Kilpatrick joined Sutro and Co.’s Newport Beach office in 1977. Opened Newport Securities in 1980. Researched by JIM GOMEZ / Los Angeles Times
Inside Profile: Household Income Over $40,000; Nearing Retirement William and Bridget Stanton, left, had looked forward to a comfortable retirement until Sears, Roebuck & Co. laid him off after 28 years as a catalogue warehouse manager. Stanton found another job but was left with only a small retirement fund. Certified financial planner Diane Wood studied the couple’s situation and is optimistic about the their financial future. D5
