Updated Menu : Restaurateurs Need a Plan That Will Yield Security

By HELAINE OLEN

March 18, 1997 12 AM PT

Helaine Olen is a Los Angeles-based freelance writer. She can be reached on the Internet at holen@aol.com

When Susan Burgett and Mary Pipersky started the homespun restaurant and catering service called Anything Goes a decade ago, they proceeded on pure instinct and hard work.

But now, as the couple seek to simplify their lives, which may include selling their Mammoth Lakes restaurant, they’re eager to get the advice of a financial expert.

It’s not that they are in dire monetary straits. In fact, they earned $70,000 last year from their popular business. Rather, Susan and Mary say the eatery is eating up all their time. They’d prefer not to have to rise at 4:30 a.m. to bake the restaurant’s signature breads or consistently work on weekends.

Susan, 53, says she would enjoy simply running a catering service--just as the couple, together 15 years, did before opening Anything Goes. Mary, 43, says she’d like several months off to think about her options. Both would like to free up more time for volunteer efforts, their friends and each other. So they placed Anything Goes on the market several months ago, asking $138,000. But so far there’ve been no takers.

“I’m looking for something larger. Sometimes I wonder why I go to work and what is the real value of what I earn,” Mary said wistfully. “A friend recently closed her own business and now she works out of her home. She’s not doing as well financially by most standards, but she works out at the gym every day, reads a lot and spends a lot of time with friends.”

Mary and Susan realize they could be forfeiting more than half their current annual income if they shift focus, but they say they are prepared to downscale.

“I’ll have to go to the library instead of Barnes & Noble. So what?” Susan says.

The couple’s estimated net worth is slightly more than $450,000. The women worry that their investments may be inadequate or improper to meet their goals. Besides hoping to be in a position to live on less income soon, each wants to retire between the ages of 65 and 70, and they believe a comfortable retirement would take $3,000 a month in today’s dollars.

They have $63,000 parked in a bank checking account, earmarked as a restaurant emergency fund. They have almost $40,000 in four individual stocks and $27,000 in mutual funds and individual retirement accounts. They also own three Mammoth Lakes-area homes--the house they live in and two others they rent out.

However, the couple’s savings and investments aren’t the result of some coherent, deliberately devised plan--in fact, they have an almost accidental quality.

“We have no concept of savings. It’s extra money left over at the end of the year,” Mary said.

They also have widely different investment styles. Mary will read up on many mutual funds before investing. So far, she has chosen Selected Funds American Shares (five-year average annual return: 17.4%); Legg Mason Value Trust (22.3%); and American Century-Twentieth Century’s Ultra Investors (15.4%), all invested in individual retirement accounts; and, as a gift for each other, American Century-Twentieth Century Giftrust (18%).

Susan, who is in charge of individual stock picks, says she invests mainly on hunches. For example, she recently purchased TJX Cos. stock because she frequently shops at the company’s Marshall’s clothing store. She bought Nucor Corp. shares after reading about the steel firm’s record in employee relations.

“Mary reads all about these mutual fund things every night; I read Trollope or Dickens,” Susan said. “She buys the IRAs. Left up to me, I’d never buy anything [financial]. It’s not because I don’t want to, but because I’m not that kind of person.”

Given their rather idiosyncratic approach to investments, it’s not surprising that Mary and Susan had mixed feelings about some of the suggestions made by Rick Keller, a fee-only certified planner based in Irvine.

Keller says his recommendations are based mainly on financial considerations but that “clients sometimes have emotional attachments to assets that planners aren’t initially aware of.”

Thus, proceeding on the pair’s assertion that they would sell their rental properties if they could get better returns elsewhere, Keller suggested that they do exactly that--only to see Mary and Susan recoil in horror.

“A large percentage of your net worth is in real estate, and you would probably be a bit safer if you repositioned some of the money into mutual funds,” Keller told them. He said he was also concerned about the risk of earthquakes in a seismically active area such as Mammoth Lakes.

If Mary and Susan are determined to have real estate investments be part of their portfolio, Keller said, they could, as they suggested to him, consider placing some money in a real estate investment trust mutual fund such as Cohen & Steers Realty Shares (five-year average annual return: 18.1%).

The couple pointed out that one of the reasons they became landlords was to provide themselves with a steady income--they currently net $200 a month from the houses--independent of both the restaurant and the stock market.

After a long discussion, Mary suggested a compromise: selling one of the two houses.

But Susan still has doubts. “They are fun houses, and I love landscaping them,” she said.

As for selling the restaurant, Keller suggested that they hold on to Anything Goes for at least a year or two longer since it is their main source of income and they would be in a better financial position to give it up then.

For all their professing to want to reduce their commitment to the restaurant, it’s clear that Mary and Susan are proud of what they do there and loath to run it any other way. “We put our heart and soul into it,” Susan says. All the food served at the nine-table establishment is homemade, and the premises are redecorated annually.

To reduce their 50- to 60-hour workweeks, Keller suggested they hire an additional employee to give themselves time to relax and to lay the groundwork for the time when their catering business will be their primary source of income.

Elaine St. James, author of the books “Simplify Your Life” and “Living the Simple Life,” suggests the pair try stepping back gradually. “You need to let go and not be in such control,” St. James said. “Just hiring someone to take over one function could make for a mind-set change.”

But Mary and Susan say they are committed to staying their current course until they receive an offer for Anything Goes that approaches the asking price.

What if no one makes an acceptable bid? They definitely do not want to simply close the restaurant and liquidate their assets.

“If it doesn’t sell, it doesn’t sell,” Susan says. “We’ll recharge and go on.”

When it came to Keller’s ideas for making big changes in their other investments, however, the women were very much open to his recommendations.

He says the couple are “off to a terrific start” in retirement planning but that they need to revamp their portfolio.

First, they should immediately move the $63,000 in restaurant emergency money out of the checking account, where it earns absolutely no interest. They should place $7,000 in a money market account; that amount should be adequate to handle any unexpected repairs to or replacement of restaurant equipment.

Half the remaining cash should go into the Vanguard Fixed-Income Intermediate-Term Corporate bond fund (a relatively new fund, two-year average annual return: 9.9%). The rest should be divided among Vanguard’s Fixed Income Short-Term Corporate fund (five-year average annual return: 6.5%), Fixed Income GNMA (five-year average return: 7.2%) and Fixed Income Securities High-Yield Corporate (five-year average return: 11.1%).

With this strategy, the couple will be putting the money to work in relatively safe vehicles. They’ll have just under 40% of their assets in fixed-income investments, a high proportion for people their ages, but not in light of their business needs.

As for Mary and Susan’s mutual fund and individual stock purchases, Keller saw nothing wrong with the picks in and of themselves, but said that together they make for an undiversified portfolio. Almost all of their funds are invested in large U.S. companies, and the Legg Mason and Selected American funds both are heavily invested in financial services firms--so that sector makes up too great a portion of their stock portfolio, Keller argued.

In addition, the women have no foreign investments, and their exposure to small- or mid-sized company stocks consists only of Reno Air Inc. shares.

Studies indicate that foreign investments in particular tend to boost an investor’s overall return over time and reduce volatility in a portfolio. Meanwhile, small- and mid-sized company stocks can appreciate faster than bigger stocks over time. Of course, both foreign and smaller stocks also can be riskier than big-company stocks.

Keller urged the couple to stick with mutual funds for their stock bets, and get out of individual issues, saying it doesn’t appear they have the time to monitor them adequately. As for mutual funds, he did not suggest selling their current fund holdings, but he did push for investing their future savings differently.

He recommended that they:

* Divide 25.2% of their new savings among three U.S. big-company funds--Vanguard Index Trust 500 Portfolio (five-year average annual return: 17.5%), Vanguard/Windsor II (18.4%) and the two-year-old Yacktman (two-year average return: 29.3%).

* Divide 10.8% between two big-company international funds--Harbor International II (a new fund) and Vanguard International Growth (five-year average return: 13.9%).

* Put 8.4% into a U.S. mid-sized stock fund and 8.4% into a U.S. small-stock fund, such as Managers Special Equity (five-year average return: 16.1%).

* Put 3.6% into an international small-stock fund and 3.6% into an emerging-markets fund.

The other 40% of their savings should go into their bond funds.

For this strategy to mean anything, Susan and Mary will need to make a concerted effort to regularly invest 10% of their annual income, Keller said, and not just rely on what’s “left over.”

“They are now in their top earning years, and it’s important to save for the lean times,” he said.

Finally, the planner turned his attention to Mary and Susan’s estate planning. With the exception of their individual retirement accounts, all of their holdings, including the real estate, are held jointly--an excellent strategy, because unmarried couples, no matter how long they’ve been together, do not have automatic rights of inheritance should one partner die without leaving a valid will.

Nor do unmarried couples have the same legal rights as married couples when it comes to emergencies. Therefore, Keller reminded Mary and Susan to keep their wills updated, and he suggested that they consider giving each other a durable power of attorney and health-care proxy so that each will have the legal power to speak and act for the other in an emergency or in the event that one of them becomes physically or mentally incapacitated.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

This Week’s Make-Over

* Investors: Susan Burgett and Mary Pipersky

* Ages: 53 and 43

* Occupations: Own restaurant and catering service

* Gross annual income: $70,000

* Financial goals: Scale back hours involved in running their business; save for retirement

Current Portfolio

* $39,900 in four stocks: Motorola, Nucor, TJX and Reno Air

* $16,000 in individual retirement accounts invested in Selected Funds American Shares, Legg Mason Value Trust and American Century-Twentieth Century Ultra Investors

* $11,512 in American Century-Twentieth Century Giftrust

* $63,000 in a bank checking account

* Three houses in the Mammoth Lakes area: $70,000 equity in their principal residence; $55,000 equity in one rental property; second rental property, valued at $110,000 to $120,000, is owned free and clear.

Recommendations

* Sell some or all of the rental real estate and invest the proceeds in mutual funds.

* Burgett and Pipersky have put their restaurant on the market, but the planner suggests holding on to it for one or two more years. In the meantime, they could hire an additional employee to relieve some of their work burden.

* Revamp the stock and mutual fund investments to diversify and improve returns.

* Sell all individual stocks and invest the proceeds in mutual funds. If Burgett and Pipersky prefer to keep some of the stocks, Motorola and Nucor would probably be the best bets over the next several years.

* Most of the cash in the checking account should be transferred into a variety of bond funds and a money market account.

* Update wills and consider drawing up documents giving each other power of attorney over health and financial matters.