Agent of Wealth Episode 152 – What to Consider When Reviewing Your Investments

The government spends billions of dollars each year on goods and services, and by tapping into this vast marketplace, small businesses can secure lucrative deals, gain steady income and heightened visibility. In this episode of The Agent of Wealth Podcast, host Marc Bautis and guest Richard C. Howard dive deep into the world of government contracts.

As a career military acquisitions officer, Howard oversaw $82B+ in DoD contracts, and has advised and trained over 400 companies as a consultant. He’s the CEO of DoD Contract – which guides, trains, and mentors small business owners and sales executives through the government sales process – and the host of DoD Contract Academy Podcast.

In this episode, you will learn:

The benefits of selling to the US government as a small business.
How small businesses can find opportunities to sell their products or services to the government.
How small businesses can stand out in the government procurement process.
How small businesses and startups can utilize the Small Business Innovation Research Program.
And more!

Resources:

Disclosure: The transcript below has been lightly edited for clarity and content. It is not a direct transcription of the full conversation, which can be listened to above.

Welcome back to The Agent of Wealth. This is your host, Marc Bautis. I’m joined by a guest for today’s episode, Richard C. Howard. Richard is a leading authority on US federal government contracts. As a career military acquisitions officer, he oversaw $82B+ in DoD contracts, and has advised and trained over 400 companies as a consultant. Richard is the CEO of DoD Contract, which guides, trains, and mentors small business owners and sales executives through the government sales process.

Richard is the host of the DoD Contract Academy Podcast, and speaks extensively on the nuance of federal contracting strategy. Richard, welcome to the show.

Thanks for having me on, Marc.

I don’t think people even realize that government contracts are out there. Can you start off by explaining this market size, and some of the benefits of selling to the government as a small business?

The Benefits of Selling to The US Government as a Small Business

The US government is the single biggest purchaser of goods and services in the world. When people think about government spending, most immediately think of big defense contractors. But in reality, the government buys just about anything you could think of – from defense and weapon-related spending, to tai chi instruction, to commodities, to food. Think about it like this: Every military base is basically a small town, or city in some cases. All of the infrastructure that goes into that town or city is paid for by the government. And they have a mandate to buy from small businesses.

So whether you’re in – cybersecurity, accounting, legal, you’re selling food, you have a franchise, you have a training business – the government is most likely buying in your area. It is very rare that I find an area where the government isn’t spending money, so the spending is vast.

The government has to buy from small businesses, yet less than half of 1% of US small businesses are actually participating in the government contracting process, despite the high spending levels.

Alright, so there’s a lot of opportunity here. How does a small business find the contracts?

How Small Businesses Can Find Opportunities to Sell to The Government

Because we’re talking about the government, there is a lot of regulation that exists to ensure there’s fairness and that the public can see what the government’s doing. So everything the government spends money on – with the exception of a couple classified contracting avenues – is public knowledge.

So, as a small business owner, you should ask, “Does the government buy what I sell?” To find your answer, go to a website like usaspending.gov and begin searching public records to find out what the government spends on.

Whatever you sell, it probably falls under something called a North American Industry Classification Code, or NAICS code. When you go into usaspending.gov, type in what you sell under NAICS – for example, accounting. The website will suggest different codes that you would fall under. You can click on that, and sort it by small business spending.

You can quickly see how much the government spends on small business contracts in your industry and area of focus.

Are these contracts location specific? Does it help if a business is located near a military base, for example, or does it not matter?

It depends on what you’re selling. By the way, government contracts certainly extend past the Department of Defense and military bases. There’s lots of different federal agencies that spend money.

Okay so once a business owner discovers how much the government is spending in their niche, what’s the next step?

Once you know that the government buys what you sell – if it’s local, they buy it in your state, or if not, you can work anywhere – the next step is to register your company. You can do that at sam.gov. That’s where all registering and most of the solicitations take place.

So when you go to sam.gov, you’ll find instructions on the screen for registering. Of course, you need to have a legal business in the United States, and come ready to register with your EIN number.

All in all, the process takes a couple weeks sometimes, but at the end of it you’ll get what they call a CAGE code and UEI number – these are federal identification numbers for your business. Once you have those, you can start bidding on contracts.

By bidding, do you mean writing proposals?

Yes.

How Small Businesses Can Stand Out in the Government Procurement Process

What can a small business do to separate themselves from the others trying to do the same thing?

Good question. This is really where most companies fail in selling to the government…

Once your business is registered through sam.gov, you will begin to see what’s called a request for proposal, or RFP. At that point, a business can begin writing a proposal. But, the government is very regulated in how they buy products and services.

For instance, if I saw an RFP come out that the government is looking to buy a $3 million landscaping contract for base X, I can’t just pick up the phone and talk to someone to get my questions about the contract answered. Now, if it’s a big contract, the government will answer most questions publicly through sam.gov. In those cases, you might get some answers that can inform your proposal.

But otherwise, you won’t be able to set up a meeting with a government worker. You won’t be able to develop a relationship…

So, before the RFP comes out, there’s something called the market research phase. Let’s say you’re a software developer, and the government is putting a command and control platform together, and you have a great user interface for that. Well, it’s during the market research phase that you can engage with the government if you really want to have a shot at landing the contract later on. Meaning, before the RFP comes out, we want to know who is doing the purchase, and we want to know the details of the opportunity ahead of time.

If you want to differentiate yourself from the rest of the herd, you want to look for things like a request for information or sources sought. When those come out, they’re squarely in the market research phase. At that point, you can set up a meeting with the government.

I recommend small businesses to respond to requests for information. They’ll answer questions like:

How long have you been in business?
Do you have past performance?
What do you think of the approach the government wants to take?

And, you’ll be able to suggest things. For instance, when you register your business, there are different certifications. Examples include:

Small business certification
Woman-owned small business certification
Disabled Veteran-owned small business certification

If you happen to have one of those certifications, you do have a leg up, because the government needs to set aside a specific percentage of contracts to those certified businesses.

But, back to the market research phase, you can actually recommend that the government lists the contract for a specific certified group. So, you’re helping the government write the solicitation, and you can give yourself a leg-up if you suggest a certification you have.

Okay, so you’re trying to influence the decision a little bit. Have you ever seen a case where a small business had a product or service that the government isn’t spending on, but they propose it to them?

Yeah, there are a couple of ways to do that. I would say if you take away one tip on selling to the government, it’s to get meetings and build relationships with the people that actually buy what you sell. There’s a lot of ways to do that, but mainly through research.

If your business sells a product or service that the government is not actively looking for, but you want to sell to the government, the government needs two things: A requirement, and funding.

The Small Business Innovation Research Program

If it’s an innovative solution of some kind, for example a patent, you can go after something called the Small Business Innovative Research Program, or SBIR. Any government agency that spends a certain amount of money in research and development has got to contribute to this program. So, the SBIR program spends about $4 billion a year on innovative research and development contracts with small businesses.

This is a way to basically propose your product or service to the government, because they have funding in the SBIR program. If the review panel thinks that what you have is innovative, and that it would achieve a government need, you can win one of those contracts.

Phase one of SBIR is kind of low dollar. Let’s say, for example, you’re creating a VR training system. In that case, phase one might just be a feasibility study. You might propose that the government uses a VR or augmented reality training system to help maintain or fix aircrafts, for instance. Well, that might resonate with the board. That first phase one event is probably going to be somewhere around $100,000-$150,000, which is small for government contracts.

But, what you’re really doing is:

You’re establishing past performance with the government, because now you have a contract.
They’re now going to help you find people in the government that would potentially sponsor you.

Now you can’t totally rely on the government SBIR office, you also need to put yourself out there to find a sponsor. If you find somebody willing to sponsor, but they don’t necessarily have to have money, they just sign a memorandum of understanding for you to go to phase two.

Phase two is to develop a prototype, or set up a demonstration. There could be a lot of different things that you’re recommending, but that’s the phase two piece.

The Small Business Innovative Research Program is really great for getting your feet wet. Even if you have a developed product but you’re modifying it for government use, that would also qualify for the program.

Going back to finding these opportunities, my father actually had a government contract through a larger corporation. He created a pellet that went into 50 caliber ammunition. He wouldn’t get the government contract himself, but General Dynamics or Olin would go through him to create this component of their contracts with the government. Are there opportunities like that out there?

Yes. That’s a really good point. There is a variety of ways the government can buy things from a small or large business owner. For example:

Contracts.
Subcontracting.
Sole source contracts.

As a business owner, you need to understand how the government is buying what you’re selling. That’s something that you can do pretty easily with the research tools the government offers.

Let’s say you own a company that is licensed to do HVAC. Over time, you’ve built a relationship with the government office that purchases contracts in construction. From that relationship, you learn that next year, Hanscom Air Force Base is going to be building an office building, and you have interest in installing the HVAC system. But, you aren’t able to take the full construction contract.

What I recommend you do is look through a website like usaspending.gov to see which construction companies have done that type of work with the government – illustrating past performance – and reach out to them about this upcoming opportunity. The fact that you’re bringing them this opportunity sweetened the pot for them to work with you, involving you in the project.

If you reach out to three companies like that, you’ll get at least one or two bites to form an agreement and go after a large contract together. That’s very helpful for a small business, because the big company can handle the proposal writing, and so on.

Artificial intelligence is all the rage right now. Do you see AI being used to uncover some of these opportunities, or to help small businesses in this process?

It’s interesting that you bring that up. Two of my recent episodes on the DoD Contract Academy Podcast were about AI in the government space.

One of them is called Govly, which uses artificial intelligence and machine learning to enable government contractors, OEMs, and distributors to accurately plan for government purchases years in advance

The other is called Rogue, which is an AI tool specifically designed to help businesses write proposals for government contracts. It kind of works like ChatGPT.

Business Financing and Government Contracts

What happens if a business needs financing to fulfill an order from the government?

First, it depends on the contract. If it’s a SBIR contract, where the business is developing something for the first time, then you can win the contract before you have to start development. But those are research and development contracts.

So let’s say you win a small services contract that involves employing 20 people. The small business will have to pay those individual employees before the government pays the small business. That’s because there’s about a 90 day turnaround time on invoicing to the government.

Now, there are certain financing houses set up specifically for government contractors. One thing to know is once you win that government contract, it’s one of the most secure contracts you’re going to have. So a lot of banks know they can count on the government paying the business.

That’s also one of the reasons companies go after government contracts – because it increases the value of your company.

Are Government Contracts Recession-Proof?

In addition to AI, the other thing that we’re constantly hearing about is this looming recession. At a high level, how is government spending compared to other industries?

Government spending is more stable. I always recommend that business owners – small or large – have one stream of income from commercial sales and another stream of income from government sector sales. The government is spending year over year, whether there’s a recession or not.

But I would say that the government experiences difficulties in different ways, and typically at different times.

Usually, if you have a three-year government contract, for example, you’ll receive that funding month over month. Now, there are times when the government shuts down, or when there is sequestration. The government can terminate a contract for convenience. But if they do, there are regulations to protect the companies that held the government contract.

That’s good. Well, we’re just about out of time. Richard, thank you for joining me today. You did a great job explaining how businesses can leverage government contracts as well as how to navigate the government procurement process. What’s the best way for our listeners to contact you or learn more about your advisory coaching services?

Your listeners can go to dodcontract.com to schedule a consultation. On the website, we also have courses available. And of course your listeners can check out my podcast, DoD Contract Academy, on whatever platform they like to listen on.

Great, we’ll link to those resources in the show notes. Thanks again, Richard. And thank you to everyone who tuned into today’s episode. Don’t forget to follow The Agent of Wealth on the platform you listen from and leave us a review on the show.

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Whether you are a novice or experienced investor, it is critical to review your investment portfolio at least once per year – but particularly during times of uncertainty and volatility. A portfolio review can help you evaluate and confirm your strategy, ensuring alignment with your financial goals, and much more. In this episode of The Agent of Wealth Podcast, host Marc Bautis is joined by Kayla Waller, Financial Planner at Bautis Financial, to guide you through five important considerations to make when you conduct an investment portfolio review.

In this episode, you will learn:

How to review the risk you are taking with your investments and adjust your asset allocation.
Why significant positions that represent a large percentage of your portfolio should be considered during an investment portfolio review.
Reasons for consolidating accounts in your portfolio.
Reasons for opening new accounts in your portfolio.
How to create a plan for periods of market volatility.
And more!

Resources:

Complete the Checklist | Schedule an Introductory Call | Bautis Financial: 7 N Mountain Ave Montclair, New Jersey 07042 (862) 205-5000

Welcome back to the Agent of Wealth Podcast, this is your host Marc Bautis. Today, I’m joined by my colleague Kayla Waller, who’s a financial planner at Bautis Financial, to talk about how to conduct a checkup on your investment portfolio. Kayla, welcome to the show.

Hey, Marc. Thank you.

Before we get into what an investment review or checkup looks like, I want to first talk about why you should review your investments.

Why You Should Review Your Investments

Regular investment reviews are a great opportunity for you to assess your progress toward your financial future, and ensure your portfolio hasn’t drifted away from the asset allocation that best matches your risk tolerance and time horizon. Perhaps you want to:

Review the risk you are taking with your investments and want to consider adjusting your asset allocation;
Make a contribution to or withdrawal from an investment account; or
Discuss the current market outlook, the Fed’s monetary policy, or other economic trends.

Whatever the case, we believe in reviewing your investments at least once a year to ensure your strategy aligns with your needs and goals.

So today, we’ll talk about five things to consider when you do an investment portfolio checkup. And this conversation works in conjunction with a free checklist we’ve made available that outlines 25 key considerations to guide your investment portfolio analysis.

Complete the Checklist

This week, I took my car to the mechanic for a 27-point inspection, used to gauge the health of a car. Similarly, this 25-point checkup is used to gauge the health of your portfolio.

So, let’s get into it.

1. Do You Need to Assess or Review Your Risk Tolerance?

When it comes to investments, one of the first things you want to get a handle on is your risk profile. There are many ways to do this, but most people decide their risk by gut feeling.

We like to take a more quantitative approach to risk management. Kayla, can you talk a little bit about how we assess someone’s risk?

Sure. There are a couple of different parts to risk:

How you feel about risk in.
What risk is currently in your portfolio.
How much risk you need in your portfolio to meet your goals and objectives in the future.

To answer these questions, we use software that helps us answer these questions so we can put a plan into place and set expectations for an individual’s portfolio performance.

Related: Get Your Personalized Risk Score!

Exactly. So, the way the software works is it looks at the investments in a portfolio and it quantitatively puts a number associated with risk on that. We then try to match that number up to the same amount of risk that the investor is comfortable with, and assess if that risk is enough for them to reach their financial goals.

Risk and reward | Understanding risk and reward in investing

Taking no risk sounds appealing – you know, putting your money under the mattress – but the reality is that most investors have to take on some risk to get the growth needed for their individual goals of retirement, etc.

But you want to take the appropriate risk. You don’t want to take too much, but you need to take enough.

Arguably the most important aspect of risk is the question of: “How much risk are you comfortable with?” That’s because if an investor takes too much risk, and there is a market drop, they’re more likely to make irrational decisions – like selling off – causing disruption to their long-term financial plan. So, we try to avoid that issue by correlating those three risks together.

2. Do You Have Any Significant Positions That Represent a Large Portion of Your Portfolio?

The next consideration we’ll talk about today is: Do you have any significant positions that represent a large portion of your portfolio? We come across this a lot. Kayla, can you talk about why someone would want to address this?

Sure. Some employers offer stock as a benefit to employees – and that’s great – but some investors don’t realize how overexposed they are to that particular company.

Depending on the size of an investor’s position in a specific stock, their entire financial health could be tied to it. By diversifying away from that, you’ll become less concentrated, which will minimize some of the risks that you can control while still having the potential for gains.

This is something that happened pretty frequently during the pandemic with companies like Zoom and Peloton. At the start of the pandemic, business was booming and stock prices were high, but over time… not so much. Those people with significant positions in their employer’s stock got crushed.

Even more recent than the pandemic, we saw this with some of the bank failures. Employees at Silicon Valley Bank and Signature Bank had large positions in their company stock before the bank runs.

Keep in mind that employee stock purchase plans are offered at a discount. It could be 10%, 15%… Either way, it’s hard to pass up. But when you build up this large position in your company, two things come into play.

One, the investor will typically have an emotional affinity for the company – because they work there – leading them to hold onto the stock for long periods of time. Some investors might think, ‘If I sell this stock, I’m betting against my company.’

That’s just not true. You have to remember that stock is compensation, just like income is. Executives and employees can sell stock at all different times, for a variety of different reasons. It’s not wrong to sell stock.

Two, like Kayla mentioned, employer stock needs to be considered from an overall perspective. For example, what is the risk, if something does happen to the company? In addition to the pandemic and recent bank failures, there are countless times in history where companies went bankrupt and employees with significant positions lost a lot of money.

We recommend having a strategy in place that specifies when a position reaches a certain percentage of your portfolio, the investor will divest, or sell some of it. There’s no need to sell all your company stock, but it could make sense to do it periodically, perhaps based on certain price thresholds. Having a structured approach helps.

3. Do You Need to Open a New Account to Consolidate Existing Accounts? Or, Do You Need to Open a New Account for a Specific Investment Objective?

The next one is, do you need to open a new account, whether that be to:

Consolidate existing accounts, or
Specifically tied to an investment objective

Kayla, can you talk a little about why this is important?

Consolidating Existing Accounts

Part of the reason new clients engage with us is because they have various different accounts they’ve accumulated over the years. We’ve seen cases where one individual has six different 401(k)s and various IRAs open, which they want to merge together.

So, in the process of becoming a client, we assess the various accounts to see whether or not it makes sense to move old 401ks, for example, into one account.

Opening New Accounts

But you should also consider opening an account tied to a specific investment objective, if applicable. Most frequently, investors will open accounts specifically for education costs and for retirement.

For education, a 529 plan is the most popular. A 529 is an investment account that offers tax benefits when used to pay for qualified education expenses for a designated beneficiary. You can use 529 plans to pay for college, K-12 tuition, apprenticeship programs, and even student loan repayments.

In New Jersey, you can deduct up to $10,000 in contributions to a 529 if your household is making less than $200,000/yr.

So, there are certain advantages to contributing to 529s if you know it’s going to be used for education.

For retirement, there are a bunch of employer-sponsored plans like 401ks and 403bs. Those also offer tax advantages. If you know you’re going to use it for a specific goal, like retirement or education, it could be in your benefit to open an account tied to it.

You mention opening up an account specifically tied to an investment objective, like retirement and education costs, but there’s also a behavioral-psychology aspect of doing this, which I want to touch on.

Anyone can open up a separate account for any goal they have, whether the account will be tax-advantaged or not. Whatever you are saving for, separating those funds for that specific goal can help prevent you from raiding the account should an unexpected expense arise.

Separate accounts also help you measure towards your goal(s). You can determine you are, say, 53% of the way to your goal of saving enough to purchase a second home… whatever that goal may be.

And one more point when it comes to consolidating existing accounts: When an investor has multiple 401ks (or similar accounts), it’s very hard to have a cohesive investment strategy.

Pretty often, I’ll see investors using target-date funds in their retirement accounts, which is a fund that is supposed to be tied to the year you plan on retiring. So, if someone is expecting to retire in 2035, they would have a target-date fund for 2035.

But I’ve seen people with target-date funds all over the place – some targeted for 2025, some targeted for 2023, some targeted for 2035 – on top of having a large-cap US stock fund. When we take a deeper look at this, it truly is a mess of investment strategy.

Target-Date Fund | Definition of target-date fund

So, consolidating existing accounts can help create a cohesive investment strategy.

4. Do You Hold Assets With a Tax Loss?

On to the next one, which is the question of, do you hold assets with a tax loss?

Yeah, it’s called tax-loss harvesting. This is the timely selling of securities at a loss to offset the amount of capital gains tax owed from selling profitable assets. An individual taxpayer can write off up to $3,000 in net losses annually.

This is a good way for investors to manage their gains per year, and it should be considered when doing an investment portfolio review.

Yes, we saw investors using this strategy a lot last year, because there was a decline in the market which caused people to have losses in their portfolio.

Remember a loss is only a realized loss when you take action to sell it. So, without selling, there’s really no tax consequence. It’s only when you sell it.

Now, a lot of investors don’t consider this strategy, but this is an effective one because not only are you able to take a paper loss, you can actually offset gains from somewhere else – whether that be selling real estate, or other investment gains.

5. Do You Have a Plan in Place For Periods of Market Declines?

The last one we’re covering today is: Do you have a plan in place for periods of market decline? Kayla, this is also timely, considering what we saw in the markets last year. What are your thoughts here?

It’s important to have a plan in place for potential market declines, because it helps prevent an investor from reacting emotionally and selling off . When a portfolio declines, it can be hard to keep your emotions in check. But if you’ve had these conversations with your financial advisor – addressing worst-case scenarios – you are more prepared, and become aware of the benefits of letting the market run its course (while remaining invested).

Absolutely. One of the tools we use to address this is called a Monte Carlo analysis, which runs thousands of simulations on what could happen to your portfolio based on thousands of situations. As an example, it will spit out a report that says, “We’ve looked at 1,000 simulations, and in 900 of them, you’ll still be able to meet your financial goals using your portfolio.”

We know the markets are not going to go up straight every year, and that there are years when it’s up a lot more, as well as years when it’s down a lot more. Monte Carlo simulations can help show an investor that even with down years, they’ll still be able to hit their financial objectives. So, that’s another tool that we use.

Like you said, it’s important to have a plan in place, because the markets are cyclical.

Alright, that wraps up today’s episode. We covered five specific areas to consider during a portfolio checkup. But, as I mentioned, we encourage you to download the full 25-point checklist.

Complete the Checklist

Thank you, Kayla, for being on the show today. And thank you to everyone who tuned into today’s episode. Don’t forget to follow The Agent of Wealth on the platform you listen from and leave us a review of the show.

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