Posted 12.10.2021 in Investment Planning
The interviews revealed tales of successes and failures. Whilst there were many different approaches and investment strategies, success left clues. My commentary seeks to capture the broader trends that we noticed that led to some people feeling like that had more effective outcomes than others.
The Key Challenges and Insights:
From an investment perspective, cash is not king. It is comfortably the worst-performing major asset class in history.
Roughly 20% of those interviewed (often the wealthiest) held a considerable proportion of their investable wealth in cash. Typically, this group had always invested their profits back into growing the business or into commercial/industrial property for the business to operate out of. When it came time to extract wealth, they were unsure how to invest and often didn’t feel compelled to seek advice.
For people with significant levels of wealth that don’t need to invest to achieve their goals – there is a great conversation around how you can balance your need for a sense of security with the greater impact & legacy you could leave on the world through optimising your affairs. A considered investment strategy can be designed to both preserve and grow your wealth in a way that will give you confidence and not put at risk what you have worked so hard to build.
Around half of the interviewees shared stories about losing a significant amount of wealth because they were speculating with too much money rather than investing. This was often through small–cap shares, high trading strategies, private businesses or DIY property development. This group of business owners tended to be more comfortable taking risks, love the excitement of picking a winner and were often well networked and naturally attracted lots of investment opportunities – both good and bad. Some had lost millions, but most just discussed the frustration and opportunity cost (time and money) when these investments had not worked. There is always room to have fun and chase the big wins with some of your capital. Just make sure you get the balance right as part of a broader strategy.
We are all a product of our lived experiences which shape and influence our investment decision making. It is important to understand your investor personality(s) and how you are hardwired. We have done significant research into this and have categorised the different investor personalities into – The Family Guardian, The Freedom Seeker, Apprehensive, The Builder, The Social Spender, The Maximiser, The Maverick and The Controller. There is no right or wrong investor personality, but by better understanding yourself, you can create an investment framework and team that will help you have a better investment experience. Contact me if you want more detail about the different investor personalities.
Most business owners who felt on track and that they were optimising their investment strategy were using an investment adviser to help them build and manage a diversified portfolio of assets. The most satisfied ones were working with an adviser who understood their broader family financial position and objectives. The adviser helped them manage their overall investment strategy, not just one part of the investments (i.e. just managing a share portfolio). An unconflicted sounding board also allowed for a more balanced & strategic approach to reviewing and monitoring all family investments and greater insight & objective analysis of one-off opportunities.
Too often, the spouses of the business owners interviewed had little visibility around the overall financial position and no relationship with any of the key advisers. This was often a key tension point for those interviewed both in terms of the negative impact this lack of transparency had on the relationship or the fear that a lack of interest may set the spouse up for failure in the event they had to take full control of the finances themselves for any reason. One interviewee spoke about referring all his friends to his adviser purely because of the peace of mind and positive impact bringing his wife into the financial conversation had on his marriage.
Hopefully, these challenges and insights were useful and triggered some thinking about approaching your family investment strategy. My previous article, 4 Habits of Successful Business Owners may also be of interest.
If you would like any further information – feel free to email me at firstname.lastname@example.org.
We are progressing our broader business owner insights project and are aiming to release a comprehensive model and research at the end of the year.