Investment Tips for Business Owners

Across our broad client base, we are fortunate to have a number of very successful long term business owners. Over time, we’ve been able to observe some of their investment processes, both good and bad. Listed below is a snapshot of those observations:

The Key Challenges and Insights:

Security vs Impact – Cash is not King

From an investment perspective, cash is not king. It is comfortably the worst-performing major asset class in history.

We would estimate that at least 20% of our business owner clients have 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.

Speculating vs Investing

We would estimate that up to half of our business owner clients could share stories about losing a significant amount of wealth because they were speculating with too much money rather than investing. This has often been 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 have lost hundreds of thousands, but most are aware of the 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.

Different investor personality types

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. Some broad categories of investor personalities include - 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 an enhanced investment experience.

To get advice, or to not get advice, that is the question…

We would suggest that 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.

Get your spouse or partner involved, future you will thank you!

Reasonably often, the spouses of the business owners had little visibility around the overall financial position and no relationship with any of the key advisers. This has sometimes been a key tension point both in terms of the negative impact this lack of transparency can have 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. Bringing the spouse or partner in to conversations can often give a significant amount of peace of mind.