Not every entrepreneur is as outlandish or controversial as Elon Musk, as publicity seeking as Richard Branson, or as all-conquering as Jeff Bezos. All entrepreneurs are, however, part of a unique club. Not everyone has the ability, dedication, and risk-embracing nature to start and build a business.
What happens, though, when that successful business leader sells up and exits, suddenly in possession of a large windfall but without the level of control previously enjoyed? While fast cars and big houses may be one answer – and why not after a lifetime of hard work – the majority will also want to preserve and grow this hard-earned money pot, not only for them but for their children and grandchildren.
In doing so, they face some of the most common behavioural challenges for new investors. And for entrepreneurs, this often requires a slight rewiring of their business instincts. When confronted by this scenario, an investment advisor can offer invaluable guidance.
Where do I start?
In short, your money needs to keep working, even if you’ve said goodbye to the nine-to-five. Investing in financial markets remains one of the best ways to protect and grow your money. Markets are propelled by successful companies and individual innovation – something all entrepreneurs can relate to – while the power of compounding provides the foundation of capital protection.
However, market volatility is inescapable – it is, in fact, necessary – and short-term whipsawing can unnerve even the most experienced investor. An advisor can explain the growth benefits of the equity market compared to fixed income and cash – and detail why a strategic balance is necessary to protect and enhance returns.
A key part of this educational process is understanding the potential for loss. Have sweated blood and tears through numerous late nights and weekends, the prospect of losing your wealth is understandably soul-crushing. However, one of the best ways to erode wealth is to hold it in cash, especially with inflation running significantly higher than interest rates. If you’re sitting on cash waiting for the “ideal” time (market correction) to invest, this is a risky game – and unless you can see the future, impossible to get right.
Of course, making your first steps into the financial markets can be emotionally counter-intuitive, especially if, as a business owner, you’re used to being in control of everything. An investment advisor can not only explain the benefits of time in the market over market timing, but also give you peace of mind about the investment process, enabling you to focus on what you’ve been working towards all these years – enjoying your wealth.
Don’t go it alone
Would you tell Musk or Bezos that he’s making a bad decision? It takes discipline, deep knowledge and courage to do so. Good investment advisors have these qualities in spades. Many entrepreneurs, after years of having the final say, may be reluctant to delegate but running a business is different to investing. Daily monitoring helps no one – and is certainly not relaxing.
Qualified advisors know the benefits and strategies behind long-term investing. Overtrading, for example, has been shown to hurt returns and “buy the dip” might sound simple but is ripe with behavioural bias risks. These include the temptation to sell during a market crash, which can be devastating to your long-term investment plan and can take years to recover from.
An experienced investment advisor has lived through numerous market corrections; now is the time to relinquish some control to a professional who can ensure your portfolio is well-diversified and help ease the turbulence when markets do drop unexpectedly.
Ok, here’s my money – what next?
One of the roles of an advisor is to make the investing journey as comfortable as possible – but the investor’s mindset is also important. It’s vital to stay focused on long-term goals. You aren’t a day trader, so keep the big picture in mind and be crystal clear in your objectives, which should be discussed in detail with an advisor. Remember, headlines are, to coin an old newspaper phrase, tomorrow’s fish-and-chip paper.
Another method that can help entrepreneur investors is to think of investing like a business in that it’s about picking the best companies. So, even if they suffer during a downturn, well-run firms are robust, and will be prepared and ready to take advantage of the bounce-back. If you had sold your business during the tough times, you wouldn’t have this windfall in the first place.
The current environment is conflicted – like life. No one knows what’s around the corner and there are competing views on the post-pandemic recovery. Some are bullish about the end of lockdowns while others warn of an uneven economy and interest-rate volatility. The truth is, there is never a perfect time to invest. However, history shows that markets grow over the long term, meaning your money will do the same.
As the saying goes, time in the market rather than market timing is the most important factor in long-term investment success. Entrusting the fruits of your entrepreneurial labour to an investment advisor, who understands the machinations of economic and market performance, can help you grow and protect your wealth.