By Wealth Strategist Brady Marlow, CFP®, CAP®, CPWA®, CExP
Though the entrepreneurial spirit is admirable, the traits of a successful entrepreneur aren’t necessarily the same traits that help make an investor successful.
Successfully building a business is far more difficult than becoming a savvy investor. On the other hand, becoming a strategic and discerning investor absolutely requires a specific skill set – one that entrepreneurs don’t automatically have.
The transition from entrepreneur to investor can be a bumpy road, especially if you stumble over some common missteps.
9 Mistakes Made by Entrepreneurs Transitioning to Investing
Avoid these common mistakes made by entrepreneurs who are transitioning to investing.
1. Using CNBC or other news media outlets as an educational tool: The news preys on short-term thinking and anxiety. Their goal is to get you watching and to elicit an emotional response; don’t fall into this trap.
2. Succumbing to the urge to “make something happen RIGHT NOW”: Visualize piloting a sailboat on the ocean instead of a race car. You still have influence on the direction; however, it takes patience, skill, and adaptability to guide the boat.
3. Trying too many investments without a game plan: You need to have a plan for choosing and evaluating your investments. Too often, new investors will pull out too quickly or stay in too long based on personal biases and how they “feel.” Instead, have an objective plan and cadence for evaluating and tracking your investments’ performance.
4. Misunderstanding asset allocation: New investors often split their money across multiple money managers in an attempt to diversify, but the truth is that this approach can create fee inefficacies, increase the volatility of your assets and make benchmarking more complex than it needs to be.
5. Using money net worth as the only scorecard: It’s important to look at the bigger picture – not just who you are right now, but who you are becoming. Focus on the purpose of investing and how your resources will support the life you want.
6. Getting distracted by “Shiny Object Syndrome”: New investors can sometimes get sidetracked by what they think “everyone” is investing in or by falling in love with an idea without fully understanding the implications of the deal structure which can erode profits. Savvy investing should be about much more than the shiniest object that grabs your attention.
7. Basing investment decisions on a good pitch: Most business owners appreciate a good pitch and are familiar with evaluating deals based on how good the pitch was. The problem is that a good pitch doesn’t always equal a good investment.
8. Attempting to branch out to become an expert in multiple industries. Business owners are often experts in their field, so it’s no surprise that they set out to become experts in every field. You don’t
have to be an expert about your investments – that’s why you have a team working for you. The costs are too high to learn from your own mistakes.
9. Not connecting their professional team: Even though most business owners know how vital effective communication is when running a business, many don’t create communication channels among their various advisors. This can lead to financial decision bottlenecks.
What got you here won’t get you there.
Being a successful entrepreneur is an admirable accomplishment, and not an accomplishment that everyone can claim. Running your business takes a lot of savvy decision-making and plenty of hustle, but successfully investing is going to take a different set of skills.
The stakes are high. Your net worth is higher than it has ever been, and your time left on this planet is the least it has ever been. Take advantage of the hard-earned lessons from those who came before you.
Steps to Take Right Now to Become a Strategic Investor
Take these three steps right now to position yourself for better odds as an investor.
1. Slow down. You’ve earned the right to be discerning. There is always opportunity.
2. Hire a strategist. A strategist is someone who can sift through all the details on your behalf and bring you investments that align with your vision. You no longer need to be pitched to; you’re at a point in your life where you create the strategy. This professional will help you with your evolution as an investor and can help you cultivate new ideas. They will also help you refine, focus and pivot your direction.
3. Develop a purpose and value driven scorecard – How do you want to spend your time, energy and talents? Consider how you want to show progress and have influence such as family communications, health and adventure.
One example of an entrepreneur who successfully transitioned to being an investor is a family that sold their business. They immediately followed the sale of their business with a year-long break and held a family retreat. They went through our Values Assessment and multigenerational planning.
It was when they stopped playing checkers (thinking short-term) and started playing chess (thinking long-term) that opportunities emerged. We secured the future of the grandchildren and philanthropic giving goals – it was then that the business owner felt the freedom to take bigger bets on new, properly vetted ventures. The result was more wealth and experiences for the family.
Are you ready to shift your mindset from entrepreneurial to investor? Let’s talk.
Brady is not registered with Cetera Advisor Networks.
