The Four Pillars of Great Investing
Inside of my world, and especially inside of Freedom Warrior, we talk about the four pillars of great investing.
Having worked with and observed many, many investors over time, I’ve been able to glean what I would call their blind spots.
So sometimes, someone would come to see me, and they would have a great income, reasonable portfolio investments, they certainly care about money, and yet they were struggling to get traction.
I started to diagnose where I thought those issues were, and I realised I could categorise them into four buckets, which is where these four pillars came from.
Pillar One: Stewardship
Although someone might earn a great income, were they actually any good at caring and managing that flow of income once it came into their world?
For example, a lot of business owners are really good at managing money inside their business, down to the cent. But the minute the money gets paid to them, either as a wage or a dividend, is when it becomes more complex because you’ve got partners and spouses and kids and other people that might want a piece of that income.
Therefore, your control, or your capacity to control, is diminished. Life and lifestyle pressures can mean that managing that money can be tough.
I’m certainly not advocating that you need to have a strict budget, but there are some principles around stewardship and the care of that money that are very important.
So stewardship, from my perspective, is the management, the control and the diligence around that money.
Pillar Two: Investment Effectiveness
The second pillar, which I think many business owners really struggle with, is what I would call investment effectiveness.
So in this pillar, what I’m saying is, how good are you at asset selection? How good are you at managing those investments? Are you selecting investments where there’s alignment with your goals? Are you tapped into the right network to access good opportunities consistently?
I see some wealthy people who have maybe become influenced by their peers or other people’s opinions, and they don’t have the time or the energy to figure it out, ending up in a situation where they buy or invest in substandard investments. So for the income, the result is fairly disappointing.
And maybe that then compounds their understanding of, or enthusiasm for, continuing to invest: if you don’t get a great result, why would you keep putting money into it?
A lot of those people then go, well, the highest return on investment is in my business. So let me keep putting money there.
Pillar Three: Mindset & Clarity of Goals
The third pillar or blind spot that I see for a lot of people is what I think of as mindset.
- Maybe they lack ambition, or maybe the ambition isn’t quite in alignment with the income and capacity that they have.
- Maybe they lack urgency. This is typical for a lot of business owners. They have great urgency around building the income in the business but no great urgency into converting it into wealth. It falls on the back burner and becomes a, “Someday I’ll get to that” type of issue.
- The third one is clarity of goals. When people don’t have that clarity of goals in terms of their thinking, it’s very hard to make sure that your investment selection aligns with those goals.
- And then beliefs, like how we’re brought up, the experiences that we have, what we make money mean, can have a huge impact on our mindset. I’ve worked with a lot of people who by anybody’s standard would be described as high net worth – but they don’t feel it, they don’t believe it.
Pillar Four: Knowledge
The fourth pillar that I see a lot of people have weakness around is what I call knowledge. And that can mean both formal and informal education.
It’s about your thirst for new information for new ideas.
And what comes with knowledge is some level of wisdom or discernment. Some people might call that gut feeling, their capacity to look at numbers and see deals for what they are.
But that capacity to discern a good deal from a bad deal is really, really, really important.
Where Do Your Weaknesses Lie?
Keep in mind that those are the four pillars to be mindful of to look for your own blind spots. And be really frank about where you think your own weaknesses lie.
I’m constantly looking at whether I’m investing in all four of those pillars in terms of growing my awareness and knowledge around wealth building.
The sorts of questions that I encourage my clients to consider, and there’s four of these as well, is:
- Do I know the outcome I want?
- Do I have the right assets or investments to get me there?
- Do I have a high degree of control over my outcome? Most people will categorically say no.
- Who’s on my team that can educate me, hold me accountable, encourage and advise me? I definitely feel we can glean a lot of lessons by looking at what it is that the ultra-wealthy do. I’ve certainly learned a lot by spending time with people who, even if they tried to spend all their money, probably couldn’t and will have money for generations to come.
The Concept of The Family Office
If we consider how rich families utilise the family office concept, I think we can learn a lot.
And it’s not necessarily that there are a lot of people who are wealthy, who don’t need a family office. But if they can adopt some of these ideas, they could certainly go a long way to not only preserving their capital, but finding better opportunities and growing their wealth over time.
The core purpose of the family office is to create an integrated wealth strategy and to have a coordinated approach to the wealth transfer, and that would include tax planning and investment considerations.
One of the key roles of a family office in the way that really ultra-wealthy families talk about them is to be an integrator of financial strategies.
The concept was created initially to specifically look after the wealth of super high net worth families, but the modern-day family office does way more than that, depending on who you are, and what your objectives are.
Sometimes a family office can have everything from the accountants, the lawyers, the advisors – it can almost be a full board of directors to help you run the family business and beyond.
There are two principal models that have emerged. One is the single-family office, and the other one is the multi-family office, meaning they look after many families versus one office in one family.
Key Considerations of a Family Office: Education
One of the key roles of a good family office is to educate and mentor the wider family so that you are constantly preparing every generation to be responsible stewards through formal and informal initiatives.
I think that’s a really important one that people don’t recognise. So if you are someone who aspires to create intergenerational wealth, then this is something that I would say is really important, and how that could show up in conversations in the specific family retreats and alike.
Key Considerations of a Family Office: Financial Security
Financial security means different things to different people.
The goal of a lot of family offices is to make sure that members can continue to pursue their lifestyles while optimising the wealth transfer for future generations.
A good family office is not trying to sell every member of the family on being an entrepreneur or earning a high income, it’s about giving the members of your family the freedom to be themselves in the context of understanding that there’s care and responsibility around being an inheritor or a participant in the wealth.
Key Considerations of a Family Office: Protection & Privacy
Family offices are structured in a way to protect the privacy and security of financial information.
The family office really serves as a partner for the owners in sustaining and making their assets work.
The Ultimate Goal of The Family Office
So all of those factors combined – customising financial services, educational offerings – all those things are just really useful ideas to consider when you’re thinking about building your own board of advisors.
What we ultimately want is to create a series of people around us who can help us access great opportunities, help us educate members of our family, help us navigate economic turbulence, and help us grow our wealth. And frankly, it’s very hard to get that in one person.
Unfortunately, I think what a lot of wealth practitioners and professionals do these days is try to paint themselves as the one-stop shop. And for various reasons, including independence, it’s really important that you are looking beyond the wisdom of one person or one firm to help you grow your wealth.
Having the Right Advisor for the Right Season
The final point that I will make about this idea of building a Jedi Council level of advisors is that it’s really important to recognise that you need to have the right advisor for the right season.
If you’re someone starting out, you’re not necessarily going to go out there and find the Rolls Royce advisor.
If you are someone who is further along in their journey, or maybe you have a shorter timeline or runway to wanting to be financially free or retired, then maybe you do have to spend the money to go and work with someone who will help you get the result you want.
I really encourage anyone who hasn’t already to go and listen to my podcast where I talk about the four seasons of investing and recognising that sometimes you are going to outgrow your advisors.
For example, there are a lot of accountants out there. And there is a huge discrepancy in my world between your entry-level H&R Block accountant all the way through to those accountants who can offer strategic and tactical advice, which is in alignment with the size of your business.
You want to be really clear when you outgrow someone. I’m a loyalist at heart, and I’ve found that a really difficult thing to kind of navigate over time is when I recognise that I’m not getting the cutting edge advice that I need to get me to that next level. And so, the idea of advisors and seasons is really important.
Advisors and a Skill Matrix
One of the things I’ve found over time, particularly if you are less experienced in the game of wealth building, is it’s easy to lump advisors into the same bucket. It’s very easy to be fooled into thinking that someone is, in fact, the one-stop-shop.
But I’ve created this thing that I call a knowledge matrix.
Down one axis, I’m talking about all the skill sets I need to know about wealth: wealth management, tax, structuring estate planning, property management – all sorts of aspects of wealth building.
And then across the top axis, it’s all the professionals that are affiliated with the wealth world. So conveyances, accountants, financial planners, brokers, buyers agents, all sorts of property advisors, and property managers.
When you start to use that matrix to figure out who has what skills, you’ll see that there are a lot of people who don’t have ticks against every single one of those and yet claim that they are experts in all of those areas.
I’ll talk now a little bit about financial planners. Do financial planners:
- Know about wealth? Yes.
- Do they know about money management? Sometimes, question mark.
- Do they know about how to evaluate a good from a bad deal in property? I would say majority, no.
- Do they know about structuring? I would say question mark, probably not.
My point is that every professional has their area of experience. And it’s really important that as an investor you become educated around this.
I have a document called the knowledge matrix, which I’ve created for myself, and I’m happy to share that with anyone who’s interested. Flick me an email if you want a copy at salena@www.www.inkosiwealth.com.
Building a Board of Advisors is Critical
I’ve certainly seen where people try to go alone and just pull in people as advisors, as and when they need them. And I think you can do that earlier in your journey.
But as I said, as you get closer to the finish line, not only are you trying to build wealth, but you’re trying to focus on preservation.
You want to understand number one, the limitations of your own skill set. And number two, you want to understand how valuable advice, support, and having a sounding board can be when you’re talking about creating wealth that endures.
So if you have aspirations around being a resilient investor and can really see yourself through lots of market cycles, lots of economic turbulence, lots of life events that maybe you hadn’t expected, then this idea of building a board of advisors is crucial, crucial, crucial.
Final Thoughts
I hope this has been really useful.
If you’re a business owner feeling frustrated that despite doing everything right in the property investing playbook and you’re no closer to financial freedom, then head over to www.inkosiwealth.com to learn more about how you can use alternative investments to catapult your investing income and blend strategies to shave decades off your timeline to financial freedom.
If you’re interested in understanding how to create wealth through alternative strategies, please check out my programs, where I help you catapult your investment income and blend strategies to shave decades off your timeline to financial freedom.
Or, you’re welcome to get in touch today, book a call with me, and I would be happy to talk you through it – no obligation!
