Being a CEO or senior leader can potentially be very financially rewarding, however, it can also mean that the one thing you do not have much of is time. If you get the job right, the financial rewards should be forthcoming. But how do you make the most of it? And how do you turn today’s earnings into tomorrow’s long-lasting wealth?
Investing your earnings might not be easy for several reasons. For example, where do you start? What investments are likely to do well over the coming years? How do you invest- through a pension, an ISA, in a general investment account, or something completely different? How do you know who to trust? As a CEO you also have an extra dimension to consider– is there any reputational risk of being associated with certain investments or companies?
Finally, what about any conflict of interests between the business you run and potentially any businesses you invest in? Ironically, looking after your own wealth might also not be at the top of your priority list – running your business is likely to occupy that spot. It’s remarkably easy to let these things slip but it’s really crucial to your long-term wealth creation that you work on your own finances on a regular basis.
All of these factors can come together to create something of a headache for CEOs and senior management teams in particular, more so than many other investors.
I can’t give you all the answers in this article, but what I can do is share with you three key metrics that I have found useful over the years to keep your ‘boat pointing in the right direction’ so to speak, as follows:
Look at the big picture
Some people invest aggressively and want high levels of growth. Others focus on simply tracking inflation, or ‘not losing it’. It’s important to know where you are on this spectrum of risk and return and whether your investments reflect this view. Good advisers can be really helpful in explaining this and bringing to life the long-term impact of decisions you make now. When thinking about this big picture view of your wealth, also give some thought to what you would like your legacy to be. What kind of growth rate do you need in order to make that happen? If you are investing for multiple generations, for example, is a conservative approach or an aggressive approach better? All of these considerations require some thought and deliberation but are crucial to forming the correct foundation for your future decision-making and strategy.
Risks, risks, everywhere
Taking risk is fine in itself, but only as long as you understand your primary risks. Here I’m thinking about large exposures to a single company or investment style. In recent years many investors favour accessing the markets through passive trackers and similar vehicles. Whatever your chosen strategy, what are the risk factors that you need to be aware of? Remember, in investing it’s often not the risk you can see that ends up biting you.
Thinking long term
Investments move up and down, that much is a given. However, once you have been investing for several years, a good sense check can be to look at your annualised returns. This is a pretty brutal metric at times – by definition, it averages out your winners and losers and gives you a broad average metric over time. I’d suggest this is only really useful when you have been investing for 6 or 7 years or more, as market cycles can often last several years at a time and if you are looking at long-term investing, you’ll need to look over multiple cycles to get a true idea of the long run performance.
Taking this concept a stage further, you could look at your real returns, i.e. after the impact of inflation. A key concept of growing wealth is to grow your purchasing power faster than inflation. If you can do this consistently over a long time period, by definition, you become wealthier.
Being wealthy in itself probably isn’t your overall goal, but with wealth comes options. Options to support your family, support charitable or philanthropic causes, or something completely different. The choice is yours but the important thing to remember is that by growing wealth in real terms, you are giving yourself the ability to make these decisions in the future.
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