SWOT Up - Treat your investments like a business

Have you ever run a business? Have you considered the idea?

Did you realise you’ve been doing exactly that since you received your first ever pay cheque, without knowing it?

With our clients, every review meeting is a mini SWOT analysis. We look at each client’s strengths, weaknesses, opportunities and threats, because your financial life is a business, and it needs to be treated as such. Allow me to explain.

Running your financial life like a business

From the moment you start saving and investing, you have two choices: you can be a sole trader, doing all the work in your financial life, or you can hire professionals to do the work for you. When volumes are low and the workload is minimal, it is often most efficient to do it all yourself, but as the numbers swell, it makes sense to bring on staff such as financial advisers, accountants, lawyers and asset managers.

Many people only hire a caretaker – the bank. Cheap, reliable, but ultimately unproductive, you will pay for the service and keep things tidy, but not build any revenue. Some people immediately want to chase maximum growth and will look to employ the newest hotshot who assures them they can triple their market presence in a matter of months. Expensive, unpredictable and often unreliable, they might manage what they set out to do, but it might be a risky approach, and you could be looking elsewhere before too long – possibly out of pocket at the same time.

Your hiring practice for your investment organisation needs to be based on your objectives. Maybe you don’t care about reliability and you want to chase those incredible end-of-year results, costs and risks be damned. Maybe you just want a warehouse to store everything you’ve built over the years, so a caretaker is all you need. Maybe, however, you need staff that serve a different purpose.

Humans vs machines

What’s the target? What’s the goal? Who, or what, will get you there?

Robots? AI? Machines? Well, they’re cheap, but they need oversight. If something is not quite right in the programming, a robot doesn’t care. It won’t answer back and it won’t ask questions. If your financial production line is all about unsupervised, unchanging, unquestioning consistency with minimum cost, then a robo-adviser might be your best solution. If you want some pushback and some objective insight, a highly qualified human is going to be really valuable to your process. Even AI is essentially programmed to say things that make you happy and go along with your suggestions, so the most modern tools might be paying lip service to the boss without concern for the best outcomes. If your finances are going to be run by machines, you need to be prepared to check the circuits and press the buttons.

Building your financial team

Just like a business, as your financial life grows, you may find yourself needing more staff on hand to help out. You may start with just a broker, adviser or investment platform, but as things become more complex and expand into different markets, more complex tax reports and new risks, more specialists are required. A tax department, legal advice and other specialist operators can help you to expand and grow. Shying away from the cost of a good lawyer could leave you exposed to much harsher penalties later on, and expecting one member of your team to do a little bit of this and a little bit of that will never achieve the best results in any of their responsibilities.

Understanding your financial SWOT

Think about the SWOT of your finances. Strengths and weaknesses tend to be internal. As such, they can be enhanced or diminished by the tools and professional help that you rely upon. Some aspects could be seen as both a strength and a weakness. For example, having plenty of cash in the bank is a strength in the short term, but a weakness over time as inflation bites into your spending power. Opportunities and threats are external and there to be exploited or defended against. Similarly, some things could be both an opportunity and a threat. Volatile markets can harm your portfolio but present the chance to buy investments at a discount.

If your personal finances have not been working as hard as you do, or if you think it might be time to review your family’s ‘business plan’ to work more efficiently towards your goals, speak to your financial adviser about what you are doing well and where there is room to improve. You probably don’t need to tear down the factory and start from scratch, but it is always helpful to have a look through the books and oil the machines from time to time.