There’s a very important topic that I’d like to discuss briefly here, and it’s in regards to starting your own business. Fundamentally, a business is an investment. Any company’s goal is to generate profits for its owners, and in the case of a small business, a salary as well. The problem with businesses is that they’re a job. And not only are they a job, they also cause a lot of stress and a generally poor social life during the initial years.

Real estate has always been a passion of mine. Many people have made fortunes off real estate and growing up with a father in the business, I understand how the model works. However, getting started is a big effort, which involves management, construction, marketing, and all the other jobs associated with starting a business. This is not coincidence — buying investment property is a business.


I was very hot on real estate earlier this year, and ready to buy any reasonable property that came my way. At some point, though, I realized how much work and capital was going to be involved. While I have to admit that my passion for it has not diminished, I decided it would be prudent to educate myself on the full range of investment opportunities to see how much I can earn by investing. If I could earn 10% in mutual funds that require little oversight and are reasonably safe vs. 20% by starting a business that inevitably cause me a great deal of long hours and kill my social life, would it be worth a higher quality of life? That was and is my mission to find out.

The greatest fortunes are probably staked against going out on your own and building a company, but at what price? I urge those of you who may be reading this and have that familiar entrepreneurial voice in your head to silence it long enough to fully educate yourself in finance before you head out on your own.

Investing in a company’s stocks is equivalent to part-owning that company itself. I would prefer investing to starting up business for the following reasons:-
1. Flexibility of chaning the investments as and when the sectors become bullish or bearish. For example being a business owner of a real estate construction company, I can not simply pause real-estate business when outlook for property becomes bearish. However, as an investor, I can simply switch my investments from property stocks to say gold/natural resources based stocks.

2. So often do you see that family life of influencal businessmen ruined by tough travel schedules and long work hours. Being in investment(mid/long term) one can enjoy going out on holidays with family.

3. Avoid the politics jungle of managing your employees. As an investor, the ongoing politics amongst the employees/directors of the underlying does not effect me. Being a business owner, these can cause me sleepless nights.

Surely, runnning a business has its own merits like feeling of satisfaction of growing the business. But my satisfaction comes from seeing my portfolio grow.

Thanks,
Anil Passi
http://www.anilpassi.com

This was something I was thinking about myself recently.

If you can really increase your return from 10% to 20% by working harder at it, and you have enough money to invest, then it MAKES SENSE to quit your job and make investing your full time job.

I would suggest looking at the difference in the amount of money you will have in 10 years at 10% vs. 10 years at 20% before you make the decision. To get the 10yr-10% figure, multiply your investment by 2.59. To get the 10yr-20% figure, multiply your investement by 6.19. So, on a $100K investment, you would end up with $225,900 vs. $619,000 in just 10 years. I can buy a lot of social life for the $393,100 difference.

That’s very true, Big Mike, but think of it this way: let’s say you wanted to live off of your extra 10%. In order to maintain a salary with the earning power of $70,000 today, you’d only be able to live off of 7 of that 10%, so that you don’t succumb to the effects of inflation over time.

In order, then, to live off of 7% of your income you’d have to be playing with over $1,000,000 in non-retirement account funds. If you can do that, more power to you, cause that’s in my plans for world domination as well… however, I am not yet there.

Assumptions for investment option: 1) net 10% return , 2) an income that covers the living expense w/ any left over dedicated to achive the investment return, 3) same starting “principal”

Asumptions for business option: 1) net 20% return, 2) all expenses covered, 3) same starting “principal”

Given thie assumptions, the investment option is a good choice if you are not the type that starts business. But if you like to start business and deal with what it entails, then 20% is definitely better than 10%.

My return on 401K is about 20+% (pre-tax) with maximum contribution and company contribution. But I am leaving a 100K IT job to start a business in 1 month, leaving behind a good 401k matching benefit and any little security that a job brings.

Of course, I get in return is to do things that I enjoy and hope to bring in more than > $200K/year in net profit in 2 years. I know all about the statistics and risks with starting a business, but I have done analysis on risks, success factors, opportunity costs, etc. And I have decided to go for it:-)

Everyone assumes you will earn a 10% return by investing passively in a mutual fund. That seems unlikely. If someone is smart and hardworking than I think that he/she can start a business and do very well. And yes, it can also be very stressfull. Money doesn’t grow on trees though and mutual funds nreturning 10% every year forever does not seem likel to me, regardless of what has happened over the last 70 years.

You can build a business and still have a social life if you learn how to manage your time. BUilding a business is harder than investing but the reward is better. Currently i am a stock investor but i hope to start a business sometime in the near future

Comments are closed.