Young entrepreneurs often get involved in entrepreneurship with the hopes of long-term financial success; they want to make enough money to live on indefinitely, sell the business for a fortune, or retire early after reaching a certain landmark. However, even with the best business, there’s no guarantee of success, with about half of all businesses failing in the first five years.
Instead of pouring all your time and financial assets into your business, it’s better to invest at least a portion of your capital and income in other assets—and it’s relatively easy to get started.
Investing has several advantages, even when compared to the potential return of investing in your own business:
Consistent, compounding returns. Investing wisely should net you a path of stable, consistent returns. With the power of compound interest working in your favor, even a meager regular investment could quickly add up to a fortune. Your business’s growth curve won’t nearly be as stable, and if you wait too long to start investing, you might miss out on years’ worth of compound interest.
Volatility protection. There’s no guarantee your business will be consistently successful over the course of its growth. You might see a few years of prosperity, followed by a few years that threaten to close the business forever. Investing is an easy way to protect yourself from that volatility, giving you an alternative source of growth (or even income) to help you scrape by.
Variety and exposure. Investing also gives you the opportunity to take advantage of a variety of investments, including the stocks of other companies and real-world commodities. This increases your chances of finding success with a high return, and also gives you the chance to learn more about the market in general.
Types of Investments.
There’s no one right way to invest. In fact, there are dozens of investment types you can consider, such as:
Stocks are the gold standard for investing, since they’re relatively easy to understand and can be used to invest in companies of all sizes and in all industries. You can aim for stocks with high growth potential, or choose ones with a steady quarterly dividend to use as income.
Bonds are a way to loan your money to a business or organization. They come with a lower, but much more predictable rate of return and are mostly considered a “safe” investment. They often serve as a complementary investment to stocks in investor portfolios.
Futures trading is a bit more volatile and exciting, so it isn’t for everybody. Here, you’ll make contracts to buy or sell certain assets for a specified price in the future; it comes with higher risk, but much higher reward potential.
Funds and ETFs. Mutual funds and exchange-traded funds (ETFs) allow you to invest in a pool of different assets, such as 100 different company stocks within a certain industry. This is a good way to reduce your risk and ensure a steadier rate of growth, but depending on the fund, you might also pay a management fee.
Ultimately, the best course of action is to invest in a diversity of different assets, so you can minimize your risk and see a more stable growth curve.
If you aren’t sure how to get started, these are the steps you’ll need to follow:
Set your goals. Everyone will have slightly different investment goals. Some investors seek a high return, favoring high-risk, high-reward approaches, while others would prefer a more casual, predictable mode of value investing. Setting your goals in advance will guide you to the right decisions.
Choose your assets. With your goals in place, you can choose which assets you want to focus on. Bonds and funds tend to be more conservative, while stocks and futures tend to be more aggressive (depending on how you trade them). Pick one or two to specialize in instead of trying to master them all.
Learn what you can. Spend some time on online forums, and talk to other people you know who have years of investing experience. The more you learn, the more intelligently you’ll be able to trade any asset. And if you can, use an online practice platform to commit a few trades with imaginary money, so you can see how it works.
Choose a brokerage platform. There are many online brokerage platforms to choose from, and most of them offer similar functionality for a similar price. However, you may have a personal preference based on a platform’s UI and accessibility, so shop around before making your final decision. Once your account is set up, you’ll be able to add money to it and start making trades.
No matter how much potential your startup has, you’ll be best served investing at least some of your income in other assets. It’s the best strategy for your future and one that you can draw on, regardless of how well your company performs in the future.