Have you got a nice sum of money and are planning to make more money through it?
Do you have this question in mind?
Shall I start a business or invest this money instead?
I understand that this is a difficult choice.
As both come with their own risk and challenges.
But worry not…
I will help you explore the pros and cons of investing versus starting a business
This will help you determine which option might be the best fit for your goals, skills, and resources.
Let’s first understand ‘who is an entrepreneur???’.
Who is an entrepreneur?
So an entrepreneur is a person who starts and manages a business with the goal of making a profit.
What mindset do they have?
A strong sense of creativity, leadership, and resilience
The desire to innovate or solve a problem, and
They are willing to take risks and
Invest their OWN time, money, and resources to turn their ideas into successful businesses.
And while entrepreneurs can come from a wide range of backgrounds and industries, they share a common goal of creating value and making a positive impact through their businesses.
Now moving to investors…
Who is an investor?
An investor is a person who uses various financial instruments or assets to make money.
These instruments/ assets can include
The main goal of any investor is to maximize their return on investment while minimizing risk.
Successful investors often have a strong understanding of financial markets and trends.
They also have the ability to analyze and manage risk effectively.
Overall, investors play an important role in driving economic growth and innovation by providing capital to businesses and other entities.
So both entrepreneurs and investors are looking for financial gains, Right?
But in a different way…
But they have some similarities as well
Let’s find those out…
How are investors and entrepreneurs similar?
They have business sense.
Both investors and entrepreneurs possess business acumen.
- They know how to analyze the markets and trends
- They have a thorough knowledge of their business model, whether investing or starting a business.
- They understand their competitors.
- They clearly know their strengths and weaknesses.
They share common goals.
Entrepreneurs and investors share several common goals, including…
Aim to generate profits from their activities
Seek to grow businesses or investments over time
Prioritize long-term success over short-term gain
They are willing to take risks.
Both entrepreneurs and investors are willing to take risks, but they approach risk differently and for different reasons. (we will discuss this more later in the post)
And they share a willingness to accept uncertainty and the potential for failure in pursuit of their goals.
Reasons to choose entrepreneurship
Som reasons to start a business are…
Allows individuals to pursue their passions and create something meaningful.
Entrepreneurship allows individuals to innovate and create something new and unique.
Starting a business can be a way to challenge the status quo, disrupt established industries, and create new markets.
Provides greater control over their work and their business.
Entrepreneurs are able to make their own decisions, set their own schedules, and build a business that reflects their values and priorities.
Potential to generate higher returns than investing.
While starting a business can be risky and costly, successful businesses can generate significant profits and create long-term wealth for their founders.
Helps in personal growth and development
Starting a business can be a challenging and rewarding experience that can help individuals grow and develop personally and professionally.
To run a business, entrepreneurs have to learn new skills, overcome obstacles, and adapt to changing circumstances.
This can help them become more resilient, creative, and adaptable.
These were my reasons to get into business.
Let’s shed some light on who should choose to invest over starting a business.
In this article, I have put together 10 of my top productivity tips for entrepreneurs like me and you.
They’re on how to plan, protect your time, and achieve more efficiently daily.
And if you prefer videos, I’ll add my ideas on how to get shit done in this video that you can also watch below…
Reasons to choose to invest
Lower-risk way to generate returns
While all investments carry some level of risk, investing in established companies or diversified portfolios can help mitigate risk and provide more stable returns over time.
Investments can be bought or sold quickly and easily.
Investing offers greater liquidity than a business.
This can be important for investors who need to access their funds quickly or who want to take advantage of changing market conditions.
It requires a lower time commitment
Investing can require less time and effort than starting a business.
While investors must still conduct research and monitor their investments, they do not typically have to devote the same level of time and energy as entrepreneurs who are starting and running a business.
You can spread risk over a range of assets
Investing allows individuals to diversify their portfolios and reduce risk.
This can help reduce the impact of market fluctuations or economic downturns on their overall portfolio.
Capital needed to start a business?
All businesses have initial expenses, but the amount of money needed to get a new small business off the ground can vary widely depending on a number of factors.
Your industry, the volume of goods or equipment needed, and the location of your operations will affect the overall cost.
You need to remember that money for a launch is just one of many initial expenses.
Rent, utilities, furniture, inventory, equipment, and marketing must be factored into the total cost of opening a business.
The initial investment needed to launch a new company can vary widely, from just a few thousand dollars for the smallest ventures to well over $100K for the larger ones.
Capital needed to start investing?
The amount of capital needed to start investing can vary widely depending on a variety of factors, including the type of investment, the level of risk involved, and the investor’s investment goals and financial resources.
In general, however, many financial experts recommend that investors have at least a few thousand dollars to start investing.
This can provide enough capital to purchase a diversified portfolio of stocks or mutual funds, which can help reduce risk and provide more stable returns over time.
How Long Until You See Real Profits From A Small Business
For a small business to generate a profit, it may take several months or even years.
It’s common for business owners to feel like a failure if their venture doesn’t turn a profit right away.
However, even large, well-known public corporations often take many years to turn a profit.
It took Federal Express around four years to turn a profit,
Amazon wasn’t profitable until year seven!
As a general rule, it might take many years for a business to start making money.
However, depending on the company’s strategy, it is possible to launch a business and get a return on investment in as little as a few months.
An online business, for instance, is able to turn a large profit in just a few months (if planned well).
How Long Until You See Real Profits From Investing
In general, however, most financial experts recommend that investors take a long-term approach to investing, with a minimum investment horizon of five to ten years.
This allows investments to grow and compound over time and can help mitigate the impact of short-term market fluctuations or economic downturns.
Going The Entrepreneurial Route
If you plan to start a business, here are a few more things that you need to have.
- While not required, having a healthy cash reserve and recurring funding can increase your chances of success.
- Develop a wide range of skills that can be put to use in your entrepreneurial journey.
- Formal education can provide valuable insights and broaden your perspective.
- Diversify your knowledge base by exploring various forms of media and learning about different topics.
- Prioritize expanding your network to gain support, connect with industry professionals, and access resources.
Going The Investor Route
- Keep educating yourself by learning about financial concepts, theories, and market realities through reading and courses.
- Recognize your own strengths and weaknesses as an investor and develop an investment strategy that aligns with your goals.
- Be cautious of unethical financial advisers and be aware of the competition from larger institutions.
- Maintain a long-term focus and stay committed to your investment approach.
Investing Vs. Entrepreneurship – FAQs
What are the investment options for entrepreneurs?
Some investment options for entrepreneurs are
Stocks and bonds
Exchange-traded funds (ETFs)
Art and collectibles
Retirement accounts (e.g., IRA, 401(k))
Savings accounts and CDs
Money market funds etc
Is an investor an entrepreneur?
While there can be some overlap between the two roles, they are generally distinct from one another.
Some entrepreneurs may also be investors, investing in other businesses or asset classes as a way to diversify their holdings or generate additional income.
Similarly, some investors may also be entrepreneurs, starting and running their own businesses while also investing in other ventures.
Why do entrepreneurs invest in the capital?
Entrepreneurs invest in capital to…
Diversify their wealth
To make money
For long-term growth, etc.
Is trading entrepreneurship?
Trading can be considered a form of entrepreneurship, but it depends on the context and how it is approached.
Some traders may approach it as a way to build a long-term business or investment portfolio, while others may focus more on generating short-term profits.
What type of entrepreneur is required to invest all profits back into the enterprise?
Such entrepreneurs are called Non-profit entrepreneurs.
Non-profit entrepreneurs are focused on achieving a social or environmental mission rather than maximizing profits for shareholders.
Who are angel investors?
Angel investors are typically high-net-worth individuals who provide funding for early-stage startups or small businesses (especially when other sources of funding may be unavailable) in exchange for an ownership stake in the company.
Is it better to be an investor or an entrepreneur?
Well, there is no one-size-fits-all answer.
When finding an answer to this question, consider your financial situation, risk tolerance, skills, and long-term goals.
If you have a passion for a specific industry or a problem you want to solve, starting a business might be the right path for you.
If you prefer a more hands-off approach and want to grow your wealth through diversified investments of cash flowing assets, investing could be a better fit.
Remember, investing and entrepreneurship are not mutually exclusive.
You can choose to invest while running a business or become an investor in startups.
The key is to find a balance that aligns with your interests, skills, and financial objectives.
So TAKE ACTION…
Embrace the opportunity,
Stay committed, and
Be prepared to learn and adapt along the way.