It is unwise to have your money sitting in a bank, instead have it work for you. Before investing, make sure you have emergency money because investments lack liquidity as they start. Both investing in stocks and starting a company hold different opportunities and risks to the investor. However, it all comes down to your personality, goals, and time available. Here is a complete guide to help you make a decision between a start-up and stocks. We have also informed you on how to successfully approach each choice so that you can make a more informed decision.
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The Big Question: Should I Invest in Stocks or Start a Company?
Before making this complex final decision, there are a few considerations we have to think about. Here is a list of factors to consider before making the final decision.
Analyze the risks involved
It is important to consider the risks involved because you can lose your savings. However, both investing in stocks and starting a company come with significant risks. There are many risks involved in running a business, it might not take off, go bankrupt, earn slowly or not earn well enough. It is heartbreaking to run a business where you cannot withdraw money because the business is not liquid enough. Other risks involved with starting a company are coming up with the capital and how to deal with the overhead cost that comes with business legislation. To incorporate your business you need government fees, licenses; not to mention equipment and operational expenses. On the other hand, your business could become very successful.
The other option is investing in stocks. This move might scare many because of lack of knowledge, the existence of scams, fear of losing all their investment, and poor money management skills. The stock market attracts many investors but many of them are unsuccessful. The reason why many stock investors fail is by using trial and error method.
Consider the time available
Start-ups require so much dedication, patience, and sacrifice. Business owners have to work long hours compared to their employed counterparts especially when they are getting the business off the ground.
Alternatively, investing in stocks can give you the flexibility you need. You can decide to invest directly and manage your stocks personally, or you can choose to have fund managers make the financial decisions for you and wait for the return, of course at a fee.
Gauge your knowledge and skill level
You first consider your financial capability, time available then analyze whether you have the capability to start the investment. By mapping out your financial goal and knowing what you want to achieve, you can tailor your course of action to cater to these needs. The best way to approach an investment is dutifully doing your research so as to reduce and manage risks.
How to be successful in stocks
Come up with an investing strategy
An investment strategy is a set of rules or conditions that dictate when you should invest. Setting out an investing strategy prevents you from making impulsive decisions that could lead to loss. There are primarily two types of strategies; fundamental analysis and technical analysis.
Fundamental analysts base their decisions on the stock’s intrinsic value. Fundamental analysis is based on the fact that a stock’s current price may not reflect its intrinsic value, and within time, the stock’s prices will correct themselves to reflect the stock’s true value. Therefore, investors buy undervalued stocks and sell them later when their value increases. A stock’s value is determined by metrics such as debt-to-equality ratios, price-to-sales ratios, price-to-earnings ratios, and much more. Fundamental analysis is ideal for long-term investments.
Technical analysis is trying to depict a stock’s future prices by looking at patterns and trends. Tools such as support and resistance, moving averages, and momentum indicators are used for technical analysis. Technical analysis runs on the basis of price movement have a tendency to repeat themselves. Technical analysis is ideal for day and swing traders.
Choose an investment style
When it comes to stocks, it is important to decide whether to invest actively or passively. Having professional money managers can significantly reduce your investing responsibility and give high returns. It is also important to lay out how much money you are willing to invest.
Use index fund investing
Index funds follow a benchmark index, an example is the S&P 500 and the Nasdaq 100. When you invest in index funds, the money is invested in all the companies making up the index, therefore giving you a diverse portfolio. Index funds usually come at low prices and minimal fees. Index funds also have higher returns compared to actively managed mutual funds.
Buy and sell individual stocks
Brokers have made it possible to buy stocks commission-free, therefore, it is possible to buy and sell individual stocks for better chances of higher returns. You have more control over your portfolio when you buy individual stocks. In addition, individual stocks are highly volatile.
Buy and hold quality stocks and EFTs
Using your investing strategy, find stocks and EFTs that fit your purchasing criteria. It is advisable to make long-term investments rather than constantly buying and selling stocks. Besides, long-term investments will prevent you from making quick decisions. Taxes also tend to be lower in long-term investments
How to start a successful company
Make sure that entrepreneurship is what you want
Starting a business is filled with heartbreaks and disappointments and most investors are not ready for that kind of pressure. Therefore to determine whether entrepreneurship is the right fit for you, the answers to these questions will help you. First, ask yourself why you want to start the business, what are your skills? What is your passion? How much capital do you have? How much time do you have? This self-assessment will help you eliminate businesses that don’t fit into your lifestyle.
Refine your idea
After completing step 1, you have a rough idea of what you want to be doing. In this stage, create a lean plan to help ease the process. Also, this is where you come up with a business plan, mission, and value of your business.
Conduct market research
Researching about your competitors is very important as it determines the difficulty or ease of getting into a certain market. To research your competitors you can conduct google searches, read books, speak to people operating in the same industry, read news, and business magazines, and even attend a class.
Another vital point is evaluating your target audience; it is better to effectively market to a select group rather than generalize marketing and get no results.
Legalize your business
The first step to making your dream come true is actually getting a license. You can choose whether you want a sole proprietorship, partnership, corporation, or limited liability company (LLC). you can make this decision by getting to know the pros and cons of each business formation. The last step would be to pick a location, fund your business, and establish it!
Pros and cons of investing in stocks
- Growth depends on the economy
- Easy to buy and sell
- Earn passive income
- You stay ahead of inflation
- Great capital gains
- Lots of choices
- You could lose it all
- Much research needed
- Takes a toll on mental health
- Costly to transact
Pros and cons of investing business
- Get to be your own boss
- Make all the decisions
- You can achieve a passive income
- Security because no one can fire you
- Direct contact with customers
- Big financial investment required
- Long hours
Whatever you choose Stock or starting a company, be sure to do research and follow the guidelines that I outline on this article. All the best.