When it comes to getting rich, people are always confused about which path to take. Should I invest in real estate, gold, stocks, or start a business? All of these are plausible options, but having only two to decide from can narrow it down.
People can get rich in our economy through tons of different methods. The asset class I see that most people get rich with is real estate, but starting a business, and investing in the stock market are great options also. Rarely will I see someone who works a 9-5 job able to afford a private jet.
Rich people, in general, are financially literate, goal-driven, and have TONS of connections. Having these characteristics are essential if you would like to be economically successful eventually.
People ask me all the time, “John, should I start a business or invest in the stock market? Which would be better for me to invest my time in?” Now, I am not rich in any sense, but I do have a lot of knowledge around rich people. I am a college student who is a little more successful than my peers due to my understanding of trading forex, but I am by no means wealthy.
I usually like to respond to the question by saying that trading stocks and starting a business are both great options for getting rich. It isn’t easy, but once you get the hang of either you can be on the path to financial freedom, but that is not the first goal.
The first goal a person should have is to reach financial security, where they can live passively and break-even. The break-even point was a point I arrived about a year ago, and it is my proudest achievement I have reached yet. I can live my day-day life, and my fixed expenses are all covered.
The break-even point is priority number one. You should figure out now how much you need to make each month to break-even, and work on having it equal to your passive investments. Now, let’s look into two options for this, stocks and starting a business.
Buying stocks is a long-term solution to people looking to build their wealth. Buying a share of stock is just buying ownership share in a business. You should always think of stocks as owning a business, not anything else.
Stocks are high for people who do not have the skillset to own their own business. They allow you to profit off of the work of someone else. The company also benefits from the sale of stock because it helps raise capital to expand. Everyone should be investing in the stock market for long-term growth and a hedge against inflation.
Sure, stocks do crash, and some say the stock market is risky. This, however, is not the full story. Many of the people who think the stock market is risky are not looking at the whole story.
If you are new to trading stocks, it is probably a little risky to start putting thousands of dollars into penny stocks looking to be a day-trader. That is risky. However, if you are investing in the S&P 500 index on a dollar-cost-averaging strategy, you will probably earn 7-10% a year on average.
Why Stocks over Starting a Business?
Now, what advantages do stocks hold over a business? Well, stocks are a highly liquid investment. This means that your money can be turned into cash from stock almost instantly. Companies do not have this advantage. Businesses have to tie up a lot of money into labor, inventory, marketing, rent, etc. Total expenses for a business can add up pretty quickly.
The expenses in the stock market are a little different. On each transaction, the brokerage will most-likely charge a small commission for the execution of your buy/sell order. Also, you have expenses when your stock declines below the price you bought it for, meaning a capital loss.
The critical thing to remember is you only lose money when you sell. Sometimes, it is a smart decision to sell a stock if you believe it will decline further, but a lot of the time it is best to hold and avoid trying to time the market. The ideal time frame to hold a stock is forever.
Businesses also require a lot of work in the start-up phase. Stock investing is different because it only requires knowledge of companies to make effective decisions. The businesses are already created; you are just buying ownership share in them.
Also, stocks require minimal work after you purchase shares. Once you are buying a share, you have three decisions. Buy more, hold, or sell. Starting a business requires a lot more detailed decision-making.
Who Should Start a Business?
Now, I may have just scared a lot of people out of starting their own business, but this was not my intention. I am the proud owner of Zizzlo LLC, and it has become something I thoroughly enjoy working on.
People who should start a business are people that are passionate about something. I am personally excited about digital marketing and found myself a niche in it. I decided it was worth my time to invest in starting my own social media marketing agency, and it has been a blast.
The people who should start businesses need to also be realistic with themselves. Are you willing to take the risk? Are you ready to invest thousands of dollars into something that may never end up being profitable? These are serious questions you must ask yourself.
Investing in stocks is going to be a much easier route to getting rich due to the advantages they hold. If you are serious about long-term growth, start investing in the S&P 500 index. Invest as much money as you possibly can to benefit from the dividends and capital gains.
Do not fear to start a business; embrace it. It is something that you should be passionate about and willing to invest 60+ hours in a week. Be real with yourself, and make sure to brace for the bumpy ride.